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Looking Foward
Medicare: options for the next 25 years
Richard B Scotton.
MJA 2000; 173: 41-43
The best long-term option for healthcare in Australia would be a
system of managed competition
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While it is difficult to predict the evolution of healthcare over as
long a period as 25 years, we can be reasonably sure that some of the
trends of the past 25 years will continue, and possibly accelerate.
Thus, medical knowledge and the technology and techniques for its
application will continue to advance and, on balance, this will
increase costs.
Two consequences will be that:
- equitable access, regardless of capacity to pay (ie, universality) will
continue to be a basic component of living standards in an
economically developed society, especially in the context of
widening income disparities; and
- efficiency -- doing what is done at least cost (technical
efficiency) and using scarce resources to maximise health outcomes
(an aspect of allocative efficiency) -- will become an increasingly
important component of health policy.
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Equity and efficiency | |
Despite the theoretical trade-off between equity and efficiency,
which applies in certain circumstances, these two objectives are not
inconsistent. In fact, a universal national health insurance
program gives the government a level of capacity to constrain total
health expenditures, which is a necessary (but not sufficient)
component of a strategy to increase efficiency. On the other hand, I am
convinced that advocacy of improving efficiency by abandoning
universal coverage is mistaken, and/or is the product of ideology or
self-interest. Consequently, health policy options need to have as
their goal the maximisation of efficiency within the framework of the
overall equity goal.
"Efficiency" in the economic sense means not only producing at
minimum cost, but also managing the system so that it produces, at any
given level of cost, that mix of outputs which contributes most to
social goals and improved health outcomes. This will inevitably
involve changes in industry structure. More complex technology and
wider appreciation of the intricate interrelationships between
epidemiological and social factors in health will call for an
ever-increasing scale and more sophisticated interconnections
between various parts of the healthcare sector. These factors impose
increasing stresses on present structures for financing and
delivering health services in all developed countries.
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The Australian scene | |
In Australia, multiple program and funding streams, overlapping
jurisdictions in the federal system of government and poorly
articulated relationships between public and private sectors add
layers of complexity to the problem. It is a tribute to the funders,
managers and providers of health services that our system works as
well as it does. On the whole, it provides universal and equitable
access to most clinically effective health services, at an overall
cost which compares well with those in most comparable countries, and
is lower than some. The average citizen requiring health services
would be as well treated in the Australian system as anywhere in the
world.
In other words, there is no "crisis" which constitutes a case for
radical reform in the short term, but rather gradually increasing
stresses -- organisational, financial and cultural -- flowing from
changing patterns of morbidity and medical care. These stresses are
largely or wholly unrelated to universality of access, to the present
extent of public/private funding and service provision, or to the
overall responsibility of public authorities for regulation of the
system.
A rational response to the current situation seems to justify a
twofold strategy: first, implement some relatively
straightforward measures to deal with specific difficulties, and
second, work toward changes in management and funding arrangements
to facilitate the evolution of delivery systems to achieve better
health and related social outcomes from the available resources (the
amount the community is prepared to allocate to these ends).
Many of the options floated in recent years do not meet this
specification. To my mind there are only two sensible directions for
future reform:
- Limited reforms designed to ameliorate
some systemic problem areas, while maintaining Medicare in more or
less its present form; and
- More substantial reconfiguration of the legal and financial
framework of the universal program in the direction of managed
competition as a means of promoting increased efficiency of
purchasing and service delivery.
These options are not mutually exclusive. Rather, the first might
stand alone, or could constitute a preliminary stage towards
implementing the second. In fact, if one intended to move to managed
care, solving some of the systemic problem areas would be a logical
first step.
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The short term -- limited reforms | |
There are several useful reforms which could be undertaken without
amending the basic structure of Medicare. The most obvious and
important deficiency of the present system relates to access to free
hospital treatment, which is currently subject to widespread and
lengthy waiting periods. This is largely due to the unsatisfactory
nature of the financial arrangements, in which Commonwealth
Government funding has never been tied to performance. The original
Medibank cost-sharing arrangements allowed only limited control of
total costs, and the subsequent method of block grants to the States,
which have been in operation since 1981, have enabled some State
governments to reduce their level of hospital funding to the point at
which access to services has been significantly affected.
This situation could be justified when there was no workable measure
of hospital output, but since the development of casemix funding and
the Australian national diagnosis-related groups (AN-DRGs) in the
early 1990s this excuse no longer holds. The performance of the public
hospital system, and the incentives for State governments to treat
patients, could be greatly enhanced by replacing most or all
Commonwealth Medicare grants to the States by DRG-adjusted case
payments direct to hospitals. These payments could be calculated as a
percentage of the cost per DRG episode, up to a volume of services
determined by the Commonwealth Government.
This payment system would have many benefits beyond the demonstrated
increase in efficiency within hospitals. In particular, it would
provide a basis for including hospital costs in the pooling of funds
for coordinated care arrangements. It would also inhibit (but not
eliminate) cost-shifting, and would facilitate detection of
abuses, such as the partial diversion of public inpatients to private
status. In the longer term, the substitution of case payments for
Commonwealth grants would extend the options for more substantial
structural reform of the universal program. The implementation of
such payments lies well within the readily available powers of the
Commonwealth Government.
Other serious deficiencies of the present arrangements have been
graphically described by a former State health
administrator.1 They include the
fragmentation of programs, poor articulation between public and
private sector arrangements, and lack of comprehensive data on
service utilisation at the individual patient level. The
consequences include incapacity to control overservicing, receipt
of benefits by ineligible persons, and barriers to developing
coordinated care. The causes are partly the jurisdictional overlaps
between Commonwealth and States, partly restrictions imposed by
privacy legislation and its interpretation, and partly a general
paralysis in policy development.
A determined Commonwealth Government might be able to achieve a good
deal in all the above respects within the framework of a totally public
program, but there would be widespread reservation about the extent
to which the Australian people would wish to concede to a government
authority, however benign, the implied degree of control over their
service use. The British National Health Service, whatever its
virtues, is not a model for Australia in the 21st century. Perhaps,
more importantly, a monolithic public program would lack incentives
to increased allocative efficiency.
In my view, increasing the efficiency with which scarce resources are
used to produce health services is the most important determinant of
our capacity to provide universal access to state-of-the-art
healthcare in the long term. The standard means of achieving this is to
increase the exposure of the participants to market incentives. For
these reasons, I have become convinced that the best long-term option
for Australia would be a system of managed competition.
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The longer term -- managed competition? | |
In a managed competition system, private organisations would be free
to compete with public provider(s) in the provision of services
covered by public benefit programs such as Medicare, free public
hospital care, pharmaceutical benefits, nursing home benefits and
so on. The idea is a simple one. However, the formulation of a model in
which a private market in healthcare would maximise efficiency in
producing good health outcomes, free of risk shifting and other types
of gaming, has been a more complex exercise.
It has been said that there are lots of simple answers to complex
questions, and that they are all wrong. All health systems are
complex, and the Australian system, in several respects, is more
complex than most. Any realistic solution is bound also to be complex,
and, in the present context, it is possible to offer only the baldest
outline of the managed competition model which I have developed
progressively over the past decade (Box).2,3
In conclusion, the point has to be made that the rise in real
costs of state-of-the-art healthcare will make it increasingly
necessary to limit total expenditures on health. Raising the
efficiency of resources used to produce services is the only way to
minimise the consequent stresses. The managed competition model
offers a framework within which higher efficiency can be pursued
without sacrificing the principle of universal access, which
remains as much as ever a core component of a humane society.
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References |
- Paterson J. National healthcare reform: the last picture show.
Melbourne: Department of Human Services (Victoria), 1996.
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Scotton R. Managed competition. In: Mooney G, Scotton R, editors.
Economics and Australian health policy. Sydney: Allen & Unwin, 1998:
214-231.
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Scotton R. Managed competition: the policy context. Aust
Health Rev 1999; 22(9): 103-121.
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Authors' details | |
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Richard Scotton is a health economist. He and John Deeble,
as Research Fellows at the Institute of Applied Economic Research,
University of Melbourne, between 1965 and 1970, formulated the
program that became Medibank. From 1972 to 1979, Scotton was
centrally involved in implementing Medibank, as Special Adviser to
Minister for Social Security Bill Hayden and first Chairman of the
Health Insurance Commission. Later appointments were Director
(Planning) and Commissioner, Health Commission of Victoria; member
of the Medicare Planning Committee appointed by Minister for Health
Neal Blewett; General Manager (Policy and Planning), Victorian
Accident Compensation Commission; and board member, Australian
Institute of Health.
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Health Economics Unit, Centre for Health Program Evaluation, Monash
University, Melbourne, VIC.
Richard B Scotton, AO, BA, BEc, PhD, Honorary Professorial Fellow
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©MJA 2000
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Essential features of a managed competition model2,3
- All current publicly supported programs - Medicare, free public hospital care, pharmaceutical/nursing home benefits, etc - to be rolled into one, so that all services and benefits for each individual would be paid from the same budget, thus eliminating much cost shifting and encouraging efficient service use.
- Defined roles for Commonwealth and State governments: the Commonwealth responsibilities limited to financing and the legislative/regulatory framework, and the States to public service provision and overseeing public
budget holders.
- Organisation and management of health service delivery deputed to organisations entitled budget holders, which would be paid (by the Commonwealth Government) a risk-rated capitation for each person enrolled with them, and which would be required to meet all program costs incurred by their enrollees. Risk rating at the individual level is essential to minimise "cream skimming" and other forms of risk selection by budget holders.
- All persons not opting to be covered by a private budget holder would be covered automatically by a regional budget holder or, as a last resort, by the Health Insurance Commission. Private budget holders would
be required to cover all services included in the public program, plus a minimum private hospital entitlement. They would be free to provide wider entitlements to private care, at unsubsidised additional cost.
- All providers (public and private) would depend for
their incomes on payments from budget holders, under contracts or other arrangements (ie, there would be no government benefits or subsidies payable directly to service providers). It could be expected that basic tables (ie, those offering a minimum package of services) would involve some exposure to managed care (ie, medically directed restriction of choice) as incentives to efficient resource use become effective. Another outcome would be that services would be increasingly geared to the needs of people with greater health problems, since
they would carry larger capitations. Over time, managed competition could be expected to result in profound structural changes in service provision.
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