Health Reform Hasn’t Started

14 February 2011

The Australian

By Rohan Mead
Chairman, former BCA Healthy Australia Task Force

The limited fundamental healthcare outcomes from yesterday’s COAG meeting highlight the continuing failure to make the necessary connections between health reform, productivity and workforce participation.

Research conducted by the Business Council of Australia underlines that health is critical to the prosperity of individuals and for the economy.

Poor health and disability prevent both sufferers and carers from participating fully in education and the workforce. It drives earlier retirements and leads to more absenteeism and lower productivity. We are living longer, but with more illness.

The Australian Institute of Health and Welfare estimates that chronic disease costs about $30 billion a year (3 per cent of GDP) in direct costs and lost productivity. Yet up to one third of this is preventable. Insufficient focus on prevention, poor health and lack of appropriate support for disability represent major lost opportunities to add to labour resources and productivity. And attending to this deficiency should improve the quality of life for many Australians.

But another reason why health should be considered within the context of the productivity and participation agendas is that, at 9 per cent of GDP, the healthcare sector is too large to ignore. In 2008–09, national spending on health was almost $113 billion, with $78bn from federal, state and territory governments and $34bn from non-government sources.

Healthcare spending is growing faster than both inflation and GDP. Between 2007–8 and 2008–9 just the growth proportion of healthcare spending matched the total spending on infrastructure in the 2009 budget and, in dollar terms, the sector is more than twice as large as the nation’s annual iron ore exports.

The sector is also a large employer and, together with the social assistance sector, it employs some 1.3 million people, more than the retail and construction sectors. It accounts for significant numbers of our immigrants, including 19 per cent of temporary skilled visa holders. An increasingly high proportion of the jobs being created are in the health sector, with obvious implications for the balance of wealth creation in the economy.

In the national quest for productivity and ensuring efficient allocation of resources within our increasingly capacity-challenged economy, the health sector’s efficiency and effectiveness matters. It is difficult to understand therefore why the debates of economic and health reform remain separate.

Separation sees the health reform debate mired in a cost discussion, focused on who will pay and how to provide the resources for ever-burgeoning demand, rather than focusing on whether or not the sector is effective and providing value for money.

As the Treasury periodically reminds us, without change, our governments may not be able to afford the fast-growing costs of healthcare. Existing financial constraints are already limiting access for some groups within our society and the quality of health is affected by where you live. This not only undermines our notions of universality, but reinforces patterns of disadvantage.

Yet amid the clamour for more resources, experts estimate that up to 20 per cent of resources used in the sector are wasted, either through treatment in inappropriate settings, duplication, errors or administrative inefficiency.

This is reinforced by research showing relatively low rates of productivity improvement and claims of innovation being stifled by bureaucratic processes. Poor morale ensures that too many highly trained health professionals, such as nurses, leave.

Any sensible reform must address these inefficiencies.

The increased demand arising from the ageing of the population and the related increase in chronic disease will force us to re-think health and healthcare delivery. Advances in our understanding of the causes and courses of common diseases, associated medical technologies, together with digitisation and advances in communication technologies, could enable new approaches, provided we are open to thinking differently about how we organise and receive healthcare services.

History shows the importance of regulatory environments that support innovation and provide incentives to improve outcomes and sector performance. If COAG is to pursue effective health reform, it must reconfigure the governance and the incentives of the sector to improve its capacity to adapt.

Bureaucracy, heavy-handed regulation and wrongly structured incentives limit responsiveness and adaptation, creating an environment which focuses on inputs, activity levels and resources, rather than on results for patients. Only by focusing on outcomes will we achieve patient-centred service design, more evenly distributed services, higher overall quality and greater value for money.

What we have learned from reforming other sectors is that two elements can be critical to triggering systemic and self-sustaining change.

The first is establishing the right governance mechanisms; independent bodies charged with market oversight and improving performance. Such bodies need to stand apart from governments with statutory protections, because governments have conflicts in funding and providing health services while also seeking to report on the sector’s performance.

The second is enhancing the quality of information on the sector to underpin effective decision-making by policymakers, funders and citizens.

These two elements can generate adaptation in ways that current regulatory structures can’t. By considering health reforms separately from productivity reforms, we miss the lessons.

The Business Council of Australia believes that without urgent action to transform the way we deliver healthcare services, our economic objectives are jeopardised and scarce resources are wasted.

We welcome the PM’s recent emphasis on system efficiency and patient outcomes, but encourage COAG to look more broadly than funding and administrative changes to ensure that real improvements to health and health care are achieved. Otherwise, the individual and community wellbeing of Australians is diminished.



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