A healthier structural deficit: taking the temperature on healthcare

Yesterday we released the ‘Solving the Structural Deficit’ report which is our contribution to the public conversation about creating a strong and sustainable Australia. It’s not just for now, but also about tomorrow and our responsibility to leave Australia in a stronger structural position than it is today.

Our recommendations urge change in four broad areas: health and aged care, welfare, superannuation and age pension, and education. Our estimates are that these would improve the budget position on a long term basis by around $12 billion in today’s terms annually – that is hardly insignificant.

By international standards, Australia has a very good health care system. The Australian community has come to deeply value the universal coverage of our health care, achieved by a mix of public and private components. That being said, we spend a lot of money on health, with over $150 billion, or 10 percent of our country’s GDP annually.

The Productivity Commission has indicated that in the decade to 2012-13, health care costs grew an average of 4.2 percent in real terms. This trend is likely to continue, with increases in chronic disease, an ageing population and technology advances combined with a fee for service model.

We need to make those dollars work smarter and more productively.

With costs rising, fragmentation in our healthcare system, and growing debate over areas such as over-servicing and end-of-life care, a full inquiry into the health system, including related expenditures, should be undertaken once a decade.

Greater competition needs to be introduced into the frameworks that underpin the way we pay for, provide and enable health services. Competition has potential to play a transformative role in improving quality, efficiency and access, but it needs to be introduced and managed in a coherent way. Encouraging health service providers to develop new capabilities (for example as a market manager rather than service provider) promotes innovation and builds understanding of non-government comparators.

The health system should be more ‘client-focused’. While this may sound like elementary thinking, we believe that considerably more can be done. Mindsets still need to change and providers need to move to a position where individuals are genuine partners in the management of their health and patient experience is valued as a foundational element of service design and delivery. There is considerable evidence to suggest that approaches such as this improve not only patient experience, but also health outcomes and organisational efficiency.

Another saving, without compromise on quality is using cheaper generic medicines in hospitals and across the health system with more competitive pricing through regulation by the Pharmaceutical Benefits Scheme (PBS)  This is already happening and it is successful. A switching medicines program has been adopted by Queensland Health and has helped to achieve significant savings for the State Government and, if implemented nationally, in combination with more efficient procurement, we estimate would save $1.3 billion per annum.

Our recommendations on health include:

  • Change the Medical Benefits Schedule for the primary care sector to provide for integrated care for chronic diseases
  • Reduce unwarranted variation in rates for common procedures through reference to international standards and regional variations based on hospital admissions and complications
  • Make the use of prescription medicines more efficient by driving evidence-based use to reduce variance, which will enable negotiation of cheaper prices and promote greater use of generics and cheaper but equally effective alternatives
  • Bundle procurement of services such as medical imaging, radiation oncology, and dialysis to provide provider diversity and, through additional competition, reduce costs
  • Strengthen the implementation of Advanced Care Planning to improve end-of-life experience and reduction of needless treatment
  • Cut private health insurance rebate by 6 percent initially, then to 12 percent.

The way forward for our healthcare system is by making sensible and rational changes to create better health for Australians and in turn, for Australia.

Please read the full report, Solving the structural deficit, which includes the full breakdown of healthcare reforms and savings.


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