3339 Inaugural Health Forum Your Medicare — 30

3339 Inaugural Health Forum “Your Medicare - 30 Years On: Still good for you? ” The Whitlam Institute, within the University of Western Sydney Tuesday 15 July 2003 Social Values, Efficiency and Medicare Professor Jeff Richardson Director, Health Economics Unit CHPE, Monash University HEU Health Economics Unit

3339 Social Values, Efficiency and Medicare n n Social Values, Efficiency and System Reform How Healthy is Medicare (a) Large Issues (b) Small Issues and Non-Problems n n Options for Reform Conclusion HEU Health Economics Unit

Objectives What do we want? HEU Health Economics Unit

3339 Where Do I Go From Here? “Would you tell me, please, which way I should go from here? ” Alice asked the Cheshire Cat. “That depends a good deal on where you want to get to, ” said the Cat. “I don’t much care where…” said Alice. “Then it doesn’t matter which way you go”, said the Cat. “…so long as I get somewhere”, Alice added as an explanation. “Oh, you’re sure to do that, ” said the Cat, “if you only walk long enough”. HEU Health Economics Unit

Key Question for Australia: Did Alice listen to the Cheshire Cat or the Mad Hatter? HEU Health Economics Unit

3339 Social Values n n Liberalism/Libertarianism n maximise choice + safety net Communitarianism/Solidarity n Canadian Medicare is ‘ far more than just an administrative mechanism for paying medical bills, it is widely regarded as an important symbol of community, a concrete representation of mutual support and concern … it expresses a fundamental equality of Canadian citizens in the face of death and disease … As the Premier of Ottawa pointed out … “there is no social program that we have that more defines Canadianism”. ’ Evans, R and Law, M. ‘The Canadian Healthcare System. Where are we and how did we get here’, in Dunlop and Martens, An International Assessment of Healthcare Financing, H E U Economic Development Institute of the World Bank, Seminar Series 1995. Health Economics Unit

3339 ‘Solidarity’/language/concepts and the Dialogue of the Deaf Theme: An emaciated vocabulary inhibits the concepts needed for debate HEU Health Economics Unit

3339 Orwell 1984, The principles of ‘Newspeak’ (How to inhibit subversive thoughts) “The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees… but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all… a heretical thought… should be literally unthinkable, at least so far as thought is dependent on words… This was done… chiefly by eliminating undesirable words… Countless other words such as honour, justice, morality, internationalism, democracy, science and religion had simply ceased to exist. A few blanket words covered them, and in covering them, abolished them. What was required in a Party member was an outlook similar to that of the ancient Hebrew who knew, without knowing much else, that all nations other than his own worshipped ‘false gods’. He did not need to know that these gods were called Baal, Osiris, Moloch, Ashtaroth and the like: probably the less he knew about them the better for his orthodoxy. HHe knew Jehovah and the commandments of Jehovah: he knew, EU Health Economics Unit therefore, that all gods with other names or other attributes were

3339 Social Values and Efficiency Achieving Wrong Objectives is not Efficient HEU Health Economics Unit

3339 Social Values and Efficiency n Private sector diversity + low cost efficient if objectives is solidarity * efficiency may involve equal access and health outcome n Universal uniformity and low cost efficient if objective is ‘choice’ (of a particular type) n U H EEfficiency = Achieving objectives Health Economics Unit

3339 Economics, Options and Social Values Objectives/Social Values Option which maximises likelihood of success Equalise – access, outcome Public Maximise: choice Pure private scheme Choice; diversity = safety net HEU Health Economics Unit Mixed public-private

How Efficient is Medicare? Outcomes Small issues Larger problems HEU Health Economics Unit

3339 Outcomes n n n DALES … Cost … rank 2 exactly where expected with respect to GDP/capita Does this imply we are performing well? HEU Health Economics Unit

3339 10, 000 lemmings can’t be wrong… HEU Health Economics Unit

Short Run Problem 1 Private Health Insurance HEU Health Economics Unit

3339 PHI: The Myth n n n PHI use of Private hospitals pressure on public hospital beds Public Queues Policy objective: Reverse process pressure off public hospitals Plausible, logical, wrong HEU Health Economics Unit

3339 Private Hospital Services Separations % of Total Bed Days 1985/86 25. 9 21. 9 1989/90 26. 7 22. 0 1995/96 30. 5 26. 3 1999/00 34. 3 28. 1 Increase 32. 4% 28. 3% Source: Butler 1999, Bloom 2002 HEU Health Economics Unit

3339 PHI Policies July 1997 Private Health Insurance Incentives Scheme (PHIIS) Tax subsidy … low income groups Tax penalties … high income groups without PHI single >50, 000 family > 100, 000 Dec 1998 ‘ 30% rebate’ PHIIS replaced flat 30% of PHI Sept 1999 (effective from July 2000) Lifetime Community Rating age 30 … no PHI life time premium HEU Health Economics Unit

3339 Percent population covered by a hospital insurance table, Australia June 1984 to June 2001 HEU Health Economics Unit Source: Butler 2001, ‘Policy change and private health insurance’ in Mooney & Plant (eds) Dare to Dream: The Future of Australian Health Care’, p 60.

3339 The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest HEU Health Economics Unit

3339 The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50, 000 single, $100, 000 family … price of PHI < 0 Analogy: to support auto industry surcharge on wealthy families failing to buy Australian car HEU Health Economics Unit

3339 The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50, 000 single, $100, 000 family … price of PHI < 0 (ii) If use PHI, out of pocket cost HEU Health Economics Unit

3339 The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50, 000 single, $100, 000 family … price of PHI < 0 (ii) If use PHI, out of pocket cost (iii) To sell insurance, increase the risk HEU Health Economics Unit

3339 Sensible Options Private Health Insurance n n Enlarge scope to comprehensive health cover n Finance/management st regulation, (ie Managed Competition) efficiency (hopefully) Allow erosion PHI ‘safety valve’ inefficiency unimportant HEU Health Economics Unit

Short Run Problem 2 Pharmaceuticals HEU Health Economics Unit

3339 Pharmaceuticals and Other Medical Non-Durables % of total expenditure on health Australia Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy 1960 22. 3 24. 3 12. 9 17. 1 22. 1 26. 8 16. 7 19. 8 1998 11. 4 16. 1 15. 0 25. 5 9. 2 14. 6 22. 0 12. 7 14. 7 26. 6 15. 5 9. 9 21. 9 Australia’s rank HEU Health Economics Unit Source: OECD, 2002 1960 Japan Korea Luxembourg Netherlands New Zealand Norway Portugal Spain Sweden Switzerland United Kingdom United States 7 out of 25 16. 6 1998 16. 8 13. 8 12. 3 10. 8 14. 4 9. 1 25. 8 20. 5 12. 8 7. 6 16. 3 10. 1

3339 Pharmaceuticals: Long run solution n n Must be part of a coherent health scheme Cost of pharmaceuticals alone is irrelevant if $ (Pharm) $ (hosp) then cost of pharmaceuticals desirable HEU Health Economics Unit

3339 Long Run Non-Problem 1 n Cost n n ‘Nation’ can’t afford to pay False n Expenditure choice n If U (health) > U (elsewhere) then health Caveat n HEU Health Economics Unit Expenditure must be efficient

3339 Long Run Non-Problem 2 n n ‘Government can’t afford to pay’ False: taxes/levy can True iff: taxes – fixed Collective or individual financing Efficiency issue = Issue of choice HEU Health Economics Unit

3339 Long Run Non-Problem 3 Projected Health Expenditure as a Percentage of GDP based on GDP growth rates of 2. 1%, 3. 6% Health Expenditure as % GDP 10% 9% 8% 7% 6% 2. 1% p. a. 5% 3. 1% p. a. 4% 3. 6% p. a. 3% 2% 1% 0% HEU Health Economics Unit 1995 2006 2021 2036 2051

How Healthy is Medicare Large Problems HEU Health Economics Unit

Problem 1 Quality of Care (Efficiency) HEU Health Economics Unit

3339 Adverse Events n Quality in Australian Hospitals Study n n HEU Health Economics Unit AE = 16. 6% (Wilson et al 1995) Revision 10. 6% (Thomas et al 2000)

Problem 2 Cost Effectiveness HEU Health Economics Unit

3339 Cost-effectiveness of selected health programs Australia 1992 to 1998 Service/intervention drugs submitted for listing on the PBS approved for funding at nominated price 1991 - 96 Cost per life year 7 drugs 5 drugs 6 drugs 4 drugs $5 - $10, 000 $10 - $20, 000 $20 - $40, 000 $40 - $70, 000 primary prevention of NIDDM: behavioural programs cost saving $2, 400/LY primary prevention of NIDDM: surgery for serious obesity $4, 600 - $12, 300 comprehensive diabetes care < $1, 000/life year saved Segal L ‘The Role of Economics and Health Economics in Environment Research’, Workshop on Environmental Health, Department Health and Aged Care, Melbourne April, 2000: Derived from: Segal L 2000, Allocative efficiency in health. Development of a model for priority setting and application to NIDDM Doctoral , Thesis, Monash University. George B, Harris A, Mitchell A 1999, `Cost-effectiveness Analysis and the consistency of decision making: evidence from pharmaceutical reimbursement in Australia, 1991 to 1996, ’ CHPE Working Paper 89 HEU, Monash University. Notes: HEU Health Economics Unit * maximum $68, 913 in $1995 -6 # LY = life year gain, QALY = quality adjusted life year gain, 1 QALY is equivalent to one life year in full health.

Problem 3 Variations in Treatments HEU Health Economics Unit

3339 Standardised Rate Ratios for Various Operations in the Statistical Local Areas in Victoria, Compared to the Ratios for All Victoria Procedure Coronary Angiography Cor Revasc Procedure Cataract Extraction Tonsils & Adenoids Myringotomy Carpal Tunnel Release Vertabral discetomy Decomp laminectomy Total Hip Replacement Hysterectomy Prostatectomy Colonoscopy Cholecystectomy Explorat Laparotomy Appendectomy Variance Ex(Variance) 13. 4 5. 4 15. 4 7. 5 11. 7 8. 4 2. 1 1. 9 3. 8 6. 4 3. 9 45. 3 1. 7 5. 9 0 HEU Health Economics Unit 50 100 150 200 250 300 350 400

3339 Ratio of likelihood of public patients to private patients in private and public hospitals, 1995/97 Private Hospital Patients : Public Patients to Angiography Revascularisation Private Patients in Public Hospitals : Public Patients to Angiography Revascularisation Within 14 days Men Women 2. 20 2. 27 3. 43 3. 86 1. 77 1. 53 1. 81 2. 24 2. 28 3. 43 3. 34 1. 53 1. 49 1. 23 1. 32 Within 12 months Men 2. 16 Women 2. 22 2. 89 2. 84 1. 42 1. 48 0. 97 1. 10 Within 3 months Men Women HEU Health Economics Unit Source: Victorian Inpatient Minimum Dataset

Problem 4 Silo based system HEU Health Economics Unit

3339 Overarching Problems with Funding n Dollars follow providers, not patients fragmentation geographic/disease based Allocative inefficiency n Inequity n n Magnitude/consequences of the problem n HEU Health Economics Unit Unknown / ignored

Case Studies: What we would expect to see in a Health System HEU Health Economics Unit

3339 Vignette 1 ‘Ethix, a Seattle based Managed Care organisation was asked to establish a health plan for a nearby country town. The scheme included, inter alia, detailed utilisation review. Shortly after commencement this detected an unexpectedly high level of spinal injury in youths. Investigation established that the reason for this was a tree stump which had been left in the middle of a popular toboggan run. Young people were crashing into this and injuring their backs. The health plan paid for a bulldozer to remove the tree stump. ’ (Summary from a public address, Richardson et al 1999) HEU Health Economics Unit

3339 Key Element n Flexibility of funds n n n ‘single payer’ No cost shifting Information systems n HEU Health Economics Unit Health Service Review/Research

3339 Vignette 2 ‘A woman with dizziness is concerned about her health. She rings the state call centre which advises her to visit her local health team. She is able to see the GP quickly who asks her a series of questions from the relevant research based protocol and undertakes a clinical examination. The GP emails the results to a local specialist… who orders some further investigations consistent with the state research based care path… Advice of (an) impending admission is automatically conveyed electronically to the GP and the social worker in the referring health team. The social worker contacts the hospital to discuss discharge planning… The specialist… suggest a number of sources for information about the patient’s condition. The patient contacts the call centre for further information… The case is randomly selected by the hospital audit committee for quality review. The committee suggests some slight changes to the state-wide protocol committee. ’ HEU Health Economics Unit (Duckett 2000 p 241)

3339 Key Elements n n n Integrated provider system EBM Review/Adaptation Information System No financial barrier HEU Health Economics Unit

3339 QA Procedures After Quality of Australian Hospital Study n Expect: Permanent, ongoing random check of hospitals n n n Analogy 1: Checking hygiene in restaurants Analogy 2: Airline/safety Observe HEU Health Economics Unit ? ? ?

3339 Hospital Records n Expect: n Observe: HEU Health Economics Unit All hospitals have LAN and mandatory recording of treatment Erratic coverage

3339 Out of Hospital Data n n Expect Data : Compulsory electronic linking (would a travel agent survive without record linkage? ) Observe : Very slow uptake of EDP HEU Health Economics Unit

3339 Type/Mix of Services n n Expect : Evidence Based Medicine Observe: ‘Clinical freedom’ (license) Expected Response: Maximum priority to promote EBM Observe: Unhurried projects HEU Health Economics Unit

3339 Organisation n Expect: Kaiser HMO-type clinics n Observe: 19 th Century ‘corner store’ organisation HEU Health Economics Unit

3339 Response to Problems (Generally) n Queuing Expect: n Actual: n n Small Area Variation n Expect: n n taskforce pinpointing cause of problem political accusations/assertions Actual: Follow-up; - how general - impact on health Silence Heart Attack Study n Expect: n Actual: HEU Health Economics Unit Follow-up; - how general - impact on health Silence

3339 Use of Data Expect n n n Ongoing analysis to identify anomalies/problems (eg SAV; Erratic severe patterns) Record linkage to track success/unsuccessful National Institute for Data Analysis Observe n Relative inaccessibility HEU Health Economics Unit

3339 Health Services Research n Expect large scale funding n n n US: NIH $US 1. 5 billion $Aus 2. 5 billion Australia equivalent $ 100 million Observe n HEU Health Economics Unit Erratic small scale, unfocused grants

3339 Quality of Information/Debate n Expect: n n Readily available, information on system performance Observe: n Ongoing repetition of same wrong assertions with respect to Private Health Insurance (20 years) n Co-Payments (35 years) n HEU Health Economics Unit

Options for Reform System Individual elements HEU Health Economics Unit

3339 System Change Principles n n Single fundholder (government or pte) Incentives for reform HEU Health Economics Unit

3339 Scotton/Enthoven Managed Competition Treasury Tax Private (Funds ) HIC Public (Area Health) Various Sub-contracts Public Hospital HEU Health Economics Unit Private Hospital Public Other Private (Fund Holders) Private Other

3339 Managed Competition Uncertainties n Evidence limited n n n Quality … neither nor (USA) Cost Threats (i) (iii) HEU Health Economics Unit … US prices (‘low hanging cherries’) real effects … limited Administrative costs contracts Competition marketing cost attractiveness Multi tier system Violation of social objectives ? ?

3339 Regional Budget Holders (RBH) n n (A win-win low risk strategy) Weakness of Medicare = Fed/State split solution Regional Base Scotton MC requires default public scheme Regional Base HEU Health Economics Unit

3339 Advantage of Regional Budget Holder n First stage to Managed Competition n Rationalises funding n Progressive experimentation HEU Health Economics Unit

3339 Impact of Regional Budget Holder Public … indistinguishable from status quo PHI … unchanged (initially) Government HEU Health Economics Unit … both compromise

3339 Stages of the Reform Process Box 1 Stages of the Reform Process t 0: Methodology and Cost(a) current regional spending (b) expected spending (c) public saving due to PHI t 1: Pooling (a) (b) (c) (d) (e) t 2 Early Transition 1 (a) regional budgets adjusted 5 percent per annum towards ‘expected va determined by a risk population based framework (b) regions permitted to alter specified relationships preferred ed (eg limit provider contracts but preservation of ‘default payments’; employmen allied health personnel; introduction of integrated information, QA sys t 3 Late Transition 1 (a) regional budgets set equal to the ‘expected budget’ (b) flexib and discretion increased eg no or low default payment for no ility contract providers; elimination of high risk (low quality) hospital depa construction of (Kaiser style) vertically integrated clinics. Possible int with aged services (c) assessment of final transition t 4 Transition 2 (a) private sector ‘carve outs’: transfer of full budgets person to regis accredited groups, regulated as in the Scotton proposal (b) ongoing review of performance (see Scotton) HEU Health Economics Unit regional authorities (n = 15) receive a single budget initially 100 percent reimbursement of overspending reimbursement of providers as occurs presently HIC a possible agent public ho spital reimbursement by DRG

3339 Conclude n Main Themes n Reforms should n n n Address identified ‘problems’, ie unmet achievable objectives Be evidence based Priority Risk HEU Health Economics Unit = Potential Benefit risk = likelihood of perverse outcome

3339 Implications Risk Benefits (i) Privatisation low (ii) Simple Competition v. highnegative Managed Competition high (iii) (iv) small/zero/negative high Regional budget holder v low modest HEU Health Economics Unit

3339 Individual Elements n n Respond to problems (Prerequisite: motivation to reform) HEU Health Economics Unit

3339 Importance Ordering of Issues Actual 1 Objectives 2 Delivery System (i) Quality, routine monitoring, feedback (ii) EBM’ (iii) Full use of databases (iv) Efficiency in all elements cost effective 3 Funding n n n Co-Payments PHI Government/Pte Share chief concern - effect on access not cost sharing Total Cost of Health Care Observed Order (4) (3) (2) (1) 4 HEU Health Economics Unit

3339 Conclusions n Medicare has served community well n n universal efficient to administer consistent with Australian values Complacency n n n HEU Health Economics Unit the ‘UK-NHS Disease’ Medicare-defined as funding system … OK Medicare-defined as whole system-needs important change