Briefing for APHA Members - The National Commission of Audit Report, May 2014.

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1 Briefing for APHA Members - The National Commission of Audit Report, May The Commission of Audit s final report was released at 2pm on Thursday 1 May The National Commission of Audit was announced by the Treasurer, the Hon Joe Hockey MP, and the Minister for Finance, Senator the Hon Mathias Cormann, on 22 October The Commission was established by the Australian Government as an independent body to review and report on the performance, functions and roles of the Commonwealth government. In a statement releasing the report Minister for Finance, Senator Mathias Cormann thanked the Commission and its chair, Tony Shepherd. Minister Cormann emphasised the report was a report to not a report by the Government. He said: Of course, as invariably is the case with these sorts of reports, there are recommendations that the Government will be in a position to adopt very quickly in the Budget. There will be other things that will require more detailed work before final decisions can be made. And there will be some things that the Government will be quite clear, right up front, will not be able to be pursued. We will not be providing a detailed response in relation to each recommendation today. The Government s response to the Commission of Audit report will be the Budget on 13 May. Of course today is the next instalment in the very important conversation that we need to have about how to ensure that our Budget is put back onto a sustainable footing for the medium and long term. Recommendations of the Commission of Audit. The Commission s report has made 86 recommendations including some far reaching suggestions regarding reform of the Federation, taxation and fiscal rebalancing. These matters, including COAG arrangements, have already been referred for further consideration in the context of the White Paper on Federation already promised by the Federal Government. With regard to the health sector key recommendations are in the Phase One Report. The Commission of Audit makes some recommendations for short to medium term reform but leaves the pathway to longer-term reform of the health system as a matter for the Minister for Health recommending that he be tasked with developing options and reporting to the Prime Minister in 12 months time on progress and a preferred way forward (Rec 18). The Commission highlights that this framework for reform must make constructive use of the contribution of private health insurance and private hospitals. Short to medium healthcare reforms (Recs 17 and 19) include significant changes to private health insurance, co-payments for the MBS, public hospital emergency department services and PBS and changes to Federal Government support for the costs of medical indemnity. 1

2 Private Health Insurance Proposed changes to private health insurance are: requiring higher-income earners to take out private health insurance for basic health services in place of Medicare; and precluding them from accessing the private health insurance rebate; reforming the private health insurance market to provide greater incentives for efficient and cost effective health management through deregulating price setting arrangements, allowing health funds to expand their coverage to primary care settings, relaxing community-rating to allow health funds to vary premiums to account for a limited number of lifestyle factors, including smoking; and reforming the arrangements by which insurers equalise risks through the sector (Rec 17). increasing the Medicare Levy Surcharge by 2 percentage points at each tier level to which it currently applies. In the body of the report, the Commission also recommends that the proposed review of longer term options for health sector reform include further consideration of private health insurance: "The Commission recognises, however, that making private health insurance mandatory for higher income groups may have consequences for the operation of the health insurance market including people s responsiveness to price changes. This may impede the development of a more competitive health insurance market. "However, further analysis should be undertaken to examine the interaction between the surcharge, the rebate, lifetime cover and the extent of eligible insurance coverage as part of a more fundamental review of the health care system." The Commission sees the private health insurance industry as having a constructive role in driving efficiency in the health care sector. Co-payments and Safety-nets The Commission recommends: the introduction of co-payments for all Medicare funded services, underpinned by a new safety net arrangement that would operate once a patient has exceeded 15 visits or services in a year. General patients would pay $15.00 per service up to the safety net threshold and $7.50 per service once the safety net threshold has been exceeded. Concession card holders would pay $5.00 per service up to the safety net threshold and $2.50 per service once the safety net threshold has been exceeded (Rec 17); implement[ing] arrangements to ensure that consumers are not able to insure against the copayment and that medical practitioners who wish to bulk bill are not able to waive the co-payment (Rec 17); 2

3 encouraging the States to introduce a co-payment structure for public hospital emergency departments for less urgent conditions that could be appropriately treated in a general practice setting (Rec 17); increasing the threshold for the General Extended Medicare Safety Net to $4,000, while maintaining the Concessional Extended Medicare Safety Net threshold at existing levels. Safety net arrangements for Medicare and the Pharmaceutical Benefits Scheme should be retained to ensure support for people facing significant hardship, albeit with some adjustments (Rec 17); increasing co-payments for all medicines under the Pharmaceutical Benefits Scheme, including for concessional medicines that are currently free. This includes: a. for general patients with costs below the safety net, a co-payment increase of $5.00 (increase from $36.90 to $41.90), while above the safety net a rise of $5.00 (from $6.00 to $11.00); b. in line with the increased co-payment arrangements, the general patient safety net should increase from $1, to $1,613.77; and c. for concession card holders, no increase to the current co-payment of $6.00 while below the safety net threshold of $ However, once the safety net limit has been reached, concession card holders will be required to co contribute $2.00 to the cost of their medicines (Rec 19). targeting of the Commonwealth Seniors Health Card to those most in need by adding deemed income from tax-free superannuation to the definition of Adjusted Taxable Income used for determining eligibility for the Commonwealth Seniors Health Card (Rec 15). Management of the MBS and PBS The Commission recommends reviewing the Medicare Benefits Schedule to identify and remove ineffective items, replace expensive items with less expensive alternatives where available and investigate options for cost recovery for applications to list items on the Schedule (Rec 17). Recommendations regarding the Pharmaceutical Benefits Scheme and reform of the pharmacy sector include: a. the introduction of new arrangements for funding the Pharmaceutical Benefits Scheme within a set funding envelope that extends for a seven year cycle; b. establishing an independent authority ('PBS Entity') to be headed by a suitably qualified Chief Executive Officer who would oversee management of subsidised pharmaceuticals within the Australian health system and be required to report to the Minister for Health; c. permitting the Minister in exceptional circumstances to have new items listed by introducing a disallowable instrument into Parliament and on receipt of advice from the PBS Entity regarding items to be de-listed in order to offset additional costs; d. opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules; and e. streamlining approvals for new drugs through the Therapeutic Goods Administration process by recognising approvals made by certain overseas agencies. (Rec 19) 3

4 Medical indemnity The Commission recommends the Commonwealth scale back its subsidies for medical indemnity insurance by: a. ceasing the Premium Support Scheme; b. ceasing the High Cost Claims scheme; c. considering grandfathering provisions to support the medical indemnity insurance industry in the transition to reduced Commonwealth subsidisation; and d. monitoring the impact on the medical profession, particularly in rural areas. (Rec 48) Other Health Sector Related Measures The Commission also recommends limiting the Commonwealth's contribution to efficient growth in the cost of public hospital services to 45 per cent applying from and with the exception of activity based funding reducing the health reporting requirements significantly that the Commonwealth places on the States (Rec 17). The Commission supports extending the current scope of health professional practices (for example, pharmacists and nurse practitioners) to address the future needs of Australia's health care system (Rec 17). The Commission is silent on the issue of Mental Health other than to support the proposed (now in progress) review by the National Mental Health Commission and to recommend that the review pay particular attention to removing the significant duplication between the Commonwealth and the States that currently exists in mental health services (Rec 40). The Commission recommends a number of changes to funding for research and development including alignment of the Australian Research Council and the National Health and Medical Research Council grant processes (Rec 34) The Commission recommends significant rationalisation of Commonwealth bodies (Rec 50) including rationalisation and restructuring agencies within the Health portfolio (Rec 53) by: a. establishing a National Health and Medical Research Institute to better align and embed health and medical research in the health system. This body would combine the National Health and Medical Research Council, Cancer Australia and the research budget of the Australian National Preventative Health Agency; b. establishing a Health Productivity and Performance Commission by consolidating seven existing bodies to better coordinate, report and drive performance across Australia's health care system with a focus on measurable outcomes. The seven bodies to be consolidated would be: the Australian Commission on Safety and Quality in Health Care, the Australian Institute of Health and Welfare, the Australian National Health Performance Authority, components of the Australian National Preventative Health Agency, the Private Health Insurance Administration Council, 4

5 the Independent Hospital Pricing Authority, the National Health Funding Body; and the National Mental Health Commission. c. consolidating five other agencies into the Department of Health: Australian Organ and Tissue Donation and Transplantation Authority and National Blood Authority, which could be brought together within the department to harness expertise. General Practice Education and Training Ltd and Health Workforce Australia, which could be brought together as a clinical training unit. The Professional Services Review scheme. The Commission suggests various ombudsman offices including the Private Health Insurance Ombudsman should be consolidated into the Commonwealth Ombudsman s office. No mention is made of The National E-Health Transition Authority (NEHTA). Other Key Recommendations Throughout the report as a whole, the Commission makes a number of recommendations that could impact on the cost of doing business is so far as they relate to: Workforce participation, skills levels and workforce productivity Outsourcing, competitive tendering and procurement Improving Government Efficiency and interactions with government agencies. Workforce participation, skills levels and workforce productivity Recommendations potentially impacting on workforce participation, skills levels and workforce productivity include: Targeting of paid parental leave wage replacement (Rec 21) and expansion and better targeting of child care assistance (Rec 21 and Rec 22) both funded by retention of the proposed 1.5% levy on company taxable income above $5million per year Transitioning to a new minimum wage benchmark of 44 per cent of Average Weekly Earnings over a period of 10 years and transitioning to system of State/Territory specific minima by 2023(Rec 28). Increasing the costs paid by students for higher education from 41% to 55% together with increased competition in Australia's education system through a partial or full deregulation of fees for bachelor degrees (Rec 30). A wind back in Commonwealth involvement in the vocational education and training system (Rec 39) 5

6 The Commission exhorts the Government to continue its drive to reduce the cost of doing business in Australia in such areas as labour market reform, deregulation, energy policy and provision of economic infrastructure (Rec 32). Outsourcing, competitive tendering and procurement The Commission commends governments to harness the benefits of outsourcing by taking a more strategic and professional approach to procurement and contract management (Rec 59). The Commission recommends preparation of business cases for the outsourcing of: the Department of Immigration and Border Protection's visa processing functions (Rec 43), and part or all of Department of Human Services payments system (Rec 60) The Commission identifies ten bodies that it recommends be considered for privatisation including, in the short term, Australian Hearing Services and, in the long term, NBN Co Limited (Rec 57). Improving Government Efficiency Amongst recommendations to improve government efficiency are proposals that could have a significant impact on the health sector including: improved use of data in policy development, service delivery and fraud reduction (Rec 61) accelerated transition to online service delivery by championing a digital by default agenda (Rec 62) 6