Incremental Change In The Australian Health Care System

Transcription

1 A U S T R A L I A Incremental Change In The Australian Health Care System Tensions exist in a system that features universal coverage and a strong private insurance tradition. by Jane Hall PROLOGUE: Although Australians have entertained no major health care reforms since the implementation of universal health insurance in 1984, the past fifteen years have hardly been quiet ones for Australian health policy. Under a multilevel system of government and with a combination of public and private financing, the country has struggled to maintain its long-held and often-tested commitment to universal access to health care. Efforts to defend the national insurance program have been matched repeatedly by challenges, but support for a greater role for private insurance, although persistent, has been slow to gather strength. As a result, the system moves forward in fits and starts, fending off major change in favor of incremental reforms. In this paper Jane Hall describes the evolution of Australia s complex system and shows why, as long as public support and political momentum are divided between public and private financing, changes in health policy are likely to continue in increments. Fortunately, policies to improve the public s health have not been hampered by this debate. As Andrew Podger points out in his response to this paper, Australians health is improving, and the cost of good health care is reasonable. The challenge now is to extend care to underserved populations. Jane Hall is director of the Center for Health Economics Research and Evaluation; an associate professor in the Department of Public Health and Community Medicine; and a Medical Foundation Fellow, all at the University of Sydney. INTERNATIONAL 95 REFORM H E A L T H A F F A I R S ~ M a y / J u n e The People-to-PeopleHealth Foundation, Inc.

2 I n t e r n a t i o n a l H e a l t h R e f o r m ABSTRACT: Australia is similar to the United States in that it is a federation of states, its medical profession is well organized and politically powerful, and it has a substantial private sector. Unlike the United States, Australia provides universal access to health care and has controlled its total health care spending to around 8.5 percent of gross domestic product (GDP). This paper reviews the role of private health insurance and recent initiatives to support this; the strategies used to control costs in the fee-for-service sector; and the capacity for experimentation in health care financing within a national system that guarantees universal access. 96 AUSTRALIA International comparisons of health care systems usually focus on countries that are distinguished by very high or very low levels of health care spending or that have embarked on major revolutionary reforms to the financing and provision of health care. Why look to Australia, then, which has remained in the middle league of spenders and has embarked on no major restructuring of its system within the past twenty years? The distinctive aspects of Australian health care are the diffusion of responsibilities resulting from the federal structure of government, the reliance on private financing, and the array of supply-side initiatives that have contributed to the control of total spending. While the main features of the system have remained stable, a series of policy initiatives have effected incremental change rather than revolutionary reform. Although this can be criticized as an ad hoc approach to policy, it also can be seen as a strategic response to policy implementation in a system with multiple governments and many interest groups. Features Of The Australian Health Care System At one time Australia held the distinction of being the only country to have introduced universal national health insurance and then dismantled it. Medicare, established in 1984, represented a return to national universal insurance, funded through general taxation and an identified income tax levy. 1 However, opposition to publicly funded universal insurance continued. Indeed, the main focus of health policy over the past forty years has been private insurance/private finance versus universal insurance/public finance. 2 By 1996 both major political parties were committed to the continuation of Medicare, suggesting that the private-versus-public debate had been resolved. 3 However, recent moves to support private insurance have rekindled it. Australia is a federation comprising one commonwealth, six states, and two territory governments, most of which have two governing chambers. The framework for governmental intervention in the health care system was established after World War II. The commonwealth has the power to raise income tax revenue; indirect H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

3 A U S T R A L I A taxes have been the minor source of revenue, and state governments rely on commonwealth-provided funds for their operation. Public hospitals are operated and funded by the states and territories, but the states rely on commonwealth funding either directly for hospitals through specific-purpose grants or indirectly through general financial assistance. The commonwealth government established and operates medical and pharmaceutical benefits schemes. Care of the elderly is funded mainly by the commonwealth. This framework has remained unchanged with the advent of universal insurance. 4 The commonwealth government can exert considerable influence through its financial arrangements with states and territories, regulation of private health insurance, direct financial grants to organizations providing health care services, and the development and coordination of national programs and priorities. The basic tenet underlying the Australian health care system is universal access to needed health care, regardless of ability to pay. All permanent residents have the right to public hospital treatment at no charge. Public hospitals are funded from state/territory revenue and through specific-purpose payments from the commonwealth; states and territories determine the level and means of funding. Most medical services are provided by private practitioners and paid fee-for-service (FFS). All ambulatory medical services are covered by Medicare and subsidized by the commonwealth government, with some patient copayments. There is a national list of prescription pharmaceuticals, funded by the commonwealth government, for which patients pay a small copayment. Patients enjoy free choice of providers, particularly in primary care. Primary care physicians, or general practitioners (GPs), act as gatekeepers; no Medicare (that is, government) benefit is payable for specialist services without a referral. The only limitation on choice of doctors is in public hospitals; there, persons admitted as Medicare patients are treated by a doctor who is paid by the hospital. Funding for the government s contribution to health care (68 percent of the total) is primarily drawn from general revenue, which in turn is largely income tax based and progressive. The remainder (32 percent) is drawn mainly from private health insurance and out-of-pocket payments. 5 INTERNATIONAL 97 REFORM Coexistence Of Private Insurance And Universal Coverage n The private sector. Private funding is an important component of Australia s health care expenditure. In private funds contributed 32 percent of total spending, compared with 56 percent in the United States, 28 percent in Canada and in Japan, 21 percent H E A L T H A F F A I R S ~ M a y / J u n e

4 I n t e r n a t i o n a l H e a l t h R e f o r m 98 AUSTRALIA in New Zealand, and 17 percent in the United Kingdom. 6 Private expenditure is via health insurance payments (11 percent) and outof-pocket payments (16 percent) (Exhibit 1); other sources include accident and injury compensation (not shown in Exhibit 1). Private spending is concentrated in some areas. Most out-of-pocket spending is for pharmaceuticals and dental services, while private insurance is the most significant payer for private hospital care. Almost all public hospital spending is provided by government. 7 n Hospitals. The private hospital sector accounts for 30 percent of admissions and 25 percent of all hospital bed days (Exhibit 2). The private sector has grown more rapidly than the public sector has over the past ten years. Spending on private hospitals in accounted for 8.2 percent of noncapital health expenditures, compared with 5.6 percent in Public hospital admissions have increased by 46 percent over the past ten years, compared with an increase of 81 percent for private hospitals. This trend reflects two factors: a shift in use from the public to the private sector and an increasingly complex case-mix being treated in private hospitals. Day surgery facilities mostly private have expanded over the same period. Australia s public and private hospitals are not perfect substitutes for each other, however. Accident and emergency facilities, and technologically complex and highly specialized services, are concentrated in the public sector. 8 n Private insurance. Private health insurance provides rebates for private treatment, in either a public or a private hospital. Private treatment in a public hospital means treatment by a doctor of the patient s choice and payment for a single room, if available. Until EXHIBIT 1 Health Services In Australia, By Source Of Funds, Government Private health insurance Individuals Total recurrent expenditure (millions) a $26,483 $4,426 $6,342 Total 68% 11% 16% Public hospital expenditure Private hospital expenditure Medical services Other professional Pharmacy Aids and appliances Dental and other SOURCE: Australia s Health 1998 (Canberra: Australian Institute of Health and Welfare, 1998). NOTE: Percentages do not add to 100 because of other sources (accidental and injury compensation) not listed here. a Amounts are in Australian dollars; as of February 1999, one Australian dollar equaled U.S. dollars. b Not applicable < b H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

5 A U S T R A L I A EXHIBIT 2 Use Of Public And Private Hospitals In Australia, Selected Years Admissions Public hospital Private hospital Bed days Public hospital Private hospital Growth Number Percent Number Percent Number Percent over ten (thousands) of total (thousands) of total (thousands) of total years 2, ,891 4, % ,025 1,157 16,122 4, % ,598 1,577 17,391 5, % % SOURCES: Australia s Health 1996 (Canberra: Australian Institute of Health and Welfare, 1996); and Australia s Health 1998 (Canberra: AIHW, 1998) the agreements between the commonwealth and the states and territories expressly ruled out preferential access to public hospitals for privately insured patients. Private insurance also helps to fund some ancillary services such as dentistry and physiotherapy. It does not cover ambulatory medical services or any gap between the Medicare rebate and the fee charged. The private health insurance market is highly regulated. Community rating of health insurance premiums has been required since 1953 to ensure that private health insurance is affordable, regardless of risk. 9 Nonetheless, some risk selection is possible through marketing of insurance packages; for example, some plans pay lower benefits for, or exclude, services such as cardiothoracic surgery, major joint replacement, psychiatric treatment, and rehabilitation and provide ancillary coverage for sporting equipment and gym fees. In the ten years from 1985 to 1996 the proportion of the population covered by private health insurance declined from 48 percent to 33 percent (Exhibit 3). This is a continuation of a long-term trend: Private insurance coverage declined from 80 percent in 1970 to 50 percent in 1984, when Medicare was introduced. 10 The apparent anomaly between declining private health insurance and increasing private hospital use is explained by the two-level structure of private insurance. First, basic hospital insurance covers treatment as a private patient in a public hospital, which has declined to 30 percent. Second, supplementary insurance covers private hospital treatment; the proportion of the population covered by this form of insurance has remained reasonably constant. Persons under age sixty-five have been more likely to drop private health insurance, and the average age of privately insured persons has been increasing more quickly than that of the Australian population. 11 The relationship between insurance coverage and type of hospital used is not simple. The universality of Medicare means that anyone INTERNATIONAL 99 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

6 I n t e r n a t i o n a l H e a l t h R e f o r m EXHIBIT 3 Private Health Insurance Coverage, Selected Years Basic hospital a 48.8% Private hospital b 33.9 Under age sixty-five e Age sixty-five and over e % 37.6 d 40.9 d % 30.6% 33.7 c d f 37.6 f Proportion of total expenditure funded by health insurance g d SOURCES: See below. a Basic hospital covers private treatment in a public hospital. For year ending 30 June. Includes population holding supplementary insurance, which covers private treatment in a public hospital. Private Health Insurance Administration Council data. b Supplementary insurance covers treatment in a private hospital. For year ending 31 December. Data are from Australia s Health 1996 (Canberra: Australian Institute of Health and Welfare, 1996). c As of 31 December d Not available. e Data are from Australia s Health f Estimated from data supplied by Private Health Insurance Administration Council. g Data are from Australia s Health 1996 and Australia s Health AUSTRALIA can be treated in a public hospital, at no charge, regardless of private insurance status. The proportion of public hospital admissions that are privately insured has fallen from 27 percent in to 17 percent in However, it is not possible to estimate from the available data the extent to which this is attributable to falling insurance rates versus the choice to be treated as a public patient. Some may opt for private hospital treatment and pay out of pocket; in , 7.2 percent of admissions to private hospitals were uninsured persons; in , 4.9 percent of admissions were for such persons. Because annual health insurance premiums can equal the cost of some minor procedures and elective treatments, this is a reasonable financial option for some people. Insurance premiums between and rose, on average, 9.8 percent per year, outstripping the Consumer Price Index (CPI) of 2.9 percent per year. In comparison, health spending per person grew at an average annual rate of 5.6 percent. Increases in the cost of insurance have been driven by a number of factors, including the rising costs of private hospitals, the increasing use of private hospitals, and the effects of an aging population Dissatisfaction with private insurance also is attributable to patients large, often unpredictable out-of-pocket expenses. Private insurance rebates cover only scheduled medical fees, and actual fees charged can be higher. Both privately insured and uninsured patients can be treated in the same accommodation by the same doctors. As a result, two patients can be given exactly the same treatment for which the private patient receives a large bill not reimbursed by H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

7 A U S T R A L I A insurance, while the uninsured patient never sees a bill. Advertising for private insurance promotes the avoidance of public hospital waiting lists for elective admissions as the major advantage. Waiting lists and times are a highly politicized issue. It is not clear to what extent public perceptions of actual waiting times are accurate and thus whether current waiting times are unacceptable. 13 The two strongest predictors of insurance purchase are income and age. 14 The probability of having private coverage rises with income; in , 70 percent of the wealthiest households were insured, compared with fewer than 20 percent of the lowest-income households. Young adults (ages twenty to twenty-four) are least likely to be insured (26 percent), compared with percent of persons over age sixty-five, in Middle-aged persons are most likely to be insured (50 60 percent of those ages forty-five to sixty-four). Survey data show that the most common reason for buying private insurance is security and peace of mind. 15 What appears as an age effect also may be a cohort effect. The older groups may have a higher propensity to insure against any risk, simply being a more risk-averse generation. Furthermore, there may be a specific health effect, because such persons remember the rapid changes in financing in the 1970s and therefore feel less secure in giving up private health insurance. n Support for private insurance. A number of recent attempts have been made to strengthen the potential role of private insurers. Legislative changes made in 1995 facilitate preferred provider arrangements between the insurance funds and providers (hospitals and doctors). The intention was to encourage price and quality competition across providers and to allow insurance to cover the total cost of a hospital episode. Although little progress was reported in the twelve months following the legislation, a number of contractual arrangements between funds and hospitals are now in place. 16 In opening the door to managed care, this legislation has been opposed by the medical profession, which traditionally has resisted accountability to third parties, in Australia as elsewhere. It has been argued that the rising costs of private insurance and falling insurance coverage have increased the pressure on public hospitals. The perception is that declines in private insurance have meant that more people require treatment in public hospitals rather than private hospitals, although, as the data shown above demonstrate, private hospital use actually has risen much more than public hospital use has. Financial incentives to encourage private insurance were foreshadowed in 1996 and introduced in July The financial incentives took two forms, targeted to low- and high-income groups. Lower income earners became eligible for a tax INTERNATIONAL 101 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

8 I n t e r n a t i o n a l H e a l t h R e f o r m 102 AUSTRALIA rebate on insurance payments, effectively lowering the cost of insurance. Higher income earners without private health insurance were levied an income tax surcharge. The cost to government of $600 million per year represented about 11.5 percent of the commonwealth s expenditure on public hospitals. These incentives have not reversed the trend in the declining proportion of the population with private health insurance, for a number of reasons. First, most high-income groups already had private health insurance. Some of these persons decline private coverage as a way to show their commitment to a universal public system; thus, financial incentives would have little effect in this group. For those low-income groups on the margin, deciding whether to buy or drop health insurance, the incentive for the individual was too weak. Individual decisions on health insurance would take into account not just current prices but also expected future prices. Because the incentives did not address the underlying structural instability of the insurance market, there was no assurance that prices would not rise significantly in the future. Also, the price effect of the incentives, when introduced, had been negated by insurance premium rises, a fact much publicized by the popular media. Further, the incentives themselves did not address other causes of dissatisfaction with private insurance most importantly, out-of-pocket costs. Continuing increases in insurance costs prompted a major independent inquiry into private health insurance (the Industry Commission report). 17 The inquiry was restricted to the private health insurance industry and did not allow for consideration of wider structural issues. The report pointed to the contradictions and instability of current arrangements of voluntary insurance with community rating of premiums and universal, compulsory, tax-funded coverage. It commented on the confusing nature of current arrangements and continuing pressures on costs. Further, it noted that the current system s inherent instability was not addressed by the financial incentives and could not be addressed without broader consideration of the nature of the health care system. Support for private health insurance is a component of the current commonwealth reform agenda. 18 The new Commonwealth/ State Health Care Agreements, signed in July and August 1998, include a clause to recognise and support the significant role that the private sector plays in the provision of health services in Australia and the right of Australians to choose private health care. These agreements remove the requirement that public and private patients be given the same access to public hospitals. The government also is proposing the development of lifetime community rating of insurance premiums. The aim is to encourage long-term commitment to H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

9 A U S T R A L I A Although both political parties support Medicare s continuation, the conflict between selectivity and universality is ongoing. private insurance, rather than buying insurance at times of greater likelihood of using hospitals. The commonwealth government was returned at the recent federal election (3 October 1998). Its health policy included altering the incentives for private health insurance to provide a rebate of 30 percent on all insurance premiums, with no means test. This issue received very little attention in the pre-election debate, although health usually rates quite highly as an election issue. (The major issue was the introduction of a goods and services tax, which dominated all other potential election issues.) By the time the Private Health Insurance Incentives Bill was introduced in Parliament, support for private insurance had become contentious, with the opposition and minor parties threatening rejection or major amendments before passing the legislation in the Senate (the upper house). In the event, the legislation was passed with the support of one independent senator with an amendment requiring that from mid-2000 health insurance funds must provide policies that cover a specified percentage (known gap) or all (no gap) of hospital and associated costs. This took effect 1 January The rationale for introducing this type of incentive has not been clearly stated. The government has not claimed that the previous carrots and sticks incentive package was effective. The inquiry into the health insurance industry concluded that demand for private health insurance was reasonably price-inelastic. 19 The government s own estimations predict a 2.7-percentage-point increase in private insurance coverage, at a cost to government of $1.5 billion. 20 Following this, the Australian Private Hospitals Association has released a discussion paper that supports a form of managed competition. 21 This proposal would allow individuals to buy out their Medicare entitlement and transfer it to a private insurer, with the transferable entitlement calculated as the average health care expenditure for that age/sex group. Medicare would remain as the safety-net insurer for those whom private insurers chose not to insure. Although this proposal, a fundamental change to Medicare, has not received widespread support or even ongoing comment, it does demonstrate that there are groups who are prepared to invest in challenging the universality of Medicare. The role of private insurance in Australian health care financing has been and has remained ambiguous. There are two opposing INTERNATIONAL 103 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

10 I n t e r n a t i o n a l H e a l t h R e f o r m viewpoints. One view is that private insurance is an optional extra within a universal system, is able to be bought by those able and willing to pay for it, and therefore can be left to the market without too much concern about equity. The other is that under current pressures for less public spending, a publicly funded system is unsustainable and that widespread private insurance coverage is an essential means of ensuring private finance in the health care sector. Therefore, although both major political parties claim to support the continuation of Medicare, it is clear that the competition and conflict between private and public financing and between selectivity and universality is ongoing. At this stage the future of private health insurance incentives and the role of private health insurance is uncertain. What does seem certain is that this will remain the major issue on the Australian health policy agenda. 104 AUSTRALIA Cost Constraint In Pharmaceutical Spending n Regulation and subsidies. The role of the commonwealth government is to regulate which pharmaceuticals can be marketed in Australia, to determine eligibility and negotiate prices under the Pharmaceutical Benefits Scheme (PBS), and to fund the PBS s operation. The PBS, now in operation for fifty years, is a universal scheme, covering 90 percent of prescriptions outside hospitals. Patients are charged a copayment that varies according to means. The government reimburses pharmacies the drug s wholesale price plus a fee. 22 Listing on the PBS requires evidence of a drug s safety, effectiveness, and, since 1993, cost-effectiveness. Australia is the first country to include cost-effectiveness as a criterion in decisions on the reimbursement of pharmaceuticals. It is certainly not the first to attempt to incorporate economic evaluation in decision making about health care resource allocation. The approach is somewhat different than the use of economic studies by purchasers of health care, because the PBS does not work within a fixed budget. n Rationale for the use of economic evaluation. The government had largely controlled the prices of prescribed drugs since 1963 through negotiations with suppliers over PBS pricing. This had been successful in constraining drug costs to percent of world prices. 23 Nonetheless, spending on drugs grew at an average of 6 percent per year during the 1980s, compared with 4.2 percent for all recurrent health spending, attributable to both rising drug prices and increased use of new, more expensive agents. 24 The rationale for this approach is commonly stated in terms of encouraging a more rational use of health care resources and obtaining better value for money, not in terms of cost savings. Although cost control was a factor, it was not the only one, nor was this the H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

11 A U S T R A L I A only strategy used in addressing rising expenditures. This new development can be seen as a formalization of the approach to pricing decisions. Before the introduction of the requirement for economic evaluation, the price for a new drug had generally been set at a similar level to those with a similar therapeutic effect. 25 Formal economic evaluation can make pricing decisions more explicit. n Development and implementation of the guidelines. The government announced its intention to require economic evidence for PBS listing in Guidelines on cost-effectiveness analysis were drafted, and the process was subject to wide industry consultation before guidelines were introduced in January The pharmaceutical manufacturers are responsible for preparation of the economic evaluations, which are submitted along with safety and clinical effectiveness data to the Pharmaceutical Benefits Advisory Committee (PBAC). The purpose of the guidelines is to ensure that consistent methods are used in economic evaluations. The perspective taken for the analyses is a societal one. Although the focus of the evaluations is comparison with the most similar currently used drug therapy, the full range of costs (drug, health care, and other) are expected to be considered. There also is a published schedule of standardized costs, which provides a common basis for the estimation of costs. 26 The approach taken by the government has been one of wide consultation with the industry. In addition, manufacturers are encouraged to seek advice regarding particular submissions. n Evaluation of the guidelines. A review of economic evaluations submitted to the PBAC has shown that although most analyses use consistent methods and standardized costs, a wide range of outcome measures are used. 27 This makes it difficult to compare the cost-effectiveness ratios across analyses. For those studies that estimate a cost per life year saved, the decisions made for PBS listing are mostly consistent with an implied value per additional life year of not less than $78,000. Some submissions were rejected even though the cost per additional life year was less than that; this may be the result of inconsistency with the criterion of economic efficiency or lack of rigorous evidence for safety and clinical effectiveness. No comparative data are available for the rejection rate before and after the economic evaluation requirements. However, there are two reasons why this systematic use of economic evaluation may not be effective, in terms of either cost control or, more broadly, efficient medical care. The first is the choice of comparator. The guidelines specify drug-to-drug comparisons. This is appropriate in securing efficient drug use but ignores drugversus-other-treatment modalities. Thus, there may be a widely INTERNATIONAL 105 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

12 I n t e r n a t i o n a l H e a l t h R e f o r m 106 AUSTRALIA used current drug for which a newer drug is a more cost-effective therapy. However, an alternative to drug therapy altogether (such as diet and exercise in treating hypertension) may be excluded. Thus, a local optimum may be reached at the expense of global efficiency. The second reason that economic evaluation may not promote efficiency in practice is related to drug pricing. The analysis is conducted before a price has been established, although the guidelines specify how new drug prices should be estimated. The previous PBS listing decisions implicitly determine the cost per unit of health gain that the commonwealth government is prepared to pay, now around $78,000 per additional life year. To date, submissions have ranged from $5,000 to $235,000 per additional life year. However, manufacturers may inflate their estimate of cost to be closer to the shadow price that the commonwealth has shown that it is prepared to pay. n Other strategies. The requirement for cost-effectiveness analysis was not promoted as a cost containment strategy only. It is one of a number of initiatives aimed at improving quality and appropriateness, as well as control of costs. Other strategies, more specifically aimed at cost control, have been employed (Exhibit 4). Most consumers have always faced a drug copayment. However, there were groups, primarily those on government pensions, for whom drugs were provided free prior to A copayment was introduced at the same time as a compensating increase in the average weekly pension. This had some effect on reducing demand. 28 The use of cheaper equivalent drugs has been promoted through the Minimum Pricing Policy. Doctors are encouraged to write prescriptions for generic drugs so that the pharmacist can select the least expensive alternative. Where a branded prescription item is EXHIBIT 4 Cost-Control Strategies In The Australian Health Care System Area of expenditure Pharmaceutical benefits Primary medical care Other medical services Hospital services SOURCE: Author s synthesis. Strategy Cost-effectiveness analysis Copayments Generic prescribing Equivalent drug substitution Control of fee levels Development of organizational structure, encouraging research and continuing education Limited eligibility to claim under Medicare Alternative funding to fee-for-service Control of fee levels Global capped budgets Case-mix H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

13 A U S T R A L I A Medicare s universality does not ensure the same ease of access and cost of use for everyone for all services. more expensive than its generic equivalent, the patient must pay the difference in cost. Since 1994 pharmacists have been allowed to substitute a cheaper equivalent drug at the patient s request without notifying or consulting the prescribing doctor. Primary Medical Care Primary medical care is fee-for-service private practice with free choice of medical practitioners. This represents a potentially openended budget commitment for the commonwealth government. Spending for medical services has grown faster than total health care spending has, with medical services accounting for more than 20 percent of recurrent expenditure in , up from 18.4 percent in Through the Medical Benefits Schedule, the commonwealth sets a fee for each item of medical service. Medicare pays 85 percent of the scheduled fee. This is not a maximum fee, as medical practitioners can charge above this; however, where the doctor bills the government directly, this is the total fee that can be charged. The Medicare rebate sets a floor price. However, the 27 percent increase in the number of GPs over the past ten years appears to have led to increased price competition. 30 The proportion of episodes of primary care that are direct-billed (at zero cost to the patient) has grown from 52 percent in to 78 percent in , thereby reducing the average cost of a GP consultation. However, total spending is a function of use and price. Use has increased more than the supply of GPs; the average number of visits per person has increased 34 percent over the same period, from 4.1 to 5.5 per year. Initiatives in primary care have been developed to address the issues of oversupply and poor distribution of the medical workforce and quality, efficiency, and coordination of care. The development and funding of geographically based divisions of general practice has brought together groups of GPs, providing an organizational structure with links to the rest of the health care system and promoting a range of activities, including research and education, relevant to general practice. 31 In the long term, the oversupply will be addressed by setting limits on the number of medical graduates who can register as eligible for Medicare rebates. A cross-government committee advises on medical workforce supply and demand and recommends target numbers for training. 32 INTERNATIONAL 107 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

14 I n t e r n a t i o n a l H e a l t h R e f o r m 108 AUSTRALIA Alternative income sources have been gradually introduced into fee-for-service practice. Direct payments (in the form of a grant, which is neither capitation nor a salary) are made to practices that meet eligibility criteria on service range and quality. This is still small ($238 million in , compared with $2.2 billion in fee-for-service). Concluding Comments Australia s recent experience can be summarized as cost control in a system that incorporates fee-for-service and private financing. Cost control has been achieved within an open-ended budgetary system through the government s role in price setting. Many of the strategies that have been effective cost constraints have been part of a broader approach to issues of quality, safety, and appropriateness of care. Consultation with the vested interest groups, including the medical profession, has been maintained, although it is often stormy. More important in terms of cost control has been the capacity to cap hospital spending, possible because of the dominance of publicly funded and operated hospitals. Public hospitals share of recurrent health spending decreased from 32.8 percent in to 28.9 percent in That proportion has remained at around 28 percent since At the same time specialist psychiatric hospitals have been closed, psychiatric care has moved to the community and general acute hospitals, and the number of admissions has increased. 33 The commonwealth government can exert considerable leverage through its funding role; this has assured the universal right to free public hospital treatment. However, states use different approaches to hospital financing, thus allowing considerable experimentation within a uniform national system. 34 One of the system s significant features is the coexistence of universal public insurance and a large private insurance sector. The system thus is inherently unstable. Current subsidies for private insurance do not address this instability. Therefore, the tension between public and private, universal and selective, will continue as the major issue in Australian health policy for some time to come. This discussion has focused on the financing aspects of Australian health policy. It would be a mistake to conclude that all of the developments in health policy have concentrated on paying for health services. Over the past ten years policy attention has shifted toward population health issues. There have been national collaborative programs in traditional public health areas such as immunization and screening as well as concerted action around specific disease areas. There are substantial successes H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3

15 A U S T R A L I A such as the control of human immunodeficiency virus (HIV)/ acquired immunodeficiency syndrome (AIDS) and the reduction of smoking. Improvements in the quality, safety, and appropriateness of health care services are one component of government commitment to improving the health of the Australian people. Key health issues are addressed through a targeted national strategy, negotiated across the commonwealth, states, and territories. These usually involve some cost sharing, an agreed-upon plan of action, and a focus on health outcomes. In one sense, equity of access is assured by the structure and universality of Medicare. However, this does not ensure the same ease of access and cost of use for everyone for all services. Equity of access for lower-income groups, populations in rural and remote areas, and indigenous peoples is a continuing concern. An earlier version of this paper was presented at the International Symposium on Health Care Policy, sponsored by the Commonwealth Fund and Health Affairs, October 1998, in Washington, D.C. NOTES 1. In 1974 a public noncontributory insurance scheme was established. Following a change of government, successive alterations were made. By 1981 most of the population relied on private, contributory health insurance with publicly funded benefits for the disadvantaged. 2. See H. Swerissen and S. Duckett, Health Policy and Financing, in Health Policy in Australia, ed. H. Gardner (Melbourne: Oxford University Press, 1997); and S. Sax, Health Care Choices and the Public Purse (Sydney: Allen and Unwin, 1990). 3. Swerissen and Duckett, Health Policy and Financing. 4. Commonwealth Department of Health and Family Services, Annual Report (Canberra: Department of Health and Family Services, 1997). 5. Australia s Health 1998: The Sixth Biennial Health Report of the Australian Institute of Health and Welfare (Canberra: Australian Institute of Health and Welfare, 1998). Some 8.5 percent of total health expenditure is raised by an income tax surcharge of 1.5 percent of taxable income. 6. United Nations Development Program, Human Development Report 1997 (New York: Oxford University Press, 1997). 7. Australia s Health Ibid. 9. Commonwealth Department of Health and Family Services, Annual Report Australia s Health Industry Commission, Private Health Insurance, Report no. 57 (Canberra: Australian Government Publishing Service, 1997). 12. Australia s Health Ibid. The median waiting time for nonurgent admissions in was thirty-six days; 1.9 percent of nonurgent patients waited more than twelve months. 14. Industry Commission, Private Health Insurance. 15. Ibid. INTERNATIONAL 109 REFORM H E A L T H A F F A I R S ~ M a y / J u n e

16 I n t e r n a t i o n a l H e a l t h R e f o r m 110 AUSTRALIA 16. Ibid. 17. Ibid. 18. A. Podger, The Commonwealth Reform Agenda (Paper presented to Committee for Economic Development of Australia, June 1997). 19. Industry Commission, Private Health Insurance. 20. Health at a Premium, Sydney Morning Herald, 5 December Australian Private Hospitals Association, Transferable Medicare Entitlements, An APHA Discussion Paper (Unpublished, December 1997). 22. A.H. Harris, Economic Appraisal in the Regulation of Pharmaceuticals in Australia: Its Rationale and Potential Impact, Australian Economic Review 106 (Second Quarter 1994): Bureau of Industry Economics, The Pharmaceutical Industry: Impediments and Options (Canberra: AGPS, 1991). 24. Harris, Economic Appraisal. 25. M.F. Drummond, Cost-Effectiveness Guidelines for Reimbursement of Pharmaceuticals: Is Economic Evaluation Ready for Its Enhanced Status? Health Economics 1, no. 2 (1992): See Commonwealth Department of Human Services and Health, Guidelines for the Pharmaceutical Industry on Preparation of Submissions to the Pharmaceutical Benefits Advisory Committee (Canberra: AGPS, 1995); and Commonwealth Department of Human Services and Health, Manual of Resource Items and Their Associated Costs (Canberra: AGPS, 1993). 27. B. George, A. Harris, and A. Mitchell, Reimbursement Decisions and the Implied Value of Life: Cost Effectiveness Analysis and Decisions to Reimburse Pharmaceuticals in Australia, , in Economics and Health, 1997: Proceedings of the Nineteenth Australian Conference of Health Economists, ed. A. Harris (Sydney: University of New South Wales, Australian Studies in Health Service Administration, 1998). 28. Australia s Health Health Expenditure, Health Expenditure Bulletin no. 14 (Canberra: AIHW, November 1998) 30. J. Butler, The Financing of General Practice, in General Practice in Australia: 1996 (Canberra: Commonwealth Department of Health and Family Services, 1996). 31. General Practice in Australia: The Australian Medical Workforce Advisory Committee reports to a committee of health ministers. Its work is published in a series of reports. More information is available on the Internet at amwac.health.nsw.gov.au. 33. Australia s Health Victoria was the first state to introduce case-mix funding of hospitals. Australian Capital Territory (ACT), South Australia, Northern Territory, and Tasmania have case-mix funding systems; Queensland has maintained a population formula to fund regions and case-mix funding within regions. New South Wales has maintained an area administrative structure and population-based funding over the past twenty years. H E A L T H A F F A I R S ~ V o l u m e 1 8, N u m b e r 3