Barton Deakin: Commission of Audit Report Health. 7 May 2014

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1 Barton Deakin: Commission of Audit Report Health 7 May 2014 The Report delivered to the Government by the National Commission of Audit contained several recommendations to reform the Australian health system. The Commission outlined a two-stage process for health care reform in Australia: 1. Short/medium-term reform: a number of incremental changes that can be introduced relatively quickly to improve the system s short-term viability and provide the foundations for larger structural reforms; and 2. Longer term reform: More detailed consideration of opportunities to restructure the health system for the long term by the Minister for Health, who would report to the Prime Minister in 12 months time. The Commission also separately made recommendations on: The Pharmaceutical Benefits Scheme; The structure of the health portfolio; Mental health; The Seniors Health Card; and The medical indemnity insurance subsidy. Impetus for reform The Commission noted that a combination of an ageing population, income growth and new technologies will lead to greater demand for health care in Australia. The Commission views the best way to increase supply of health services as improving productivity through more deregulated and competitive markets, with appropriate safeguards. Health care spending is also the Commonwealth s biggest fiscal challenge. Productivity Commission projections suggest the following increases in health spending from to : Commonwealth Government spending will rise from 4% of GDP to 7% of GDP; and State government spending will rise from 2.5% of GDP to 4% of GDP. Short to medium term reform Suggested reforms fall into the following categories: 1. Requiring those on higher incomes (singles earning more than $88,000 and families earning more than $176,000 a year) to take greater responsibility for their own health care Require higher income earners to take out private health insurance for basic health services in place of Medicare. Barton Deakin Pty. Ltd. Suite 17, Level 2, 16 National Cct, Barton, ACT, T: ACN An STW Group Company. SYDNEY/MELBOURNE/CANBERRA/BRISBANE/PERTH/DARWIN

2 As a penalty, increase the Medicare Levy surcharge to between 3 and 3.5% for those on higher incomes who do not take out private health insurance. Remove access to the Private Health Insurance Rebate for higher income earners. 2. Requiring everyone to make a small contribution to the costs of their own health care Introduce co-payments for all items listed on the Medicare Benefits schedule to reduce demand for unnecessary or overused services: o For the first 15 visits a year, the co-payment would be $15 ($5 for concessions) o In excess of 15 visits in a year, the co-payment would reduce to $7.50 ($2.50 for concessions). To reduce the risk of cost-shifting to public hospitals, encourage the States to introduce copayments for treatment of non-urgent conditions in public hospital emergency departments. The determination of which conditions do not need urgent attention could be based on the triage system, so that only triage categories four and five would attract co-payment. The level of co-payment would preferably be at levels higher than those proposed for out-ofhospital services. Ensure that consumers are not able to insure against the co-payment and medical practitioners cannot waive the co-payment. 3. Improving the effectiveness of private health insurance Replace the current price setting mechanism with a price monitoring arrangement under the proposed new Health Productivity and Performance Commission (see below). Allow health funds to vary premiums to account for a limited number of lifestyle factors, including smoking. Encourage investment in prevention by reforming the arrangements by which insurers equalise risks. Consider a system of prospective risk-adjusted payments between insurers whereby payments between insurers would be based on the risk characteristics of their members, rather than actual expenses. To this end, the Commission recommends allowing funds to cover primary care settings, including medical items and services provided through the Medicare Benefits Schedule. The current ban limits funds ability in improving health outcomes at the point of diagnosis. 4. Improving the effectiveness of Medicare Increase the threshold for the General Extended Medicare Safety Net to $4000. Maintain the Concessional Extended Medicare Safety Net threshold at the existing level. Review the large and complicated Medicare Benefits Schedule to identify and remove ineffective items, replace expensive items with less expensive alternatives. 5. Improving arrangements with the States In the short-term, limit the Commonwealth s contribution to efficient growth in the cost of public hospital services to 45 per cent applying from In the longer-term, 2

3 renegotiate health funding commitments with the states while addressing their revenueraising capacity (addressed in other sections of the Report). Reduce reporting requirements that the Commonwealth places on the States under the National Health Reform process. It will be necessary for the Independent Hospital Pricing Authority to continue to receive data needed for establishing national efficient price and cost estimates, but the Commission recommends including this Authority in a new Health Productivity and Performance Committee (see below). 6. Other Extend the reforms undertaken by Health Workforce Australia in its Expanded Scope of Practice programme, which is aimed at redesigning roles of the health workforce. In particular, pharmacists and nurse practitioners could provide immunisations, monitor blood pressure and diabetes tests, issue medical certificates for certain conditions, and undertake some prescribing for chronic conditions following an initial diagnosis and prescription by a doctor. Allow and encourage individuals to plan for their future medical treatment as well as aged care preferences through broad, integrated care directives (or living wills ). Longer term reform The Commission recommends the Minister for Health should develop an approach to put Australia s health system in a position to contain costs while preserving and improving access to quality health care. The Minister should identify a framework that brings together all aspects of the health system to support the organisation and delivery of health care in a way that focuses on the needs of individuals. One option suggested by the Commission is a universal health insurance arrangement, whereby health insurance is mandatory and the Commonwealth pays premiums for low income and high risk groups, along with children. The Minister should report to the Prime Minister in 12 months time on the preferred way forward. Pharmaceutical Benefits Scheme The Commission recommends the following changes: Control costs by either freezing expenditure at the current level or setting a predetermined funding envelope over a period of 7 years. There should be an independent review before the conclusion of the initial 7 year period and recommendations put to Government about the appropriate size of the next funding envelope. Under this scheme, new medicine listings would become possible by rationalising existing listings or re-negotiating new prices on existing listed items. Establish an independent PBS Entity whose CEO reports to the Minister for Health. The PBS Entity would manage the funding of new and currently listed medicines; negotiate prices for existing drugs; and make decisions about de-listing drugs. The PBS Entity would negotiate 3

4 directly with pharmaceutical companies and pharmacists in relation to margins and dispensing fees. Increase co-payments for all medicines under the Pharmaceutical Benefits Scheme, including for concessional medicines that are currently free. This includes: o A co-payment increase of $5 for costs both below and above the safety net; o Increase of the safety net from $1, to $1,613.77; and o No increase to the current co-payment below the threshold of $360 for concessions, but a co-payment of $2 once the safety net is reached. Deregulate ownership and location rules in the pharmacy sector. To offset the impact on pharmacy incomes under this reform, the Government should provide pharmacists with opportunities to provide a greater range of services to customers. Recognise approvals for new drugs made by certain overseas agencies, including the US Food and Drug Administration and the European Medicines Agency. Structure of the health portfolio The Commission proposes three broad actions: Establish a single National Health and Medical Research Institute, which would combine the National Health and Medical Research Council, Cancer Australia and the research budget of the Australian National Preventative Health Agency. Establish a new Health Productivity and Performance Commission which would publicly report health performance statistics and outcomes. The Commission would merge: o the Australian Commission of Safety and Quality in Health Care; o the Australian Institute of Health and Welfare; o the Australian National Health Performance Authority; o components of the Australian National Preventive Health Agency; o the Private Health Insurance Administration Council; o the Independent Hospital Pricing Authority; o the National Health Funding Body; and o the National Mental Health Commission. Consolidate five other agencies directly into the Department of Health: o Australian Organ and Tissue Donation and Transplantation Authority and National Blood Authority, which would be brought together within the department; and o General Practice Education and Training Ltd and Health Workforce Australia; and o The Professional Services Review Scheme. The ongoing need for 40 non-principal bodies should be reviewed, largely due to consequential impacts of Phase One recommendations. These include: 8 therapeutic goods advisory committees; 4 related bodies in the pharmacy sector, including the Australian Community Pharmacy Authority and the Pharmaceutical Benefits Remuneration Tribunal; 3 bodies related to the current governance and funding arrangements for the Pharmaceutical Benefits Scheme: the Life Saving Drugs Programme Reference Group, 4

5 Pharmaceutical Benefits Pricing Authority and the Pharmaceutical Benefits Advisory Committee; and 9 advisory bodies in the health portfolio. Mental health In September 2013 the Government announced that the National Mental Health Commission would review all mental health services to ensure that services are being properly targeted and not duplicated and that programmes are not unnecessarily burdened by red tape. The Commission recommends that the review look specifically to reduce duplication between the Commonwealth and states and identify opportunities for coordinating and integrating mental health services with broader social and health services. Seniors Health Card The Report recommends adding deemed income from tax-free superannuation to the definition of Adjusted Taxable Income when determining eligibility for the Commonwealth Seniors Health Card. Medical Indemnity Insurance Subsidy The Commission recommends that the Commonwealth gradually scale back subsidies for medical indemnity insurance by: Ceasing the Premium Support Scheme; Ceasing the High Cost Claims scheme; Considering a grandfathering provision to support the transition to reduced Commonwealth subsidisation; and Monitoring the impact of these changes, particularly in rural areas. The full text of the Commission of Audit Report can be found here. For more information, please contact Grahame Morris on , David Alexander on or Melanie Brown on