According to media reports last weekend, Federal Treasurer, Scott Morrison, and Finance Minister, Mathias Cormann, have plans to open up health care to more private involvement and competition.
The pair said the idea of using competition principles to improve health care, recommended by the Harper Review, will be up for discussion when the state and territory treasurers meet later this month.
Below, four experts respond with some thoughts on the proposal and some advice for our state and federal politicians. Stephen Leeder explores how the governing principles for expanding competition might or might not apply to health care; Lesley Russell looks at why the government should be winding back, rather than increasing its support for private health insurance; Jennifer Doggett advises the Ministers to consult widely and judiciously; and Ian Scott gives five very practical reasons why fostering competition in health care is likely to prove problematic.
Reality or ideology: Stephen Leeder
The Competition Policy Review Final Report, produced by Emeritus Professor Ian Harper of Deloitte Access Economics and colleagues, became available in March this year. It examined ways in which competition might foster greater efficiency in Australia, including in human services such as health care. Another report from the Australian Institute of Health and Welfare, Australia’s Health 2014, said that “while Australia was identified [in the OECD] as having one of the more efficient health systems, the OECD still suggested that life expectancies in Australia could be improved through improved health system efficiency.”
To this end the Harper Review recommended that government services should be opened up and that “competition policy should apply more broadly to government services.” Elsewhere the Harper Review argues that:
“The model for government provision or procurement of goods and services should separate the interests of policy (including funding), regulation and service provision, and should encourage a diversity of providers.”
[/quote]The review is based on the assumption that competition drives efficiency and that, by opening up the health care system to more competition, more could be done with the resources available to it. The principles that should govern the expansion of competition in health care are:
- User choice should be placed at the heart of service delivery.
- Governments should retain a stewardship function, separating the interests of policy (including funding, regulation and service delivery).
- Governments commissioning human services should do so carefully, with a clear focus on outcomes.
- A diversity of providers should be encouraged, while taking care not to crowd out community and volunteer services.
- Innovation in service provision should be stimulated, while ensuring minimum standards of quality and access in human services.
That governments commissioning services should be mindful of outcomes is beyond argument but who among us, public or private, seriously documents and measures the outcomes of our service? Also, because health care is a ‘superior good’, in economic terms, conventional notions of technical efficiency are difficult to apply.
There is a huge literature on commissioning health services especially from the UK where it has been tried in many forms over the past three decades. It has been attempted in NZ as well, with GPs serving as ‘fund holders’. The results have been disappointing.
The health system is already surprisingly innovative. The research that underpins new advances is intensely competitive. The health system is also highly productive. Much competition already exists within it between private and public providers.
But increased technical efficiency, as opposed to allocative efficiency, is not what the systems needs uniformly. There are areas of scarcity such as general practice in peri-urban and rural areas that cause considerable pain – see the comments posted recently in the Conversation.
It is encouraging that the Harper Review Panel:
“recognises that some markets will not have sufficient depth to support a number of providers — including, for example, certain services in remote and regional areas. Ensuring access to services and maintaining and improving service quality in these cases increases the emphasis on well-designed benchmarking of services”.
[/quote]This is one among many realities that cautions us against trite ideological responses to finding the best way forward to finance health care into the future.
The “fit for purpose” test: Lesley Russell
The Turnbull Government has raised a spectre from the Abbott regime, postulating a greater role for private health insurance in providing health care services. The Harper competition policy review is used as cover for the standard conservative arguments for privatisation. However it is possible that the driver for last week’s remarks is a different issue: that the budget bean counters have finally turned their attention to the growing impost of the private health insurance rebate (PHIR) which the Budget papers show will cost $6.7 billion this financial year, rising to $7.75 billion by 2018-19.
The over-arching premise of the Harper review is that more competition, by giving greater choice, will help people meet their individual health care and aged care needs. But it is important to note that the report clearly states that competition policy must be ‘fit for purpose’ and subject to public interest tests. Importantly, the case is made that choice is not the only important objective: equity of access, quality, and a focus on outcomes rather than outputs are also critical.
Applying these criteria to private health insurance, as it currently exists may not be possible for a variety of reasons. Key among them is the vulnerability of sick patients, which can undermine their ability to make the best choices and require mediation via health care professionals. Moreover, with such a substantial level of public investment in the sector, it’s hard to argue that there shouldn’t be more rather than less regulation. As it stands, the requirement that the Health Minister must approve annual premium increases seems more than appropriate, although there is little public transparency of the need for these inevitable increases.
The National Commission of Audit has argued “there may be scope for ‘lighter touch’ regulation of the private health insurance sector, which could encourage innovation and wider product availability for consumers.”
Here other issues arise. There is a dearth of information on what drives people to purchase health insurance and to use it. What we do know is that the peace of mind that private health insurance is supposed to bring is very often illusionary and can leave many with substantial out-of-pocket costs. More than 20 percent of private care is paid for by patients, with average out-of-pocket costs of $285 per hospital episode in 2014. Many people know little about the policy they purchase – what it covers, how much it covers, whether it is good value and suited to their needs. Small wonder that about a quarter of people with private health insurance choose to use the public system. This means that a significant proportion of the Private Health Insurance Rebate is effectively wasted, as people purchase cover because of financial incentives rather than for health reasons.
Private health insurance is an expensive and clumsy way to do what the tax system and Medicare does better – distribute funds to those who need health care, and effectively manage health care costs. But we must assume that the Turnbull Government is not planning to decrease its support for private health insurance. They are likely looking at strengthening requirements for the well-to-do to have (and to use?) it, leaving Medicare as a ragged safety net for the poor.
This will inevitably lead to the continuing dramatic growth of specialist fees, longer waits for fewer services in public hospitals, an undermining of the power of Medicare as a single payer to control health care costs, and a widening of existing health disparities.
If the Prime Minister is really into listening, then he must consider carefully what the average Australian wants with regard to health care and how it is paid for. And he must be upfront with the policies that his Cabinet has under consideration for Medicare, if we are to avoid privatisation by stealth.
Consultation is key: Jennifer Doggett
Health is a complex area and one in which politicians without a robust knowledge of the health system should tread carefully. For a range of reasons, health care markets do not behave like markets in many other areas, and public policies based on the assumption that they do, are destined to fail. This usually means increased costs to the community, whether in the form of higher charges for services or decreased benefits. There is often an additional price to pay for poorly designed ‘market based’ interventions in the health system due to a reduction in equity of access and consequent long term health and social costs.
However, if done properly, there are potential benefits in increasing competition in specific areas of health care, some of which have been identified by the Harper Review. Rather than point the finger at the States and Territories, Ministers Morrison and Cormann would be better off focussing on those recommendations that can be implemented at the federal level.
For example, the Review argues that removing some of the current restrictions on pharmacy locations and ownership would facilitate the entrance of new players into the retail pharmacy market giving consumers greater choice and possibly also lower prices. Peak consumer groups, such as the Consumers Health Forum of Australia, have made similar arguments.
Increasing competition within the medical and health professions would also offer the opportunity to increase choice and decrease overall costs. Australia is unusual among developed countries in our use of medical professionals to perform many routine tasks that evidence shows can be provided by nurses and other health care workers with appropriate training and support. Routine immunisations and the issuing of repeat prescriptions are examples of services that are typically provided by nurses and nurse practitioners in other countries. There is also the potential to train people more cheaply than we currently do, to perform some medical procedures, with no loss of quality, safety or consumer satisfaction.
There are some areas of health care in which attempts to increase competition would clearly be misguided. In many areas of Australia, primarily rural and remote communities, there is effectively no competition for the provision of many forms of health care. When communities struggle to get one GP, psychologist or physiotherapist to work in their local area, arguments about the need for more competition from politicians in Canberra are unlikely to be well received.
Also, measures to increase competition within an inherently inefficient system, such as private health insurance, could end up costing our community dearly if they drive demand through (for example) suppressing price signals.
We have learned from past examples, such as the Chronic Disease Dental Scheme, what happens when health funding policies are designed and implemented by people who do not have a good understanding of health economics and the workings of the health system.
If the Treasurer and Assistant Treasurer want to avoid the high cost of more policy mistakes in this area, they need to ensure that they consult closely with health consumers, health economists and others who understand how the health system works before making or suggesting any major changes. Short-term, simplistic and misguided changes which serve the interests of provider groups under the guise of “giving consumers choice” will waste valuable health care.
Take five and hasten slowly: Ian Scott
The mantra of most economists who strongly endorse competition, de-regulation and market-driven capitalism is that this approach automatically leads to more output, higher quality, lower prices, and more satisfied customers, irrespective of the industry or sector in which it is applied.
While examples of the mantra being true can be cited – such as the macroeconomic reforms of the Hawke-Keating era which made the banking sector and the car industry more efficient and competitive – the same effect has not been universally seen in other industries such as utilities and transport. In health care, fostering competition is likely to prove very problematic and here are some reasons why:
1.The prime goal of health care is to safeguard and improve the health of the population. This is both a personal need and a social good, and it should not be made vulnerable to the vagaries of markets driven, in many instances, by profit motives.
Public expectations for high quality, affordable and accessible care constrain the extent to which competition policies can be given free reign in the absence of robust and enforceable standards and regulations designed to protect patients from unscrupulous providers.
2. It is increasingly recognised that integrated, patient-centred care delivery requires collaboration and co-ordination between healthcare providers and agencies. Fostering competition is likely to lock patients into fragmented, siloed, disconnected care.
Co-creating and co-designing systems of care around the expressed needs of local populations involves a sharing of ideas and collective action between different healthcare stakeholders. This has been the approach taken by many successful multi-site, multi-disciplinary quality improvement collaboratives over recent decades, and is the same approach frequently articulated within new models of integrated primary-secondary care. Concerns that such integration runs the risk of vertical and horizontal consolidation of services and emergence of ‘anti-competitive’ monopolistic practices are ill-founded in a healthcare system such as Australia’s, which has a strong duopoly of private-public healthcare and a single national insurer in the form of Medicare.
3. In healthcare, asymmetry of information between patient and provider puts the former at a disadvantage in deciding the value and worth of healthcare. While recent attempts towards fully disclosing the benefits and harms of different care options to patients, with the aim of of shared decision-making, are to be welcomed, there will still be many instances in which the best informed patient will find it difficult to distinguish between high value and low value care. In a competitive environment, salesmanship and price discounts may well become the preferred means of expanding market share to the detriment of patient-desired clinical outcomes (which currently go unreported).
Despite the proliferation of websites reporting various metrics of healthcare performance such as MyHospital in Australia or NHS Choices in the UK, nuanced data at the level of individual providers or specialty groups are still to be developed. In any event, evidence suggests that the public has trouble understanding and making healthcare decisions using such data and, in some cases, believes it to be inaccurate or manipulated. The argument that such transparency elevates standards is also subject to considerable debate.
4. Competition can induce waste by having a multiplicity of providers duplicating capital equipment, infrastructure and services, in their efforts to compete for a limited population of healthcare consumers. Competitive pressure can make general practitioners more likely to refer patients to specialty care.
When it comes to hospitals, rather than compete, public and private firms now frequently form partnerships to share such costs which would otherwise be prohibitive to each by themselves. Examples include Joondalup Health Campus in WA, the new Royal Adelaide Hospital in SA, the new Northern Beaches Hospital in NSW and the new Sunshine Coast University Hospitals in Queensland. Rather than every hospital attempting to deliver every possible service in competition with its neighbours, each should develop its own strengths and niche, and develop cross-referral and transfer procedures in regards to specialised services that one or another does not offer.
The concept of contestability (ie can a non-government provider deliver a service – existing or desired – more efficiently than a government provider) is now in vogue within state health departments. However, there are few examples where this contestability concept has resulted in commissioning private firms to provide services with consequent better care at lower or equal cost. This is often because contracts do not impose, or are unable to enforce, meaningful sanctions on providers, and there are no targets or benchmarks for providers based on clinical outcomes, only cost.
5. Much of the rhetoric around competition talks to fostering diversity, choice and responsiveness of government services, encouraging innovation and entrepreneurship, and efficient investment in and use of infrastructure. But this spirit of developing new models of care to meet emergent needs and constraints is already alive and, if anything, needs more nurturing from policy-makers and administrators. Driving this innovation is an innate professionalism among clinicians and forward thinking executives who continually strive to deliver better care.
At the macro-level, these same outcomes can be achieved under regulated environments of managed care and capitated budgets wherein bundled care payments, price controls and value-based accountable care arrangements act as the same drivers, but without the waste and discursiveness of unbridled competition. Even that bastion of free markets – the USA – is now waking up to this fact when it comes to healthcare.
All this is not to say that competition is incompatible with all forms of healthcare, provided government maintains and applies appropriate regulations and stewardship. In some areas of elective activity, such as domiciliary support, residential care, and ancillary or assistive technologies, having a more flexible range of providers and services facing informed consumers with discretionary funds at their disposal could indeed result in increased consumer satisfaction while keeping prices down.
But most healthcare, especially that which is most expensive, is non-elective, delivered through large organisations (hospitals or large general practices) and standardised for safety – although not all of it necessarily confers patient benefit, as suggested by the current MBS Review. In this environment, there is much less latitude for competition to exert any meaningful effect.
Experience from the UK and the US suggests that when policy-makers try to use competition policy as a major lever for reforming healthcare, especially internal markets operating within geographical areas, there is often no discernible impact on quality of care. At worst, such policies engender distrust, lack of collaboration, and undue emphasis on process and budgetary metrics rather than on quality of care and patient outcomes.
When it comes to injecting competition into health care, hasten slowly, if at all.
Professor Stephen Leeder is emeritus professor at the Menzies Centre for Health Policy at the University of Sydney. On Twitter: @stephenleeder
Dr Lesley Russell is Adjunct Associate Professor at the Menzies Centre for Health Policy, University of Sydney. On twitter: @
Dr Ian Scott is Associate Professor of Medicine at the University of Queensland, Adjunct Associate Professor of Medicine at Monash University and Director of Internal Medicine and Clinical Epidemiology at Princess Alexandra Hospital, Brisbane.