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What do the CPI figures really say about health?

If the Government takes a close look at the health component of the latest CPI figures, there are some clear lessons for policy, says Ian McAuley, a Centre for Policy Development Fellow and lecturer in Public Sector Finance at the University of Canberra. He writes:

“The movement in the CPI for the December quarter was 0.5 percent. Some media commentators picked up the fall in the health component, which dropped almost one percent in the quarter. If health had been excluded, the quarterly rise in the CPI would have been 0.6 percent.

This does not mean the Prime Minister’s initiatives to improve productivity in the sector have had a stunning early success.

The drop is due to an anomalous seasonality in health care costs, explained in the notes at the end of the CPI bulletin.

“The major contributor to the fall in health costs this quarter was pharmaceuticals (–5.3%). Dental services provided the main offset (+0.8%). The fall in the net price of pharmaceuticals was due to cyclical effects of the Pharmaceutical Benefits Scheme (PBS) safety net. The number of people accessing and receiving subsidised prescription pharmaceuticals (the PBS safety net) reaches a peak in December quarter. Over the twelve months to December quarter 2009, the health group rose 4.7% due to increases in hospital and medical services (+5.9%), dental services (+4.2%) and pharmaceuticals (+1.6%)”.

By the same mechanism, we can expect a significant jump in the health care component when, in April, the ABS reports on the current (March) quarter, as the safety nets for the PBS and the Medical Benefits Scheme (MBS) reset on January 1.

ian

Over the last ten years, while the average annual movement in the CPI has been a modest 3.2 percent, the average movement in the health services group has been 5.5 percent.

Within that group pharmaceutical prices have risen at an annual rate of 2.1 percent, showing what governments can do for consumers when they use their powers. The average rise in the hospital and medical services group, however, has been 5.8 percent. This group effectively excludes public hospitals, because they are free, but it includes the MBS and private hospitals, both directly through consumer out-of-pocket payments, particularly when specialists charge above the Schedule Fee, and indirectly through private health insurance.

It is natural that the Commonwealth should be concerned with productivity in public hospitals; after all it pays almost half the cost of public hospitals.

But, with incipient signs of inflation appearing, the Government should be reviewing its permissive attitude to private health insurance, before it does to our health care costs what it has done in the USA.”

Comments 10

  1. William says:

    It’s a bit of an over-simplification to attribute this growth to specialists charging above scheduled fees.

    Firstly, it needs to be recognised that the practice of medicine, and healthcare in general, advances over time. Given that these advances are so tightly regulated (Pharma by the PBSAC and procedures by MSAC) they can be considered to have evidence based benefits to individuals and the population in general. There may therefore be an economic return on money that goes into healthcare which offsets part of the inflation in costs. Throwing healthcare in with the rest of the consumers ‘basket of goods’ is therefore bound to lead to this result.

    Secondly, this hides numerous anomalies whereby scheduled fees for many existing, but still valuable, procedures haven’t even come close to keeping pace with CPI over the years. This is of course in part due to the first point whereby new procedures have to jockey for position with existing technology within the constrained budget for healthcare. Something has to give.

    Finally, what do you think is the role of the consumer/patient/family in all this. It’s all well to blame the specialist for all of this, but ask any practicing clinician how the expectations for new, expensive, technical therapies have increased in the last 20 years. But then I suppose that’s the specialists fault as well.

    My, isn’t doctor bashing fashionable at the moment.

    (COI Practicing medical specialist…obviously)

  2. Croakey says:

    William, this statement is not intended as doctor-bashing, just a reflection of what I have observed over many years. The medical industry – including device and drug manufacturers, various institutions and service providers themselves – have had a powerful role in driving community expectations and demand for new, expensive, high-tech interventions, through PR and marketing campaigns. The previous post by Gavin Mooney is relevant, in arguing that when you ask the community what they actually want, through structured processes such as a citizen’s jury, they often nominate quite different priorities, such as better community and mental health services, greater equity in access to services etc. To make this point is not to doctor-bash, it is simply an observation of the forces that drive the world of health care and associated political systems.

  3. Doctor Whom says:

    These crude measurements like CPI hide a multitude of half truths.

    Health costs going UP isn’t necessarily bad. It depends on what sort of health services and what outcomes we are getting. We may well be getting reduced costs in health and other areas due to early and /or better interventions.

    Or the increased costs may just reflect boob jobs and face lifts. Or overservicing on “sports medicine” (as a side issue does the tax payer pay for millionaire footballers and cricketers and tennis players to consult their sports doctor for every twinge and sore spot?)

    Productivity/efficiency in the health sector may well improve and the CPI for health could still rise. They aren’t the same thing. Although I wouldn’t be surprised if a Canberra bureaucrat thought they were.

    Demand for colonoscopies will, and has, gone up due to the Bowel cancer program and increased awareness. But the savings in lives and hospital care from early intervention in cancer will greatly outweigh the increased costs.

    Similarly with say Diabetes. If as is stated around 50% of people with Diabetes are undiagnosed (and therefore untreated) an increased cost of screening and treating may well be a very good thing.

    Increase PBS items that prevent asthma? not necessarily bad. Ditto with Diabetes medication, Statins, and so on.

  4. William says:

    Agree with your comments Croakey but the piece specifically singles out specialists for a bashing again…

    ‘This group effectively excludes public hospitals, because they are free, but it includes the MBS and private hospitals, both directly through consumer out-of-pocket payments, particularly when specialists charge above the Schedule Fee, and indirectly through private health insurance’

    That’s it nothing else, no mention of any other contributors to the cost of healthcare, just specialists, MBS (which is mainly accessed by specialists), private hospitals (the workplace of specialists), and private health insurance. In this context Doctorwhom’s comments are well made.

    For a ‘Policy Development Fellow’ to write ‘…public hospitals, they are free…’, regardless of the context, is laughable in itself, but I won’t go there.

    It’s about time we faced up to a few facts…

    1. Whilst the Australian healthcare system is not perfect it is not bad
    2. It’s a lot, lot better than most other peoples of the world get
    3. It’s expensive, but not that expensive
    4. The health of Australians, by most important indicators, has never been so good and improvements over the last 30 years have now outstripped those in most other Western countries

    So before we dismantle it, we should be pretty sure what we create is going to be better than what we’ve already got.

  5. Doctor Whom says:

    just specialists, MBS (which is mainly accessed by specialists)

    From memory this is wrong – I think GPs account for over 70% of MBS. Then there is podiatrists, optometrists, path tests, radiology, etc.

  6. William says:

    You are absolutely correct Doctor Whom in which case the statement…

    ‘…particularly when specialists charge above the Schedule Fee…’

    becomes even more bizarre.

    And Croakey, nowhere in this commentary from Mooney is there anything at all about…

    ‘The previous post by Gavin Mooney is relevant, in arguing that when you ask the community what they actually want, through structured processes such as a citizen’s jury, they often nominate quite different priorities, such as better community and mental health services, greater equity in access to services etc.’

    He doesn’t talk about this at all. It’s just an article about where he thinks the healthcare pot can be squeezed…

    And in any case I’m not sure wanting more community services, greater equity to access etc etc means that citizen’s jury’s want less specialized care… but that seems to be what you are arguing for. Most specialists want these things too.

  7. William says:

    Sorry, I correct myself. This article was written by McAuley not Mooney… but can Mooney tell us if citizen’s juries are asking for less specialized care??

  8. Croakey says:

    Hi William, my understanding from Gavin Mooney is that citizen’s juries rarely ask for more hospital spending but want a greater focus on community-based care. You can download his book on citizen’s juries at his recent post.

  9. Gavin Mooney says:

    William, in the citizens’ juries that I have facilitated, where the issue of priority setting has come up, not one has recommended more specialist care. One recommended paying for greater equity, more prevention and more mental health services by closing hospital beds and small EDs. (See http://www.gavinmooney.com)

    We need more information before anything more conclusive can emerge on priorities from the informed public but the push for more specialist care and machines that go ping is probably driven mainly by the media and maybe the speclalists.

    You say: “And in any case I’m not sure wanting more community services, greater equity to access etc etc means that citizen’s jury’s want less specialized care.”
    The juries are forced to choose – they operate in the real world of constrained resources – they can’t have more of everything.

  10. William says:

    ‘We need more information before anything more conclusive can emerge on priorities from the informed public but the push for more specialist care and machines that go ping is probably driven mainly by the media and maybe the speclalists…’

    Well it is just possible Gavin that in this age of evidence based medicine that people recognise that specialist care has some benefits. It is just possible that when people get cancer they want to see a good surgeon and oncologist. It is just possible that if I had a heart attack I might want to be looked after by a cardiologist. It is also just possible that many specialists spend a great deal of time in advocacy for better equity, preventive practice and promoting public health.

    But you are probably right it’s probably all just a beat up by the specialists and ‘the media’ (whatever ‘the media’ is).

    I return to my previous point. Before we disassemble the very good, if not perfect, health system that we currently possess we should be darn sure that what we propose is going to be an improvement. It’s perhaps a good time to consider also that there is highly unlikely to be such a thing as a perfect health system.

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