(Originally published at EisenhowersLastSmoke.com on 7/21/2013)
The foundation of Australia’s health system is Medicare, a public insurance system which entitles everyone to a level of health insurance. Most people I’ve spoken to call it a “safety net” rather than a true universal system. Medicare, by all accounts, has become sacred, though it has only existed in its current form since the 1980s. Alongside the public insurance system sits a private one, which almost 50% of Australians use.
This high level of adoption of private cover, in this country that offers universal public health insurance, results from a combination of government carrots (30% rebate of private insurance costs, which has recently become means tested), and sticks (premium increases for every year people over a certain income and tax penalties for high-income earners who don’t buy a private plan). There’s also a perception that you get more choice of doctors, even as a private patient in a public hospital (yes, you can use private coverage in public facilities), though that seems to be more perception than reality. You also have shorter wait times for procedures in private facilities using private insurance and lower out-of-pocket costs.
Australia’s federation creates further complexity. The states operate the public hospital system, which provide nearly all of the emergency care and most of the complex admissions. The federal government pays for outpatient and pharmacy benefits, whether those services are delivered in the public or the private system.
These were the sort of intricacies were coming my way within five hours of disembarking the plane from Los Angeles.
There is strength in this hybrid system in the form of vibrancy and flexibility. The many moving pieces provide a range of levers for policy makers to work with, but they also make it hard to put the pieces together in a cohesive manner that facilitates accountability for the whole system. Mary Foley put it well in describing the state’s challenge: “We are like the ambulance at the bottom of a cliff. We’re catching people, but it’s really hard to get the top of the hill to put a fence up.” Moreover, the state simply does not control the type of health care resources we commonly think of as part of the solution to hospital utilization growth – primary and most outpatient care.
And then it gets really interesting. Australian hospital funding is undergoing a radical transformation. Between 1929 and about 2012, the public hospitals had been funded by annual grants from the state, and the level of funding had had more to do with who lobbied effectively or worked their way onto the front page of the newspaper (remember those?). Even that lobbying only really addressed the margins; the bulk of funding was set. Hospital costs, and funding thereof, was a black box.
Under a new set of reforms, hospital funding is moving to “activity-based funding” or ABF, where state payments to hospitals now reflect the actual and anticipated activity, accounting for real utilization and population growth. This new approach uses hospitals’ own data on utilization, combined with the state price for services, and establishes what each hospital should need for resources. The state makes all this data completely transparent. They have unpacked the black box.
In the transition to the new system, the state is providing transition payments to keep hospitals whole, but it has also put them on notice that the jig is up. As Mary says, “We’re giving you this money. We don’t know what it’s for. You don’t know what it’s for. But we know it costs more (here).” Hospitals now need to account for why they cost more than the data suggests they should, and they will need to find ways to come into line with expectations.
It’s already having an impact. Hospital leaders are improving their cost accounting, finding hidden or unaccounted for costs and allocating properly; improving their coding now that reporting on services provided has real financial impact; and engaging their clinicians about how they operate. And people are starting to squabble with the next iteration of changes, which Mary takes as the sign that, incredibly, they’ve already accepted this new reality. It is no wonder Mary Foley gave up her lucrative private-sector career to spearhead NSW Health. She explained, just as had David Flanagan in describing his decision to start his mining company, “Sometimes you just have to grab an opportunity.”
Leaving that meeting, I had no question about my choice to grab this opportunity.