Paying for health care: how can we sustain it?

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Paying for health care: how can we sustain it?

Posted 5/05/2011 by Anne-marie Boxall

At budget time, the federal health minister has one of the toughest jobs. We got a glimpse into this a few weeks ago when the Government announced that it had decided to defer listing some new drugs on the Pharmaceutical Benefits Scheme even though they work and have been deemed by experts to be cost-effective. The announcement sparked outcry from consumer groups and health care organisations alike.
The Minister found herself in this unenviable position because the amount of money available to spend on health care is finite. This is not just a dilemma that arises at budget time however. Governments around the world are becoming increasingly concerned about how they will fund health care into the future because in most OECD countries, health expenditure is growing at a faster rate than gross domestic product. The harsh reality is that we cannot afford to do everything that we want or need to do to improve people’s health, at least not without finding new revenue sources (for example from taxes, the private sector and individuals). As Minister Roxon explained last week, the constraints on public sector financing mean that governments will need to play a more active role in determining what will, and will not, be funded in health care. In health circles, this exercise is known as priority setting.

In my current research on the fiscal sustainability of the Australian health system, in addition to priority setting, I examine the effectiveness of a range of mechanisms currently being used to help control health expenditure. I also identify a number of other options that could be considered, including:

• paying health care providers in different ways (there are numerous options but the World Health Organisation considers salaries, setting strict budgets, and using capitation payments to have the most potential for containing costs);
• stimulating competition between the public and private sectors, as long as it drives improvements in the quality of care and delivers better value for money;
• monitoring and exerting greater control over the capacity of the health system (for instance the number of health care professionals and health facilities makes a significant difference to overall health expenditure); and
• ensuring government funds are only used to fund the highest quality and most effective of all the treatment options (physiotherapy, for example, might be more effective for back pain than drugs or surgery).

One thing clearly arising from this research is that there are virtually no easy savings to be made in the health care sector anymore. Doing anything to make Australia’s health system more affordable will be tough, so beware of anyone spruiking simple solutions. It is not simply a matter of compiling a list of the most cost-effective or cheapest treatments and funding them first. Other countries have tried this ultra-rational approach and found that decisions provoked so much outcry that they were politically untenable. In the United States, recent attempts to make resource allocation in health care more rational led to claims that the government was introducing ‘death panels’. In the United Kingdom, the decision to deny access to certain cancer drugs led to similar claims. Even if governments hold out against such protests, often there just isn’t enough evidence available to make an informed decision about which treatments deliver the best bang for the buck.

Making the health system more sustainable is also not as simple as getting those people who can pay more to do so. Individual contributions, such as fees, co-payments and other out-of-pocket payments, already account for about 17 per cent of total health expenditure in Australia. And there is already compelling evidence that the cost of health care poses a real burden for some people and stops them from getting necessary care (see here, here and here). Shifting more of the cost burden onto individuals would make it even more difficult for people with low incomes to get essential health care, and it would make our health system less equitable. It would also mean that Australia was moving in the opposite direction to most other OECD countries, which have reduced the proportion of total health expenditure coming from individuals over the last decade. It’s not possible to explain the reasons for this trend without further analysis, but it may be that other countries have come to agree with the World Health Organisation that relying on individual contributions to control the growth in health care costs is a relatively blunt instrument and the least equitable way of funding health care.

With no easy solutions on offer, the only way this or any future government is likely to make our health system more sustainable is to undertake more fundamental and potentially unpopular reform (this would include considering some of the options outlined earlier). Governments will have to make the public more aware that there are limits on what they can spend on health care. No one will like it when the funding cuts affect them, but it might help if they have some understanding of why. Governments will also have to convince health care providers that changes are needed so that better care can be provided at a lower cost. If reforms threaten the incomes of health providers, then they may need to innovate and find new and more profitable ways of delivering services. Governments will also have to initiate a national debate on some of the key issues that underpin the issue of sustainable health funding. Are we, for example, prepared to consider solutions such as paying more tax? Or, do we want to move away from public financing and encourage the private sector and individuals to play a greater role?

Admittedly, a reform agenda along these lines would be politically difficult for any government. However, it is likely to be more effective than the current approach. To date, governments have tended to view the health system in its components parts because it is so large and unwieldy. As a result, there does not appear to have been an overarching strategy for reining in the growth in health expenditure. Instead, it appears that governments have had a series of one off battles in various sectors of the health system over time. Instead, governments could consider viewing the health system as just that, a system, and begin developing a clear strategic plan for how we as a nation will tackle the problem of ensuring the sustainability of the health system. Given that just about any proposal for constraining health expenditure provokes outrage, when it comes to engaging in battles over health funding, it seems that governments would have little to lose by being strategic about the battles it takes on in order to deliver outcomes in the long-run.

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