Budget Review 1997-98

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Detailed Portfolio Reviews

May 1997

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Continuation of National Public Health Programs

In the 1996-97 Budget, the Government announced that it would seek to broadband eight public health programs into a single National Public Health Program. Funding for some elements of the National Public Health Program, including the National Women's Health Program, the National Breast Cancer Centre, Health Australia (Tobacco Minimisation Strategy) and Hepatitis C Surveillance and Education was due to expire during 1997-98 and 1998-99. Although this measure will provide ongoing funding for each of these programs, a detailed breakdown of funding for each program is not yet available.

The framework for the funding and delivery of the National Public Health Program will be provided under the new Public Health Agreements currently under negotiation between the Commonwealth and each State and Territory. A Public Health Agreement is expected to be signed by the Commonwealth Government and each State and Territory Government by 1 July 1997 and will cover the period 1997-98 to 1998-99. Ongoing funding has therefore been provided for only the next two financial years. Under the proposed Public Health Agreement, funding by way of Specific Purpose Payments will no longer be provided for each element of the National Public Health Program. Rather, the Commonwealth Government will allocate a block grant to each State and Territory for the delivery of all elements of the program.

This measure removes Commonwealth funding for methadone services from Medicare and proposes instead to fund these services under the National Public Health Program. The rationale for these new arrangements is a perceived level of inappropriate use of consultations and urinalysis services under Medicare. Under the new arrangements, Medicare benefits will no longer be available for consultations with private medical practitioners and for urinalysis relating to methadone clients. The proposed new funding arrangements will provide funding to the States and Territories on the basis of an annualised allocation per private methadone patient. This allocation will be calculated from the average number of private patients treated in each State and Territory during the previous 12 months, with adjustments for inflation and growth in the number of patients. The payment is intended to cover assessment, stabilisation and ongoing treatment.

This measure will not be implemented until 1 November 1998, following trials to test its feasibility. The trials are expected to commence in September 1997 and will be evaluated prior to negotiations with the States and Territories over the new funding arrangements. The measure will cost some $49.8 million over the three years from 1998-99, but this cost is expected to be offset by savings to Medicare of $69.1 million over the same period. The net savings are included in the above table of significant Budget measures.

The 1997-98 Budget includes several initiatives aimed at improving Australia's immunisation rate against preventable communicable diseases. In February 1997, the Commonwealth Government announced a package of initiatives aimed at increasing Australia's low level of immunisation. This package includes a two-pronged approach which links age-appropriate immunisation status with entitlement to a range of income support payments, including Maternity Allowance, Childcare Assistance and the Childcare Cash Rebate and provides incentives to general practitioners for increasing the level of immunisation coverage. Readers are directed to the Press Release by the Minister for Health and Family Services of 25 February 97 for details of these and other initiatives included in the new National Immunisation Strategy (Immunise Australia). These measures are estimated to impose costs of $13.3 million on the Health and Family Services portfolio over the four years from 1997-98 but are estimated to save some $24.6 million in the Social Security portfolio over the same period. The measures will commence on 1 January 1998.

A Hepatitis B Pre-Adolescent Immunisation Delivery Program, together with a new funding mechanism for the purchase of essential vaccines, including hepatitis B, have also been funded in the 1997-98 Budget. These initiatives provide specific funding for the delivery of hepatitis B vaccine (HBV) in the school setting. Under these measures, the Commonwealth Government will provide funding for the vaccine and will also contribute up to 50% of the additional costs of delivering the vaccinations in schools. The States and Territories will be responsible for the delivery of the program and provision of the remaining funding. The Commonwealth will provide more than $14 million over the four years from 1997-98 for the purchase of the vaccine ($3.9 million in a full year) and a further $5.6 million over four years towards the costs of delivering the vaccinations ($1.6 million in a full year).

Funding for vaccines is provided under the National Childhood Immunisation Program (NCIP), which is one of the elements of the National Public Health Program. The new arrangements under which funding will be provided to the States and Territories for the purchase of HBV will also apply to future funding approvals for new vaccines as each is listed on the National Health and Medical Research Council's Standard Childhood Vaccination Schedule.

Refocussing the General Practice Strategy on Outcomes

A key element of the General Practice Strategy, the Better Practice Program (BPP) was launched in November 1994 to provide an alternative to fee-for-service as a means of remunerating general practitioners (GPs). The focus of the BPP was the provision of quality patient care and aimed to encourage continuity of care for patients, improved after-hours care and home visits. The BPP has not enjoyed universal support amongst GPs and has been strongly opposed by the Australian Medical Association (AMA). Despite this opposition, the number of medical practices participating in the BPP has grown steadily, from 104 in February 1995 to 735 in May 1995, 1638 in November 1995 and 1822 in November 1996. However, average payments under the BPP have remained a very minor proportion of the remuneration of GPs.

The Government announced in January 1997 that a review of the BPP would be conducted and a discussion paper was issued to stimulate debate on alternative options for change. This measure announces that the Government intends to conduct discussions with the medical profession for a change in the focus of the BPP as part of a wider review of the General Practice Strategy. The review is expected to lead to a refocussing of the BPP away from the operational aspects of general practice and more towards the medical outcomes of patient care. The review is also expected to result in a restructuring of payments to general practitioners under the BPP. This measure is expected to commence on 1 February 1998 and is projected to save some $140 million from the forward estimates over the four years from 1997-98.

This measure proposes a change in the process by which new and emerging medical procedures and technologies are evaluated prior to listing on the Medicare Benefits Schedule (MBS). This measure proposes the establishment of a new Medicare Services Advisory Committee (MSAC) to both assess new procedures and reassess existing procedures covered by MBS items, although its principal function will be to advise the Minister for Health and Family Services on the inclusion of new items in the MBS. Membership of the new MSAC is yet to clarified, as are the respective roles of the MSAC and the existing Medicare Benefits Advisory Committee and Medicare Benefits Consultative Committee.

The key policy change contained in this measure is the proposal to use evidence-based medicine as the means of assessment of the safety, efficacy and cost effectiveness of new and existing medical procedures. Where insufficient evidence exists to fully assess a new procedure, this measure proposes that interim listing may be considered for the service in order to permit further research. Some funding, albeit limited, will be available for this purpose. This measure applies an evaluation and assessment process including an emphasis on cost-effectiveness which is similar to that used in the scrutiny of new pharmaceutical products prior to their listing on the Pharmaceutical Benefits Schedule. This measure will involve estimated outlays of $15 million over the four years from 1997-98, however savings against Medicare are expected to result in an overall saving of $1.5 million over the same period. The measure is expected to commence in February 1998.

This measure proposes the introduction of electronic claiming of Medicare benefits directly from doctors' surgeries. Previously, only bulk-billed claims could be lodged in this way. It will be possible for patients to lodge electronically both a patient claim (where the bill has been paid) and a pay doctor claim (where the bill has not been paid). In the case of a patient claim, the refund cheque will be sent to the patient's home address. Doctors' surgeries are expected to commence their participation in the expanded electronic claiming system towards the end of 1997.

Savings from the more efficient payment of Medicare benefits will obviate the need for closure of Medicare offices in rural areas, however some 40 Medicare offices in metropolitan areas are to be closed by March 1998.

This measure is expected to result in increased outlays of $28.1 million over the four years from 1997-98, due to the increased costs to Medicare benefits because of reduced payment delays from electronic claiming. However, the Budget papers note that 'these are short term costs only and will not be relevant when the new system is fully implemented' (Health and Family Services Portfolio, Portfolio Budget Statements 1997-98: 124). Savings from this measure are also expected to offset some of the costs of the proposed separation of Medibank Private from the Health Insurance Commission.

The Pharmaceutical Benefits Scheme (PBS), which provides subsidised access to a wide range of pharmaceutical drugs and preparations, has experienced significant rates of growth in outlays over recent years, despite several policy initiatives during the 1990s designed to curb such growth. While each initiative has limited the rate of growth in outlays in the short term, the trend over the longer term has seen a return to high rates of growth. Key drivers of growth in PBS outlays include an increasing trend in the prescribing of newer and often higher cost, drugs and the ageing of the population. A possible related factor is the increasing number of people covered by the concessional category (currently at around one third of the population) which accounts for some 80% of the cost to Government of the PBS.

The Sub-program is estimated to provide substantial savings against the forward estimates in 1997-98 and over the out-years to 2000-01. The 1997-98 Budget introduces several initiatives aimed at reducing the rate of growth in PBS outlays to more sustainable levels and follows several measures introduced in the 1996-97 Budget, which were estimated to save in excess of $650 million from the forward estimates over the four years from 1996-97. Significantly, the Budget papers forecast that following a substantial reduction in the trend growth rate in 1998-99, PBS outlays will again return to high levels of growth from 1999-2000.

This measure introduces a significant policy change to the administration of the PBS and is expected to save in excess of $560 million over the four years to 2000-01. The measure follows, and extends, earlier policy decisions to encourage the substitution of some brand name drugs with generic, chemically equivalent drugs. The measure will affect six groups of drugs: angiotensin-converting enzyme (ACE) inhibitors, Calcium Channel Blockers, and beta blockers (all used in the treatment of cardiovascular disease), Selective Serotonin Re-uptake Inhibitors (SSRIs) used in the treatment of depression, some drugs used to lower blood cholesterol, and H2 receptor antagonists which are used in the treatment of peptic ulcers. A low-priced drug in each of the six drug groups will set the benchmark price which the Government will subsidise for the category and where a more expensive drug is prescribed, the patient will pay the difference in price. Precisely how high this extra cost will be is yet to be established. The Government reportedly estimates that the average difference in the prices of drugs in each group is $4.00, while the largest difference in price is about $14.00 for one particular drug. In its Budget media releases, the Government announced its expectation that competition will restrict the price premium to approximately $2.00. The significant difference between the new therapeutic price strategy and the existing generic substitution policy is that the drugs in each of the six groups described above are not chemically equivalent but rather have similar clinical activity.

The Pharmacy Guild of Australia supports the introduction of the therapeutic group premium initiative, noting that while some patients will pay more for some pharmaceuticals, 'the successful implementation of therapeutic group premiums should result in savings so that a wider range of lifesaving drugs can be provided through the Pharmaceutical Benefits Scheme' (Pharmacy Guild of Australia, Media Release, 13 May 1997). Various types of benchmark pricing or reference pricing schemes are operating in other countries, including Germany, Canada (British Colombia) and New Zealand. The Canadian Cardiovascular Society reportedly opposes the recent expansion of British Colombia's reference-based pricing (RBP) scheme to include ACE inhibitors and dihydropyridine calcium channel blockers, claiming that 'savings have not been achieved in other countries that have introduced RBP schemes'. The Society argues that 'supporters of RBP point to the savings for the drug plans, but fail to consider the additional costs to hospital and physician reimbursement Budgets' (Scrip, 4 February 1997: 15).

In setting its subsidy at the level of one drug in each therapeutic group, the Government aims to achieve a greater degree of awareness on the part of doctors and patients of the cost of some commonly prescribed pharmaceuticals. This measure is expected to commence on 1 February 1998, following advice from the Pharmaceutical Benefits Advisory Committee (PBAC).The Minister for Health and Family Services has indicated that legislation will not be required for implementation of the initiative. This measure will also apply to eligible veterans and their dependents under the Repatriation Pharmaceutical Benefits Scheme (RPBS). A full economic evaluation of this measure is to be undertaken in the year 2000.

Several drugs will be deleted from the PBS under this measure, which is estimated to save some $112 million over the four years from 1997-98. Some $75 million of this total is expected to be saved through the delisting of two prescription antifungal products used to treat minor nail infections. The drugs to be delisted are generally prescribed for the treatment of minor conditions and many can be bought over the counter for prices in the range $2.45 to $9.65. Concessional category patients who currently pay a maximum co-payment of $3.20 per PBS prescription will experience increased charges for these items. The introduction of this measure reinforces the view that the primary rationale of the PBS is to subsidise access to pharmaceuticals used in the treatment of significant medical conditions. The measure also applies to the RPBS and is expected to take effect from 1 January 1998, following advice from PBAC. This measure will not require legislation for its implementation.

Extension of Funding for Palliative Care

Funding for the four-year Palliative Care Program (PCP) was due to cease on 30 June 1997. This measure proposes to extend funding for the PCP for a further 12 months and provides $14.7 million for this purpose. Funding for the PCP in 1997-98 is to be provided to the States and Territories at the same level in real terms as was allocated in 1995-96. Considerable controversy followed the Government's announcement of a 10 % efficiency saving from the PCP in the 1996-97 Budget. This controversy developed further in 1996-97 due to discussion of the adequacy of palliative care funding and services during the euthanasia debate. Funding for palliative care beyond 1997-98 is to be considered in the context of negotiations between the Commonwealth and the State and Territory Governments over the new Medicare Agreements. The current Medicare Agreements are due to cease on 30 June 1998.

Several initiatives are proposed under this measure, which is designed to reduce costs and improve services for acute care hospital patients through improved management of the public acute care sector. The current Medicare Agreements contain several initiatives aimed at improving the performance of acute care hospitals. The initiatives in the 1997-98 Budget build upon and extend earlier initiatives and are focussed on three main areas: microeconomic reform, information technology, and performance information.

In the area of microeconomic reform, ways to improve the involvement of patients in their health care will be investigated. Examples could include the representation of consumers on hospital planning committees and their involvement in focus groups. Types of acute care which can be substituted by innovative services will also be investigated under this initiative.

National standards and specifications for electronic forms of patient records, electronic decision systems and electronic links between medical providers are proposed to be developed as part of this initiative. Issues of privacy and confidentiality are identified as key components to be resolved.

The Commonwealth Government is already working with the States and Territories and other stakeholders to develop indicators which can be used to monitor the current performance of the acute hospital sector as well as its progress towards reform. For example, the Steering Committee for the Review of Commonwealth-State Service Provision has produced two reports to date on Government Service Provision, which have included an evaluation of the performance of the public acute hospital sector in each State and Territory. The most recent report, for 1997, noted that 'more work is needed to produce valid and nationally comparable effectiveness and efficiency indicators for public acute hospitals' (p. xxxi). New funding provided under this Budget measure is expected to 'allow refinement of the indicators of hospital system performance and the treatment of specific conditions' (Health and Family Services Portfolio, Budget Fact Sheet No. 8).

The initiatives under this measure are proposed to be delivered in cooperation with the States and Territories and are expected to involve outlays by the Commonwealth of some $40.3 million over the four years from 1997-98.

The 1996-97 Budget introduced a series of structural changes to the Children's Services Program which redirected the financial responsibility for childcare more clearly on to the service user and which resulted in greater competitive neutrality between the private and not-for-profit service providers. These changes resulted in an average national weekly childcare cost increase to families with one child in care of about $20 and an estimated national reduction in child care centre use of about 20% (Health Insurance Commission, Monthly Program Statistics, March 1997). Childcare centre use is now of a similar level to that of early 1996.

This year's Budget continues this approach and redirects financial assistance away from non-work-related child care. It brings subsidy levels for after school care into line with payments for care in long day care centres, limits the growth of private sector child care places for the next two years and alters the timeframe and location for the provision of new Family Day care places. It also introduces payment of Childcare Assistance in arrears from 1 January 1999.

These measures will save the Commonwealth Government $292.6 million over the next four years.

The measures likely to have the greatest impact are those relating to the limits proposed to be placed on both non-work-related childcare assistance and private sector places which are eligible for childcare assistance.

The first of these measures introduces a limitation of 20 hours a week on financial assistance provided for non-work-related access to community and private long day care centres, family day care, outside school hours and vacation care services. The existing limitation is 50 hours a week.

Families wishing to access these services for more than 20 hours a week will receive no additional financial assistance unless they undergo a similar work test to that presently used in determining eligibility for Childcare Cash Rebate.

The measure may result in a reduction in the level of community based activity undertaken by families. It may also reduce the level of non-institutional personal development which presently occurs, and may encourage more formal training and work related activity.

The other measure limits the growth in private sector child care places to 7000 a year for the 1998 and 1999 calendar years. This figure equates to the anticipated labour market participation growth over the next two years by parents with young children. The Government estimates that total private sector demand growth over this period will be 22 000 places.

The 1996-97 Budget measures have had the effect of reducing the use of private and community sector childcare facilities, to the extent where many are reportedly becoming financially non-viable. It is inevitable that there will be facility closures over the next two years as market forces and demographics have their impact. The Government has stated it intends to encourage allocation of the 14 000 private sector places which will be eligible to attract Childcare Assistance in high need areas.

The issue will be what happens to the estimated 8000 private sector childcare places which will be required, but which will not attract Childcare Assistance eligibility. One possible result may be a continuation of the recent trend, of further reduction in the national numbers of two working parent families. (ABS Publication 6220.0 shows that there has been an increase of about 17% in women exiting the workforce because of childcare reasons.)

While the Budget measure provides for an increase of $74.1 million over the next four years in community carer support, this measure largely reflects changed administrative arrangements designed to better target assistance to carers. It redirects funds away from child disability allowance (CDA) payments and into domiciliary nursing care benefits (DNCB) paid to carers providing for aged and disabled people in their homes. There are also some minor changes in associated pharmaceutical benefits and carer payments.

The following table illustrates the net financial effect of the combined measures and illustrates the shift form CDA to DNCB (community carer support).

The net financial effect of the revised arrangements across the Health and Family Services and Social Security portfolios is a reduction in outlays of $17.3 million over four years. As well as this, carers of non-disabled adults will be eligible for part of the increased community carer support funds and may access these funds at the expense of carers of people with disabilities.

There has been very strong sector pressure for increased supported accommodation places to be made available for people with disabilities. This Budget provides for the Commonwealth to make available an additional $54 million over the next four years towards the cost of an additional 500 supported accommodation places.

Provision of accommodation is a State and Territory responsibility under the existing program arrangements. The effectiveness of this Budget proposal rests with the capacity and willingness of State and Territory Governments to contribute their $162 million share of the additional costs of providing the accommodation places.

The increase in supported accommodation places as outlined in the Budget is subject to the successful renegotiation of the Commonwealth-State Disability Agreement.

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