Research Note no. 6 2005–06
Not on my account! Cost-shifting in the Australian health system(1)
Accusations about cost-shifting are a constant in debates
about the Australian healthcare system.(2) This is particularly
so in disputes between the Commonwealth and states over funding of public
hospitals.(3) For example, Queensland Premier, Peter Beattie,
has argued that ‘there is no greater tragedy in modern federalism than
the Commonwealth’s neglect of health funding’ and that there is an urgent
need to address federal–state/territory duplication in the health sector.(4)
On the other hand, the federal Minister for Health and Ageing, Tony Abbott,
has argued that the states have ‘consistently under-funded’ public hospitals
and that, while they ‘invariably blame their public hospital problems
on lack of federal funding’, the Commonwealth’s share of such funding
under the Australian Health Care Agreements has actually increased.(5)
The need to deal with cost-shifting and overlapping
responsibilities in health care has also featured strongly in arguments
about the need for health system reform more generally. For example, former
New South Wales Premier, Bob Carr, has argued that ‘above all it is health
service delivery that demonstrates most clearly’ the ‘significant’ problems
of cost-shifting between the Commonwealth and the states.(6)
Tony Abbott has said that the main structural problem in the system is
that ‘the government that runs it only half funds it’, arguing that ‘the
only big [health] reform worth considering is giving one level of government—inevitably
the federal government—responsibility for the entire health system’.(7)
This Research Note provides an overview of the health
cost-shifting debate in Australia. It examines the complex division of
responsibilities for health care, and discusses areas in which cost-shifting
is said to occur. Using the example of public hospital funding, this Note
highlights the complexity of the cost-shifting debate and the difficulty
in obtaining data which can be used to definitively demonstrate when cost-shifting
occurs. It also highlights how both the complexity of the current system
and increasing cost pressures make at least some cost-shifting inevitable.
What is cost-shifting?
Cost-shifting occurs ‘when service delivery is arranged
so that responsibility for services can be transferred by one player in
the health services sector to programs financed by other players, without
the agreement of those other players’.(8) Opportunities for
cost-shifting exist as a result of complexity in the funding and delivery
arrangements in the health system, most particularly, the division of
responsibilities between the Commonwealth and state governments. Cost-shifting
often results from ‘perverse incentives’ in the system that make it more
financially beneficial to offload costs onto other jurisdictions, rather
than work in the interests of the overall health system.(9)
The Australian health system—a brief overview
The division of responsibilities for health care between
the Commonwealth and states is complex: one commentator has described
it as ‘one of the more mixed, disintegrated and confusing systems on earth’.(10)
There are many types and providers of services, and a range of funding
and regulatory mechanisms.
Broadly, the Commonwealth government’s major
contributions to the health system include:
-
the
two national subsidy schemes, Medicare, which subsidises payments
for services provided by doctors, and the Pharmaceutical Benefits
Scheme (PBS), which subsidises prescription medicines
-
shared
responsibility for funding for public hospital services through the
Australian Health Care Agreements with the state and territory governments:
under these agreements, the Commonwealth provides funding assistance
for the operation of public hospitals(11)
-
subsidisation of private health insurance through the 30 per cent
rebate on the cost of private health insurance premiums
-
funding
for a range of other health and health-related services, including
public health programs, residential aged care, and programs targeted
at specific populations, and
-
regulation
of various aspects of the health system, including the safety and
quality of pharmaceuticals and other therapeutic goods, and the private
health insurance industry.
The state and territory governments’ major contributions
to the health system include:
-
management of and shared responsibility for funding public hospitals
-
funding for and management of a range of community health services(12)
-
management
of ambulance services, and
-
regulation
of various aspects of the health system, including licensing and registration
of private hospitals, medical practitioners, and other health professionals.
The potential for cost-shifting
The division of health care responsibilities between
the Commonwealth and the states creates an environment where there are
many potential areas of cost-shifting (as well as blame-shifting or ‘buck-passing’
for problems or perceived problems).
The vexed issue of joint financing of public hospital
services provides several examples. For instance, the state premiers and
territory chief ministers often argue that the Commonwealth does not provide
an adequate contribution to the funding of public hospitals.(13)
The Commonwealth Government argues that state governments should manage
their resources more efficiently, for example by making better use of
GST revenue (though the question of distribution of GST revenue among
the states and territories is also a contentious issue).(14)
The complexity of debates about public hospital funding is discussed further
below.
The division in responsibility for the delivery of
health goods and services also gives rise to the potential for cost-shifting.
For example, it has been argued that there is an increasing trend for
public hospitals to discharge patients after fewer bed days than in previous
years for similar procedures, with the patient provided with a prescription
for medication to be taken at home.(15) While improvements
in medical technology largely account for the recent trend towards fewer
bed-days, nonetheless if a patient is discharged with a script for medicine
to be taken at home, then the cost of the medicine shifts from the state
government (responsible for public hospitals) to the Commonwealth (responsible
for subsidising the cost of pharmaceuticals through the PBS).
A similar cost-shifting incentive arguably exists in
the provision of specialist services by public hospitals: many public
hospitals offer specialist care through out-patient clinics, but given
the pressures on public hospital budgets, some commentators suggest that
public hospitals are ‘loath to continue’ providing these services on an
outpatient basis, and would prefer their patients to seek specialist care
outside the hospital system, where the Commonwealth picks up the cost
under Medicare.(16)
On the other hand, there is an argument that the decline
in Medicare bulk-billing rates in recent years (a Commonwealth government
responsibility) means that access to, and affordability of, general practitioner
(GP) services is compromised. Consequently, so this argument goes, people
who cannot afford or do not want to pay for GP services present at emergency
departments seeking GP-style care, which puts pressure on the public hospital
system.(17) Whether or not this is the case is hotly contested:
for the purposes of this paper, the point is that the division of responsibilities
between different levels of government at the interface between the primary
and public acute-care sectors creates the potential for cost-shifting.
Similarly, it is sometimes argued that the division
of responsibilities between hospitals and the aged-care system (whereby
the states run the former and the Commonwealth is responsible for the
latter) creates an incentive for the Commonwealth to under-fund the aged-care
sector, thereby shifting some costs for aged care to the states, since
old people are often in public hospital beds while waiting for an aged-care
place.(18) Again, this is contentious—but the point is that
the potential for cost-shifting exists.
Data on cost-shifting: the public hospitals debate
While there is much debate about the potential for
cost-shifting in the Australian health system, in many areas there is
little data which can be used to definitively demonstrate the various
claims made in this debate. This part of the paper uses the example of
funding for public hospitals to demonstrate how this is the case.
The debate over cost-shifting in recent years has been
underpinned by a series of claims and counter-claims by Commonwealth and
state governments over the adequacy of expenditure by each jurisdiction
on public hospitals.
Claim 1: The Commonwealth under-funds public
hospitals
As noted, the states have consistently argued that
the Commonwealth has reduced funding under the current Australian Health
Care Agreements (AHCAs).(19)
The current AHCAs for the period 2003–08 were signed
in 2003. This took place amidst some controversy: while the Commonwealth
argued that the $42 billion that would be provided represented a 17 per
cent increase on the funding provided under the previous agreements,
the premiers and chief ministers argued that $1 billion had been cut.(20)
Further, the states and territories routinely argue that current levels
of Commonwealth public hospital funding are insufficient, given that hospitals
and health care are the fastest growing areas of state expenditure.(21)
This demonstrates the vexed nature of public hospital
funding. On one hand, the funding provided under the current round of
AHCAs is an increase on that provided under the previous AHCAs, as the
Commonwealth points out.(22) On the other hand, the states
are correct in pointing out that $918 million was taken out of the forward
estimates—that is, planned Commonwealth expenditure—for public
hospitals for the period 2003–04 to 2006–07.(23)
While state leaders (and federal Labor) claim that
the revised-down forward estimates represent a funding cut, the Commonwealth
explains the variation from previous estimates as the result of a ‘greater
proportion of public hospital services provided to non-admitted patients
and a reduction in public hospital usage growth beyond growth resulting
from demographic changes’.(24) In other words, the Commonwealth
argues that hospitals are providing more outpatient services (which is
less resource-intensive), and demand for hospital services is not expanding
any more than would be expected as a result of population changes.
Claim 2: The states should manage their money
better
The Commonwealth has frequently responded to complaints
about the reduction in AHCAs funding by arguing that the states should
make better use of the financial ‘windfall’ provided by GST revenue.(25)
The distribution of GST revenue among the states is
a complex and highly-contested political issue. GST revenue is allocated
on the basis of calculations provided by the Commonwealth Grants Commission.
Allocations are not provided on a per capita basis, but rather through
what is known as horizontal fiscal equalisation. Under this process, GST
revenue is shared in such a way as to enable each state to be able to
provide the same standard of services. The more ‘disadvantaged’ jurisdictions
(measured via complex formulae developed by the Grants Commission) such
as Tasmania and the Northern Territory are therefore provided with GST
funding deemed necessary to bring them to the standard of more ‘advantaged’
jurisdictions such as NSW.
GST revenue has increased over the last four
financial years for all states, and in most cases is forecast to remain
fairly constant or increase slightly over the next two years.(26)
However, while it is true that the states have, in aggregate, enjoyed
‘windfall’ gains—an excess of GST revenue over the amount they would have
received under the previous funding formula—the distribution of those
gains has been uneven, with states such as NSW and Victoria arguing that
they are being disadvantaged under current arrangements.(27)
To 2004–05, Queensland has been the largest beneficiary,
receiving the largest estimated windfall ($800 million).(28)
On the other hand, NSW received its first windfall only in 2004–05 ($60
million).(29) Further, NSW is not projected to receive gains
in 2006–07 to 2008–09.(30) In short, the ability of different
states to use ‘windfalls’ to fund health (or other areas) differs among
the states.
Nor is it clear that, as implied by the Commonwealth,
the states are avoiding their responsibilities in funding health services.
Data from the Australian Institute of Health and Welfare shows that total
expenditure on public hospitals across the states has risen in recent
years.(31) This trend is set to continue, given the ageing
of the population and advances in medical technology which often lead
to more expensive treatments.(32) As such, the proposition
that the states can address their health funding problems simply through
better management of their resources is far from straightforward.
Where does the truth lie?
Essentially, there is data which can be used in support
of each of the claims outlined above: Commonwealth contributions to the
states for public hospitals have increased over recent years, though the
Commonwealth did reduce planned expenditure under the current AHCAs.
Similarly, GST revenue to the states has increased over recent years,
but so too has state expenditure on public hospitals—a trend which is
likely to continue into the future.
Indeed, it is likely that the issue of hospital funding
is much more complex than the zero-sum game presented in the ongoing debates
between the Commonwealth and the states. It is probably the case that
each level of government could be increasing its level of expenditure
on public hospitals and that the states could be ‘awash’ with GST funding,
but that this may still be insufficient to meet the rising costs of
providing public health services in Australia.
Conclusions
The example of public hospital funding demonstrates
that while the issues and problems associated with cost-shifting in the
health care system are real, much of the debate is rhetorical rather than
evidence-based. This is also the case for many of the debates about cost-shifting
in other areas of the health system.
Signs of greater collaboration between the Commonwealth
and state governments to end cost-shifting were evident in reforms announced
as part of the Council of Australian Governments (COAG) meeting in June
2005. COAG agreed on measures that could alleviate cost-shifting in the
hospital sector, including aged-care-sector reform in order to shift older
people from hospitals to nursing homes, stronger emphasis on illness prevention
to keep people out of hospital, and a national call centre to reduce hospital
admissions.(33)
While this apparent cooperation over cost-shifting
in the public hospital sector is to be welcomed, it is doubtful that it
will put an end to disputes about ‘who pays for what’ in health, since,
as discussed above, accusations of cost-shifting extend beyond the hospital
sector. Currently, there are programs in place which may help overcome
health cost-shifting in some areas (such as moves towards better coordinated
care). However, in the absence of structural reform which addresses the
source of cost-shifting (that is, the haphazard division of responsibilities
within the federal system), and greater reform towards models of care
which better streamline health service delivery, debates over how the
health care dollar is best spent are not likely to go away.
Endnotes
1.
Thanks to the following people for helpful advice and comments
on an earlier version of this paper: Mandy Biggs, Carol Kempner and Richard
Webb from the Parliamentary Library; and Stephen Leeder, professor of
Public Health and Community Medicine at the University of Sydney.
2.
While this Note confines
itself to the debate over Commonwealth-state responsibilities in healthcare,
the term cost-shifting is also used in other contexts within the health
system (such as in the argument that patient co-payments amount to cost-shifting
from government to consumers).
3.
In this Note references to
the ‘states’ should be read as to the ‘states and territories’.
4.
Hon. Peter Beattie cited
in A. Clark, ‘Carr to PM: I’ll cut tax if you fix health’, Australian
Financial Review, 17 March
2005, p. 1.
5.
Hon. Tony Abbott, Minister
for Health and Ageing, Medicare’s
Best Friend—Speech to the Sydney Institute, speech, Sydney Institute,
Sydney, 15
September 2004, p. 4.
6.
Hon. Bob Carr, cited in
S.
Hannaford, ‘No
talks unless health cuts reversed: Corbell’, Canberra Times, 21 October
2004, p. 3.
7.
Hon. Tony Abbott, cited
in S. Lewis, ‘Health cuts bad: Abbott’, The Australian, 12
August 2005, p. 5.
8.
B. Ross, J. Snasdell-Taylor,
Y. Cass and S. Azmi, Health
financing in Australia: the objectives and players, Occasional
Papers: Health Financing Series, Volume 1, 1999, p. 38.
9.
ibid.
10.
S. Leeder, ‘We have come to raise Medicare, not to bury it’, Australian
Health Review, vol. 21, no. 2, 1998, p. 30.
11.
The current agreements are
for the years 2003–08.
12.
The Commonwealth Government
does however provide some funding support for the provision of these sorts
of services, for example through the Public Health Outcome Funding Agreements;
see the Department of Health and Ageing (DoHA) website: http://www.health.gov.au/internet/wcms/publishing.nsf/Content/Public
+Health+Outcome+Funding+Agreements+(PHOFAs)-1 (accessed 16 August
2005).
13.
F. Brenchley, ‘Health shake-up
to save $500m’, Australian Financial Review, 6
September 2004, p. 1.
14.
See for example, Hon. Tony Abbott, op. cit.
15.
K.
J. Harvey, ‘The Pharmaceutical Benefits
Scheme 2003–2004’, Australia and New Zealand Health Policy, vol.
2, no. 2, 2005.
16.
J. Dwyer, ‘Moving from a
Provider- to a Patient-focused Health Care System: The Health Reform Imperative’,
Health Issues, vol. 81, Summer 2004, p. 11.
17.
J. Menadue, ‘The five
key issues in health’, New Matilda, 9
September 2004.
18.
See, for example, M. Steketee, ‘Paying
for patients not a virtue’, The Australian, 21
October 2004, p. 2.
19.
See for example, A. Clark, op. cit.;
F. Brenchley, op. cit.
20.
D.
Cronin, ‘Health groups say $42b offer hurts patients’, Canberra
Times, 27 August
2003, p. 2.
21.
A. Clark, op. cit.
22.
The Commonwealth will spend
$42 billion on the 2003–08 AHCAs, a nominal increase of around 32 per
cent on the $31.7 billion spent under the 1998–2003 agreements. See The
state of our public hospitals, June 2004 report, DoHA, Canberra, 2004,
p. 16, and the DoHA website: http://www.health.gov.au/internet/wcms/publishing.nsf/
Content/Australian+Health+Care+Agreements-1 (accessed 23
August 2005).
23.
Portfolio
Budget Statements 2003–04, Health and Ageing Portfolio, p. 106.
24.
The government also argued
that the change in usage growth is partly the result of ‘more services
being provided in private hospitals following the introduction of the
Government’s 30 per cent Private Health Insurance Rebate and Lifetime
Health Cover’. Portfolio
Budget Statements 2003–04, Health and Ageing Portfolio, p. 107.
25.
See for example, Hon. Tony Abbott, op. cit.
26.
Budget Paper No. 3, 2005–06, p. 7; National Income, Expenditure and
Product, ABS (5206.0); Budget Paper No. 1, 2005–06, pp. 3–7.
27.
See for example, P. Malone, ‘Doling
out the GST dollars’, Canberra Times, 14
May 2005, p. 4.
28.
Hon. Peter Costello, Treasurer,
GST
windfall funding the elimination of state taxes, media release,
Canberra, 10
May 2005.
29.
ibid.
30.
ibid.
31.
Australian Institute for
Health and Welfare, Health Expenditure
Australia 2002-03, Canberra, 2004. The relative share of public hospital funding
between the Commonwealth and the states varies from state to state.
32. For example,
the Productivity Commission has predicted that healthcare costs will rise
by about 4.5 percentage points of GDP by 2044–45 as a result of such factors
as ageing and technological development. See Productivity Commission,
Economic impacts of an ageing
Australia, Research Report, Productivity Commission, Canberra,
2005, p. 143.
33.
A. Stafford, ‘Government ceasefire on cost-shifting’, Australian
Financial Review, 6 July 2005, p. 5.
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