Current market drivers and the sustainability of the
This chapter discusses the following terms of reference:
(h) market drivers for costs in the Australian
healthcare system; and
(d) the implications for the ongoing sustainability
of the health system.
The Minister for Health, the Hon Peter Dutton MP has characterised the
ageing population, chronic disease and higher costs as the key drivers of costs
in the healthcare system. The Minister noted that these drivers have placed
increasing pressure on Medicare, the Pharmaceutical Benefits Scheme (PBS) and
Several submitters and witnesses also identified the ageing population
and increased incidence of chronic and long term illnesses as the key areas
placing additional pressure on the healthcare system.
Evidence to the inquiry suggested that these drivers will continue to
place additional pressure on health costs as the population ages and
individuals are required to manage chronic and complex illnesses for longer
periods. It was noted that the ability to respond to these changing health
needs is not reflected in the current model of funding.
The Australian Medical Association (AMA) explained that one of the
primary drivers of cost is the volume of treatment during episodes of care:
I think what that is referring to is not just the medical
costs associated with that care but also the other costs that come into play
with an episode of care. An episode of care might be, for instance, a hospital
admission, but there are a lot of other services that we now provide for
patients, including things like physiotherapy, occupational therapy, the use of
a pharmacist and a whole bunch of other allied health professionals. There is
an increase in the volume of services that are provided per episode, so it is
not just one fee but multiple fees across different providers.
Other witnesses also identified that individuals' health needs are
becoming more complex. Occupational Therapy Australia suggested that adopting a
multidisciplinary approach may assist health professionals to address these
complexities more efficiently. A multidisciplinary approach will facilitated improved
communication and improve efficiencies as there will be a reduction in
duplicating delivery of health care services.
Witnesses identified reforms to the PBS as a mechanism to reduce overall
expenditure in health. The Grattan Institute proposed a number of budget saving
initiatives that it considers should be pursued as alternatives to increasing
the PBS co-payment, including establishing an independent expert pharmaceutical
pricing authority. Dr Stephen Duckett, Director, Health Program suggested that
$580 million could be saved annually if the cost of Australian pharmaceuticals
was benchmarked internationally. Further to this, Dr Duckett suggested that the
government should consider a one-off price cut on all generic drugs.
The committee is aware that price disclosure is a routine part of
maintaining PBS listings for medicines where more than one brand has been
listed. The objective of the policy is to ensure that PBS prices for these
brands more closely reflect the prices in the market. Where discounting is
occurring as a result of competition, price disclosure progressively reduces the
price of PBS medicines and ensures better value for money. The Government
requires pharmaceutical companies to provide information relating to the sales
of brands subject to price disclosure. This information is then used to
determine the PBS price.
The Consumers Health Forum (CHF) recommended the acceleration of price
disclosure measures to reduce the cost of pharmaceuticals. CHF advised that
pharmaceutical prices are currently checked every 12 months and there would be
benefits if this timeframe was reduced and prices were checked more frequently.
Officials from the Department of Health explained that 326 drugs are
currently subject to price disclosure calculations. Since price disclosure
began in 2007, approximately 50 per cent of drugs have reduced in price. Under
simplified price disclosure (the new price disclosure process)
the calculation is undertaken after six months of data instead of 12 months.
Following the most recent price review, 95 drugs will reduce in price.
The Pharmacy Guild of Australia (the Pharmacy Guild) also expressed support
for price disclosure as an 'appropriate mechanism to ensure that prices paid
for PBS medicines reflect the competition in the market for those medicines'
and that expenditure on the PBS is now well contained as a result of price
However, the Guild noted that price disclosure is lowering remuneration levels
for community pharmacies which may limit the range of services that can be
provided by these pharmacies.
Access to comprehensive health data
The committee notes that an accurate understanding of the drivers of
costs in the healthcare system is dependent on the availability of reliable
health data. The committee notes advice received throughout the inquiry from a
range of witnesses that various data sets are either not routinely collected,
unavailable at the level of detail requested or unreliable due to the data
The committee recognises the value of drawing data from different sectors
of the health system together in order to develop a comprehensive understanding
of the interactions between health services as well as trends across different
sectors of the community.
The committee asked the Australian Institute of Health and Welfare about
the information that could be made available if MBS and PBS data was analysed
together. Representatives from the AIHW told the committee that:
The legislation as currently written precludes the linkage by
a Commonwealth agency of MBS and PBS data, so we are currently doing a range of
work where we can link the two. You can link Medicare data to a group of people
and separately you can link PBS data to that group of people but we as a
Commonwealth agency cannot actually bring those two together.
The committee discussed this further with the Department of Health and
was advised that such analysis was not currently possible due to the
legislative restrictions in place that prohibited sharing of each of these data
There are specific prohibitions on Medicare data, MBS data,
being linked with PBS data. That is within the health portfolio. There are
rules set by the Privacy Commissioner about the terms under which it can be
done, how long it can be kept, and how it has to be destroyed. Tax data is
surrounded by a whole raft of its own secrecy provisions. It is collected under
very strict conditions, and one of those very strict conditions is very tight
restraints on how it can be used to inform other things. So there is no routine
way we could seek to link those datasets.
The committee notes that some broad level data is publicly available on
the Department of Human Services website relating to particular areas of the
health system. While this data enables interested parties to gain a general
understanding of health services activity, the information is not available at a
sufficient level of detail to facilitate analysis and evaluation.
The committee notes the Australian Healthcare and Hospitals Association
(AHHA) submission that publication of more detailed bulk billing data would
support analysis of bulk billing practices at the patient level rather than the
service item level. The AHHA noted:
Readily accessible bulk-billing data reflects services (MBS
item numbers) and does not give an indication of the number of bulk-billed
individuals—data on the proportion of people who are bulk-billed, sometimes
bulk-billed and never bulk-billed should be publicly reported so that the
impact on out-of-pocket costs can be assessed.
Further detail on the distribution of these groups of people
by socio-economic status and by geographic region will also provide a more
informative analysis that reliance on existing publicly available data sets
which focus on the proportion of service items that are bulk-billed.
The Department advised the committee that work is currently being
undertaken to look at making more data available at a more detailed level.
Sustainability of the health system
In its report, the Commission of Audit highlighted projections from the
Productivity Commission that suggest Commonwealth Government spending on health
will rise from around 4 per cent of GDP in 2011–12 to 7 per cent in 2059–60.
The Commission observed that 'health care spending represents the
Commonwealth's single largest long-run fiscal challenge, with expenditure on
all major health programmes expected to grow strongly to 2023–24 and beyond'.
When discussing the proposed co-payments and the healthcare system
generally, Government Ministers have reflected on healthcare in Australia and
described the system as unsustainable, with particular focus on growth in
expenditure on the Medicare Benefits Schedule and the Pharmaceutical Benefits
Scheme. The introduction of co-payments has been explained as necessary to
increase the sustainability of the health system.
When discussing the PBS co-payment during Budget Estimates, Assistant
Minister for Health, Senator the Hon Fiona Nash noted that over the last 10
years, the PBS has risen by 80 per cent and in order to ensure that the system
is sustainable; decisions need to be made now to facilitate sustainability.
The Assistant Minister provided the following evidence about the
sustainability of the MBS:
We have gone from a cost of $8 billion for the MBS 10 years
ago. In , it was $13 billion and it has gone up to a bit over $18½ billion now.
It is projected to go to $34 billion. We have got 263 million free services
occurring at the moment. That is unsustainable. As has been very clearly
pointed out, we have chosen with the co-payment to put in place a change to the
system which we believe will make the system sustainable.
In proposing the new GP co-payment and the increase to the PBS
co-payment, it appears that these measures are intended to alleviate costs
associated with these two areas of the health system, with the intended result
being a more sustainable health system.
Several submitters and witnesses also expressed reservations regarding
predictions that costs associated with the MBS and the PBS are increasing
The AMA told the committee:
There is no evidence that our healthcare system is
unsustainable. When we look at the proportion of the federal budget that has
been spent on health care, in 2006 it was 18.1 per cent. In the last federal
budget it was 16.1 per cent. In fact, it has actually gone down. So, while the
overall amount might be going up, it is certainly not out of control. The
federal government's proportion of money that they contribute to the overall
health spending in Australia is still 41 per cent, and it has been between
about 40 and 43 per cent for the past 10 years.
Dr Duckett observed that Australia has a very efficient health system:
Australia has one of the most efficient health systems in the
world. We are below the OECD average in health expenditure and above the OECD
average in life expectancy. Although we have increased our spending on health
over the last decade or so, we have actually dramatically reduced the death
rate from people who die from conditions that the health system might be able
to address. When you are looking at sustainability, you look at both how much
you spend and what you get for your spending. We have got a very good health
system in international terms.
The Pharmacy Guild argued that there is overwhelming evidence that
current PBS expenditure is sustainable:
... and is in fact rising at a rate significantly lower than
the rest of the health system due to a combination of price disclosure and
strong competition in the community pharmacy sector.
Submitters and witnesses emphasised that the Australian healthcare system
is generally performing well overall and delivering good health outcomes across
a range of areas. At the same time, it was acknowledged that there are areas
where significant improvement is required to ensure that everyone is able to
access and benefit from the health system.
Evidence indicated that there would be benefit in undertaking a review
of all health services prior to implementing further reforms. Such a holistic
review would facilitate a better understanding of the health system overall and
the structural changes that may be required to service the community better.
This is particularly relevant given the connections and inter-relationships
between areas of the health system and the drivers of cost in different areas.
Effectiveness of co-payments to
increase sustainability of the health system
Several submitters and witnesses did not support the view that the
introduction of co-payments would ensure the sustainability of the health
system. In particular, evidence provided to the committee questioned whether
the introduction of a co-payment for GP visits and out-of-hospital pathology
and diagnostic imaging was the appropriate mechanism to address any perceived
sustainability issues in the healthcare system.
The committee received evidence that, instead of reducing health system
costs, co-payments would create cost and access barriers for those seeking
primary health care and therefore inhibit the management and treatment of
ongoing chronic conditions. Such barriers would in turn impact on the
sustainability of the healthcare system due to the high costs of receiving
Witnesses advocated for a broad review of the healthcare system that
would identify areas of reform and develop new and innovative models of health
financing and models of care. Such a broad review would analyse possible
changes to the health system in the context of their impact on other health
The Australian College of Nurse Practitioners submitted:
Conversely, to identify “real savings” and build
sustainability, the health system as a whole needs to be considered. This
includes building on the work that has already been done to successfully
introduce new models of care that are cost effective, safe and efficacious.
Integral to this is a systematic review of healthcare funding to ensure the
patient journey, through the system, is streamlined and efficient. Where
appropriate, it is suggested that funding needs to facilitate early
intervention and management in the community to avoid unnecessary hospitalisation.
Dr Stephen Duckett, Director, Health Program, Grattan Institute, argued
that, instead of the focus being on co-payments, the focus of healthcare
discussions should be about the problems in the system and how they can be
It is important that we are fiscally responsible in health
care, as in every area of expenditure. But in ensuring our financial rectitude
we need to look first to where we can save money without impacting adversely on
patients. The budget proposals jump too quickly to a cost-shifting solution
when there are cost-saving opportunities that have not been pursued.
The committee notes that the GP co-payment and the increase to the PBS
co-payment have been proposed as a mechanism to address issues affecting the
sustainability of the health system. Evidence provided to the inquiry
questioned both the appropriateness of these measures as well as the
effectiveness of the co-payments to increase the sustainability of the
healthcare system. On the basis of this evidence the committee believes that
the GP and PBS co-payments are likely to decrease patient access and make the
health system less sustainable over the long term.
The committee recognises that Australia's healthcare system requires
reform to both increase the effectiveness of the system and improve health
outcomes. The committee notes the evidence recommending that any further changes
should be informed by a much broader review of the healthcare system.
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