HEALTHCARE FINANCING REFORM IN AUSTRALIA International Hospital Federation Congress 2001 Pre Congress Health Summit, Hong Kong 14 May 2001 Presented by Mark Cormack, National Director Australian Healthcare Association

Healthcare Financing Reform in Australia Overview of Government Responsibilities for Healthcare Finance Sources, Growth, Expenditure Profile of Hospital Services Health Financing Reform Health Insurance Pharmaceutical Benefits Casemix Funding of Acute Hospital Care Medical Services Payments

Government Responsibilities for Healthcare Population 18.7 Million Settlement concentrated in coastal cities & regions Government Federal system since tiers Commonwealth, 6 States & 2 Territories Local, Municipal

Government Responsibilities for Healthcare The National Healthcare Package Medicare Hospital care – emergency, elective and continuing care from a public hospital. National, compulsory health insurance scheme, tax funded. Medical & optometric care – ambulatory and in-hospital Other programs Pharmaceutical Benefits Scheme Aged Care Community & Allied Healthcare Private Health Insurance Subsidy – 30%

Government Responsibilities for Healthcare Commonwealth (National) Responsibilities Leadership in health policy – national initiatives Funding medical services – Medical Benefits Schedule (MBS) and pharmaceuticals - Pharmaceutical Benefits Scheme (PBS) Joint funding of public hospital and related healthcare services with States / Territories Funding of residential and community based aged care services. Private Health Insurance – regulation, subsidy program Special Health Programs – indigenous health, veterans services Research funding

Government Responsibilities for Healthcare State / Territory Responsibilities Joint funding of public hospital and related services with Commonwealth Purchasing and delivery of public hospital, community, allied health and related services. Provision of care services for older people Public & environmental health Regulation of health professionals and health facilities Research

Private & Non-Government Sector Role in Health Care 1.Private Health Insurance 2.Private Hospitals 3.Aged & Community Care 4.Medical Practitioners 5.Dental and Allied Healthcare 6.Diagnostic & Laboratory Services 7.Pharmaceutical Dispensing

Financing Healthcare – Sources 1998/99 Total Expenditure A$ 50.3 BN

Financing Healthcare

Financing Healthcare - Growth

Healthcare Expenditure - Type

Profile of Hospital Services From – Private Hospital proportion of total activity increased from 29.9% to 32% Overall utilisation per 1000 persons increased by 9.7% Day only admissions increased from 40.2% % of total Average stay decreased from 4.3 to 3.9 days Beds per 1000 decreased from 3.3 to 2.9 Structure Networks of public hospitals and community based services under integrated area / regional management. Private and not for profit hospitals merging and vertical integration. Private Hospitals have more restricted range of services and lower overall complexity (Cost weight=0.91 v 0.99 public)

Health Financing Reforms - Key Drivers 1.Management of financial risk associated with uncapped national programs – Commonwealth a.Pharmaceutical Benefits b.Medical Benefits 2.Management of political and social risk associated with capped, jointly funded hospital programs – State & Territory. a.Technical Efficiency b.Rationing services 3.Differing views on the role of the private sector. a.Complementary b.Duplicate System

Health Financing Reforms – Pharmaceutical Benefits Scheme Key Features of PBS 1.Co-payments Access to a comprehensive range of drugs with affordable co-payment dispensed by private sector pharmacies 2.Control of Drugs on the Schedule Clinical and cost effectiveness Generic substitution 3.Monopsony purchasing arrangements 4.Reductions in dispensing overheads 5.Low overall cost to government; affordable access to consumers

Health Financing Reforms – Casemix / episode funding of acute hospital care Key Features National casemix development program introduced as part of Commonwealth: State Health Financing Agreement AN – DRGs developed and progressively revised and updated Implemented for the funding of acute hospitals progressively from 1993; now in place in all States/Territories for most hospitals Functions National – monitor utilisation and performance in Commonwealth State hospital funding agreements State / Territory – Allocation and purchasing of hospital services Private Insurers – Purchasing and Payment Providers – planning, benchmarking and quality improvement

Health Financing Reforms – Casemix / episode funding of acute hospital care Developments National Hospital Cost Data Collection Sub acute, non acute and rehabilitation classification system Ambulatory classification system Technical efficiency gains in a capped funding environment

Health Financing Reforms – Private Health Insurance PHI Coverage Private hospital care Choice of medical practitioner Medical co-payment Ancillary / extras cover Recent problems and Issues High premium cost and annual increases High co-payments for medical components Competition with a free, good quality public system Community rating

Health Financing Reforms – Private Health Insurance Consequences Decline in membership – 50% (1984) to 30.5%(1998) Selective use of public and private systems due to co-payments Pressure on the public system Financial viability of the PHI funds Government Initiatives 1% income tax levy for high income earners (1998) Subsidy of 30% for all PHI fund members (1999) Legislation Co-payments; price control; prudential arrangements; consumer information Abolition of community rating; replaced by Lifetime Healthcover (2000)

Health Financing Reforms – Private Health Insurance Results so far PHI coverage up from 30.5% (1998) to 45.4% (2000) Increase in proportion % of claims with no co-payment from 50% to 65% 27% increase in the PHI fund reserves in 12 months Minimal or no increases in PHI premiums $A 2.0 BN cost to government or 5.7% of total government sourced health expenditure (0% in 1996)

Health Financing Reforms – Private Health Insurance Criticism 1.Impact on public hospital activity 2.New PHI fund members are young, low risk 3.High cost 4.Opportunity Cost 5.Range of causal factors Subsidy, tax impost, Lifetime Healthcover 6.Durability & cost effectiveness

Health Financing Reforms Medical Services Payments Medicare (MBS) Patient billing versus Bulk Billing (71.2%) Cost Containment 1.Supply of medical practitioners 2.Restrictions on new technology 3.Primary care gateways 4.Restrictions on level of benefits paid 5.Blended payment methods 6.Capping agreements Results 4.9 % p.a. average growth since 1989/90

Health Financing Reforms Next Steps & Conclusion 1.Gradual, not revolutionary reform 2.No change to Medicare as the central policy setting 3.Trial / pilots to reform Commonwealth: State issues 4.Political dynamics

Mark Cormack National Director Australian Healthcare Association Web: m. AHA National Congress 2001 Fremantle, Western Australia 13 – 14 September 2001 For more about Australia’s Health Care system ………………..