March to national health reform continues, but slowly.

Australia's health care system is complex. Thirty percent of the population is privately insured. The remainder is covered by universal health insurance. This is a federally financed system, supported by agreements with each of the states and territories, which are responsible for operation of hospitals, community services, and some other health care and which also directly fund some of these services. The medical profession receives its funds largely (85 percent) through the federal government but bills patients on a fee-for-service basis.

Australia does not have the same objectives and goals enshrined in a national health act that some other countries have. These objectives and goals are not seen as being as important in identifying Australia as a nation and in defining Australian citizenship as in other countries. Despite these complexities and informalities, there is a shared value and commitment for health services within Australia, and these values and commitment occur within a very diverse system.

Australia has at least four different systems of care involving both Commonwealth and state programs. These systems work through a mosaic of arrangements, often hat give very good service to patients and communities. The balance of public and private services is between that of the United States and those of Canada and the United Kingdom. However, it is probable that

Australia has much to offer these systems in terms of experience and operation as both move closer to the balance between public and private services that exists in Australia Australia has a mixed public and private health system. The federal government has a constitutional role in health and operates it through the Health Insurance Act and the Health Act. Since 1984, a system of universal health insurance has guaranteed all residents of Australia free treatment in public hospitals in exchange for a levy that presently is 1.4 percent of personal income. The system is supplemented by federal government fee-for-service payments, through the Health Insurance Commission, to medical practitioners for patients treated in their offices and for private patients in private and public hospitals.

State governments have principal responsibility for the operation of hospital and health care systems. They receive substantial funding through Medicare agreements that exist between each state and the Commonwealth and apply state revenue to the operation of recognized hospitals. These funds are also applied to public health, preventive, and community health services, including dental services. The state government provides school dental services and adult dental care to pensioner and health benefit card holders. The private hospital system accounts for approximately 15 percent of total expenditures by hospitals, and private hospitals receive their revenue from charges that are reimbursed through private health insurance funds. The strength of the private hospital system varies from state to state. Private hospitals are a mixture of private for-profit (taxable), charitable not-for-profit, and community not-for-profit hospitals.

The federal government is the principal funder of hostel and nursing home schemes and provides benefits to approved operators for caring for patients. State governments have some involvement in nursing homes but are not major funders or operators.

The mix between public and private institutions has been under stress recently because of the shift to citizens' dependence on the public sector as a result of Medicare funding arrangements. The number of persons in the population holding private hospital insurance has dropped from about 70 percent in 1984 to approximately 32 percent in 1994. Accompanying this change has been a drop in the early part of that decade in the Commonwealth contribution to the funding of recognized public hospitals. It is estimated that 1.7 million Australians have dropped private hospital and health insurance over the past six years. This population now depends on the public hospital system. More recently, and since the federal election in March 1993, the Commonwealth has increased its contributions to the Medicare hospital funding agreements.

Health expenditures in Australia increased at an average annual rate of 4.2 percent over the past decade. The percentage of GDP consumed by health has risen from 7.7 to 8.5 percent in that period. The private sector share of health expenditures has risen from 28 to 32 percent, and the public sector share has fallen from 46 to 44 percent for the Commonwealth and from 26 to 23 percent for state governments. The Commonwealth's share of health expenditure fell in the latter half of the 1980s but since 1989 has risen from 42 to 44 percent of expenditures. The health services' CPI rose more than twice as fast as the general CPI during the past decade.

In recent times, waiting lists for elective surgery in public hospitals have been a major issue in Australia. Funding stress in public hospitals, increasing difficulties in dealing with waiting lists, and concerns by the private sector about the diminishing percentage of the population able to access private hospital care have maintained health issues as one of the two or three major issues that are prominent in federal and state elections. New South Wales state elections held at the end of March 1995 saw a change of government. Health figured prominently in the issues that influenced voters in the election.

The federal government has had three Ministers since 1993. However, its overall policy has been to renovate Medicare and maintain the basic principles underpinning Medicare, i.e., universal health insurance through a taxation levy and guaranteed provision of basic public hospital care to all Australian residents. More recently, the Commonwealth has been reacting to several initiatives taken at the state level: case-mix funding, privatization, contracting for services, cost-shifting, and compliance with the Medicare Agreements.

The Commonwealth has been a strong promoter of the use of diagnosis-related groups as an output measure for funding of acute hospital services. It has incorporated this element in a package that might be described as a managed care/preferred provider arrangement for persons using private hospital services. The reforms are aimed at widening the choice of health insurance products and allowing patients to purchase health coverage that eliminates out-of-pocket costs. The basis of these changes is a purchaser-provider agreement between health funds and hospitals and the medical community. It is intended that current daily charges covered by private health insurance be replaced with a case-mix payment that covers the total patient care episode. This will have the intended effect of hospitals' and doctors' forming alliances to develop care packages covering both medical and hospital fees and health funds' contracting with preferred providers. In essence, it is a form of managed care applied to the Australian private hospital sector. Legislation to enact these reforms, plus other changes in the nature of private health insurance companies, is presently before Parliament. It is likely to be substantially amended and, at the time of this writing, has not been passed. The medical profession has actively opposed these changes.

Fee-for-service payments by the Commonwealth to medical practitioners appear to have been contained within cost of living and population increases. Pathology payments are the exception and have increased substantially, by 8 percent in 1994 and 11 percent in 1993. These pathology payments are volume-driven and represent a significant control challenge for the Commonwealth. The other significant category of service in the Medicare Benefit Schedule that has increased above CPI and population growth has been radiology. Reviews of appropriateness of use to contain expenditures in radiology have been established.

The Commonwealth has been seriously concerned about cost-shifting between the states and the Commonwealth. Although there are examples of shifting of costs both ways, the Commonwealth is of the view that privatization and other issues are being used to reduce the burden of public health services on state governments and to shift costs to Commonwealth fee-for-service Medicare benefits funded services at a time when the Commonwealth's contribution to Medicare grants has increased. Many hospitals have converted their outpatient services to private outpatient services using bulk billing. The Commonwealth is convinced that many of the privatization proposals involving public hospitals have resulted in cost-shifting. This particularly applies to pathology. The current rules governing the use of pathology make it impossible for the Commonwealth to monitor or manage this aspect of Medicare benefits payments, even though the cost-shifting is technically illegal. The Commonwealth has stepped up pressure on the states over cost-shifting and more recently has warned individual medical practitioners of legal action if they are found to be cost-shifting. One major metropolitan hospital, as a result of pressure from the Commonwealth, has abandoned "bulk billing" of its outpatients through Medicare and has returned to a state-funded public outpatient service.

Health outcomes has been a major issue for many health authorities in Australia. The lead has come from the New South Wales Health Department, where a policy decision to establish a systematic form of health outcomes assessment has been taken and work is being undertaken to implement health outcomes reforms within the News South Wales health system. The Australian Institute of Health (AIH) also has supported health outcomes development by establishing an information clearing house and by actively promoting education through seminars for health professionals. AIH, the New South Wales Health Department, and other bodies are actively working to refine measures and descriptions of health status to support monitoring of health outcomes associated with health interventions and to establish methodological programs that provide valid and reliable information on the outcomes of health interventions.

Some three years ago, state and federal health ministers decided to cooperate to rationalize the funding and provision of health services. One of the key areas in that agreement was ambulatory care services, currently jointly funded by the Commonwealth through the Medicare benefits fee-for-service system for private patients and by the states through public hospital outpatient services provided through the Medicare agreement. The joint agreement reached a decision that there should be a unified funding mechanism for ambulatory care services and that it should be provided through the Commonwealth. This decision was generally applauded throughout the community and the industry; however, little progress toward this goal has been made.

More recently, a document outlining reforms to the health system has been prepared for general discussion by state and federal governments. This work is part of an overall approach by federal and state governments to review policies underpinning services funded by government, to minimize waste and duplication between different levels of government, and to improve services. The key elements of these reforms involve:

* Services structured within three care streams--general, acute, and coordinated care.

* Funding, planning, and management arrangements that enable services to be designed and delivered so that they meet needs more effectively and provide incentives for good service delivery and cost containment.

* An improved health and community services database to support the above arrangement.

A number of specific issues have been raised in this joint paper, which is presently out for discussion in the community. Already there is debate and concern about the logic of the three streams of care, and it is unlikely that quick or easy resolution of the maze of health system arrangements will be achieved. The federal Minister of Health has raised the importance of these reforms in recent public statements as a result of serious financial problems in funding hospitals. In some states, health professionals and hospital managers have suggested that the whole health system change to direct funding by the Commonwealth. While the Commonwealth is seriously attracted to this idea, it is aware that a move in this direction would cause a major rift in federal/state relationships. The Commonwealth recognizes that some reforms must be made and is proposing a middle course, where funding and control of funding rest with the Commonwealth but provision of services is likely to remain with the states.

In the 1992 National Update on Australian Health,(*) it was reported that one of the major public and political issues was waiting lists for elective surgery. Despite much activity, funding and review of waiting lists remain a serious issue in all states. Many governments have, either through case-mix or other funding proposals, promised to eliminate waiting list problems or reduce them substantially, only to find that waiting lists constructed and measured on a basis that increases community awareness and political sensitivity are subject to manipulation at many levels and are associated with a never-ending demand for elective surgery.

At a state level, New South Wales has continued to concentrate on regional delivery of health care. The application of a resource allocation formula based on population, the use of case-mix or DRG funding of hospitals within such a formula, and the emphasis on health outcomes are major policy goals. At the time of this writing, the New South Wales government has changed from Liberal/National Coalition to Labor. New South Wales appears to have been more protected than some other states over the past year because of the election environment on the issue of funding of hospitals. The election period provided a competitive climate for the major parties to outbid each other in funding hospitals and securing votes. It is too early to tell whether this situation will change, but if New South Wales has health issues similar to those of the rest of Australia, it is likely the bubble will burst.

Victoria has stolen the march by being the first state to introduce fully case-mix funding using DRGS modified to Australian national weights. The first year of funding was a year of excitement, with much publicity about the new efficiencies and the new vigor in the hospital system. However, it is also apparent that case-mix funding was introduced simultaneously with very significant overall cuts to hospital funding, and, despite significant increases in throughput and productivity, hospitals were unable to sustain this approach and also balance budgets in a year of substantial budget cuts. As a result, cracks began to appear in the second year of these funding arrangements, and the Premier of Victoria personally intervened by providing a bailout to teaching hospitals. He has instituted a 50-year forward plan for the provision of acute care services. This review appears to be leading to a major rationalization and amalgamation of acute care facilities in metropolitan Victoria. Victoria has also been prominent in introducing Medicare billing for public outpatient facilities, in contracting for a wide range of services, in supporting privatization of services, and in allowing very substantial debts by a large number of major acute care institutions to accumulate and threaten the long-term viability of many long-term care health organizations.

Western Australia has had a series of major policy changes, with the successful establishment of regions in the metropolitan area. This, in turn, has been replaced by purchaser/provider arrangements, and pioneering of a new policy on contestability that is a sophisticated form of contracting aimed at preventing destabilization of acute hospital services. However, because of changes in ministers and dramatic changes in ministerial policies, these reforms have been pragmatically varied at short notice.

Queensland has had a significant change in staffing structure, has established regions and regional funding, and has embarked on a ambitious program of capital development. This is a significant change for a state that has had a very low-cost public health system for many decades. Case-mix is being used within regions as a management tool rather than as a funding basis.

South Australia has followed Victoria into case-mix funding and, having established case-mix funding in the context of significant budgetary reductions, now proposes to abolish the Health Commission, to establish a Health Act with significantly increased powers for the Minister and the Head of the Department, and to introduce purchaser/provider arrangements in acute health care institutions. It has privatized some public hospitals and is supporting contracting or privatization of other services.

The picture across Australia is one of significant reform, downsizing, and continual change at a pace that is stressing the health industry. There is substantial insecurity, with rapid turnover of many senior health managers at all levels. The situation is very fluid, and no clear directions are as yet emerging. It is evident that further change and restructuring will occur over the next two years. It is difficult to predict how far into the future stable but radically changed systems will eventuate when these reforms are implemented. However, they are being driven by the perilous financial position of state governments inherited over the past 10 years. The attempt by states to control the health agenda and the continuing development of power and influence by the Commonwealth in all health matters contributes to tensions. This is reflected in the current debate over the roles of the states and the federal government. While health is one of two or three of the most important issues affecting Australians in federal and state elections, ultimate resolution of the organization and provision of health services in Australia is likely to depend on any agreement arising out of cooperation between the federal and state governments.

RELATED ARTICLE: New Scenario

Before Dr. Cicero was hired as Senior Vice President for Medical Affairs at Retro Hospital, he had served as Vice President for Medical Affairs at Avanza Medical Center. Most of the reasons for the move had proved valid. He had wanted to be in a position in which he was on the leading edge of health care delivery and financing issues, and Retro was a leader at both the state and local levels. Its CEO, Lester Engan, was a dynamo. He understood the changes taking place in the health care field and was fearless in his pursuit of a key role for the hospital. His attitude and style made for exciting times for all hospital managers. Dr. Cicero was, in the main, delighted with his new position. There was a downside, however, and he wasn't sure how to handle it.

In previous positions, Dr. Cicero had been an active participant in various medical and health care organizations, making presentations at meetings, serving as faculty for educational programs, and contributing articles to professional journals on both management and medical topics. His curriculum vitae was replete with evidence of his intense involvement in the information dissemination aspects of his profession. More important, he enjoyed these contributions and believed that they served his employer as well as himself. However, his CEO was less enthusiastic about energies directed outside Retro Hospital and had made it clear that Dr. Cicero needed to wind down his speaking engagements and spend less time on writing commitments. Dr. Cicero had taken on only one new speaking assignment since joining Retro and that would soon be a past event. He also had greatly curtailed his writing activities because of the press of hospital duties.

Although Dr. Cicero had tried in the past to convince the CEO that these so-called "extracurricular activities" accrued benefits to the hospital, his efforts had failed. Lester did not want to channel funds or time to them. It was important to Dr. Cicero, however, so he wondered if there was a final argument he might muster that would finally convince the CEO that the public visibility was worth the cost. What would you advise Dr. Cicero? Should he try one last time? If so, how should he structure his approach?

RELATED ARTICLE:

In this issue of Physician Executive, we present a new management problem for readers' consideration. If you have a solution to the dilemma described below, please send it to the Managing Editor, Physician Executive, Suite 200, 4890 W. Kennedy Blvd., Tampa, Fla. 33609, FAX it to 813/287-8993, or call 800/562-8088. Responses must be received by May 14 in order to be used in the July 1996 issue of the journal. If you have a scenario that you would like to have considered for the column, please send it to the Managing Editor.

(*) Kearney, B. "Overview of a System Poised for Change." Physician Executive 19(1):18-23, Jan.-Feb. 1993.

Brendon J. Kearny is CEO, Royal Adelaide Hospital, Adelaide, South Australia. He may be reached at North Terrace, Adelaide, South Australia 5000, Australia, [phone], FAX [phone].