Overview of a system poised for change.

Beginning in this issue of Physician Executive, a regular column will appear under the auspices of the Royal Australian College of Medical Administrators. Physician Executive is distributed to about 300 members of RACMA. While the column will be written from the Australian perspective primarily for our Australian readers, it will also be of interest to ACPE members. In this first entry, the column describes the current status of the Australian health care systems and the prospects for changes going into national elections later in the year.

Australia has a mixed public and private health system. The federal government has a constitutional role in health and operates through the Health Insurance Act and the Health Act. Since 1984, a system of Universal Health Insurance has existed that guarantees all residents of Australia free treatment in public hospitals in exchange for a levy that, at the moment, is 1.25 percent of personal income. This system is supplemented by federal government fee-for-service payments, through the Health Insurance Commission, to medical practitioners for patients treated by medical practitioners in their rooms and for private patients in private and public hospitals.

The state governments have the principal responsibility for the operation of the hospital and health care systems. They receive substantial funding through the Medicare agreements that exist between each state and the Commonwealth but they also apply state revenue to the operation of recognized hospitals. These funds are also applied to public health and 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 expenditure 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. The private hospitals are a mixture of private, for-profit, taxable hospitals; charitable not-for-profit hospitals; and community not-for-profit hospitals.

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

The mix between public and private hospitals has been under stress in recent times because of the shift to dependence on the public sector by the population as a result of Medicare funding arrangements. The population holding private hospital insurance has dropped from some 70 percent in 1984 to 37 percent in 1992. It is estimated that 1.27 million Australians have dropped private hospital and health insurance over the past 6 years. This population is now dependent on the public hospital system. Accompanying this has been a drop in the Commonwealth contribution to the funding of recognized public hospitals.

In recent times, Australia has experienced waiting lists for elective surgery in public hospitals. The cries of underfunding of public hospitals and the protest from the private sector of the diminishing percentage of the population able to access private hospital care have contributed to pub| lic debate. A review of health expenditure by the Australian Institute of Health reveals that:

* Health expenditures by the Australian government and individuals in 1991 was $30.9 billion, or $1,796 per person.

* Health expenditures by individuals and government increased in real terms at an average annual rate of 3.8 percent over the past six years, for a total increase of 25 percent.

* Health expenditures per person increased at an average annual rate of 2.2 percent in real terms between 1984-85 and 1990-91.

* Health expenditures as a proportion of gross domestic product were estimated to be 8.1 percent in 1990-91. The increase from the previous year (7.6 percent) is a result of the fall in real GDP during the recession.

* Australia's per person health expenditures were in balance with per person GDP when Australia is compared with other industrialized countries.

* Private sector health expenditures increased at an average annual rate of 5.3 percent in the six-year period, compared with 3.3 percent for government-funded expenditures.

* Government funding of health care fell from 71.7 percent to 69.3 percent from 1984-85 to 1990-91. The fall in government spending on health has been caused by a fall in Commonwealth contribution and not by a fall in state/territory contributions. In 1989-90, Australia spent US $1,127 on health per person, which was US $556 below the average spent of nine OECD countries.

In international terms, Australia spends an average amount of money on health, with many countries spending more and some less. In statistics such as mortality rates for infants, mortality rates for adult males and females, incidence and five-year survival rates for cancer, etc, Australia does relatively well. It is in the top bracket of nations in most health statistic parameters, despite having a major health problem in the Aboriginal community.

In late 1990, the government commissioned a National Health Strategy to examine and produce policy papers on a number of issues affecting health care in Australia. This strategy arose out of increasing criticism by the community over access to the system and a perception of deterioration in quality and affordability of the system. The National Health Strategy work has produced several background papers and a number of issues papers.

The National Health Strategy has commissioned an examination of a range of issues by use of consultants in the health care industry. The following is a summary of the papers that have been presented so far. The

National Health Strategy has produced 10 background papers examining various topics and three issues papers that have concentrated on integration of health care delivery, access and financing of hospital services, and the future of general practice.

The background paper on "Medical Services" describes growth of private medical services fees of 78 percent in the five-year period from 1984 to 1989, with volume and price changes contributing equally to the growth in total outlays. Average fees per service were well below the CPI increase for the period. Increased use of services was offset by the lower than average price increases. Medical services per person increased by 23 percent during the six-year period 1984-1990, the largest increase (43 percent) being in pathology. Three quarters of this increase in services consisted of more services per person and one quarter was additional people using Medicare services. The issues identified in this paper were:

* Reconciling the growth in service use with the national capacity to pay.

* A more rational use of diagnostic services, which grew at over twice the rate of consultations over the period.

* The growth in the medical work force and its distribution.

The background paper on "Equity" concluded that equity and financing of health care are frequently interpreted in terms of relating payments for health care directly to ability to pay. In the context of health care delivery, there are many possible definitions of equity, and it is important to clarify the concept that is being pursued. If equity is to relate to a person's need for health care rather than to his or her demand for health care, the key question to resolve in developing objectives for equity in the health care system are:

* Is equity to mean the achievement of some minimum standards of health care for all people according to need, or is it to relate to a broader concept of equality according to need?

* If equality according to need is the objective, is the focus to be on equality of outcomes, equality of access, or equality of use?

The background paper on "Use of Private Insurance" can be summarized as follows:

* Income is a more important predictor of private health insurance status than is age or family type.

* It is myth that there are large numbers of high-income uninsured people.

* Level of private hospital insurance among people aged 60 and over has remained constant.

* The decline in private hospital insurance has continued since the introduction of Medicare.

The paper identified the following issues:

* The future role of the private health insurance sector, including its capacity to contribute to systemwide goals of equity and accessibility.

* Growth in the level and use of private ancillary insurance.

* Significant aging of the population with private health insurance.

* Widespread confusion about health insurance issues, including cost and coverage of service.

Another paper considered "The Effects of Consumer Copayments in Medical Care" and concluded that copayments have a significant effect on the demand for services, although the authors consider that the importance of copayments has been overstated in the Australian context and that they are unlikely to play a significant role in solving any of the major problems facing the health sector.

A background paper on "Pathology" identified that the use of pathology services has been rising for many years at twice the rate for other medical services. Approximately three quarters of the growth has been due to the extension of testing to more people and, to a lesser extent, an increase in the average number of pathology episodes per patient.

General practitioners are responsible for 70 percent of all pathology services; 60 percent of all pathology is provided by large private laboratories. The report points out that doctors are the users of pathology and that patient charges have little effect on the use of pathology services. It recommends a reduction of the number of collection and courier services, on the basis that current costs are high and absorb up to 25 percent of the total cost of each pathology service.

A background paper examined "Household Spending on Health Services" and determined that the average Australian household spent $21.68 per week on medical care and health expenses in 1988-89. This compared with $95.83 on food, $76.13 on transport, $71.80 on housing, $59.37 on recreation, $30.73 on clothing and footwear, and $12.87 on fuel and power.

The paper concluded that one of the main aims of Medicare is to limit the extent of out-of-pocket costs for basic health care services. The paper found that one of the keys to holding down out-of-pocket medical expenses has been the use by doctors of direct billing for socioeconomically disadvantaged groups.

The background paper entitled "Making It Better" examines strategies for improving the effectiveness and quality of health services in Australia. This report found that Australians have a high level of health compared with similar countries. Life expectancy is high and continues to improve, although the level of chronic illness and disability is increasing with aging.

Although the Australian health care system rates highly in terms of both quality and efficiency of services provided, the report indicates that there is significant variation in the rates of surgical procedures between and within the states. The report also reflects concern about inappropriate admissions to hospitals and about a rate of hospital-acquired infections of 6.3%, causing significant additional hospitalization costs. There are concerns expressed about the quality of medical care and about the increasing rate of insurance premiums for physicians and surgeons.

The report recommends the following five activities:

* Establishment of a national guidelines development program.

* Development of outcome measures.

* Promotion of community discussion on resource allocation principles.

* Enhancement of processes to ensure high-quality care.

* Development of the National Health Information Strategy.

A paper on "Dental Health" indicated that there have been dramatic improvements in the dental health of Australian children over the past 20 years. Dental caries is still a widespread problem in the adult population.

Another background paper looked at "Hospital Outpatient and Emergency Services" and defined the following issues:

* Overlapping responsibility for ambulatory care between state and Commonwealth governments creates potential for duplication of services, poor coordination of care, and cost shifting between different levels of government. Patients who receive ambulatory care from public hospitals bear very few out-of-pocket costs compared with those receiving the same service in the community.

* Funding responsibilities for ambulatory care are divided between the Commonwealth and the states.

A study to investigate the role of public hospitals in providing ambulatory care services found that the majority of encounters in emergency departments were genuine emergencies, that there was an overrepresentation of people of low socioeconomic status attending accident and emergency departments, and that there was a clear difference between ambulatory services encounters in emergency departments and in general practice but there was an area of overlap that included asthma and other respiratory tract infections.

Emergency departments required significant use of radiology and pathology services. In reviewing outpatient services in public hospitals, the study found that a high percentage of patients were born in countries other than Australia and that lowincome groups tended to use outpatient services more, as did the elderly. The paper suggests that, with respect to emergency departments, the Commonwealth should fund all noninpatient medical and pharmaceutical services, the establishment of designated primary care clinics within accident and emergency departments, improvements in networks between hospitals and general practitioners, and establishment of appropriate remuneration methods for such services.

The issues paper on "Integration of Health Care Delivery" has its origins in widespread concerns among those in the health field that achieving optimum health outcomes for Australians requires reassessment of the way components of the health system are structured and of the incentives that operate between the various tasks. The boundaries between service agencies, programs, and levels of government need to move with changes in health needs and keep pace with what is regarded as best practice care. The changes in health needs include an increase in prevalence of chronic health conditions, a consistent reduction in hospital length of stay, expanded use of noninpatient and ambulatory care by hospitals, and pressures for improved productivity and efficiency in the delivery of health care, particularly as they relate to hospital care.

The report examines and contrasts needs in large metropolitan services compared with the problems faced by the need for integration of services in small communities to maximize economies of scale. It suggests the separation of funder and provider and puts forward a number of options for the health system, ranging from maintaining the existing program but renovating it; to the States controlling policy, finance, and administration; to the Commonwealth controlling finance, policy, and administration, with variations on these principle themes.

A second issues paper on "Access and Financing in Hospital Services in Australia" identified the following issues:

* Hospital admissions are expected to grow over the next decade, but this growth in numbers will be compensated by an anticipated continuing decline in average length of stay.

* There is evidence of variations both in hospital utilization across Australia and in the ratio of hospital beds to population. The report acknowledges the problem of waiting lists for elective treatment in public hospitals.

* Over the past decade, there has been considerable improvement in the productivity of public hospitals, with lengths of stay and costs per admission declining.

* There is further considerable room for productivity improvements in hospitals.

* Compared with those of other similar OECD countries, Australian hospitals appear to have substantially higher staffing levels.

The report favors area health management as opposed to purchaserprovider arrangements, equitable funding based on geographical area, case-mix funding, development of strategic hospital plans, and a range of other issues. The report also encourages the treatment of public patients in private hospitals and identified the following options for reform of access and financing:

* Introducing equal patient status in the public hospital system (that is, removing the differentiation between public and private patients).

* Extending choice of doctor and choice of hospital to all, through a single national insurer.

* Extending choice of doctor and choice of hospital to all, through a national insurer and private health funds.

A further paper on "The Future of General Practice" canvassed strategies for change and concluded that general practice is changing rapidly, that many general practitioners are willing to accept the challenges inherent in reforms of general practice, and that the initiatives covered in the report should be used to expand the choices available to general practitioners to improve the quality of primary health care and health outcomes for people.

There is a further series of papers still to be produced by the National Health Strategy. While many of their findings have been generally accepted, not all have been received with the consensus hoped for, or have been agreed to at an individual institutional state or federal government level. Nevertheless, the series of papers have served to focus attention on the issues affecting Australian health care in the 1990s.

Australian health ministers met in the first half of 1992 to consider Medicare arrangements to be implemented from July 1993. This conference considered federal and state relationships, in particular, health care programs as they relate to aged public hospital services under Medicare, a national mental health policy, aboriginal health, women's health and several other issues involving policy. The ministers agreed that the following issues should be addressed in order to advance structural reform within the Australian health care system in the context of negotiations for a new Medicare Agreement;

* Development of objectives, outcomes, and performance measures.

* Roll-up of agreed specific purpose health grants into a broad health funding grant as the development of outcome accountability takes effect.

* Including the National Mental Health Policy, Plan and Agreement within the new financial arrangements.

* A move toward area/regional planning and service agreements within the life of the Agreement.

* Adoption of uniform national case-mix classifications and groupers and of cost and service weights.

* Agreed levels of service provision and service access.

* A shift in responsibility for medical and pharmaceutical outpatient services to the Commonwealth.

* Organization and financial arrangements for multipurpose services.

* Identification of initiatives to be taken in relation to infrastructure funding.

* Development of incentive programs, including those for strengthening management efficiency and clinical accountability.

* Development of national data standards for monitoring and evaluation.

Western Australia reserved its position on these issues as it wished resolution of fundamental issues involving both private practice and health insurance.

For the first time in some years, a difference in policies appears to be developing at the federal level that will enable the community to make a choice based on health care policies.

The Medicare levy was introduced on Feb. 1, 1984, at an annual rate of 1 percent of taxable income. This levy was increased to 1.25 percent from December 1, 1986, and will be increased to 1.4 percent from 1993.

The current Labor Government has indicated that it wishes to renovate the existing Medicare system. It believes the concept of universal health care cover funded by a levy on income has been a very popular and effective scheme and that, to address the problems identified in the various National Health Strategy documents, the levy should increase to 1.4 percent, thus providing additional funds to assist the beleaguered public hospitals in coping with the transfer of patients from the private to the public sector and the consequent demands on the public hospital sector.

For its part, the Federal Liberal Opposition proposes a series of incentives for the population to take up private health insurance as part of a general goods and services tax measure. In essence, through a system of tax minimization and penalties, it expects an additional 20 percent of the population to take up private hospital insurance, thereby reducing demands on public hospitals.

The public statements envisage that, despite this shift, public hospital funding would be maintained, although other authors have suggested that, in the first year, the transfer of revenue from the effect of patients taking out private insurance could, in fact, lead to very substantial decreases in income to public hospitals. Nevertheless, there is a clear distinction between the two political parties' policies, and the health issue looks as though it will form part of the major policy issues to be determined by the community of Australia at a general election within the next six to nine months.

Brendon J. Kearney, MB, BS, FRACP, FRACMA, is CEO, Royal Adelaide Hospital, Adelaide, South Australia. He is a Past President of the Royal Australian College of Medical Administrators.