26 Healthcare Management Forum Gestion des soins de santé

ustralia and Canada are as alike as any two nations can be when itcomes to healthcare organization and management. Both built onlegacies of fee-for-service medicine and mainly not-for-profithospitals; both incorporated elements of social solidarity drawn fromBritish and European welfare state traditions; both had histories ofnon-profit and for-profit private insurance before implementing

universal health insurance programs. Importantly, Australia based its 1984healthcare insurance plan, Medicare, on the 1966 Canadian program of thesame name. However, health policy in Canada and Australia diverges in twokey respects - Australia tried, through user fees, to hold patients moreaccountable by making them contribute to the healthcare costs they incur,and, they decided to retain private health insurance and permit it to runalongside the public insurance program, thereby opening up healthcarefinancing and delivery to the private sector.

With respect to doctors’ fees, Australia’s Medicare entrenched an approachwhereby all patients, except those issued special concession cards (low-income earners and pensioners) pay a portion of their medical costs. Withrespect to private insurance, Australia permitted policies to be underwrittenfor care as private patients either in public or private hospitals. Medical userfees were intended to be a demand-measure to reduce patient overuse of thesystem — the “moral hazard” associated with providing free care. Privateinsurance was intended to: a) give those with the money choices outside thepublic system and; b) reduce pressure on the public system by expandingprivate hospital care capacity.

Since the enactment of the Canada Health Act in 1984, Canadian provinceshave not permitted doctors to impose “balance” or “extra” bills – “gap fees” asthey are known in Australia. All fees for insured services in Canada are agreedthrough government/medical association negotiation and all are paid, in full,upfront by government. In contrast, non-concessionary patients in Australiaexpect to pay a doctor for a consultation or procedure and then seek a partialrebate from the Commonwealth (federal) government. The major problemfrom the Australian doctors’ perspective is that the approach allows theCommonwealth government to set Medicare fees at an arbitrarily low level,forcing doctors to make up the difference through billing their patients.

Graph 1 shows MBS fees, the consumer price index, and the fees approved bythe Australia Medical Association (AMA).

The major problem from the Commonwealth government’s point of view isthat, in light of its failure to raise MSB fees, the proportion of doctors bulk-billing is plummeting, as shown in Graph 2.

As in Canada in the early 1980s, rising direct costs to patients have madeaccessibility and equity major political issues in Australia. Aggravating theproblem is that physician shortages and the high cost of running ruralpractices mean that most doctors outside of urban areas want cash at the full

BRIEF REPORT

Health Policy Lessons from Down-Under:Pro-Market Policies Boomerang by Alan Davidson

Alan Davidson was theRegional Administrator,Medical Services Branch,Yukon Region, Health andWelfare Canada, beforebecoming Director ofHealth Services,Government of Yukon in1980. Since 1990, Alanhas served as associateprofessor and Dean,Health and SocialDevelopment, OkanaganUniversity College,Kelowna. He also servedon the Seaton RoyalCommission implementationteam and the BC DeputyMinister of Health AdvisoryCommittee. Currently, heis Visiting Researcher atthe Centre for HealthEconomics, York University,York, England.

A

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AMA rate. Although not conclusiveevidence of mounting equity problems,medical consultations in Australia havebeen declining as gap fees have risen andbulk-billing fallen. It is safe to assumethat the decline disproportionatelyinvolves lower income and ruralAustralians who are most deterred byrising out of pocket expenses of seeing adoctor. Plainly this signals setbacks forprimary care and universality.

The Commonwealth government’s recentapproach to rising gap payments and

falling bulk-billing is as controversial asthe problem. Starting February 2004,doctors will be offered incentive paymentsof $5.00 a consultation to bulk-bill. Theincentive payment applies only toconcessionary cardholders and children.Apart from low estimates of expectedeffect (zero to negligible since theaverage out of pocket fee now accessedby GPs per patient already stands at$13.001), Australian academics andpolicymakers have noted that theapproach is the antithesis of universalmedicare.2 To the degree that the newbulk-billing policy succeeds, it willdiminish public financial support formedical services, effectively insuring onlychildren, the elderly and poor whiletransforming the government rebate tonon-concessionary patients to a subsidy,a price floor, for fees set independentlyby doctors. According to its critics, thiswould complete the Howard government’shidden agenda to re-privatize medicalcare in Australia, particularly since theCommonwealth government is offeringan additional incentive to doctors whoagree to bulk-bill concessionary patients.In future the participating doctors maybill government directly for the non-concessionary patient rebate portion oftheir private fee. The government isselling the idea that non-concessionarypatients will benefit from this newarrangement because they will no longer

have to apply and wait for their rebates –they just need to have their Medicarecards swiped at the doctor’s office andshell out their personal portion of the fee.

Some Australians are not buying it. Onecommentator remarked:

Most of us are accustomed to paying for a GPconsultation, but we are also aware that theGovernment’s rebate covers a large portion ofthe bill. Under this package, the Medicarecard would be swiped at the doctor’s office andthe rebate made invisible. The rebate thenbecomes an arrangement between the doctorand the Government – and patients, who nolonger have to pay the full amount upfront,will get used to paying $10, $20 or even $50,unaware that the Government is alsocontributing.3

Under those conditions, it is not difficultto see public support for the currentMedicare levy (special Commonwealthhealth tax to support Medicare) eroding,and pressure for private medical careinsurance mounting.

While much maligned by the provincesand much detested by doctors at the time,it now appears the Canada Health Act savedCanada from the fate of the Australians.Extra-billing particularly in primary careis simply put, bad public policy.

The other side of the Australian coin isprivate insurance and private hospitals.They belong together because the former,private insurance, is the source of financingfor the latter, private hospitals. As onewould expect, the typical Australian privatehospital is not a general hospital, but themore profitable boutique specializing inrelatively straightforward diagnostic andtreatment procedures such as MRIs andother imaging, joint replacement surgery,eye surgery, hernia repair, and coronarybypass and angioplasties. Privateinsurance and private hospitals existexplicitly to provide shorter wait timesthan public hospital care for those whoare able and willing to pay. In this taskthey have succeeded, albeit recentAustralian government data suggestshorter wait times for private patientshave caused longer average wait timesoverall due to distortions caused by theoperation of the private sector.4

Graph 1: AMA and MSB Fees Compared with Consumer PriceIndex, 1985 to 2000 (1985 = 100)*

* Data are derived from the Australian Medical Association Gap Fees Graph available at:http://www.ama.com.au/web.nsf/doc/WEEN-5HV82X

Graph 2: GP Bulk-Billing Rate:December 1996 to December2003**

** Data are derived from the Australian MedicalAssociation Bulk-Billing Graph available at:http://www.ama.com.au/web.nsf/doc/WEEN-5MC24Y

28 Healthcare Management Forum Gestion des soins de santé

One major trouble with the privatebusiness of healthcare in Australia wasthat it failed. After the introduction ofMedicare and public hospital insurancein Australia, progressively fewer Austral-ians bought private health insurancethreatening the financial viability of notonly the insurance industry but also theprivate hospitals. (See Graph 3)

There are several reasons for this failure,including:

• if the public health system is workingreasonably well, the private one isredundant and its products are poorvalue for money;

• the private insurance industry, eventhough tightly regulated bygovernment, earned a bad reputationfor arbitrary exclusions, complexfine-print, surprise charges, andrapid, unwarranted price increases;and

• private insurance was plagued by theusual market failures of adverseselection and strategies by theinsurance companies to subvertcommunity rating.

Pro-market governments rarely let themarkets do their work when the resultsrun afoul of their ideology, and theHoward government was no different.Over the past six years it intervenedmassively in the market, subsidizing theprivate sector and intensely regulatingthe health insurance industry. It appliedboth carrots and sticks – a 30% subsidyon private insurance purchase and a 1%income tax penalty on all wealthyAustralians who failed to buy privateinsurance. The effects of these financialinterventions were however, muted,

forcing the Howard government todevelop in 2000 insurance regulationsguaranteeing lifetime coverage if under-30s enrolled (coupled with threats ofhigh entry prices if people waited untilthey were older to enrol in private plans).The fear mongering and general publicitysurrounding this last intervention led toa significant spike upward in privatecoverage, but it now appears the long-term trend downwards has reasserteditself, in spite of all the governmentefforts to prop up private healthcare.5

The private insurance subsidies arecosting the Australian taxpayer over $2.2billion. Maximum estimated savings tothe public system resulting from thesetransfers of public money to private careare estimated at $910 million, leaving ahuge gap of $1.29 billion.6,7 In effect, theAustralian policy diverts public moneyinto two sub-sectors: hospitals andancillary services. This is perverse in atleast three respects:

1. The money would buy far more careif it were spent on the public system.

2. Support of private hospitals throughprivate insurance leads to over-utilization of hospitals (Australianhospital use is currently 50% higherthan Canada’s).

3. The expenditure compounds equityproblems; the main beneficiaries arethe well off.

Private hospital insurance also hasimportant interaction effects withMedicare. Private care also attractssubstantial public subsidies. Forexample, Medicare pays 75% of the MSBfee for physician bills associated withprivate hospital practice. Private hospitalinsurance is mandated to cover “gapfees” in private hospital settings, butprohibited from doing so for outpatients.Apart from supporting higher medicalfees in private than public practice, thesearrangements reinforce existingincentives to concentrate care in hospitals.

Australia’s experience strongly suggestsa parallel public-private system fragmentscare delivery and precludes effectivehealthcare management. The competingprivate insurers are only involved insegments of care and have no capacityand little interest in negotiating priceand quality with private hospitals anddoctors. Since their role issupplementary to the public system and

is limited to hospital and ancillaryservices the Australian insurance marketcannot move in the direction of managedcare. The public side is similarly hobbledbecause gap fees and the participation ofthe private sector undermine thefoundations for a robust partnershipbetween the medical associations andthe public insurer. In short, the dual tracksystem is not only inequitable, but alsoinefficient and ineffective. It threatens todeliver the worst of private and publicsystems. Only highly interventionistgovernments and massive subsidies cankeep it going.

Both the gap fee/bulk-bill in Medicareand the private health insurance policyappear strange from a Canadian healthpolicy perspective. But if one assumesthe goals of the current Australiangovernment are not universal access togood quality public healthcare services,but rather to create a health system morealong American lines, constructed ofpublic subsidies and special programsfor the old and indigent, recent legislationand policy make sense. In contrast,political support for universality andequity have remained strong in Canadaand, at least to date, well designed policyprevented the worst of the follies of pro-market factions from undermining theachievements of the 1960s. In publicpolicy, simplicity and coherence arecardinal virtues. In considering healthreforms, Canadians would be welladvised to keep that in mind.

References and Notes1. The Doctors Reform Society and the National Rural Health

Alliance agree that most doctors would lose $8.00 perpatient if they were to accept the $5.00 incentive and bulk-bill children and concession card holders. See: Wroe D,Marino M. Health versus Wealth. Sunday Age 2003November 23:15.

2. Stephen Duckett, the dean of health sciences at LaTrobeUniversity, for example, was quoted as saying “This (thebulk-billing policy) is the first major sign that theGovernment is actively undermining the principles ofMedicare.” See: Gordon M, Mottram M. Can Medicaresurvive? Age 2003 May 3:1.

3. Allison L. Medicare deserves better than these Howardreforms. Age 2003 August 5:15.

4. Productivity Commission. Report on Government Services,Chapter 9: Public Hospitals. Canberra: the Commission; 2003.

5. Butler JR. Policy change and private health insurance: didthe cheapest policy do the trick? Australian Health Review2002;25(6):33-41.

6. Deeble J. The private health insurance rebate. Report toState and Territory Health Ministers, National Centre forEpidemiology and Population Health, Australian NationalUniversity; January 2003.

7. Hurley J, Vaithianathan R, Crossley TF, Cobb-Clark D.Parallel Private Health Insurance in Australia: A CautionaryTale for Canada. CHEPA Working Papers. Hamilton:McMaster University; 2002.

Graph 3: Percentage ofAustralians Holding PrivateHealth Insurance