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Guest PostHealth EconomicsHealth System ReformReform

It’s time for some health care reform

By November 3, 2015 No Comments


Most people know that our former Prime Minister Gough Whitlam was instrumental in the introduction of our universal system of health insurance now known as Medicare. As a recent Four Corners program has made clear, after several decades of operation, Medicare is in need of review, in order to reduce the waste that arises when funds are spent on care when there is no proven benefit.

What a search of Hansard– the record of all speeches in Parliament- reveals is that Whitlam foresaw many of these problems and proposed innovative solutions relevant even today.

In a 1967, Whitlam as then Opposition leader, made a remarkably succinct critique of the way Australian health care policy was conducted:

“…one of the problems in discussing health policy in Australia is the lack of reliable official information… [which] stems

from the Government’s laisser-faire attitude to health policy in this country. The Government sees its role as largely a passive one – of subsidising a hotch-potch of private medicine, voluntary insurance, private and public hospitals, State and local interests. The Minister is content to authorise the payment of bills which others present, with occasional intervention when abuses become too blatant. Its research is limited very largely to the narrow medical field with little recognition of the importance of economic research and planning of health services.”

Whitlam went on to use the words health economics for the first time in the Australian Parliament, advocating the need for Department of Health to employ more economic research staff to “evaluate the efficiency of spending” and to make much better use of data to understand drivers of increasing health care expenditure.

The rest of his speech was devoted to ways to control rising Pharmaceutical Benefits Scheme (PBS) expenditure which was at that time main Commonwealth Government funded health care program. As now, expenditure on drugs tends to rise over time, because as Whitlam observed the cost of subsidising new medications is “not compensated for by corresponding declines in the use of the older drugs.”

His policy prescriptions were to:

  • Reduce pharmaceutical industry advertising to doctors and promote more generic prescribing;
  • Develop a system of public testing and evaluation of new drugs;
  • Remove “restrictive practices” that inhibit competition between retail pharmacies;
  • Introduce competitive tendering for the supply of pharmaceuticals to reduce costs;

Whitlam finished by observing that waste in a health system is “inevitable when a government subsidises private costs which it cannot control. The public gets the worst, not the best, of both worlds – inadequate private services and high public costs.”

Almost 50 years on, those wanting to update both Medicare and the PBS can learn much from his analysis and even consider the merit of some of his policy proposals.

Beyond the specifics, what is refreshing is the way he draws on a broad palette of policy ideas aimed at improving efficiency. His solutions are largely pragmatic, involving a combination of strengthened processes for government decision making as well as market based solutions. He is also not afraid to take on interest groups such as the then Federated Pharmaceutical Service Guild of Australia and understands the need to explain the benefits of reform to the consumers.

Any government wanting to modernise our health care system today will need to do more than convene expert committees to conduct reviews of specific aspects. They must also: improve the analytic capacities of public institutions starting with the Commonwealth Department of Health; make the best use of administrative and clinical data to inform health services research; conduct publically funded trials to evaluate health care services where current evidence of benefit is lacking; look at ways to increase competition in the provision of drugs and medical services; and introduce mechanisms to provide incentives to implement changes.

In the current fiscal environment, the sustainability of our universal health system is predicated on being able to make the necessary adaptions required to improve efficiency and eliminate waste.

Guest post from Prof Philip Clarke,

Health Economics Unit, Centre for Health Policy, University of Melbourne