Ten steps to control costs and increase efficiency

15 Jun 2006

It’s time to reaffirm our commitment to Medicare, writes Stephen Leeder

THE House of Representatives Standing Committee on Health and Ageing is currently inquiring into the state of health service financing (6432). I took the opportunity to address the inquiry, and looked for ways in which positive suggestions, based on the experience of other people, could be put to the committee. What follows is the substance of my submission to that committee.

Karen Davis, president of the Commonwealth Fund in Manhattan, an agency strongly committed to improving health services worldwide through research into health policy and practice, has nominated ten steps that health services can take to control costs and improve efficiency. Because Davis is fully informed about international trends in health care, her observations are relevant for Australia as well.

First, Davis argues that many patients - between one quarter and one half - admitted to hospital could be better and much more cheaply treated at home, with proper monitoring and care. She quotes a study that found that annual health care costs for frail elderly people could be cut by 36 per cent if they and their families were visited regularly by nurse practitioners. In Australia, health service financing is not yet tuned to the needs of the growing numbers of people with serious and continuing illness. Medicare does not generally reimburse nurses. Adjusting these arrangements would give better care and save money.

Second, Davis found that the costs of care for patients with the same condition varied widely from place to place in the United States, with no relation to outcome. The question for Australia is this: do we match the institution to the patient? The answer is: not all of the time. Patients with severe conditions requiring special care do not always receive adequate treatment because they go to a small hospital while others who do not need the firepower of the teaching hospital nevertheless receive it. We need to get mobile. The idea that all health care needs to be within a stone’s throw of where patients live is highly inefficient. In each state we need two or three major institutions in each specialty, competing to provide excellent care. We should not expect to get it at a dozen corner stores.

Third, by informing patients about costs and benefits of medical treatments - surgery versus medical care, for example - dubious interventions might be reduced. Doctors should, but often do not, review patients’ medications every few months. Older patients who come to hospital are often already taking a dozen medications, half of them for forgotten reasons, which do no good, may do harm and waste money. Patients should be encouraged to ask their doctor regularly, “Do I need all these pills?”.

Fourth, Davis argues, we should put a financial sting in the tail of efforts to reduce medical error. In the United States insurers have been forking out for the care of patients who suffer as result of medical mistakes. It is fashionable to ascribe these errors to ‘the system’ to reduce blame on doctors and nurses. The system, though, is built and maintained by accountable humans. The institution that houses ‘the system’, and the people in it, is responsible for its form and function. In the United States between 44,000 and 98,000 people die each year of medical errors; proportionately, Australia is not far behind. These errors cost the United States $9 billion a year. Financial incentives should be built into hospital funding to impel them to fix ‘the system’, cut the error rate and save money.

Fifth, we must retain our capacity to control pharmaceutical prices. Australia has done well, especially compared with the United States, where most medications cost twice as much. The risk in the US-Australia Free Trade Agreement is that drugs the pharmaceutical industry says are innovative, but which the PBS would previously have rejected because they are only a little bit different, will be put on the scheme. This will allow the marketing systems to encourage people to switch medications for no good reason.

Sixth, the judicious use of evidence from clinical studies can save money. A recent study by several of my colleagues reviewed evidence about the appropriateness of the use of blood transfusion. They found that in NSW hospitals approximately a third of patients were given blood in circumstances where it was probably inappropriate, causing unnecessary risk of complications. Cheaper and safer ways of treating these patients effectively could have been used.

Seventh, every person deserves and needs a doctor who knows them, sees them regularly, helps them with prevention and manages long-term illnesses. This efficient use of a continuing general practitioner is often missing in the US. The drift to impersonal corporate panels of doctors in Australia, excellent for coughs and cuts, is no substitute for such a person. This drift has occurred in Australia almost without comment. Much of it has to do with pathetic payment arrangements for general practitioners. We need to find new ways of ensuring that patients have access to a doctor who helps prevent illness where possible and who prevents expensive and unnecessary flare-ups in those suffering from serious and continuing illnesses.

Eighth, if patients had their own readily accessible electronic medical records, in which were stored all their medical data, ridiculous duplication could be avoided. Too often - perhaps in as many as 25 per cent of cases - patients moving from one doctor to another have their tests repeated because the results cannot be transferred on time or get lost. We should recognise a patient’s clinical record as his or hers and make it accessible so that he or she obtains optimal benefit from it wherever and whenever the need arises.

Ninth, and as an extension of eighth, the introduction of modern, efficient information technology systems, although expensive, can cut medical error, improve care and reduce costs. Many health professionals worry about the prospect of IT-informed clinical care, while happily using hand-held devices for their music or for managing their investments. They need to get with it. Online prescribing can identify drug incompatibilities before disaster strikes. Puzzling clinical information, including video, ECGs and x-rays, can be reviewed online by outside experts as though they were present. This is superior care without the cost of unnecessary patient transport by ambulance or helicopter.

Finally, administering complex private health insurance plans in the United States, according to Davis, creates overheads of 12 to 15 per cent. In Australia, the price of administering Medicare, even when the hidden costs of raising the necessary revenue through tax and the Medicare levy are added, is lower than for private health insurance. As Australia moves backwards towards the US, with a greater dependence on private health insurance, the costs of administering health care financing will rise. Ways need to be found to hold down these costs, which siphon money from the provision of clinical care.

We can’t deal with the problem of rising costs without facing up to the central ambiguity at the heart of the health insurance debate in Australia. We have a universal public health insurance system, Medicare, which underpins the majority of health care. Yet $2.3 billion of public money is now spent subsidising private health insurance.

The publicly funded system, which covers the bulk of consumers, is also the “no frills” system, catering for the vast proportion of emergency care and chronic illness services. The private system predominantly manages elective and day-only surgery, with additional business class comforts. Fair enough, too: if people wish to pay for frills, fine, but should other tax payers pay a third of those costs?

The ambiguity has grown because of confusion about the nature of Medicare. However much some may wish to rewrite its original purpose, Medicare was introduced not simply as a safety net but as a universal insurance scheme. The idea that, unless young people “run for [private] cover”, they will have no health insurance in the future is true only if Medicare is not there or is turned into a charity system for the indigent. If that is not the intention, the advertising for lifetime cover was disingenuous.

Fortunately, for the sake of equity, there is no convincing evidence that care in the private system is superior to care in the public system, either in terms of health outcomes or financial efficiency. Although heart patients have more procedures in the private hospitals, their outcomes are no better than in the public system. Comparisons of public and private health insurance administration reveal that administrative costs are three or four fold higher in the smaller multiple private health insurance companies than for Medicare. The administration cost of private health insurance is now over $700 million per annum.

The government subsidy for private health insurance has had a paradoxical consequence. The portion of total health costs paid by government ($72 billion in 2002-03) has risen from 65.5 per cent in 1997-98 to 67.9 per cent in 2002-03. If pressure has been taken off anything as a result of the private health insurance supplement it is the private contribution to health care!

The private health insurance subsidy, along with health financing arrangements in general, deserves seriously to be reviewed. This country is affluent enough, and once had sufficient social goodwill, to introduce Medicare. It is time to reaffirm that commitment.

Stephen Leeder is professor and director of the Australian Health Policy Institute at the University of Sydney

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