John Deeble exposes the false crisis in Medicare

Special address to launch the Whitlam Institute Health Forum series

University Of Western Sydney, Parramatta Campus Sydney on 15 July 2003

The powerpoint slides referred to in this speech can be accessed through the Whitlam Institute's new Health Policy page on this website

Thank you Janice (Vice Chancellor),

I would like to start by acknowledging Gough and Margaret's presence at this inaugural forum.

I think I was the last Whitlam Government adviser to still hold public office at the time when I left (the public service) in 1999. Brian Johns had retired from the ABC a few months before.

I remember meeting Gough for the first time in June 1967 when we met at Moss Cass's house in Melbourne. That meeting followed a contact from John Menadue who was then Gough's senior secretary. He had contacted me in early 1967 when one of the health funds bought an aeroplane. Gough thought it was a strange thing for a health fund to buy. Of course it was because the Chief Executive (of the health fund) was a student pilot and liked the idea of practising on the Fund's aeroplane. John Menadue came to ask me about health funds and aeroplanes - and a lot of things followed from that.

We have had a very long association.

Gough - there is no-one who has left a greater mark on Australian society than you have from those very exciting and, I think ultimately, very successful years.

Certainly though, I don't think people knew what they were doing when they elected a Labor government in 1972. I think they wanted a change but they didn't really know what that change was going to be.

I can remember as Chairman of the Medibank planning committee, going with Bill Hayden to Caucus to explain what they were going to get. Caucus had the vaguest idea of what it was they had been elected on. It was due to your foresight Gough in those early years that Medibank got through at all

I have to say it would never be passed now.

It would never even be proposed now.

And if it were proposed it would be laughed out of court. I have no confidence that any Labor Government since your time Gough, would have taken such a step or would contemplate taking such a step now.

But we have got it - and I hope we keep it for a very long time.

Now - I am going to talk about three parts of the Medicare issue. I am sorry to say I am going to load you with a whole lot of information because I can't talk without numbers. I can't make assertions without some way of backing them up.

The three sections I am going to deal with are

How has Medicare performed in the last 20 years or so - and how it stands up to popular criticism and popular debate that is taking place
The threats to Medicare at the moment
The major issues within the Medicare structure as it now operates.

Because times change and the technology of medicine has changed so enormously over the last 20 years it is clear that some review of some parts of Medicare really should be undertaken.

But I remain both an unreconstructed Keynesian in economics and an unreconstructed Whitlamite in social policy. I don't believe that in reality any other system could have coped with the explosion of costs of medical technology that we have experienced.

I will start here - and explain what the structure of Medicare is.

Medicare is an insurance system. It is not a health delivery system. That is a very important point to make. Because over time Medicare has been seen by the public and politicians and providers as encompassing everything in relation to Australian health care - in other words, that it is the whole health care system.

It is not.

It is a financial arrangement for ensuring universal access to services on equitable terms.

It does not provide those services - that is the job of the health services themselves . . . that is the job of the health professionals. Medicare does not make those decisions. And I don't believe that it can. I know of no health insurance system anywhere in the world, which has fundamentally altered the structure of the health services that it insures. The British system didn't, the National Health Service followed a tradition in the British arrangements of salaried doctors from the lodges that had been there for 50 years before the NHS came along. The Canadians didn't change anything they just nationalised the whole affair.

No system has done it. I have now advised half a dozen nations including some from the old Soviet Union, and when they try to do it they fall on their face.

Medicare delivers services through agreements with the Australian States on the hospital side. So it is not insurance on the hospital side in the sense of giving money back - it provides a service by agreement - and everyone has right of access to that public hospital system. Everybody might not get access to it but everybody has a right to access.

On the medical side it can't do that. It has to do it through private practitioners mostly - and although I don't believe that the constitutional protection of doctors to practice as they like, when they like, where they like and charge what they like is nearly as great as either they or the government have been happy to accept for the past 20 years - nevertheless there is a general agreement that the government's power over any of those issues is limited.

Australians want insurance. And the alternative to public insurance is not noinsurance it is private insurance.

So when one talks about any change to Medicare that reduces coverage - that creates the market on the other side. If co-payments are large Australians become very risk averse in this and they will go and buy private insurance.

To stop insurance being a bonanza to the providers, to the medical profession, Medicare needed some way to control fees - and control costs. It could not do so on the volume side but it could do so on the price side. And so we had an arrangement whereby the competition for specialists was in the public hospital. The availability of public hospitals helped stop specialists getting a bonanza out of public insurance. For General Practitioners it is bulk billing.

Now you know that all these things are being questioned one way or another.

So that is just background to how Medicare was set up.

I disagree very strongly with people who think you could delegate this national responsibility to decentralised bodies. I don't like the managed competition option.

It seems to me that Medicare locks the federal government in for two reasons;

First it collects a levy - there is an obligation in the public mind for the government to return good insurance in return for that levy. Second because it is directly involved in covering the services of people -- it is locked into what the costs of those services are. It can't escape.

The States are locked in not by any promise like that but they locked in by political obligations. There is a public expectation that they will continue to provide these services.

My concern is in suggestions about breaking the link between the actual delivery of services and the governments. That is just a recipe for governments withdrawing. I don't trust them to continue without a political pressure to hold them in there. Now that's of course if the population does not express its values - and I am not sure the population is able to express its values in these things. It is very easy to convince people that whatever change is in their interests.

Let's start on the hospital side.

Powerpoint presentation, 15 July 2003
Slide two title: Admissions per 1000 population by type of patient

Now what we have on the hospital side is an enormous increase in the rate of hospitalisation. (Slide two) shows how many people have gone to hospital per thousand population from 1985-86 which is the first really full year that Medicare records were good - up until 2001-2002. It is even higher this year as far as we can see.

The yellow part of the bar chart is private and the red part is public. We have gone from 193 to 326 admissions per 1,000 of population - and if it was evenly distributed that would be one hospital admission for every three people. It is not like that of course because (admissions) are concentrated in a few people . . . and a very large number of those are one day admissions for a procedure or a minor procedure or a diagnostic test.

Bear that in mind as the background to the next slide.

Slide three title: Acute care hospitals - Admissions per 1000 population by type of patient

This slide is a breakdown of the last data slide - it shows what happened to public and private hospitals and the type of people (or at least the category of people) they have been treating over that time. You can see that overall the public hospital admissions have gone up around 43 per cent - this is in relation to every 1000 people. That's a big increase though, absolutely - it is an increase of 60 admissions per thousand.

The private hospitals have gone up very much more. Instead of 43per cent it is 137per cent up - but the absolute amount is about the same. Public hospitals went from 141 to 201 and private hospitals have gone from 52 to 123. It is a slightly bigger increase for the private hospitals but not all that much . . . and most of that has occurred since the year 2000.

The distribution of the status of the patient is quite different - there is 93per cent more public patients there is still 47per cent more private patients - but what I want to make clear here is that public hospitals have increased their throughput enormously. They didn't do it until after about 1992, but because there was not much change in the throughput of public hospitals in the first years of Medicare - they made an enormous effort in those years in the middle.

So we see a big growth with public hospitals increasing just as much as the private hospitals - but we see the private hospitals increasing their share.

It was never going to be true that the private hospitals were going to do badly under Medicare because if you look at the second line from the top (of slide three) all the private patients in the public hospitals have moved to the private ones. So you have had a division that's increasing where public hospitals are increasingly for public patients and private hospitals are increasingly for private patients.

So this association is extending - and in terms of this government's thinking, I think it is extending to financing as well. That is, there is a separate stream of financing altogether for those people who go to the private sector.

Slide four title: Services covered by Medicare - Commonwealth and State outlays on public hospitals

(On slide four we see) public hospital outlays in real terms has nearly doubled. The amount of money that has been spent for those services covered by Medicare alone (this leaves out veterans' affairs and compensation people and so on) has increased from around $8 billion to around $14 billion a year. Admissions per million have gone up in total by 68per cent and 43per cent per person.

Slide five title: Public Hospital Expenditures - Growth rates and financing shares 1985-1986 to 2000-2001

(Slide five) is a hard graph perhaps to understand. What it shows (and note that the red line is taking out the price changes) - is a red line, which is the rate of growth in hospital spending in constant money (per cent rate of growth) and a blue line which is the Commonwealth share.

There is always a continual hoo haa between the Commonwealth sand the States about who is spending the most money. It really is quite ridiculous because history shows it is a cyclical relationship. At the beginning of every agreement period the Commonwealth pays a bit more but then they never increase their share enough and the States end up paying more at the end of the period. There follows a brouhaha about it, and it starts again.

You will notice a very close correlation between the red line and the blue line (in slide five). That is - when the Commonwealth share is less than 50 per cent, then the rate of growth falls. The red line drops when the blue line drops. When the Commonwealth is paying more than 50 per cent the whole system grows. When the Commonwealth is paying less than 50 per cent the whole system slows down. So whatever Commonwealth and State Ministers say - well particularly the Commonwealth - when they say we don't share 50/50, the answer is 'yes you do'.

Over the whole period the shares of the two are almost exactly 50/50. It does mean that the Commonwealth and therefore Medicare, by its decisions, drives the whole system.

It is not true that the States can alter that, they don't have the revenue and they match as far as possible what demand says. But if the Commonwealth holds its contribution down the States contribution will be matched to that.

Slide six title: Acute care hospitals - Overnight admissions per 1000 population

OK - I have talked about our admissions - we are one of the highest hospital using countries in the world. The next slide (six) compares Australia, Canada and the United States for overnight hospital admissions. You can't compare the overall admission rate including 'one-dayers' very well, though I have data for some Canadian provinces. This is because countries don't count them the same way. But they all count an overnight admission. And you can see from this slide that Australia is 55 per cent above Canada, and it is 30 per cent above the United States

The only country that goes close to our hospitalisation rate, is I think, Germany. If you listen to the popular press, the radio, and to all the propaganda that the providers put out we don't have enough hospitalisation and we need more. And so they say that why we need more private insurance. Everybody must go to hospital.

Well - nobody goes to hospital by choice and it is not a pleasant experience generally. So there are other factors that must influence the use of hospitals. It is almost a cardinal sin to suggest that the medical profession's decisions about how they treat people might not be perfect. So we have a very hospital using society and it is growing rapidly.

Slide seven title: Medical services per person 1986-87 to 2003

This slide (seven) shows what has happened on the medical side. Over the 20 years our visits to doctors - both GPs and specialists - have only gone up by 15 per cent a person. But diagnostics - the pathology and imaging - have gone up by 67 per cent a person. And the others (which are operations and non-imaging, non-pathology diagnostics which people worry about a lot because the fees are high but which are a very small proportion of the total) they have gone up even further. And the overall figure is about 40 per cent.

That is, a 42 per cent rise in medical services per person but most of it generated within the profession itself by referrals. The first column of consultations on this slide includes referred specialist consultations. It is still a broad generalisation to say that the left hand column requires the patient's presence - at least - it requires the patient to initiate it in many cases, but the other services are initiated within the medical system.

Slide eight title: Medical service outlays 1985-86 to 1999-2000 (current prices)

The question then is always asked - how does Medicare pay for these? You hear lots of complaints about gaps and doctors fees. You hear a lot that Medicare is doomed. I have even heard the president of the AMA say that bulk billing is dead, and all the rest of it

In fact if you look at the right hand side of slide eight (forget about the big numbers - they are impressive but they don't matter - they are there so you can see how the rest is calculated). So we see here that the benefits were covering 88.7 per cent of fees from Medicare. Now there is a little complication here. The health funds were also paying a small amount (15 per cent) because under a settlement that Bob Hawke made with Bruce Shepherd the private funds were required to pay extra benefits up to the full scheduled fee for private in-patients. And note than when you add that in - which is required by law but not actually paid by Medicare - it was 90.6 per cent.

Now by most criteria that is pretty good coverage for a system that can't compel doctors to adhere to fees. It seems to me to be doing pretty well.

When we get to the last year for the year 2001-02 it still 81 per cent and 87 per cent or thereabouts when you take the health fund compulsory payments into account. Not their voluntary gap insurance but what they have to pay. There was some fiddling in between about what the health fund would pay and what the govt would pay. But it is still not much lower

March 2000 - in a matter of 9 months we are down very considerably and I will have more to say about that in a moment.

The coverage has remained high - it is not true despite all the talk and anecdotal evidence of somebody who brings along this enormous bill that they got from their doctors when they chose to go to a private hospital and have a private doctor. In Medicare has been paying, by itself, more than the 85per cent that is the base rate of a benefit. It has not done badly.

Slide nine title: Medicare benefits as % of fees charges, by type of service

Slide nine is the same but broken up by the sorts of doctor. You will see that the GPs started the period at 87 per cent and basically finish at 87 per cent. That is despite all the fuss and all the arguments that this govt is making for completely changing Medicare. The coverage of GP fees as a whole is the same as it was when Medicare began. This is the fact.

There has been a lot of concern about bulk billing falling off. Well, it started to fall off in the year 2000 seriously. It had a bit of drop before that, and bulk billing has fallen by about 12 percentage points but there is something really curious about this. Well, it is curious to the common line. Bulk billing has fallen by about 12 percentage points from 80 to 68 between 2000 and 2002 but the coverage didn't change.

Now what happened was the doctors stopped bulk billing but they didn't charge the patient any more

They went to other forms of billings - which includes a pay doctor cheque where they charge the benefit (and no more to the patient) but they don't bulk bill. They didn't bulk bill because they wanted to keep the option open at some later stage to actually start charging. But for the moment there has not been much change.

I will say that the bulk billing issue is an entirely generated crisis .

I think it is an entirely generated crisis particularly in the last seven or eight months. The medical profession has actually managed to create a climate in which change actually HAS to take place.

In diagnostics - that is radiology and pathology - it has been high cover all the time and it has hardly changed. But amongst the procedural doctors it has really fallen right off (among procedural doctors there are obstetricians, anaesthetists and surgeons). You can see that that fell off considerably - the break in the middle the lines above are the old government - and the lines below are the new government.

For procedures - Medicare only covers little more than half the fee.

Slide 10 title: Over-schedule billing as % of schedule fee value

Now if there was any evidence needed of what insurance control over the benefits can do to fees it is in this slide (10). In 1987 the health funds were not allowed to give benefits above 15 per cent of the fee, in addition to the Commonwealth. Then there was a deal made as I said and they were allowed to go up to 25per cent of the fee. They were able to match the full schedule fee while the Commonwealth reduced its benefit. And from 2000 onwards they were able to offer gap insurance. And every time that was done the charges went up.

So that now the average obstetrician is charging 75per cent above the scheduled fee. In operations it is 30.7 per cent above and anaesthetists it is 60.7 per cent. Now all of these procedures are basically for private doctors with private patients because the public sector does not enter into that at all.

Slide 11 title: Percentage of services bulk billed 1986-87 to 2003

So how would I summarise all this that Medicare has been facing? Well first there is a growing divide between the public and private sectors in terms of fees and earnings - a big difference and it is growing.

You can see in the last 2 slides the effect that policy has on that

It seemed very easy to in fact agree in the earlier years (and Bob Hawke did) that there was nothing wrong with letting the health funds charge 25per cent above - or making them rather pay up to the scheduled fee. But all it did was shift the floor up and fees went higher. The gap for the patient was not reduced.

When gap insurance came in 999-2000 the same thing happened.

I have to say that the Labor Party supported both those measures. They did it on the grounds of populism or for a little bit of political advantage.

The only effect of gap insurance was to push the private earning structure further away from the public one.

And as a Canadian friend visiting here said, 'you can have two systems but there is only one medical profession'. If there is a big incentive financially to work in the private sector and there is a disadvantage in continuing to work in the public sector then there will be a drift. Eventually the public sector will not be able to provide the services that it should, because it does not have the doctors to do it. And then it will be necessary to take the next step to bolster the private sector. It is a logical progression, but the wrong progression.

There has been an epidemic of procedures as I call it. Summarising all those earlier tables, it is a fact that for every doctor visit, GP and specialist - the probability of having a hospital admission - it is not hospital visit, it is hospital admission - is now 46 per cent higher than when Medicare began. And the probability of having a diagnostic test or procedure is now 50 per cent higher. Now that is an enormous technological change. And it is a change that almost no financing system could cope with easily.

I don't believe that any private alternative could have managed that. I don't say that it has been managed well by Medicare but on the other hand the costs growth has not been obvious to the individual that pays the Medicare levy. It has caused Treasury some angst. They could have certainly have increased levies to match it but there seems to be a belief now that any increase in taxation is a mortal sin.

In terms of the threats to Medicare at the moment - my view is they are are political and they are not coming from the populous. Threats are coming from the provider side and the government.

Slide 12 title: Fraser Government

Just as a matter of interest I thought it would be useful to look at the moves that the Fraser Government made in changing the original Medicare - 1976-1977. They promised to keep Medibank and did so but there was an option of opting out of the public system if you took private hospital and medical insurance. The delivery structure was made so as to encourage 50 per cent of people to opt out. I know all about that because I worked on the proposal it was one of the only ways to save what was left of the Medibank system.

They did - they managed to get 50 per cent of people out. But as anyone could have predicted and as the government must have known - it was the rich who opted out and the poor who stayed in. They lost all the levy revenue from the rich but they kept all the expenditure of the poor.

And so it was a budget disaster for the Fraser Government - as anybody could have said. Because that is exactly what the structure was designed to do. That lasted a year and was ditched.

Then there were various co-payment alternatives. One where everyone paid something like $25. All of them failed. And the fourth change in 1983 was really to have what the government would have now. That is - public benefits for disadvantaged people only. These people were bulk-billed by the Department of Health by the way, not the Health Insurance Commission which was disappearing in the process. Only if you had a card could you have a public benefit.

Public hospital fees were reintroduced even for public wards except for a card holder. There was a 30.5 per cent tax rebate on private health insurance for all medic al and basic hospital, which meant the public ward charge level.

They didn't give 30.5 per cent on everything. They didn't give it on private hospitals but they gave it on medical and hospital. Remember there was no Medibank left except for the poor in 1981. And Mr Howard was the treasurer at the time.

Slide 13 title: Howard Government

In 1996 the Howard Government introduced a levy surcharge on higher income earners which now, with time, is not so higher income earners. There are plenty of individuals who earn $50,000 or more - a lot more than there were in 1996.

That is not adjusted for inflation so leave it alone and eventually it will encompass nearly everybody. The levy surcharge is on higher income earners but it is avoidable if the person holds private insurance.

Now that is opting out. You can opt out of the levy.

You don't opt out of the benefit but you can opt out of the levy. It is very easy to extend that to a general opting out - of the same kind as Fraser's first movement.

I remember ringing the shadow minister and suggesting that this was not a very good thing. And the answer which I got was - 'well we can't oppose that, and they did not'. The Labor Party voted in favour of it.

Then there was a 30 per cent subsidy on private hospital insurance for low income people - that didn't do much. It turned out that low income people didn't really want private insurance and even at 70per cent of the price they could not afford it. So it did not do anything . That was extended in 1999 as a 30 per cent rebate on all private insurance including all the extras. And including a 30 per cent subsidy on the administration expenses of the funds because that happened as part of it.

Community rating for private health insurance was abandoned and it went to a risk rating on age but not on anything else. A modified risk rating.

There was unlimited private gap insurance for in-hospital medical fees.

There was legislation for gap insurance for all private specialist fees introduced and passed through the House of Representatives. It got to the Senate, and then the GPS and the AMA objected because it was only for specialists and the Government pulled it out.

But that is not pulled out forever.

In 2003 we see the current arrangement (still slide 13).

What the government is now proposing is to withdraw effectively from insurance for anybody but card holders for GP care. They will pay a benefit but it will not be an insurance benefit. It will no longer be an insurance system that aims to cover the fee. It will be a discretionary government handout that is not related to the fee.

It is a big conceptual difference. It would become an insurance system for the poor.

It would be a discretionary benefit for other people which could be left alone frozen and never increased again. So the only way people could get full cover would be to take it privately.

So Medicare is being re-created.

That is of course subject to doctors agreeing to bulk bill their disadvantaged patients and the amount that was offered to them wasn't all that great ( so the Government may not get that item through anyway). And then there is a private health insurance safety net for all medical services not just GPs. But at the moment it would be only a safety net.

Now all I am saying is that there is a pattern.

It may be possible to say that with a certain degree of semantic skill that nothing is changing because there is a single benefit still payable to everybody.

But if that legislation goes through, Medicare will not be an insurance system.

All the arguments I put before on why insurance needs to have governments linked in and committed -- all of those would go. Because once 100 per cent coverage is gone as an objective then the natural progression is just to shift more and more of the final coverage on to the private sector.

It is possible for a Government to say quite reasonably, that this is all too expensive and we don't want to do it.

But that is not what the present government is saying - it is trying to present this as an improvement rather than the other.

Slide 14 title: Issues

What are the issues if a Medicare system does continue - and I don't think it is easy to change the hospital side of this.

There is $16 billion a year's worth of public hospital expenditure that has got to be funded. And I can't imagine that that can be shifted on to the private health insurance funds. It will still have to be government money. So there is a question of Commonwealth State relations.

As I said it seems to me that the every five yearly argument is a waste of time. But no government is going to surrender its autonomy. They are not going to agree on what should be the growth rate because they will be under different political pressures at different times. But there has to be a better way of handling the growth in public hospital expenditures more rationally. At the moment it is a competition between the Governments.

I had responsibility for the Medicare program in the Commonwealth department for three years , and it was very easy to see that there are not very many rewards for Commonwealth public servants in producing a good program for the Australian people. It is a good thing but your particular contribution to it won't be noted much. And there are not many rewards for success in program administration. But there is one thing that you can do - you can have a win over the States. A win over the States will do more to advance your position as a senior financial administrator within the public service than any other thing you can do. I am not joking - it is a fact.

Because it is tangible - we beat them - we saved that money. Whether it is a good thing or a bad thing is actually irrelevant. There is always a tension between the program departments and the central financial departments anyway. With the rise of the central financial departments and the rise of the people who go through the central financial departments, then a win over anybody is a very good thing.

The second point is about technology and corporate medicine.

Technology has transformed some parts of medicine completely. There are now only five major providers of pathology in the country - they provide 80 per cent of services. The Commonwealth is no longer providing benefits to people with which they pay their pathology bill because pathologists all bulk bill which is quite sensible. But we are now dealing with contracts between the Government and five major organisations whose turnovers are of the order of between 200 and 300 million dollars. That is not medical practice.

Pathology as an industry has very little to do with medical practice and it is quite stupid to be pretending that it does. There are lots of things that need to be done in pathology to increase the role of pathologists that I won't mention now. I believe that the role of pathologists should be strengthened not weakened but we should not be pretending that the pathology industry is medical practice.

It is very much the same in radiology, although there is a much larger medical component but no radiologist is going to be able to privately fund and operate the sort of establishment that can run from MRI to everything.</</p>

Medicare's treatment of those two areas is outdated and irrelevant and inefficient. Those big businesses are operating to exploit an outdated Medicare system which was established when pathology was not run like that, and it was a doctor with a microscope.

The last point is the public/private interface. My belief here is that governments have got it wrong. That's the license of old age.

I do believe that the private and public sectors cannot be regarded as separate. That the private health insurance system and the private hospital industry is part of a Medicare system.

Medicare is a system. It is not just public hospitals and it is not medical benefits. The private hospitals and private providers are very much part of that. And I believe that somewhere in the middle of this period when there was the orthodoxy that talked about level playing fields and competitiveness and at that point governments went off the track.

Maybe private health is more like a commodity because of the sorts of operations and so on that it does - the public side is not just a commodity. Nevertheless, if any use is to be made of the private health insurance rebate (if it is retained, it is a dreadfully ineffective thing, and expensive) if it has any role it is integrating the two sections.

I am sorry to have taken so long and I must leave it here.

But I only get this chance once every 30 years. Thankyou.

Ends

John Deeble exposes the false crisis in Medicare