Professor Jeff Richardson Director, Health Economics Unit CHPE, Monash University

1. Inaugural Health Forum “Your Medicare - 30 Years On: Still good for you? ”The Whitlam Institute, within the University of Western SydneyTuesday 15 July 2003 Social Values, Efficiency and Medicare Professor Jeff RichardsonDirector, Health Economics UnitCHPE, Monash University

2. Social Values, Efficiency and Medicare • Social Values, Efficiency and System Reform • How Healthy is Medicare (a) Large Issues (b) Small Issues and Non-Problems • Options for Reform • Conclusion

3. Objectives What do we want?

4. Where Do I Go From Here? “Would you tell me, please, which way I should go from here?” Alice asked the Cheshire Cat.“That depends a good deal on where you want to get to,” said the Cat. “I don’t much care where…” said Alice. “Then it doesn’t matter which way you go”, said the Cat. “…so long as I get somewhere”, Alice added as an explanation. “Oh, you’re sure to do that,” said the Cat, “if you only walk long enough”.

5. Key Question for Australia: Did Alice listen to theCheshire Cator the MadHatter?

6. Social Values • Liberalism/Libertarianism • maximise choice + safety net • Communitarianism/Solidarity • Canadian Medicare is ‘ far more than just an administrative mechanism for paying medical bills, it is widely regarded as an important symbol of community, a concrete representation of mutual support and concern … it expresses a fundamental equality of Canadian citizens in the face of death and disease … As the Premier of Ottawa pointed out … “there is no social program that we have that more defines Canadianism”.’Evans, R and Law, M. ‘The Canadian Healthcare System. Where are we and how did we get here’, in Dunlop and Martens, An International Assessment of Healthcare Financing, Economic Development Institute of the World Bank, Seminar Series 1995. • Communitarianism = different dimension  equity equity  funding

7. ‘Solidarity’/language/concepts and the Dialogue of the Deaf Theme: An emaciated vocabulary inhibits the concepts needed for debate

8. Orwell 1984, The principles of ‘Newspeak’ (How to inhibit subversive thoughts) “The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees… but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all… a heretical thought… should be literally unthinkable, at least so far as thought is dependent on words… This was done… chiefly by eliminating undesirable words… Countless other words such as honour, justice, morality, internationalism, democracy, science and religion had simply ceased to exist. A few blanket words covered them, and in covering them, abolished them. What was required in a Party member was an outlook similar to that of the ancient Hebrew who knew, without knowing much else, that all nations other than his own worshipped ‘false gods’. He did not need to know that these gods were called Baal, Osiris, Moloch, Ashtaroth and the like: probably the less he knew about them the better for his orthodoxy. He knew Jehovah and the commandments of Jehovah: he knew, therefore, that all gods with other names or other attributes were false gods.” Orwell, G 1949, ‘The Principles of Newspeak’ in Nineteen Eighty Four, pp317-319.

9. Social Values and Efficiency Achieving Wrong Objectives is not Efficient

10. Social Values and Efficiency • Private sector diversity + low cost efficient if objectives is solidarity * efficiency may involve equal access and health outcome • Universal uniformity and low cost  efficient if objective is ‘choice’ (of a particular type) • Efficiency = Achieving objectives

11. Economics, Options and Social Values Objectives/Social Option which maximisesValues likelihood of success Equalise – access, Public outcome Maximise: choice Pure private scheme Choice; diversity Mixed public-private = safety net

12. How Efficient is Medicare? Outcomes Small issues Larger problems

13. Outcomes • DALES … rank 2 • Cost … exactly where expected with respect to GDP/capita • Does this imply we are performing well?

14. 10,000 lemmings can’t be wrong…

15. Short Run Problem 1 Private Health Insurance

16. PHI: The Myth • PHI  use of Private hospitals   pressure on public hospital beds  Public Queues  • Policy objective: Reverse process pressure off public hospitals • Plausible, logical, wrong

17. Private Hospital Services Separations % of Total Bed Days 1985/86 25.9 21.9 1989/90 26.7 22.0 1995/96 30.5 26.3 1999/00 34.3 28.1 Increase 32.4% 28.3% Source: Butler 1999, Bloom 2002

18. PHI Policies July 1997 Private Health Insurance Incentives Scheme (PHIIS) Tax subsidy … low income groups Tax penalties … high income groups without PHI single >50,000 family > 100,000 Dec 1998 ‘30% rebate’ PHIIS replaced flat 30% of PHI Sept 1999 (effective from July 2000) Lifetime Community Rating age 30 … no PHI  life time premium 

19. Percent population covered by a hospital insurance table, Australia June 1984 to June 2001 Source: Butler 2001, ‘Policy change and private health insurance’ in Mooney & Plant (eds) Dare to Dream: The Future of Australian Health Care’, p 60.

20. The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest

21. The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50,000 single, $100,000 family … price of PHI < 0Analogy: to support auto industry surcharge on wealthy families failing to buy Australian car

22. The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50,000 single, $100,000 family … price of PHI < 0 (ii) If use PHI, out of pocket cost 

23. The Echidna, the Platypus and PHI Australia’s entries into the World ‘Strange but True’ contest (i) If income > $50,000 single, $100,000 family … price of PHI < 0 (ii) If use PHI, out of pocket cost  (iii) To sell insurance, increase the risk

24. Sensible Options Private Health Insurance • Enlarge scope to comprehensive health cover • Finance/management st regulation, (ie Managed Competition)  efficiency (hopefully) • Allow erosion PHI  ‘safety valve’  inefficiency unimportant

25. Short Run Problem 2 Pharmaceuticals

26. Pharmaceuticals and Other Medical Non-Durables % of total expenditure on health 1960 1998 1960 1998 Australia 22.3 11.4 Japan 16.8 Belgium 24.3 16.1 Korea 13.8 Canada 12.9 15.0 Luxembourg 12.3 Czech Republic 25.5 Netherlands 10.8 Denmark 9.2 New Zealand 14.4 Finland 17.1 14.6 Norway 9.1 France 22.1 22.0 Portugal 25.8 Germany 12.7 Spain 20.5 Greece 26.8 14.7 Sweden 12.8 Hungary 26.6 Switzerland 7.6 Iceland 16.7 15.5 United Kingdom 16.3 Ireland 9.9 United States 16.6 10.1 Italy 19.8 21.9 Australia’s rank 7 out of 25 Source: OECD, 2002

27. Pharmaceuticals: Long run solution • Must be part of a coherent health scheme • Cost of pharmaceuticals alone is irrelevantif$ (Pharm)  $ (hosp) then  cost of pharmaceuticals desirable

28. Long Run Non-Problem 1 • Cost • ‘Nation’ can’t afford to pay False • Expenditure  choice • If U (health) > U (elsewhere) then  health • Caveat • Expenditure must be efficient

29. Long Run Non-Problem 2 • ‘Government can’t afford to pay’ False: taxes/levy can  True iff: taxes – fixed • Collective or individual financing Efficiency issue = Issue of choice

30. 10% 9% 8% 7% 6% 2.1% p.a. Health Expenditure as % GDP 5% 3.1% p.a. 3.6% p.a. 4% 3% 2% 1% 0% 1995 2006 2021 2036 2051 Long Run Non-Problem 3 Projected Health Expenditure as a Percentage of GDPbased on GDP growth rates of 2.1%, 3.1%, 3.6%

31. How Healthy is Medicare Large Problems

32. Problem 1 Quality of Care (Efficiency)

33. Adverse Events • Quality in Australian Hospitals Study • AE = 16.6% (Wilson et al 1995) • Revision  10.6% (Thomas et al 2000)

34. Problem 2 Cost Effectiveness

35. Cost-effectiveness of selected health programs Australia 1992 to 1998 Service/intervention Cost per life year drugs submitted for listing on the 7 drugs $5 - $10,000PBS approved for funding at 5 drugs $10 - $20,000nominated price 1991 - 96 6 drugs $20 - $40,000 4 drugs $40 - $70,000 primary prevention of NIDDM: cost savingbehavioural programs $2,400/LY primary prevention of NIDDM: $4,600 - $12,300surgery for serious obesity comprehensive diabetes care < $1,000/life year saved • Segal L ‘The Role of Economics and Health Economics in Environment Research’, Workshop on Environmental Health, Department Health and Aged Care, Melbourne April, 2000: Derived from: • Segal L 2000, Allocative efficiency in health. Development of a model for priority setting and application to NIDDM, Doctoral Thesis, Monash University. • George B, Harris A, Mitchell A 1999,`Cost-effectiveness Analysis and the consistency of decision making: evidence from pharmaceutical reimbursement in Australia, 1991 to 1996,’ CHPE Working Paper 89 HEU, Monash University. • Notes: * maximum $68,913 in $1995-6 • # LY = life year gain, QALY = quality adjusted life year gain, • 1 QALY is equivalent to one life year in full health.

36. Problem 3 Variations in Treatments

37. Standardised Rate Ratios for Various Operations in the Statistical Local Areas in Victoria, Compared to the Rate Ratios for All Victoria Variance Ex(Variance) Procedure Coronary Angiography 13.4 Cor Revasc Procedure 5.4Cataract Extraction 15.4Tonsils & Adenoids 7.5Myringotomy 11.7Carpal Tunnel Release 8.4Vertabral discetomy 2.1Decomp laminectomy 1.9Total Hip Replacement 3.8Hysterectomy 6.4Prostatectomy 3.9Colonoscopy 45.3Cholecystectomy 5.3Explorat Laparotomy 1.7Appendectomy 5.9 0 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0

38. Ratio of likelihood of public patients to private patients in private and public hospitals, 1995/97 Private Hospital Patients Private Patients in Public Hospitals :Public Patients to : Public Patients to Angiography Revascularisation Angiography Revascularisation Within 14 days Men 2.20 3.43 1.77 1.53 Women 2.27 3.86 1.57 1.81Within 3 months Men 2.24 3.43 1.53 1.23 Women 2.28 3.34 1.49 1.32 Within 12 months Men 2.16 2.89 1.42 0.97 Women 2.22 2.84 1.48 1.10 Source: Victorian Inpatient Minimum Dataset

39. Problem 4 Silo based system

40. Overarching Problems with Funding • Dollars follow providers, not patients fragmentation  geographic/disease based • Allocative inefficiency • Inequity • Magnitude/consequences of the problem • Unknown / ignored

41. Case Studies: What we would expect to see in a Health System

42. Vignette 1 ‘Ethix, a Seattle based Managed Care organisation was asked to establish a health plan for a nearby country town. The scheme included, inter alia, detailed utilisation review. Shortly after commencement this detected an unexpectedly high level of spinal injury in youths. Investigation established that the reason for this was a tree stump which had been left in the middle of a popular toboggan run. Young people were crashing into this and injuring their backs. The health plan paid for a bulldozer to remove the tree stump.’ (Summary from a public address, Richardson et al 1999)

43. Key Element • Flexibility of funds • ‘single payer’ • No cost shifting • Information systems • Health Service Review/Research

44. Vignette 2 ‘A woman with dizziness is concerned about her health. She rings the state call centre which advises her to visit her local health team. She is able to see the GP quickly who asks her a series of questions from the relevant research based protocol and undertakes a clinical examination. The GP emails the results to a local specialist… who orders some further investigations consistent with the state research based care path… Advice of (an) impending admission is automatically conveyed electronically to the GP and the social worker in the referring health team. The social worker contacts the hospital to discuss discharge planning… The specialist… suggest a number of sources for information about the patient’s condition. The patient contacts the call centre for further information… The case is randomly selected by the hospital audit committee for quality review. The committee suggests some slight changes to the state-wide protocol committee.’ (Duckett 2000 p241)

45. Key Elements • Integrated provider system • EBM • Review/Adaptation • Information System • No financial barrier

46. QA Procedures After Quality of Australian Hospital Study • Expect: Permanent, ongoing random check of hospitals • Analogy 1: Checking hygiene in restaurants • Analogy 2: Airline/safety • Observe ???

47. Hospital Records • Expect: All hospitals have LAN and mandatory recording of treatment • Observe: Erratic coverage

48. Out of Hospital Data • ExpectData : Compulsory electronic linking (would a travel agent survive without record linkage?) • Observe : Very slow uptake of EDP

49. Type/Mix of Services • Expect : Evidence Based Medicine • Observe: ‘Clinical freedom’ (license) • Expected Response: Maximum priority to promote EBM • Observe: Unhurried projects

50. Organisation • Expect: Kaiser HMO-type clinics • Observe: 19th Century ‘corner store’ organisation