Ahead of the game

It is serendipitous when a piece of research is ahead of the game — as happened with the new report of the CIS Health Innovations Program.

On Monday, Shaun Gath, the former Chief Executive of the Private Health Administration argued that healthcare unaffordability was being driven by the increasing cost of specialist doctor’s fees. The problem is increasing ‘utilisation’ of services, meaning patients are receiving more hospital procedures and tests.

One cause is that the Australian health system relies on fee-for-service payments, which encourages more to be done for more patients because doctors are financially rewarded based on the volume of services delivered.

As use of services increases, so do costs such as private health insurance premiums. Health funds have limited ability to address the usage-and-cost spiral because they are subject to a strict insurance indemnity.

This is why Private Healthcare Australia supported Mr Gath’s calls for health funds to have a greater say in organising and purchasing the hospital care for their members to allow market forces to generate better value for money.

This is very much the argument of my report: MEDI-VALUE: Health Insurance and Service Innovation in Australia — Implications for the Future of Medicare.

We could better control health costs across both the public and private system by better managing ultilisation of hospital services, especially given Australia’s much higher rates of hospital use compared to other OECD nations.

To achieve this outcome, we could emulate the approach of innovative health funds in the United States that have moved away from fee-for-service payments.

As the report shows, when providers are instead given a ‘bundled’ payment to fund all the healthcare needs of patients, they have a financial incentive to change traditional patterns of care.

Where tried, this has delivered promising early and cost-effective results by directing patients away from high-cost hospitals towards alternative, lower-cost, community-based facilities for specialist procedures.

The report argues yielding similar cost benefits in Australia requires significant structural changes to the health system.

If Medicare were replaced with a publicly-funded, privately-operated health insurance ‘voucher’ scheme, health funds would be able to operate as active managers and purchasers of health services from competing providers, and use ‘bundled’ payments to drive service innovations and efficiencies.

Dr Jeremy Sammut is Director of the Health Innovations Program and a Senior Research Fellow at The Centre for Independent Studies. His research report, Medi-Value: Health Insurance and Service Innovation in Australia — Implications for the Future of Medicare, was released Wednesday, 20 April 2016.