Radical Surgery: The Only Cure for New South Wales Hospitals - The Centre for Independent Studies
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Radical Surgery: The Only Cure for New South Wales Hospitals

NSW public hospitals are plagued by massive systemic failures, as diagnosed in the Garling report. At the same time, hospital costs are blowing out, and may yet bankrupt the NSW budget despite a massive federal bailout under the COAG agreement. The situation requires dramatic and fundamental changes to hospital management—not additional layers of bureaucratic control or more federal subsidies.

The Garling report—correct and to the point in diagnosing the failures of NSW public hospitals—failed to outline cures that can tackle the underlying causes of the healthcare crisis. Instead, it exhausts itself in numerous recommendations that amount to no more than marginal tinkering with a wrongly conceived and untenable system.

The underlying cause of the crisis is excessive, parasitic and superfluous bureaucratisation— something the health system shares with other areas of public sector service delivery in NSW, from transport and education to child protection.

The hospital malaise can only be remedied by removing the central, bureaucratic control of hospitals and creating opportunities for spontaneous, decentralised and customer-oriented supply of hospital care. Taking for granted that many Australians want heavy subsidies to cover the cost of hospital stays, this essay explores how to provide public hospital care with less bureaucracy. We argue for a separation of the provision of access to hospitals for those in need from the production of services in government-run hospitals. Specifically, we advocate a three-pronged reform:

1.      Revenue for services: Medicare should issue ‘patient vouchers’ to needy patients, which empower them to choose their hospital whenever feasible. In addition, a government agency should express demand for hospital beds in specific regions by inviting annual bids from hospital managers for publicly funded ‘bed vouchers.’ Hospitals should be obliged to earn all their revenue from these two types of vouchers and other payments for services rendered. They must be weaned off direct budget allocations.

2.       Liberation from bureaucratic fiat: The growing and costly health bureaucracy in NSW imposes often disruptive central planning concepts and inflicts frivolous costs on taxpayers and clinicians. The NSW experiment with area health services, therefore, needs to be abandoned.

3.       Hospital autonomy and diversity: Public hospitals should be made independent of detailed, centralised management directives. The time-tested practice of local boards should be strengthened by giving boards genuine autonomy, as long as they adhere to certain clinical and administrative standards.

The purpose of these reforms is to move the NSW hospital system from a costly, initiative stifling top-down command-and-control mode to independent, decentralised decision making. The interaction of buyers and sellers will generate useful information and, thus, improve the use of scarce resources.

Without such reforms, NSW citizens are bound to face a continuing deterioration in the quality of hospital care and will before long lose their traditional free access to hospitals.

Wolfgang Kasper is Professor of Economics emeritus, University of New South Wales.