No. 245


STONE the crows! Even if tomorrow’s budget prescribes spending cuts to deal with the deficit the prognosis will be poor because the country suffers from an incurable complaint – health spending.

Short of super-humans living physically perfect lives in perpetuity there will always be diseases to cure and treatments to improve. And the bedrock belief among Australians that we are all equal when it comes to access to health services means only the rarest of medicines or procedures are rationed by cost. It is why the drug lobby can get away with arguing for more products being purchased by the state on the grounds of equality. “If new medicines are not listed on the PBS in future it would mean that only the most well-off Australians could be able to afford them.” [i]

Australia is already spending an ever-bigger bundle; with health expenditure increasing from 6.8 per cent of GDP in 1986-87 to 9.5 per cent in 2011-12, and health is taking cash from other parts of the economy. Over the last decade real spending has grown by 5.4 per cent per annum while the economy grew by 3.1 per cent a year.[ii]

The standard response to this is that we spend not much less than half the share of GDP the US does and, an “anomalous concern with the costs and not the benefits of an expanding health sector implies comparative lack of concern or confidence in the benefits despite evidence that better health is one of the diminishingly few ways in which we can improve the quality of life of the population.” [iii]

This is nonsense on stilts, if only because it ignores that the bigger the share of government spending on health the smaller the funding available for other functions, say welfare – oh sorry, that is increasing as well. According to the budget ending tonight, welfare-spending amounts to $145bn this year which will blow out to 169bn in 2017-18. [iv]

And it isn’t enough for most of us. An ANU poll last year found 81 per cent of us want the government to spend “somewhat or much more on health.” [v]

So if too much more will never be enough what are the feds to do if they are to have anything at all to spend on, for example defence and education?

For a start Canberra could simply cap spending – which would last as long as it took for lobby groups to raise their issues with a government going into an election behind in the polls. As Vince Fitzgerald puts it, “no amount of fiscal discipline seems likely to fully inhibit the influence of interest groups on politics and governments, and it seems likely that costs of medical technology (including pharmaceuticals) will continue to rise. Thus while aggregate and public healthcare costs might rise less as a percentage of GDP than under the present system, they will still rise.” [vi]

Or the government could restrict providers and put a funding ceiling on services, which discretely happens now as budgets are set to deliver the minimum services with the maximum delay that providers and consumers will wear – which inevitably means high profile problems get more of the money than is merited.

As for letting the market sort it out – not a chance, given Australians reject a connection between capacity to pay and treatment. As Anne-marie Boxall points out, we see many health services as public goods, “which people cannot effectively be excluded from using.” [vii]

So without structural change all government can try is improving productivity. The Crows wish them luck – because not even the Commission of Audit and Productivity Commission know how to control spending.

The Commission of Audit acknowledged not much is doable that will reduce public spending, “social policy reasons for government intervention include the provision of cost-effective quality health services to those who would otherwise not be able to afford even basic health services, as this is recognised as an effective and socially acceptable way of ameliorating disadvantage.”

It even (and this must have hurt) acknowledged the case against caps on services. “Care is needed with such supply side interventions in order to avoid unintended reductions in the quality of or access to care, particularly for lower income groups.”

But, overall, there is not much the Commonwealth can do given 80 per cent of health expenditure growth “is a result of demand-driven programs” – the Medical Benefits Schedule, the Pharmaceutical Benefits Scheme and the private health insurance rebate, (given hospital spending is a state matter). Which is why the CoA focuses on ways to shift the burden from state to consumer, especially people with unhealthy lifestyles who should pay more for insurance it argues. But overall the Commission does not have much in the way of stopping cost increases for existing, and new, services. [viii]

In contrast the Productivity Commission is optimistic (and no, the Crows have not lost their bird brains) in a new paper setting out a mass of savings that are possible within “the current architecture” of the existing system.[ix] Well, not exactly savings, the PC is far too smart to commit to sums it cannot account for but it does set out dozens of changes to programmes that cost a bomb.

Some of the ideas are already underway. The PC’s proposal for “evidence based guidance for clinicians” sounds like Health Minister Sussan Ley’s review of the 5000 items on the Medical Benefits Schedule.[x] And others are routine, like the call to the minister to respond to the recent analysis of the staggering personal electronic health record system.

But, typical of the PC, the big ones are politically blind. Like the idea of using lower skilled staff to do jobs now done by nurses (washing hospital patients for example) or doctors (allow pharmacists to vaccinate) – and won’t these go down well with nurse and GP unions! And while just about every inquiry advocates ending location and ownership restrictions on pharmacies, the owners’ guild will fight such changes to the last PBS prescription. [xi]

That’s the problem with health funding, what are obvious administrative reforms to economists are rent cheques to providers and practitioners and guess which group will make the most noise about change.


For policy writing and editing call me, 0417 469 093



[i] Medicines Australia, “Hasty cuts may make it harder to access the new medicines that patients need,” May 9 @ recovered on May 10

[ii] Australian Institute of Health and Welfare, “Australia’s health 2014,” @ recovered on May 10

[iii] Jeffrey R Richardson, “Can we sustain health spending,” Medical Journal of Australia, 200 (11) 2014, 629-631 @ recovered on May 10

[iv] Australian Government, Budget 2014-15 Statement Six, @ recovered on May 10

[v] ANU, “Public priorities for government expenditure,” January 2014 @ recovered on May 10

[vi] Committee for Economic Development of Australia, Healthcare: reform or ration? April 2013 @ recovered on May 10

[vii] Anne-marie Boxall, “What are we doing to ensure the sustainability of the health system?”, Parliamentary Library, November 18 2011 @ recovered on May 10

[viii] National Commission of Audit, S9.3, “A pathway to reforming health care,” March 2014 @ recovered on May 10

[ix] Productivity Commission, Efficiency in health, April 23 @ recovered on May 10

[x] Harriet Alexander, “Sussan Ley’s Medicare review could help patients, as well as the budget,” Sydney Morning Herald, April 25

[xi] Anne Hyland, “War at the dispensary,” Australian Financial Review May 9