Threats to Systems Change—Views from the Insight
What Are We Doing to Ensure the Sustainability of the Health System?—Executive Summary  followed by a red fragment
Health care expenditure has been steadily rising in Australia in recent decades, just as it has in many countries around the world. Increasingly, governments are becoming concerned about how this level of public spending will be sustained. Many are looking for ways to contain the growth in health care expenditure or “bend the cost curve”.
Burgeoning health expenditure is a difficult problem to solve because there are a myriad of factors driving up health costs, and most of them are rooted deeply in a complex health system where much of what happens is beyond the reach of government. Simple technical solutions such as imposing tighter constraints on government spending, or using monetary incentives to change health professionals’ or consumers’ behaviour are unlikely to work on their own because they do not grapple with important political dimensions of the problem. Governments, for example, need to find ways of slowing the growth in health care expenditure without adversely affecting health outcomes, particularly for people who are already in poor health. Governments also need to affect change on the ground where health care services are delivered. This can be difficult because many health care providers operate in the private sector beyond the direct control of governments.
Despite the challenges, most governments use a range of policy tools to help control the growth in health care expenditure. This paper identifies some of the main ones used in Australia:
deciding which health care interventions will be publicly funded
changing the way health care providers are paid
imposing costs on individuals
constraining the capacity of the health system and
The paper assesses how effectively each of these tools is being used in Australia, and it outlines some potential options for reform.
Key policy tools for containing health expenditure
Deciding which health care interventions will be publicly funded
One of the main tools governments use to control health expenditure is to ensure that public funds are used only to fund the most clinically effective and cost-effective health care interventions. Formally, this process is known as Health Technology Assessment (HTA). Currently HTA processes in Australia operate within discrete sectors of the health system rather than across it. The assessment process for new drugs, for example, is completely separate from that for new medical procedures. Currently, most assessments are done on new technologies or interventions; existing ones, even if they are out-dated or ineffective, continue to be funded except in relatively rare circumstances.
To remedy these problems in HTA, policymakers could consider establishing a single HTA agency capable of systematically assessing the clinical effectiveness and cost-effectiveness of all types of new and existing health care interventions. Under these arrangements, it should be possible to compare the effectiveness of different types of interventions for the same health conditions. Some consideration should also be given to implementing mechanisms to “de-fund” or “disinvest” from the least effective interventions.
Changing the way health care providers are paid
The way health care providers are paid also has an impact on health care expenditure. Some payment methods provide incentives to “over-service”, while others provide little incentive to deliver high quality care. Australia currently relies heavily on provider payment methods considered by the World Health Organisation to be the least effective ways of curbing expenditure growth: fee-for-service payments and activity-based funding (ABF) both provide strong incentives to increase the volume of care delivered and therefore overall expenditure.
To help contain health expenditure, policymakers could consider supplementing or combining fee-for-service and ABF methods with others that are better able to constrain expenditure growth (examples include fixed budgets and salaried employees). It will be important that these new methods are also accompanied by reforms that strengthen systems for monitoring performance so that they do not have a detrimental impact on the quality of care.
Imposing more costs on individuals
Many governments try to curb health care expenditure growth by imposing costs on individuals; these costs are commonly known as co-payments. Most countries are shifting away from using co-payments as a means of financing health care, but Australia continues to rely heavily on them. Even though Australia has a system of safety nets in place to protect people from excessively high out of pocket costs, evidence is now emerging that the cost of care is stopping some people from using necessary health services. Because this is neither equitable nor efficient, policymakers should consider undertaking a high-level review of Australia’s co-payment and safety net policies. As well as considering technical issues such as access, entitlements, and benefit levels, this review should also canvass and debate alternative co-payment policy proposals.
Constraining the capacity of the health system
The overall capacity of the health system has a powerful influence on expenditure growth. Capacity is determined to a large degree by the number of health care facilities and the number of health workers practicing in the system. Reforms to the way health workers are trained and registered in Australia have recently been implemented, but it is too soon to assess their impact on expenditure growth. Australia’s health infrastructure decision-making processes, however, have received relatively little attention. There are currently multiple health infrastructure funding processes in operation, which makes it difficult, if not impossible, to monitor the impact of infrastructure funding decisions on health expenditure.
To help control health expenditure growth, governments could consider consolidating the various infrastructure decision-making processes in Australia and making them more transparent. To make further advances in the health workforce area, governments will need to continue to find new ways of working together on areas of shared responsibility.
Encouraging competition Competition is a key driver of efficiency and innovation in many sectors of the economy but it is contentious in the health sector because there are so many areas of market failure. While competition does exist within the Australian health system, in many areas it is limited.
There are many potential options for encouraging competition in health care but past experiences here and overseas demonstrate that competition policies do not always deliver the anticipated benefits. To design and implement effective competition policies in health care, policymakers first must acknowledge the differences between health care and other markets.
Some options in medical services are to encourage greater role substitution (for example, using nurse practitioners or physicians’ assistants where appropriate). Another is to give the government a greater role in training medical specialists, and make the process more transparent.
Australia’s health insurance system should be considered as a priority for reform because it has an overarching influence on competition between providers and in service delivery. The key issue in health insurance is to resolve long-standing questions about the role of private insurance in the context of Medicare. A number of proposals for insurance reforms already exist, and include options such as: promoting managed competition between insurance funds, re-allocating existing public subsidies for private insurance to other areas such as to patients in the form of vouchers, private hospitals in the form of bed subsidies, or directly to public hospitals.
Social Policy and Health Care—Paul Spicker Emeritus Professor of Public Policy at Robert Gordon University, UK
My thanks go to Prof Paul Spicker for providing this addendum.
The study of Social Policy has not, for the most part, been concerned directly with “health”. Many issues which are central to people’s welfare—love, laughter, leisure, culture, music—play no part in the provision of services. Social Policy is much more concerned with health care—the organisation, management, and delivery of health services. Health care has not always been seen as a distinct category in its own right. It is sometimes seen as part of another system—the Poor Law, which provided medical care along with income, education, and workhouses, or the idea of “social security” in France, which manages the finance of health care along with pensions. Equally, other service systems are sometimes treated as part of health care: the Victorian Board of Health was also responsible for public housing and sanitation, and in the 1920s and 1930s psychiatric hospitals used to deal with mental illness, learning disability, and illegitimacy almost interchangeably. It is conceivable that future generations will look back at our distinctions between health and social care, or health promotion and physical education, with bemusement—or that areas where we fail to distinguish health care from other fields, which has happened with the medicalisation of dying, will prove equally baffling.
Governments and Health Care
Health care does not provide health; it provides care. The main purpose of collective social organisation has been to regulate and manage the provision of care, most directly through providing some guarantees of treatment in the event of need. The “health systems” of continental Europe can mainly be understood as systems of insurance, covering medical expenses for contributors or for citizens. In general terms, nearly all these systems offer reasonably comprehensive cover for hospital care; most cover ambulant care to some extent, and at least some of the costs of medical goods . The insurance principle is also implicit in national systems; the UK National Health Service provides everyone not with health, but the equivalent of universal health insurance, financed through taxation.
In developing countries, specialised medical care tends to be restricted to those with greater resources, with only limited exceptions (e.g. Sri Lanka and Cuba); for general populations, a different sort of model has been emerging. Essential Health Packages, sometimes called Basic Health Care Packages, offer universal provision of selected medical events, such as vaccination or maternity support, while typically avoiding coverage of both the more expensive, high-tech response to disease and accident, or the coverage of longer-term conditions such as psychiatric care or disability support [2,3].
The systems which have developed to deliver health and social services are complex. Collective provision is sometimes discussed in terms of the actions of “welfare states”, but that term is misleading (see Tables Add 3.1 and Add 3.2 for clarification). In many societies, collective provision has not developed through government or the state; it has begun through mutual insurance and voluntary societies, or even through trades unions [6,7]. Mutual insurance is intrinsically redistributive: people pool risks in order to be able to cope with changes in fortune, and membership buys security. The experience of several countries has been one of progressive expansion of coverage, mainly encountering difficulties when existing schemes fail to cover people on low incomes or those with special needs. When compulsion has been introduced, it has often been concerned with mopping up the residuum—extending to the poorest the benefits of solidarity and social protection that could only otherwise be guaranteed to those with more resources .
Governments and states are not the only way that collective services are organised, then, but they have come to play a major role in service provision. Sometimes this is done to supplement the existing pattern of provision (such as the French régime général, or the Affordable Care Act in the USA); in others, more rarely, the state has taken on the role formerly undertaken by voluntary and mutual aid. The most fundamental argument for government action is that a democratic government is there to do what people want it to do. Government, Edmund Burke wrote, is “a contrivance of human wisdom to provide for human wants.”  The main restriction on this kind of government action is imposed in constitutional governments where constitutions restrict the legitimate scope of government activity. Governments commonly engage with provision where:
action protects the public as a whole, such as vaccination to achieve herd immunity, or sanitation and drainage to promote public health
where other methods (voluntary, mutual, or market) have left unacceptable gaps (for example, the long-term care of older people)
it is necessary to protect the interests of some people from actions by others (e.g. regulation of food quality or the abuse of antibiotics)
some element of provision is not voluntary for the patient—for example, in psychiatric care
Sometimes the provision of health care saves other expense; sometimes public provision is just the most practical thing to do. The reason why the Poor Law’s Boards of Guardians took on responsibility for public health in the 1850s was, simply, that in much of the country there was no other administrative body around to do it.
Public sector provision has been heavily criticised. It is often characterised as economically inefficient. The free-market Institute of Economic Affairs is critical of the way that the UK National Health Service restricts spending on health; if things were done privately, they argue, people would be free to spend more money as they think fit . The criteria that public services work to are different from those which apply to private firms. They are described by Hood as “sigma type values”, emphasising frugality and the reduction of waste; “theta type values”, emphasising rectitude, fairness and legitimacy; and “lambda-type values”, emphasising resilience, robustness, and security . Some critics object to the public services making different decisions from those that would be made in a market [11,12], which rather misses the point—that is what they are there to do.
Public and Private: Welfare Pluralism
The main alternative to the public sector is sometimes referred to as the “private sector”. That term stands for a range of somewhat different activities. In the first place, it is taken to mean the provision of goods and service by commercial providers working through an economic market. This approach is passionately supported by the “neo-liberals” who have come to dominate much thinking in economics and international organisations. Arthur Seldon argues that the price mechanism leads to choice for the consumer; a service led by the consumer rather than by the professions; more efficient services at lower costs (because this increases profitability); responsiveness to need (because their payment depends on it); and the education of people as to the implications of their choices .
Economists make much of “market failure”, circumstances where the assumptions that are made in theoretical economics do not apply. Markets have imperfect information (markedly so in the case in health care, where specialised knowledge is one of the principal items being purchased); they are tied to particular locations (especially in the provision of personal services); there may be issues of “moral hazard”, where people’s needs and claims health care are shaped by their own behaviour. In health care, the normal constraints of demand do not apply; people will spend anything they have to stay alive. The fundamental problems of markets, however, run deeper than the conventional idea of market failure. It is in the nature of a market that consumers are not the only people who have a choice; producers have one, too. People who have complex and potentially expensive needs, who live in remote areas, are uncertain to be insurable. There is a process of “adverse selection”, leaving people out; and the public sector is generally left to fill in the gaps . Wherever public services have been left to provide in the last resort, there are issues of equity and maintaining the boundaries; the process of dealing with residual needs is invariably costly and inefficient; and those elements, in turn, have led to relentless pressure to expand the range of provision.
There is no country where services are delivered wholly through the activity of government, or through the commercial market. The provision of medical care in the USA is often represented as “private”, but in practice government pays for about half the expenses, through a range of services and finance mechanisms including Medicare (support for older people), Medicaid (support for people on low incomes), State governments (typically paying for long-term psychiatric care), State-based insurance (e.g. in Hawaii and Minnesota), and the service for native Americans. Then there is TRICARE, for military personnel, and the Veterans Health Administration, a system for former service personnel and their families, together dealing with more than 70 million people. When we look into more detail at the “private” sector, it includes voluntary non-profits, charities, mutual insurance, and commercial payment for service. A voluntary hospital may well have both private and public wards.
The distinction of public and private does not, however, capture the full range of services that are commonly found in developed societies—a range variously referred to as a “mixed economy of welfare”, or sometimes as “welfare pluralism”. The term “private” is sometimes conflated with the “voluntary” sector, but the motivations and approaches of voluntary provision are generally very different from commercial providers. Some voluntary providers are non-profit organisations, formed to advance a social objective. Some are mutual, offering social protection. The boundaries between different classes of activity are indistinct. There are “social enterprises”, which combine market practices with communal objectives. Some voluntary organisations guide themselves by the principles of commerce and enterprise. Conversely, some commercial organisations have elaborate systems for occupational welfare or corporate social responsibility.
It is also worth noting the existence of an “informal” sector. Many people receive physical care, not from professionals, but from family members, partners, neighbours, and friends. In a devastating critique of social care provision for people with learning disabilities, Michael Bayley made the case that the care provided by professionals or government services should be seen, relative to the work of informal carers, as marginal—sometimes a complement, often a supplement to the real work . He argued, in consequence, that planning for social provision could only be done if it built around existing social networks—a process he called “interweaving”, but which has come to be thought of in terms of a “care package”.
Why Health Care Is Not Like a Business
The model of business that dominates economic textbooks is the model of a range of providers, all making choices about what to provide, how to do it, and what to charge. It is a truism to say that health care is not much like that, but that does not get us very far; real-life businesses are not much like that, either. It is difficult to generalise, because there are so many different strands, but in any discussion of health care there are likely to be fundamental departures from the theoretical model.
The first of these departures concerns objectives. One of the primary characteristics that defines an activity as a public service—whether it is based on government, voluntary activity, charity, mutualism, or other independent—is that it acts to further public aims . The primary test for any public service is whether it is effective in doing so—“effectiveness” being defined in terms of the extent to which the service meets its aims. Most public services equally attempt to do this without wasting resources, aiming for cost-effectiveness. Some will “target” their activities, aiming to choose the areas where they will have the maximum effect; some will ration services, applying criteria about eligibility and service allocation in order to achieve their objectives more effectively. Cost-effectiveness is a very different test from the idea of “efficiency” found in economics textbooks. Productive efficiency is achieved when firms produce goods or units of service at the lowest possible cost per unit. Cost-effectiveness is achieved when the aims of a service are achieved to the greatest extent at the lowest cost. The difference between the two is straightforward: it is a matter of how much a producer should do. Businesses become efficient by deciding how much to produce; they will limit the scope of their activity to the level which maximises their returns. I referred earlier to the issues of adverse selection. It makes perfectly good sense on economic grounds to refuse to treat people with burns; burns are expensive to treat. This kind of selection is implicit in the market process—if commercial firms are choosing which activities they should undertake, they are only doing what they are supposed to do. Public services, when they try to avoid these consequences, are not trying to be “efficient”; they are trying to do something else.
The second key issue concerns commoditisation—an ugly piece of jargon, for which I must apologise, but there is no real substitute. The sale of goods works most efficiently when it is clear just what is being sold and what it costs to produce. This is more difficult with personal services, but some personal services (such as hairdressing or hotel rooms) can be commoditised—that is, turned into saleable products—in the same way. There are certainly elements in health care which can be treated on this basis—the sale of medical goods, laser eye surgery, specific tasks in dentistry. Arguably insurance can be sold in this way, though it offers more security if it does not. However, the attempt to extend commoditisation more widely, for example, to parcels of time for the care of elderly people, has been controversial; something is lost in continuity, personal relationships, and trust. Objectives such as holistic response, emotional support, or continuing care are likely to be disrupted by commoditisation. So it should not be surprising that much of the work of public services, voluntary organisations, and charities is “decommodified”—taken out of a market régime altogether.
The third difference concerns service integration. Commercial markets do not need to be coordinated or integrated; they have the “invisible hand”. Each individual chooses what they will receive from a range of options that is offered. However, that approach has serious limitations—providers have choices, too. The patchy and selective approach of markets imply a landscape of fragmented and partial provision from the outset. That has been exacerbated by the complex, restricted, and sometimes residual development of public services.
There has been increasing emphasis in public services on issues of integration: providing holistic care, engaging a range of stakeholders, breaking down barriers between “silos”. There are reservations to make about some of those attempts: professional differences reflect differences in training, expertise, and purpose and the delivery of complex services requires a division of labour to be effective. A strong emphasis on partnership can have negative effects on a service—blurring professional boundaries and diverting attention from core activities to peripheral ones. When several services are all trying to be holistic at the same time, they can duplicate effort and end up dancing on each other’s toes. None of that detracts from the reasoning which has led to the emphasis on integration: a desire to ensure that people do not suffer when responsibility for them is passed between services, to avoid gaps, to reduce duplication (which is wasteful), and to make it possible for each service achieves its aims to the greatest possible extent. Cooperation and partnership are only part of that process; the other part is the engagement of the service user . Personal services cannot be delivered effectively without the presence, and in some sense the engagement, of the service user. The idea that services are “co-produced” by professionals and service users is a call to take into account the role of the patient as well as the health professional. As the contemporary slogan puts it: “Nothing about me without me”.