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The Rudd Reforms: Outcome or Activity?

The proposed hospital reforms announced in March by Prime Minister Kevin Rudd – ‘A National Health and Hospitals Network for Australia’s Future’ – would, according to the PM, bring about the ‘biggest change to the health system since the introduction of Medicare’.

But what impact will the proposed reforms have on the pharma and devices sector? And will they holistically address current problems within the health system or remain sector (hospital)-focussed?

The reforms: in sickness or in health?

First, the reforms. Below is a brief summary of what has been proposed:

  • The establishment of a national network to bring the “disparate” state-run hospital systems together under a set of national standards.
  • The Commonwealth to take the dominant funding role (60 per cent of funding responsibility for public hospitals) by investing a third of GST revenue currently paid to the States.
  • Local Hospital Networks will bring together small groups of hospitals, and local professionals will be given the power to deliver services to their communities.
  • The Commonwealth will take responsibility for all GP and primary healthcare services.

There will be no new funding for several years and it is still unclear how waiting lists will be alleviated. But Prime Minister Rudd claims that greater Commonwealth involvement will end the ‘blame game’, eliminate waste and take from the States the increasing burden of meeting rising health costs.

Those who support the reforms have focussed on the benefits of increased Commonwealth control and funding. Setting payments to hospitals on efficient costs is seen as a means of forcing them to find productivity gains, while the establishment of the Local Hospital Networks (bypassing the States) will, as stated by the Prime Minister ‘make local healthcare delivery more responsive’.

The Federal Opposition (and a number of Premiers) have predictably criticised the plan, despite Opposition Leader Tony Abbott favouring increased Commonwealth control when he was Health Minister. Naturally, funding issues have been at the centre of criticisms, especially from Victoria, which has arguably the best State healthcare system.

It has been said that an ‘undue’ focus on healthcare financing highlights the influence of Treasury, ignores patients and the role of preventative health. Other criticisms have focussed on the size of the local networks, doubts over the ability of the Commonwealth to dictate change, the lack of competition between service providers (private and public hospitals) to drive efficiency gains, and the missed opportunity to introduce some form of price signalling (as per co-payments for the PBS).

The focus on the funding side runs the risk of perpetuating a ‘sickness model’ rather than a ‘wellness model’. The Government should therefore pay more attention to the directions being taken by one of its own agencies, Medibank.

At the recent Guild Conference, Medibank’s CEO George Savvides highlighted how his organisation was moving from being ‘just a health insurer’ to being a ‘health management company’ with a focus on ‘wellness’. It has done this in response to the pressure of an ageing population and the increasing demand for high-cost medical interventions. A year ago, Medibank employed only 20 people with a health management background. It now has 1,200 staff and is investing in its own health clinics, including a trial clinic in Brisbane.

Potential changes to tendering

Government reviews around preventative health, workforce, mental health, ageing, etc. have yet to be addressed. While the PBS has not been a major focus of any of the various health reviews, that is not to say significant health reform won’t have implications for the industry, particularly any move towards a more national approach (combined with a continued search for budgetary savings). Health Minister Nicola Roxon commented at the Guild Conference about her support for ‘cheaper medicines’.

Standardisation of treatment across the public health system could result in the use of standardised drug formularies being introduced throughout Australia. This could see the existing State-based tendering approaches replaced by National tendering. A precedent already exists: after the 2008 budget, the Commonwealth took on a greater role in the procurement of vaccines in order to obtain greater savings.

Experience has shown that prices under tendering are often ‘sharp’, which could lead to previously considered ideas around tendering resurfacing. Obviously Commonwealth Departments like Finance and Treasury would see good value in a national tendering approach, particularly for cholesterol lowering drugs.

The idea of a National purchasing approach for hospitals is not new nor is greater co-ordination between the States. And even if the reforms were to fail, elements such as tendering may re-appear.

Finally, it is worth noting that nearly 80 per cent of Australians favour greater Commonwealth control of hospitals, which should enable the Federal Government to take the high moral position on proposing reforms. However, as Dr Lesley Russell of the Menzies Centre for Health Policy has noted, reform needs ‘to move from paying for activity to paying for real outcomes’.

This entry was posted in Life Sciences Industry.
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