The document discusses issues with the Australian healthcare system, including a two-tier system of access and copayments being created, and the private health insurance industry slowly collapsing as premiums rise above inflation. It argues comprehensive healthcare reform is needed, including tying insurance access and payments to patient severity and outcomes, using data to set quality and cost benchmarks, and allowing networks of high-quality providers to emerge. However, ongoing political inaction is threatening the sustainability and relevance of Medicare, private health insurance, and the disability insurance system.

1. AUSTRALIAN HEALTHCARE AFTER JULIUS CAESAR:
I CAME WITH SUBSIDIES. I SAW POLITICAL LETHARGY. I AM IRRELEVANT
The healthcare sector in Australia is wallowing in the status quo, and with the
continuing political circus in Canberra, a two-class system of access and
copayment is being created, the health sector is spiralling into a financial void,
and yet another health minister’s first response is to simplify the private health
insurance product (aka putting lipstick on a pig).
Niccolò Machiavelli’s solution is at one extreme of possible responses: "Non
sono interessati a preservare lo status quo; Voglio rovesciarlo" ("I'm not
interested in preserving the status quo; I want to overthrow it.").
No Australian politician is within cooee of uttering such radical heresy.
At the other extreme lies the do-nothing miss-mash of aspirations spouted by
federal and state/territory governments in COAG, the federal opposition, the
federal cross-bench, the health insurance industry, the AMA and private
hospitals. Try to find any defensible policies in this small sample.
• A populist independent politician from South Australia suggested that
the Coalition’s budget balancing act would be easier if we just raised
the Medicare levy by 1 percentage point, raising a quick $8 billion per
year.1
• State governments continue to lament the lack of funding for public
hospitals, but have no problems with the increased number of privately
insured patients in those hospitals, to the point where more than 20%
of separations from NSW public hospitals are funded by PHI
payments.2
The NSW government used the UK government-backed
company Behavioural Insights Ltd — also known as the “Nudge Unit”
1 The Australian 16 February 2017, p.1
2 S Parnell, S-J Lasker. States urge hospitals to bill insurers. The Weekend Australian March 4-5, 2017, 1,6

2. — to increase PHI use by patients at hospitals in Western Sydney.3
The Queensland Health Minister argues that public hospitals must bill
private insurers so that his state can afford to recruit specialists, and
he has been cunning enough to create short-stay units so he can
claim PHI benefits for patients who might otherwise be classified as
emergency department patients and therefore not billable to the health
funds.4
• A conservative think-tank promoted another solution to the shortfalls in
tax-based funding of public hospitals: allow the states to raise their
own income tax, forcing the states to control the demand for “free”
public hospital services by devices such as patient cost-sharing via a
compulsory payment for such services.5
No mention of the need to
measure the quality of hospital care before we pump more tax revenue
into such services. Nothing about adding more copayments in a nation
where 18 percent of all healthcare financing comes from copays that
are unrelated to ability to pay.
• With specialist charges soaring beyond the AMA recommended fee
and the MBS rebate,6
some academics promoted the case that health
insurers should be allowed to cover outpatient care,7
without much
recognition that lower copays may increase demand, the states will
happily applaud yet another stream of funding of public hospital
outpatient care, and health insurers are likely to have less control over
specialist charges than the federal government.
• $6.2 billion is being paid this year for the PHI rebate, a 4.8 per cent
PHI premium increase was approved by the new Health Minister, and
the health insurers posted post-tax profits of $1.3 billion in the year to
April 1, an annual increase of 18 per cent, leading to howls from four
organisations with vested interests: doctors, surgeons and medical
3 John Rolfe and Sue Dunlevy. Public hospitals nab ‘donations’ from health insurance that costs patients. News.com.au, 3 April
2017.
4 S. Parnell. Public health needs private patients to help keep specialists. The Australian 9 June 2017, 4
5 D Gadiel and J Sammut. Rescue states from Medicare penury: give them income taxes. AFR 17 July 2017, 39.
6 M Steketee. Sick system open to abuse. The Australian 6 March 2017, 9
7 S-J Tasker. Insurers shouldn’t be tied to hospitals. The Australian 6 March 2017, 3

3. device manufacturers. 8
As if living in a parallel universe, health
insurers sought to end the government veto over the annual premium
increase because it takes pressure off the insurers by allowing them to
signal price rises to each other, and ‘… insurers will be reluctant to
offer lower prices at lower margins to attract more customers for fear
that they won’t be able to recover margins if they need be – because
of the uncertainty of the approval process”.9
• Just when you think there can be no surprises in private health
insurance regulation that could increase premiums or shock PHI
enrolees, at short notice the NSW government dropped a draft
regulation on all insurers that would eliminate the ability of PHI
policyholders to use non-emergency ambulance services without
charge. Private health insurers now pay a levy for emergency and
non-emergency ambulance services, so that levy would surely require
downward adjustment.10
The value proposition for PHI takes another
hit, the NSW government thwarts any national harmonized approach
to payment for ambulance services now being considered by the
COAG Health Council, the insurers are levied for a service that will not
be available free to their members, and 194,000 patient transports
(2014/15 data) provided by HealthShare NSW will attract an additional
charge.
• Compounding all this confused thinking about how health insurers and
governments deal with healthcare prices that rise faster than CPI, “…a
survey has found 12 out of 18 economists and economic experts
believe hikes well in excess of the Consumer Price Index (CPI) of 1.4
per cent are "unwarranted". 11
8 Heath Aston. 'People are getting angry': Health funds accused of 'obscene' profits. SMH 17 May 2017. The CEO of Private
Health Australia noted that with premium revenue of $22.8 billion, the retained earnings of $3.4 million represented a share
higher than the general insurance industry.
9 Reported comments of Mark Fitzgibbon (NIB) in: A Creighton. Moves to end veto on health premiums. The Australian 9
March 2017, 5.
10 HIRMAA. Hirmaa response to consultation draft Health Insurance Levies Regulation 2017 and Regulatory Impact Statement.
January 2017, 5 pages. The regulation would take effect on 1 April 2017.
11 E Han. Economists say health insurance premium hikes well above CPI are unwarranted. SMH 7 February 2017.
Downloaded 23 February 2017 from: http://www.smh.com.au/business/consumer-affairs/economists-say-health-insurance-
premium-hikes-well-above-cpi-are-unwarranted-20170207-gu766d.html

4. Health insurance industry insight: lacking
The health insurance market is slowly collapsing as the young and fit, faced
with premium increases and penalties, drop their cover and fall back on the
public hospital system.
The PHI industry is not a conspicuous driver of health insurance reform,
preferring general aspirations to carefully costed solutions that move us from
the status quo. For example, the CEO of the largest health fund, a former
bank executive with little experience in healthcare, returned recently from a
visit to European and US health systems and announced that “… the issue is
more about the financial shape of Australian consumers relative to their debt
burden… The industry needed to do a better job at controlling the cost
drivers”. Moving from this banality to his new solution, he “… highlighted the
need to look at alternative care pathways outside of the hospital setting”,
noting that “… across the whole system there remains a number of parties
that are happy with the status quo and that needs to change”.12
One can only imagine what another visit overseas could do to extend such
creative thinking. Little wonder that gormless governments feel no pressure to
take decisive action to save PHI from its own lack of clarity about priorities for
reform of Australian healthcare financing.
The latest manifestation of lunacy is the seeming endorsement of some
ambiguous brain-snap to ”simplify” PHI when the survival of PHI requires
changes in what can be covered, transparent websites comparing the cost
and quality of all hospitals, income-related copayments under both Medicare
and PHI, and real-time access of doctors to relevant patient data under
rigorous security provisions.
12 S-J Tasker. Health cover at ‘tipping point’”. The Australian 8-9 July 2017, 25,30. A very lazy repetition of his thoughts two
days later reminds us that today’s media coverage of healthcare reform rarely offers insightful analysis – see: M Smith. Health
costs the next affordability crisis warns Medibank chief. AFR 17 July 2017, 1,28

5. NDIS reality test: tie access to patient severity or face budget blowouts
Elsewhere in a slightly different insurance “market”, in April 2017 the federal
Health Department warned the government, via its submission to the
Productivity Commission inquiry, that the $22 billion taxpayer funded National
Disability Insurance Scheme is under-funded once its coverage includes
92,000 individuals with mental health and developmental disabilities, up from
the 64,000 individuals in the original forecast.13
The NDIS bureaucrats rejected that assertion on 15 April 2017, relying on
their “modelling” of the prevalence of psychosocial disability.
The NDIS is a classical example of a policy that, years after its premature
launch, still lacks access to real-time data needed to ensure its viability and
sustainability. In 2017, it is a national disgrace that we lack
• up-to-date estimates of the prevalence of physical disability and
concomitant mental health disability,
• any idea of the care needs of individuals at different levels of risk, no
certainty about who is or will be eligible for care, and
• any idea of the cost of “packages” that might meet measured client
needs at either market-defined or regulated prices.14
The starting point for reform of Medicare, PHI and the NDIS is for the feds to
legislate for easily accessible information on provider cost and quality. A
single national entity should be created to provide such data, buttressed by
data security guarantees and data protection and overseen by the federal
parliament. We then need to ramp up research to validate measures of the
severity of patient health and disability, a matter that requires us to also move
towards payment systems tied to patient risk- see below.
13 R. Morton. Health warns of $1 billion NDIS mental blowout. The Australian 20 April 2017, 1,6.
14 With all these unknowns, the notion that market competition and individual choice, with consumers accessing peer-to-peer
online sites and care workers will stop NDIS budget blowouts is fanciful, even if I ignore the fact that the quality of such care is
not measured - see for example: J Sammut. A once healthy plan to deliver more with less now looks doomed. The Australian 21
April 2017, 14.

6. Big data analytics: corporate talk, no priorities, no incentives = waste
The health insurers are just one part of the broader mosaic of healthcare
financing, and in recent years, they have been stirred into collective action to
reduce the costs of medical devices. They have a point: the prices paid by
public and private hospitals for the same device differ widely.
The insurers are also generators of valuable data that, integrated with other
data sitting in state government silos that are unconnected and unused, could
validate the effectiveness and safety of medical devices, as noted in
Recommendation 27 of the Sansom review.
“1. Better integration and timely analysis of available datasets, including
analysis of matched de-identified data from the Pharmaceutical Benefits
Scheme, Medical Benefits Scheme, eHealth records, hospital records, private
health insurance records and device and other relevant registries and
datasets;
2. Establishment and maintenance of registries for all high-risk implantable
devices;
3. Implementation of a scheme to alert practitioners and consumers that a
drug is newly registered and to encourage reporting of any adverse events;
4. Provision for electronic reporting of adverse events; and
5. Enhanced collaboration with overseas NRAs to share information relating
to safety or efficacy. “
In 2017, these five actions seem a long way off in the absence of incentives to
doctors to use actionable data. A recent US review provides a rationale.15
“[W]hile a primary care physician might guess that a new obese, physically
inactive patient is likely to have diabetes, a properly designed system could
instead offer a probability estimate for the most likely health care maintenance
issues based on all available EMR and patient self-reported data. “Front-line
clinicians need to see actionable data. That experience, along with provider
education, will ultimately ‘sell’ the benefits of analytics.”
While the states and territories are allowed to play fast and loose with public
hospital funding, Australia will move at a faster pace towards a privatization of
15 NEJM Catalyst. Disconnects in transforming health care delivery. catalyst.nejm.org, April 2017.

7. health care. If such a move meant higher quality care and defensible charges
for hospital, medical and dental services, I would not be frothing at the mouth
to demolish the PHI subsidies and move towards a single-payer system.16
In 2017, it is a national dereliction of political leadership that estimates of what
we are spending on health care are at least two years out of date when they
are reported by AIHW. Consumers cannot select the highest quality, lowest
cost private providers. Out of pocket charges are now 20% of national
healthcare expenditures.
It is time to restructure Medicare, PHI and the NDIS so that networks of high
quality providers can emerge. A recent US estimate is that the total episode
costs of the 20th percentile best performers in the management of any
specific condition, illness or injury are 30% below average costs.17
Using this 20% as the benchmark for setting reference charges for all care,
quality care, with providers (not governments) setting the cost and quality
targets for an organised system of care, is cost-reducing or trims the growth of
the cost curve. In 2017, Australians have no idea of the 20th
percentile best
providers in any specialty.
I am not ditching the public sector as an agent of healthcare reform. As
pointed out in a recent US blog,18
“ [s}ome of the most successful health
systems in the country came into existence decades ago. Kaiser Permanente,
Geisinger Health Plan, Intermountain Healthcare, and many large
multispecialty physician groups have taken the initiative to develop systems of
care that are cost-effective, meet high standards for quality, and are
responsive to their patients’ preferences. It is more accurate to say that these
systems have succeeded despite strong incentives in Medicare policy for
more fragmented and unmanaged care delivery, rather than because of any
Medicare incentives. A strong federal regulatory role is thus no guarantee that
health care will be more efficient and effective. In fact, poorly conceived
regulations may impose barriers to the kinds of care delivery innovations that
would help move us toward the shared goal of higher-value care”.
A starting point for market competition is a policy, including incentives and
regulatory guidelines, to encourage private insurers and private providers to
create care networks that
• accept the financial and clinical accountability for managing patient
needs,
• create websites where (nearly) real time data on costs and quality are
available to consumers, and
• provide meaningful data on the patient risk profile, costs and outcomes
of every episode of care to every provider in the network
16 Some continuing manifestations of the “kill private” mentality are contained in the Consumers Health Forum journal, Health
Voices – see: http://healthvoices.org.au/volume/issuesapril-2017/ (link is external)
17 Joseph Antos and James Capretta. The Future Of Delivery System Reform. Health Affairs Blog, April 20, 2017
18 ibid

8. On this last point, successive federal governments have tinkered with the out-
dated MBS and a hospital casemix payment system that is rendered irrelevant
by new medical technology shifting care to non-inpatient settings. Australia is
far behind other nations in grasping the nettle of how to tie payments for
technology and coordination of care to health outcomes.
US payers have moved quickly towards outcomes-based contracts with
doctors and hospitals starting with OBCs in four common therapeutic areas:
endocrine, infectious disease, cardiovascular, and respiratory conditions.
Those OBCs are likely to extend into new areas such as
immune/inflammatory diseases.19
The Trump healthcare financing proposals have united an opposition of U.S.
politicians in both major parties and a growing chorus of U.S. bien pensants.
The proposals will be rejected but it took the monumental blundering of a new
President to generate action.
By contrast, Australia has no blundering leader. We have instead the silence
of our cabinets, health ministers, oppositions and cross-benches that see the
Medicare status quo as the preferred route to their survival.
In 2017, our collective lethargy on Medicare, PHI and disability insurance is
threatening the relevance and outcomes of our health and disability care
systems. The next election debates must disturb this tranquillity.
19 Avalere Press Release, May 30, 3017