Robbing Peter to pay Paul's doctor

By Henry Ergas

No one would dispute that health reform is difficult. But that is not why the commonwealth government's proposals are inadequate. Rather, it is because they do not say, in an honest and transparent way, how we will pay for health care in the long run, how it will be provided, and within what constraints.

All those fundamental questions of architecture the government's proposals obfuscate, while being too clever by half about what proposed tinkering with the plumbing can and cannot achieve.

The reality is that the plumbing is not the problem. Rather, it is whether the health system's design can withstand the demographic, technological and financial stresses it is certain to face. Even if ignoring this fact were good politics, it is bad policy.

This much is now clear from the government's "best and final offer" to the states, released earlier this week. Four flaws stand out.

* First, the proposed hospital reforms are still not properly thought through. Even the government no longer claims they will end the blame game, merely saying they will "reduce" the degree of overlapping responsibility. But how or why they will do even that is unclear.

Doubtless, aspects of the proposal, such as the move to case-mix funding, are sensible. But they are undermined by the lack of clarity about how those payments will be determined and disbursed. The problems are compounded by elements in the proposed arrangements that are simply ill-conceived, including the heavy reliance placed on targets (such as waiting times in emergency wards), and incentive payments related to those targets, which are highly vulnerable to gaming. [And are commonly gamed in England]

Nor are the proposed changes to funding arrangements genuinely attractive to the states, even in narrowly financial terms. While the commonwealth is taking on more expenditure than originally announced, the savings to the states are still 5 to 10 per cent short of the share of GST they are being asked to forgo.

Increasing this gap is the fact that much of the added commonwealth expenditure requires further spending by the states. And the states will also have added expenditure risk, for instance should case mix payments be set on the basis of hypothetical, rather than realistically achievable, levels of efficiency. The government's estimates of the financial benefits to the states ignore these added costs and risks.

Last but not least, it remains entirely unclear how any growth in hospital spending, beyond that provided by the GST, would be funded.

* Second, the proposed changes to aged-care funding do not address the current arrangements' key difficulties. As a result, they cannot and will not durably reduce the pressures aged care imposes on hospital costs.

The greatest problem in aged care is the availability of high-care places, that is, of places for older people with severe disabilities, such as advanced dementia. This is where demand is projected to increase most over the next two decades.

The primary constraint on expanding supply is the commonwealth's restrictions on the charges that high-care suppliers can impose on residents. While these price controls make sense given the limits the commonwealth (in my view, wrongly) imposes on the number of aged-care places, they are an inaccurate instrument. One consequence of the controls is that the supply of high care beds is not keeping pace with long-term demand.

The commonwealth proposes addressing this mainly by providing interest-free loans and other capital funding to aged-care providers for new places. This is not sensible, as it does nothing to preserve existing places and makes taxpayers carry what ought to be commercial risks. Moreover, the scale of this measure, and the others the commonwealth has announced, falls far short of the emerging shortage. As a result, the problems will persist, and with them, the shifting of costs to hospitals.

True, the package proposes payments to compensate states for dealing with aged-care patients in hospitals. But these seem based on current levels of cost-shifting, not on those likely in future. This increases, perhaps greatly, the states' future spending risks.

* Third, the proposed changes to funding primary care for diabetes and possibly other chronic conditions are unclear, untested and risky. They too could increase hospital costs.

These changes involve paying GPs a fixed amount per patient, to which would be added a payment dependent on outcomes. Such schemes can have real merit. But international evidence also shows they can induce cherry-picking by doctors (with bad risks ending up in emergency wards), while the performance-related payments lead doctors to focus on managing these patients rather than others who may be more deserving (so they too end up in hospital).

How severe these problems are depends on the scheme's precise design and on the level and structure of the payments. But these have not been disclosed, much less rigorously trialled, making it impossible to have confidence in the outcome. Given the importance of chronic diseases to health costs, this adds to uncertainty about the financial implications of the commonwealth's proposals.

* Fourth, nothing has been said about future arrangements for private health insurance, and especially for hospital cover. But this is a crucial piece of the puzzle, both in terms of efficiency and of financing. Indeed, it is the centrepiece of the National Health and Hospitals Reform Commission's core proposal that we move to a scheme of competitive, comprehensive health insurance, as in The Netherlands, Switzerland and Israel. Yet we seem to be moving away from such a model, rather than towards it.

Overall, there is nothing in the commonwealth's proposals that would enhance fiscal sustainability, and too little that would enhance efficiency. Rather, the greatest effect would be to recycle revenue from the states to the commonwealth, leaving many of the current difficulties unresolved or even worsened.

It is an illusion to believe our health system's ills can be cured by robbing Peter to pay Paul. Nor can those ills be treated by artificial deadlines, ultimatums and rhetoric. It is now up to the premiers to ensure the system gets the care it needs and deserves.

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States reject Rudd's brainless hospital takeover

VICTORIA and Western Australia's mutiny against a proposed takeover of public hospitals by Canberra appears to have the support of every other state.

The premiers and chief ministers held a phone hook-up on Friday when they resolved to push Canberra to let them to run their own hospital funds, a source close to one premier said.

This means Canberra's plan to pare back GST handouts to the states - so it becomes the majority funder of public hospitals - faces strong resistance at the upcoming Council of Australian Governments meeting in Canberra on Monday.

Under a model agreed to by the states, each state and territory would contribute to an individual hospital funding pool with the Federal Government. But the states would decide how all the money was spent.

Victoria and Western Australia have signalled they would not sign up to the hospital reforms unless this demand was met and the other states have agreed to support them on this.

While each state wants different sweeteners, the leaders were united in their demand for Canberra to give them "significant additional funds" over four years to meet new performance targets.

Two of the Federal Government's key reform proposals are likely to win the support of the states and territories.

This includes a plan for local hospital networks, which would run one to four hospitals. The states will also support the Federal Government's activity-based funding model.

This would emulate a system operating in Victoria and South Australia, where hospitals are given a fixed amount of money for specific medical procedures to encourage efficiency.

Prime Minister Kevin Rudd wants the states and territories to sign up to a deal that would see them hand over 30 per cent of GST revenues. In return, the commonwealth would take over majority - 60 per cent - funding of public hospitals.

He has added an additional $3 billion in incentives - including money for doctor training, elective surgery and emergency departments - to win over the states and territories.

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Tough stance on boatpeople all talk

Is anyone surprised?

JUST seven days ago three Rudd government ministers held a dramatic news conference to announce a policy volte face on illegal boat arrivals and applications for asylum.

Chris Evans, Stephen Smith and Brendan O'Connor, representing the departments of Immigration, Foreign Affairs and Home Affairs respectively, talked tough on asylum-seekers from Sri Lanka and Afghanistan, and even tougher on penalties for people-smugglers.

It was a calculated response to the Coalition's increasingly successful claims that the Rudd government had gone soft on illegal boat arrivals and its policy changes since the 2007 election had encouraged rather than deterred arrivals. Polling was showing that voters thought the government was not handling the issues well and were giving the Coalition the edge.

Despite the government's fervent wish to concentrate on the health reform package, the frequent arrival of boatloads of mostly Sri Lankan and Afghan asylum-seekers was capturing public attention and media time.

Evans started the press conference with the statement: "Look, today I want to announce that the government is implementing an immediate suspension on the processing of all new applications from asylum-seekers from Sri Lanka and Afghanistan.

"Evolving country information from Sri Lanka and Afghanistan is likely to have a significant effect on the outcome of assessments as to whether asylum-seekers have a well-founded fear of persecution within the meaning of the Refugees Convention.

"The likelihood of people being refused visas and being returned safely to their homelands will increase."

Evans, Smith and O'Connor then proceeded to outline the policy and justifications for it that turned the government's rhetoric on asylum-seekers for the past six months on its head.

In the week since the announcement the policy and justifications have been shredded and exposed as a cynical and deceitful political exercise.

What's more, it's a policy that is unlikely to achieve what it is intended to achieve because the government continues to attempt to please everyone and put politics ahead of policy.

While the changes are a sham and built on illogical or false premises, even the government admits they're unlikely to have any effect on boat arrivals in the short term and will not stop moving detainees to the mainland.

The shift leaves those who want tougher action on asylum-seekers, such as Tony Abbott, with his no permanent visas "no ifs, no buts" approach, dissatisfied and those who want a greater degree of compassion outraged.

Last year, the initial reaction to the first "irregular maritime arrivals" was to deride the opposition's claims, discount projections as being fanciful and point to illegal boat arrivals during the Howard years.

This year, the central political argument has been that waves of asylum-seekers are a global problem and that they are being driven to Australia by so-called "push factors" - war and strife pushing them from their home countries - rather than by the so-called "pull factors" - guaranteed permanent visas and a better life.

Labor continued to demonise the Howard government's asylum policies and promote its own commitment to processing refugee claims within 90 days.

Evans continued to tell the Senate that people in detention for long periods faced mental trauma and Labor figures derided mandatory detention of boatpeople in remote centres.

But cracking a century of boat arrivals also cracked the government's nerve and the decision was made to dump all the compassionate rhetoric made before and after the election.

Not only was 90 days no longer the maximum period for processing on Christmas Island, as Evans had aimed for, it was now the minium time in detention for Sri Lankans - 180 days for Afghans.

Also, the detention is effectively indefinite because there is no guarantee the suspension will end when reviewed.

The government's justification for these actions is risible. Why doesn't the Rudd government just live up to the Prime Minister's election promise to "turn back the boats", buy a fight with the human rights and refugee groups and appeal to voters who want some real action?

Part of the answer to that question is that the government thinks it can escape concerted criticism from the harshest critics of the Howard government as long as it performs a pea and thimble trick to satisfy appearances.

That assumption appears to be correct if the muted response to the government's decision is any guide.

After claiming the increase in asylum-seekers was all push factors because of the bad conditions in Sri Lanka and Afghanistan, the Australian government is now arguing the situation is getting so much better in those countries the asylum-seekers should be encouraged to return of their own volition and the number of refugee visas will drop.

The grounds for this claim are based on US State Department advice, a proposed review by the UN High Commissioner for Refugees and the suggestion that a "number of countries" had suspended refugee applications from Sri Lankans.

The US State Department's advice on Afghanistan is that it's getting worse, the UNHCR's review is a regular update unlikely to change dramatically and the citing of other countries is misleading. The ministers have still been unable to name other countries that acted before Australia and there have been reports since the press conference last week that Denmark had suspended its refugee applications.

What the Danish Refugee Appeals Board did almost exactly a year ago was to suspend the appeal of six Tamil families who had lost their refugee application and had been ordered to be repatriated so that those six families would not be sent back. The suspension was extended in June last year to cover all Sri Lankan refugee appeals, not applications, until the Danish Foreign Office provided more information about how dangerous Sri Lanka was.

The suspension of appeals was lifted in December last year, after the advice was given, and applications for refugee status from Sri Lankans were not suspended. Whatever the politics of all of this, it's not good policy, either way.

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Australia's population to grow to 42 million by 2050, modelling shows

AUSTRALIA'S population will reach 42 million by 2050, six million more than the Federal Government's target, if migration, fertility and life expectancy continue at today's pace.

Modelling by Australia's Centre for Population and Urban Research warned of a doubling of the population in 40 years, which it also claimed would be unsustainable, and significantly outstrips Federal Government targets.

Cities such as Sydney and Melbourne would evolve into mega high rise metropolises on the scale of Hong Kong, with a drastic deterioration in quality of life for its inhabitants, it warned.

The research conducted by Professor Bob Birrell, one of the country's leading demographers at Monash University, said Prime Minister Kevin Rudd's target of 36 million people would be overshot based on the current net migration rate of 298,000 a year.

Under a business as usual scenario, Sydney would have a population of more than 7.5 million and Melbourne upwards of 6.5 million and both would need to be redesigned to cope.

Treasury modelling contained in the third Intergenerational Report forecast a population of 35.9 million by 2050 but assumed returning to a net migration rate of 180,000 a year.

Professor Birrell's modelling based on Treasury figures showed a continued rate of 298,000 would produce a population of 42.3 million based on greater life expectancies and lower birth rate of 1.9, as well as immigration. The workforce would be 22 million.

A lower net migration rate of 125,000 - the average from 1996 to 2007 - would result in a national population of 32 million. Professor Birrell warned the Federal Government had to return to a figure of 180,000 a year from existing higher levels if it wanted to avoid overshooting its own target of 36 million.

But even at these lower rates, Professor Birrell warned that cities such as Sydney and Melbourne would need to be completely redesigned. "We have to get down to that figure quickly, in the next few years," he said yesterday. "It's to do with economies of scale - to refit a city is an enormous exercise."

Opposition Immigration spokesman Scott Morrison said it was time there was a rational debate about population growth.

"It is clear Rudd's idea of a big Australia seems to start at 36 million. Where it ends, we simply don't know," he said.

"By contrast the Coalition is keen to engage in what is a sustainable growth path for Australia and engage with business, the community and the environment lobby and plan our migration intakes appropriately."

While Mr Rudd had originally suggested that 36 million was a "target" population for Australia, his newly-appointed Population Minister Tony Burke has been keen to backtrack and claim it is merely a forecast.

"A figure of 36 million is a very high level and vastly higher than most people imagined until the [report] was released. Imagine 42 million," Professor Birrell said. "It would involve a serious deterioration in quality of life and a fundamental change to the way people live."

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