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Health Systems and Economics PUBH5752

Lecture 2: The Australian Health System

What is a health system?

• According to WHO:
• Difficult to say exactly where it begins and
• ‘all the activities whose primary purpose is to promote, restore and/or maintain health'.
• Health service delivery is a cross cutting function (e.g. sickness care in the home is 70-90% of all
care, road safety, health education in schools, hospitals, primary care etc. etc.)

Delineating health as a system doesn’t mean...

• any particular level of integration, nor that anyone is in overall charge ...every
country has a health system, however fragmented ... however well it operates.

Most of the information we have about health systems ...

• refers only to the provision of, and investment in, health services: that is, the healthcare system.
• Includes preventive, curative and palliative interventions, whether directed to individuals or to

A good healthcare system... According to WHO:

• Delivers quality services to all people, when and where they need them
• Services vary from country to country, but there is robust financing; a well-trained
and adequately paid workforce; reliable information for decisions and policies; well maintained
facilities and logistics to deliver quality medicines and technologies.

• ...becauseoftheinterconnectednessof the world, health systems need to have
the capacity to control and address global public health threats such as epidemic diseases and other
severe events.

With the objectives of

• improving the health of the population they serve;
• responding to people’s expectations;
• providing financial protection against the
costs of ill-health.
Components of healthcare systems
• Workforce
• Capital Buildings, equipment (physical infrastructure)
• Supplies / Consumables
Processes of care
• Hospitals
• GP surgeries
• Public health functions
• Patient days in hospital
• Patients / GP / year
• Number of operations performed etc.
• Mortality (all cause, infant, maternal etc).
• Morbidity
• Quality of life

Desirable characteristics of healthcare systems

• That they enable the best attainable average level of health – goodness – and the smallest feasible
differences among individuals and groups – fairness
To do this, healthcare systems should...
• Health outcomes
– Deliver effective intervention
– Distribute effectiveness fairly
• Be efficient
– Lowest cost to achieve effectiveness as there are finite resources

WA acute care beds cost 10-15% more than the national average
The cost of being inefficient: resources taken up where the may be used elsewhere

Some considerations...
• Effectiveness
– Targeting intervention appropriately - need to have a capacity to benefit from the intervention for
the intervention to be effective
– Quality of delivery
– Continued improvement
• Priority-setting
– Efficient allocations of resources between diseases
– And between preventive and curative approaches

These entail smaller and larger political judgements...
• So that if we look at expenditures versus performance in healthcare by nation we see great
Large variation in expenditure and performance - not highly correlated

Various roles of government in health care

• Funder - not necessarily involved in what is purchased
• Purchaser of services - makes the decision on what to buy e.g. private hospitals
• Direct care provider e.g state-run hospitals
• Protector of disadvantaged groups
• Regulator
– Professions; institutions; products and services
• Fund education and research
• Overall stewardship

In Australia...
• Responsibility for health care is divided between different levels of government and private sector
– Commonwealth responsible for:
• Policy making
• Health research
• National information management
• Funding + regulating out of hospital medical services
– Medical benefits administered by Medicare Australia
- Medicare is relatively new and is historically highly contested. 20 years ago there was no
universal health care in Australia
Roles and responsibilities of Government
– States / Territories responsible for:
• Delivery and management of community + public health services
• Delivery of acute + psychiatric hospital services
• Maintaining relationship with health care providers
– Regulation of health professionals
– Commonwealth + State joint responsibility:
• Funding public hospitals
– Joint funding from state and commonwealth is under health care agreements, with overall control
being with the commonwealth (different for each State)
• Community care for disabled

Roles and responsibilities of Government

– Local government responsible for:
• Aspects of environmental health, including things like food safety, vector control e.g. rats, rubbish
disposal, building codes
- Local gov has very important public health role

• There is a substantial private sector involvement funded by both out of pocket payments and via
health insurance

And we spent these $ mainly on..

• 40% hospitals
• 38% primary care

Who pays and how

Sharing the cost
• Governments provide nearly $7 in $10 spent on health care.
• Of the government contribution, the Australian Government contributes $4 in $10 of total health
• And state and territory governments contribute nearly $3 in $10 of total health expenditure
• Total non-government 32% of the share of total health expenditure.
• Funding by individuals nearly 18% of total health expenditure.
• Other by private health insurance funds, compulsory motor vehicle third-party and workers'
compensation insurers.

Where does the $ come from?

• Medicare levy
- Additional 2% of taxable income (was 1.5%, increased from July 2014)
- This money is earmarked for health – general taxation is not
- Generally paid by most taxpayers.
• But revenue from the Medicare was estimated to be only $16.2 billion in 2016–17.
• So, it is only a ‘drop in the ocean’ when we think of the $155b cost of the system
• The remainder? General taxation and charges, out of pocket, insurance

Is our system comparatively expensive?

• Let’s look at OECD countries and per person expenditures by public and private sources...

Red bar is OECD average of all countries

Aus is directly to the left of the OECD - we spend the average

‘Purchasing’ health services

Australian Government: Medicare (MBS)
• Provides a mechanism for financing hospitals, doctors, optometrists and some ancillary services
• Revenue collected from Medicare Levy plus general taxation
‘Medicare aims to ensure that all Australians have access to free or low-cost medical, optometry,
midwifery and hospital care and in special circumstances, allied health’

Australian Government: Medicare (MBS)

• Objective of Medicare is to reduce financial barriers to access to health care
– Introduced in 1984 by Hawke Labor government
– Replaced voluntary private health insurance scheme
– Provides access to health care on basis of need rather than ability to pay
– Universal health insurance for all Australians
• Universal insurance was a ‘contested political space’ until the Liberal/National parties accepted
Medicare as something valued by most of the population

When medicare was introduced, there was a large exodus from private health care funds. The
government then introduced incentives for people to join private health care funds, which is
generally seen by health economists as a ‘stupid idea’ and the money could be put to better use

Medicare and public hospitals

• Public hospitals are state/territory responsibilities
• Commonwealth only partly funds public hospitals under Australian Health Care Agreements
- Five year agreements
• States and territories must –
- Provide residents access to free in-patient services in public hospitals as ‘public patients’
If you elect to go into a public hospital as a private patient, it should not alter the likelihood that you
will be treated - your capacity to pay should not be a driver of the care you get

The states and public hospitals

• Public hospitals are then generally subject to some form of contract for activity with their
respective state health department (purchaser).
- The state doesn’t give a blank cheque, it generally tries to buy specific services, to keep costs
predictable. E.g. purchasing 100 of procedure x, and 50 of procedure y. However clinical
demand is not predictable
- Some states manage these contracts very aggressively, less so in WA, which is
probably why acute care costs are lower in states other than WA
- If you are a private organisation, these contracts are generally tight
- E.g: Problem for St John’s was that they grossly underestimated the demand e.g. ran
out of ED contract after 6 months
• These specify activity levels and costs by procedure or other activity based on national average
hospital costing studies, weighted by case complexity
• All very ’neat and tidy’
• But...not everything in hospitals is easy to control (especially costs)
- Most hospitals go over budget, so the detailed purchasing can seem like a waste of time
• In WA, during a prior Liberal government, frustration with costs and lack of controls encouraged a
move to contracting public hospitals to private providers, sometimes as a blended model
• Examples here are: Joondalup (Ramsay HC), Swan (SJOG)
• But...purchasing acute care is not for the faint hearted!

Public hospitals & activity

• In general, clinical need is supposed to be the only driver of access
• Can be admitted free of cost
• But what drives a hospital’s casemix? In reality, it is a mix of many factors in different
– History
– Capacity
– Evidence
– Need
– Who presents and when
– Etc etc
• So the link between the rational economics of hospital care delivery and the reality of what is
delivered is constrained by other realities e.g. political drivers, advocacy, community values

Primary care purchasing

• Medicare is an open-ended or demand driven system
- Means doctors can operate any way they want within the regulations. E.g. the corporate GP
practice with 7 minute appointments, and vice versa
• It pays for activity without (too many) constraints
• But ..
- Scheduled fees defined by Medicare Australia. Many doctors complain these are often not
enough to cover costs, resulting in higher gaps. Doctors choose the gap amount, if any
- This forms the basis of Medicare's payment to GP’s, Specialists, Radiology & Pathology
• So fee-gaps can be a ‘brake’ on access, especially for the poor, people with chronic illness
• Policy does attempt to address these problems, but is imperfect
• And, the supply of practitioners can substantially limit access
• Think of Halls Creek versus Nedlands...
Not just amount of practitioners, but also the staff turn over
Helps to drive inequity
This problem costs WA about $400 million per year, because people couldn’t go to GPs and so went
to hospitals

Primary care purchasing

• But the problems also exist at the suburban level…
- E.g. access to child mental health services is uneven.
- Affluent areas: better public transport services, better supply of local services, thus earlier
access at a less severe stage of illness
• So, there are cost and distance barriers that vary for different groups within our population
• Added to these are educational, language and other barriers - not knowing services exist.

But, in general...
• For most, our system serves us well enough...

With a spectrum of services and programs, so that...

• more than 90% of children are fully immunised by the time they start school.
• 3.8 million women take part in the National Cervical Screening Program
• 335 million out-of-hospital Medicare services claimed for consultations with GPs
• 28 million days of hospital care each year

And myriad successes...

• Tobacco control
• Gun control
• Road safety
• Universal medical insurance system
• Safer childbirth
• Sun safety
• HIV prevention
• Asbestos
• Clean water
• Fluoridation of water etc etc

So the system has its strengths and weaknesses...

• It serves most Australians well
• But it requires evidence-based advocates by people like yourselves to ensure it continues to move
in directions of effectiveness, efficiency and fairness

Providing health services

Health care providers: mix of public and private sector
• Hospitals
- 750 public + 320 private
• Residential aged care facilities
- 3000 facilities
- Almost 75% of beds in government or not for profit facilities
• Community facilities:
- Medical practices, pharmacies, multidisciplinary clinics, NGO’s
• Public health services
- Commonwealth, State and Local gov
• Informal care

Health workforce
• A growing proportion of Australia’s workforce
– 3.7% in 2016

Who is in the health workforce?

• Nurses and midwives are the largest group, with 301,000 nurses and midwives employed in 2014
• 85,000 medical practitioners
• More female health practitioners entering the workforce. For example, in 2014, over 53% of
medical practitioners in the youngest age group (20 to 34 years) were women.

Moves to national registration

• Many health practitioners must register through the National Registration and Accreditation
Scheme (NRAS) to work in the health system.