Professor Jeff Richardson Director, Health Economics Unit Monash University

1
Combined Colleges State Health CongressHobart,
13-14 November 2003
Economics and Health System Reform
Professor Jeff RichardsonDirector, Health
Economics UnitMonash University
2
Contents

• 1. Economics and social objectives
• Focus
• Problems/non problems
• 2. Recent policies
• PHI
• Pharmaceuticals
• 3. Large Problems
• Response
• 4. Conclusion
• Culture change

3
1. What economics should be

• Social wellbeing (objectives) Options
• Limited resources
• System and micro (project ) level

4
Choice, values, system
Objectives/Social Option which
maximisesValues likelihood of success Equalise
access, Public outcome Maximise
choice Pure private scheme Choice diversity
Mixed public-private safety net
5
Social values

• Liberalism/Libertarianism
• maximise choice safety net
• Communitarianism/Solidarity
• Canadian Medicare is far more than just an
  administrative mechanism for paying medical
  bills, it is widely regarded as an important
  symbol of community, a concrete representation of
  mutual support and concern it expresses a
  fundamental equality of Canadian citizens in the
  face of death and disease As the Premier of
  Ottawa pointed out there is no social program
  that we have that more defines Canadianism.
  Evans, R and Law, M. The Canadian Healthcare
  System. Where are we and how did we get here,
  in Dunlop and Martens, An International
  Assessment of Healthcare Financing, Economic
  Development Institute of the World Bank, Seminar
  Series 1995.
• Problem No vocabulary in Anglo countries

6
Long Run Non-Problem 1

• Cost
• Nation cant afford to pay False
• Expenditure ? choice
• If benefit (health) gt benefit (elsewhere) then
  ? health expenditure
• Caveat
• Expenditure must be efficient

7
Long Run Non-Problem 2

• Government cant afford to pay False
  taxes/levy can ? True iff taxes fixed
• Collective or individual financing ? Efficiency
  issue Issue of choice

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2. Recent Policies
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Private Health Insurance
10
PHI The Myth

• PHI ?? use of Private hospitals ? ? pressure
  on public hospital beds ? Public Queues ?
• Policy objective Reverse process ? pressure
  off public hospitals
• Plausible, logical, wrong

11
Private Hospital Services
Separations of Total Bed
Days 1985/86 25.9 21.9 1989/90 26.7 22.0 199
5/96 30.5 26.3 1999/00 34.3 28.1 Increase 32.4
28.3 Source Butler 1999, Bloom 2002
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Real issues

• How can population/journalists stay misinformed
  for 1½ decades? System Failure

13
PHI Policies

• July 1997
• Tax penalties
• high income groups without PHI single
  gt50,000 family gt 100,000
• Dec 1998
• 30 rebate on PHI premiums
• Sept 1999
• Lifetime Community Rating

14
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest

15
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0Analogy to support
  auto industry surcharge on wealthy families
  failing to buy Australian car

16
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0
• (ii) If use PHI, out of pocket cost ?

17
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0
• (ii) If use PHI, out of pocket cost ?
• (iii) To sell insurance, increase the risk

18
PHI Private Health Insurance, orPHI
Priority Health Investment

• True purpose of PHI
• Avoid queue (cost others queue longer)
• Choice of doctor (if best doctor ? Pte
  then cost others doctors are poorer)
• Legitimacy?
• Social choice not a technical issueGovernments
  make social choicesSystem Problem Debate wrong
  issues

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Pharmaceuticals

• Drugs/Total Health Expenditure
• 1990/91 9.5
• 2001/02 14.3

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Pharmaceuticals

• Drugs/Total Health Expenditure
• 1990/91 9.5
• 2001/02 14.3
• 1960/61 22.4

21
Pharmaceuticals

• Drugs/Total Health Expenditure
• 1990/91 9.5
• 2001/02 14.3
• 1960/61 22.4
• Effects
• other costs ? ??
• health ? ??
• inequities ? ??

22
Allocative Efficiencyand Equity

• (Do dollars go to areas of highest need)

23
Evidence of inappropriate procedures

• 1 Small area/cross national comparisons
• 2 Chassin et al 1987 (NEJM)
• inappropriate expected benefits lt
  negative effects
• Result 1/3 - 1/2 inappropriate Plus 1/3 -
  1/2 equivocal
• 3 Brook (1993) JAMA Trent UK inappropriate
  angiography 51 CABG 42
• 4 Other studies, HCFA, OECD

24
Cost-effectiveness of selected health programs
Australia 1992 to 1998
Service/intervention Cost per life year drugs
submitted for listing on the 6 drugs 20 -
40,000 PBS approved for funding at 4 drugs
40 - 70,000 nominated price 1991 -
96 primary prevention of NIDDM cost
savingbehavioural programs 2,400/LY comprehensiv
e diabetes care lt 1,000/life year saved
Segal L The Role of Economics and Health
Economics in Environment Research, Workshop on
Environmental Health, Department Health and Aged
Care, Melbourne April, 2000.
25
Australian Response

• PBAC ??
• MSAC ??
• Old Procedures ??

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2. Variations in Treatments
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Practice variations
1976
Use of Medical Services Q/(GP) Q(Sp) Q(Total) Syd
ney 5.1 2.3 7.4 Tasmania 3.1 1.3 4.4 Darwin 1.1 0.
5 1.6 Sydney/Darwin 4.6 4.6 4.6 Source
Richardson Deeble 1982, Statistics of Private
Medical Services in Australia 1976, HRP, ANU
28
Standardised Rate Ratios for Various Operations
in the Statistical Local Areas in Victoria,
Compared to the Rate Ratios for All Victoria
Variance Ex(Variance)
Procedure
Coronary Angiography 13.4 Cor Revasc
Procedure 5.4Cataract Extraction 15.4Tonsils
Adenoids 7.5Myringotomy 11.7Carpal Tunnel
Release 8.4Vertabral discetomy 2.1Decomp
laminectomy 1.9Total Hip Replacement 3.8Hysterec
tomy 6.4Prostatectomy 3.9Colonoscopy 45.3Cholec
ystectomy 5.3Explorat Laparotomy 1.7Appendectomy
5.9
4
0
0
3
5
0
3
0
0
2
5
0
2
0
0
1
5
0
1
0
0
5
0
0
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AMI
(Likelihood of procedure after admission to a
private hospital) ?(Likelihood as a public
patient)
Angiography Revascularisation Within 14
days Men 2.20 3.43 Women 2.27 3.86Within 12
months Men 2.16 2.89 Women 2.22 2.84
Source Victorian Inpatient Minimum
Dataset
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Response to inequalities

• 1976 2002 No effective change
• SAV studies Ignored

31
Examples of Allocative Efficiency

• The Health Scheme of the Future?

32
Gold Standard Flexibility Case 1

• Ethix, Seattle
• Spinal Injury in Youth

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Key element

• Flexibility of funds
• single payer
• No cost shifting
• Information systems
• Health Service Review/Research

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Gold Standard Coordination Case 2
A woman with dizziness is concerned about her
health. She rings the state call centre which
advises her to visit her local health team. She
is able to see the GP quickly who asks her a
series of questions from the relevant research
based protocol and undertakes a clinical
examination. The GP emails the results to a
local specialist who orders some further
investigations consistent with the state research
based care path Advice of (an) impending
admission is automatically conveyed
electronically to the GP and the social worker in
the referring health team. The social worker
contacts the hospital to discuss discharge
planning The specialist suggest a number of
sources for information about the patients
condition The case is randomly selected by the
hospital audit committee for quality review. The
committee suggests some slight changes to the
state-wide protocol committee.
(Duckett 2000 p241)
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Key elements

• Integrated provider system
• EBM
• Review/Adaptation
• Information System
• No financial barrier

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3. Quality of Care (Efficiency)
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Quality in Australian Health Care Study

• Adverse events (AE)
• 1995 study 16.6 Admissions
• 2000 Revision 10.6 Admissions

Wilson et al 1995 Wilson et al 2000
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Quality in Australian Health Care Study

• Extrapolation by authors,
• 1995 470,000 AE 18,000 deaths pa 12,000
  deaths preventable 50,000 permanent
  disability
• 2000 revision lower

39
Response to the Quality in Australian Health Care
Study (QAHCS)

• 1995 QAHCS published
• 1996 Taskforce established on QAHC
• 1998 Health ministers ask Advisory Group for
  report
• 1998 Interim Report
• 1999 Report National Expert Group
• Actions identified by the taskforce need to be
  implemented at all levels of the health system

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Recommendations, 1998

• 1. Health Ministers continue to foster safety
  and quality
• 2. Health Ministers support the need for
  national action
• 3. Establish the Australian Council for Safety
  and Quality in Health Care
• 4. Provide 17.4 m over 4 years (sic) to support
  implementation

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Response (contd)

• 2001 NSW Legislation
• 2002 Victorian Quality Council Plan updated Feb
  2003
• Strategies and goals
• Establish a framework
• Better data
• Involve consumers
• Educate
• Respond to problems

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Is the response commensurate with the problem
43
Editorial, MJA 1999
Welcome though (various) initiatives are, the
pace of change nevertheless seems slow given the
stark message of the original study four years
ago 50,000 Australians suffer permanent
disability and 18,000 die at least in part
because of their health care. MJA 1999, 170, pp
404-405
44
Deaths between marker dates
Assume Avoidable deaths, disability ¼
estimated in QAHCS (1995)
AustralianEvent
Deaths Perm.
Disability 1995 Publication QAHCS 1998 Health
Ministers Request 13,500 37,500 2001 NSW
legislation 27,000 75,000 2002 Victorian
Strategic Plan 31,500 87,500
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Perspective Causes of death, 1999
AIDS 122 Suicide (intentional self
harm) 2,492 Motor vehicle accidents 1,741 Accident
al falls 520 Homicide 300 Accidental
drowning/submersion 278 Poisoning by
drugs/medications 1,015 Other 2,014 All deaths
from adverse events 7,000 All preventable adverse
events 4,500
Source Causes of Death Yearbook 1999, ABS
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Events equivalent to avoidable AE deaths

• 1 in 10 customers to restaurants poisoned annual
  deaths 4,500
• 13 Jumbo jets crash, each with 350 Australian
  passengers pa
• Bali bombing every week, each with 100
  Australians killed pa
• assuming preventable deaths 25 QAHCS (1995)

47
Appropriate Response to QAHCS

• Expect
• Parliament/Public shock, outcry
• Journalists ongoing criticism
• Policy blank cheque rapid, if
  necessary, draconian legislation
• Actual
• Sedate, cautious
• Timid incrementalism (fear of medical
  practitioners)
• Too little, too slow by orders of magnitude

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Potential cost saving

• In the 1998 Australian Health Care Agreements
  658 million was allocated for quality
  improvement over 5 years In its interim report
  the National Expert Group pointed out that the
  extrapolated potential savings from preventable
  adverse events in 1995-96 would be 4.17 billion.
  MJA 1999
• Annual Equivalent
• preventable costs 4,170 million
• expenditures AHMAC 132 million
• spending of 4,170 m justified

49
Problems, solutions, timeframe

• Safety,
• No regulation of minimum staffing eg after
  major surgery no need for resident doctor
• Legislation 4 months
• Information
• 19th century clipboards ? errors
• Legislate electronic records, LAN 3 years
• Loss X Ray Film
• Legislation to digitize 2 years

50
Problems, solutions, timeframe

• Doctor Practice
• Gross variation from EBM
• Financial incentives 3 years
• Hospital Practice
• Systems antique, no required pathways
• Financial incentives 3 years
• Information on AE
• no satisfactory error learning
• Compulsory Register 1 year
• Trigger events requiring review
• Evaluation of success of reforms
• Process measures ? AE ?
• Ongoing random surveillance of hospital
  (100) immediate

51
Doctors and QA

• Legitimate concern
• AE ? litigation
• Solution
• Legislation uncoupling error personal liability

52
Financial incentives

• Principle needed
• Society pays for what it wantsNOT
• Pays for what it is given
• Implications
• if society wants EBM as designed, approved by
  Colleges then pay more per DRG more per medical
  rebate
• Time frame ? society (government)

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• Financial Coercion?
• Patient right to best, safe, medical care trumps
  doctors right/license for clinical freedom

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Conclusions

• Multiple failures
• Self regulation/professional model
• Government regulation
• Common elements
• No ownership of problems
• State-Commonwealth divide ? focus on
  massive government failure while patients die

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Conclusions contd

• Common Elements
• All levels of system, decision making lack of
  satisfactory information
• use/access to services
• CE of services
• costs/substitute services etc
• consequences of treatment for patients (no
  longitudinal follow up)
• HSR Research Effort
• NIH (USA) A2.5 billion ? 122 million for
  Australia
• Require better information (braver leadership?)
• Huge potential for improvement

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Chief policy question

• Which long run system is most likely to grapple
  with these problems
• Medicare marginal changes
• Managed Competition (Enthoven, Scotton,
  Productivity Commission)

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Chief Political Question

• Will Government countenance serious reform?