Managed Competition The Future of Health Care Funding

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Managed CompetitionThe Future of Health Care
Funding?

• Dr Richard Scotton

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MANAGED COMPETITION
1. WHY? 2. WHAT IS IT? 3. WHAT WILL IT
ACHIEVE? 4. IMPLEMENTATION
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MANAGED COMPETITION WHY?

• The basic objective of Medibank / Medicare was
  EQUITY
• Historically, this is the primary reason for
  government
• intervention in health care.
• NOTHING HAS CHANGED IN THIS RESPECT

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MANAGED COMPETITION WHY?

• On the contrary,increasing inequalities in income
• (and associated health status) have given
  increasing
• emphasis to the equity objective.
• The only acceptable basis for health care
  financing is
• a system which operates within a universal,
  equitably
• financed framework.

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MANAGED COMPETITION WHY?

• What has changed since the introduction of
  Medibank / Medicare?
• (i) Massive and continuing increases in
  complexity of
• inputs diagnostic and treatment technologies
• outputs investigative and treatment
  processes,
• (i) Corresponding increases in the efficacy and
  cost of state-of-the-art health care.
• Note that this INCREASES the social importance
  of the equity objective - - - - - when health
  care was cheap and useless, accessibility was not
  a social issue

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MANAGED COMPETITIONWHY?

• What are the implications of these developments
  for policy?
• Basically, that it has become MUCH more important
  to achieve
• efficiency
• (i) in economic sense (allocative efficiency --
  to secure best use of scarce resources allocated
  to health care)
• this includes lowest cost methods of doing what
  is done, AND
• use of lowest cost path for satisfying wants,
  and
• (ii) in achieving the (extra-welfarist) objective
  of using health care resources in such a way as
  to maximise health gains.

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MANAGED COMPETITION WHY?

• The present combination of
• (i) program mutiplicity and fragmentation
• (ii) funding service overlaps between
  Commonwealth and state governments and
  authorities
• (iii) disjunction between public and private
  sector funding and service provision
• (iv) remuneration arrangements largely unrelated
  to outputs and outcomes
• impose barriers to greater efficiency and, to
  some extent, offer
• positive incentives to inefficiency.

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MANAGED COMPETITIONWHAT IS IT?

• Taken together, these considerations point to the
  desirability of moving toward a more
  comprehensive model,
• WITHIN THE UNIVERSAL FRAMEWORK, incorporating
  efficiency-promoting structures and incentives.
• Such a model would involve
• (i) amalgamation of programs, with
  population-based funding
• (ii) a greater role for market competition in
  the health care
• system, and
• (iii) substitution of market incentives (i.e
  price signals) for many features of the command
  economy ( i.e. government regulation, subsidy
  of providers and direct service provision).

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MANAGED COMPETITION WHAT IS IT?
This is the background to my prescription of
managed competition. The problem is to devise
a framework which will make market forces
operate in the theoretical manner, taking into
account the special features which complicate
the treatment of health services themselves as
tradeable commodities . . . . . (unlike some
economic rationalist proposals)
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MANAGED COMPETITION WHAT IS IT?
FIRST, All existing publicly funded programs to
be combined into a single program - - - - -
hence removing barriers to efficient substitution
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MANAGED COMPETITION WHAT IS IT?
SECONDLY Clear and separate roles for
Commonwealth and state governments Commonwealth
government to legislate and regulate
coverage, benefits and the rules of the
game to collect revenue and pay for all
services, by risk-adjusted capitation grants to
budget holders State governments to plan and
provide publicly provided health services to
supervise and underwrite regionally-based public
budget holders Note This would eliminate
cost-shifting
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MANAGED COMPETITION WHAT IS IT?
THIRDLY Private sector funding and service
provision would be substantially integrated into
the national program private budget holders
would receive risk-adjusted capitation payments
for all people enrolled with them and would
provide them with all benefits and services
covered by the program but would also collect
premiums to cover administrative costs and
additional services (including, at least, a
minimum access to private hospital care -- not
covered by public budget holders)
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MANAGED COMPETITION WHAT IS IT?
FOURTHLY BUDGET HOLDERS are the core element of
managed competition. Their functions
would be to provide (or contract for the
provision of ) all covered services to the
people enrolled with them - - - in return for
the risk-adjusted capitation payments paid by
the Commonwealth government on behalf of the
enrollees Hence, they would fulfil the dual
roles of insurers and of organisers of service
provision.
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MANAGED COMPETITION WHAT IS IT?
FIFTHLY More on budget holders Since they
would receive global income based on the needs of
their enrollees, they would have strong
incentives to control costs by (i) bargaining
keenly with providers in purchasing/contractin
g for services, and (ii) managing service
use/provision to achieve efficient cost
control and resource allocation
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MANAGED COMPETITION WHAT IS IT?
SIXTHLY Service providers (public and private)
would have to contract with budget holders --
either directly, or through sub-contracting
agencies (which would include state governments
in the case of public providers) in order to
be remunerated for their services. The form of
remuneration would depend on the contract, but
could be expected to include episode and
population-based components, in addition to
fees-for-service. Profound changes in the
structure and organisation of service provision
could be expected to evolve as a result.
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MANAGED COMPETITION WHAT IS IT?
FINALLY This has been a sketchy outline of what
is necessarily -- a complex solution to an
extremely complicated set of problems The
best descriptive account is in Mooney Scotton
Economics and Australian Health Policy, ch.11
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MANAGED COMPETITION OUTCOMES
The rationale of the managed competition
proposal -- is NOT conceptual neatness but
that IT IS THE ONLY WAY IN WHICH IT WILL BE
POSSIBLE TO DEAL WITH A NUMBER OF SPECIFIC
PROBLEMS - - - - - which are increasingly
intractable under the present arrangements.
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MANAGED COMPETITION OUTCOMES
(1) COSTS (a) How to contain total
outlays on health care in the face of rising
real costs, without imposing increasingly severe
and arbitrary rationing of particular services
AND/OR extending inequalities of access
(b) (subset of the above) how to contain the
costs of pharmaceuticals (c) (another subset)
how to improve management of aged care (d) how
to improve management of care provided to people
with multiple and/or chronic and degenerative
conditions -- i.e. co-ordinated care
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MANAGED COMPETITION OUTCOMES
(2) SERVICE DELIVERY (a) how to maintain
and support the public hospital system as a
pillar of the health system as a whole (b) how
to support and improve the availability of health
services to non-metropolitan populations (c)
how to improve/support the primary care system
(esp. general practice), with emphasis on
efficient use of all resources, including
people with qualifications other than medical
degrees
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MANAGED COMPETITION OUTCOMES
(3) ORGANIZATION (a) how to resolve
disjunctions in the system due to
inconsistencies between private and public
sector financing and provision - - - - the
growth of corporate medicine will intensify this
problem (b) how to make better use of the 2
billion plus private health insurance subsidy
(c) how to eliminate Commonwealth/state service
overlaps, cost -shifting etc
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MANAGED COMPETITION IMPLEMENTATION
ESSENTIAL STEPS (1) RISK-ADJUSTMENT
CAPITATION FORMULA -- central to operation of
the scheme. considerable progress has been made
with the development of DCGs (diagnostic cost
groups), a classification system which is
methodologically similar to DRGs. Like DRG
payment systems, their operation would generate
further refinement of the categorisation and
costings.
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MANAGED COMPETITIONIMPLEMENTATION
ESSENTIAL STEPS (2) MERGING PUBLIC HOSPITAL
PAYMENTS INTO THE SAME BUDGET PROCESS AS OTHER
PROGRAMS, -- to enable substitution of other
services for inpatient care. How? -- by
abandoning Commonwealth funding of public
hospital through grants to the states -- and
substituting cash benefits (related to output
expressed in terms of DRGs) This could be done
ahead of the implementation of managed
competition, and would be worthwhile for its own
sake, even if managed competition was not
implemented
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MANAGED COMPETITION IMPLEMENTATION
POLITICAL DIFFICULTIES Ideologically, managed
competition lies in a no-mans-land, between two
rigidly held positions. Fortunately this is not
my problem the role of an academic health
economist is to point out the destination, not to
steer the course!