Principles for dynamic adaptation
A common feature of recommended reforms has been what might be described as 'static optimality': A series of one-off recommendations are made for the achievement of the optimal health system. The author has contributed to this literature [14
]. Many of the principles suggested are, of course, sound (particularly in the latter reference!) In the optimal system there would be a single purchaser of all services for defined populations. The present irrational, geographic, service-based and disease-based boundaries would be eliminated. Many or possibly all of the performance indicators listed in the NHHRC's April Report would be initially adopted [25
Below I focus upon a dimension of reform which is seldom considered but, in the light of the previous discussion, would appear to be of greatest importance. The focus is a response to repeated failures; the failure to adequately respond to information when it is available - adverse events and, evolving technologies; failure to investigate or address issues of stated importance - inequity; failure to seek out the nature of health system related social objectives; failure to match policy priorities with the magnitude of the problem and failure to invest in the system navigation equipment necessary for planning the future and responding flexibly to error.
Repeating an earlier theme, the economic (and other) history of the 20th
Century has been dominated by technology, innovation and uncertainty - elements for which economics has failed to provide either explanation or guidance. This is reflected in the health economics debate over optimal health systems which, apart from innovation of the moment, have largely ignored the implications of these three dominating themes for system reform. While market capitalism self evidently requires regulation and the market model is manifestly unsuitable for the health sector, the history of capitalism in the 20th Century provides one important insight. The market provides a flexible, adaptive and creative mechanism for allocating resources. The experience of the last 100 years, reviewed comprehensively by Beinhocker [26
], suggests the following principles:
• Monopolies, however creative initially, have generally evolved into conservative organisations which commonly fail, a point clearly articulated by Prime Minister Kevin Rudd, in the context of homeland security, when he endorsed the view that 'big departments risk becoming less accountable, less agile, less adaptable and more inward looking' [27
• Corporations which do not 'reinvent themselves' regularly have a limited life time. Most firms fail after a period of initial creativity and success. The US automobile industry is a dramatic example;
• The engine of progress is often small, innovative enterprise with an idea which has not or cannot be implemented by the larger monopoly/corporation. (The most spectacular recent example is Microsoft's takeover from IBM of the market for desktop computing);
• Growing bureaucracy and overemphasis on due processes are often the reasons why larger 'non-reinventing' corporations loose the innovative advantage (a generalisation again illustrated by the history of Microsoft and IBM); and
• Organisations which have survived, innovated and 'reinvented themselves', have invested heavily in technology and market research - their industrial 'navigation equipment'.
The reform of the Australian health system should be informed by this experience. The reform process should be driven to a significant extent, by the need to achieve dynamic adaptability through time and, in particular, by error learning. None of the reform proposals of which the author is aware, including those of the NHHRC, have emphasised this need. The 'buzz words' are scattered liberally throughout rhetorical passages, but proposals do not show how these translate into policy. Uniquely, the advantages of dynamic adaptability are implicit in the Scotton-Enthoven proposals for Managed Competition although, as elsewhere, Scotton emphasises the static properties of the model [28
The experience summarised above suggests that the following principles should be considered in the reconstruction of the health system, in addition to the principles for static optimality.
1. No part of the Australian health system including the funding of research should be subject to monopoly control. The simplest way of achieving this is to base an integrated health system upon a sub-national unit, either the state health regions or, possibly, fund-holding unit as envisaged in the model of Managed Competition. These units should have a significant degree of autonomy in the way in which they allocate resources. As in the market, diversity maximises the chance of successful innovation and improvement.
The counterargument that differences imply inequity is simply hypocritical. There has been no sustained concern with equity and, as evidenced by their support for PHI, Australians are not particularly interested in the reality of equality. More substantively, when successful elements of a sub-national health system are identified by a national authority they can be mandated for the other health systems. It is doubtful that many would openly defend the structural pretence of equity for the reality of better health especially as both goals can be currently improved.
In this context Canada's leading health economist Bob Evans comments that:
'A particularly interesting feature of the Spanish (experience) is the way in which devolution of political authority to sub-national governments served - against conventional wisdom - to open a democratic window, advancing and securing the universal system in the face of ambivalence (at best) at the national level. (Canada provides a similar example)' [30
2. Innovation should be 'ongoing' not simply the 'dab innovation' which characterises the present management, but should involve significant and sustained experimentation. As in every other industry this costs money. The expectation that the Coordinated Care Trials commenced in 1995 - by Australian standards, more a 'splash' than a 'dab' - would achieve rapid cost saving without the outlay of significant expenditures was as naive as the expectation by a manufacturer that a new and profitable mode of production might evolve without any venture capital.
3. Innovation should be informed by the careful observation of success overseas, something which has seldom occurred in Australia (the chief exception being the imitation of elements of Canadian Medicare by Medibank in 1994). Despite evidence for over 30 years that the US Kaiser Permanente Corporation has operated highly successful, cost effective, integrated clinics and more recent evidence from the reform of the Veterans Health Service there has been no attempt to seriously study or experiment with their experience. New Zealand's innovations have likewise been ignored. The inward looking nature of Australian policy is epitomised by the failure of the PBAC to look at the international market price of drugs when negotiating with pharmaceutical companies and this has resulted in examples of extraordinary over payment [31
]. This is as irrational as a corporation negotiating in a market in terms of the data provided to it by an interested party and ignoring the known prices elsewhere in the market.
4. The above principles cannot be implemented without investment in 'industry navigation equipment'. It is likely that no other industry in Australia spends as little, proportionately, on the marketing, delivery and adaption of their product to customer (social) needs as occurs in the health sector despite the fact that the industry is almost certainly the most complex and important for future wellbeing. The fact that this appears to be true in other countries does not lessen the consequences of this. There has been a failure to invest in health services research on anything much more than a symbolic level and then without serious strategy or plan. While having one of the best data systems in the world, it is largely unused in terms of its real potential for management and evaluation. Research is largely conducted on an ad hoc, or 'on demand' basis, by health departments for specific purposes and commonly results in confidential reports. There is a dearth of creative ideas flowing through to the level of creative planning.
The last serious proposal for comprehensive, coherent reform - the Scotton plan - died at least in part because of the failure to create a new generation of health economists capable of developing such or similar plans and carrying out the prerequisite technical analysis as has been ongoing in the USA, the Netherlands and elsewhere. Perhaps with the wisdom of hindsight it is likely that the existence of serious navigation equipment in the field of new technology would have suggested such extreme uncertainty with respect to workforce requirements that a much greater emphasis would have been given to the training of a flexible workforce capable of varying its level of performance in accordance with the emergence of new technology driven needs.
5. Since the introduction of Medicare in 1994 there has been bipartisan political support for the disregard of serious and well publicised deficiencies in the governance of the health sector as well as those discussed above (Additional file 4
). The hypothesis which appears best able to explain this is that at the government level an increasingly important principle is to not create problems for government through reforms which will result in organised opposition from powerful interest groups and only benefit those (the public) who are largely unaware of the benefits that they might receive. If this hypothesis is correct and likely to characterise future political motivation, then an important governance principle is to establish a long term structure which is one stage removed from government with government only responsible for broad policy and funding. The most concerted but largely unsuccessful attempt to significantly improve coordination within the present system was made by the Hospital and Health Services Commission, HHSC, (1973-1976) along with a number of other suggested innovations. Significantly, as discussed later, this group was statutorily independent from government.
One example of the allocation of responsibilities based upon (but differing in emphasis from) a modified Scotton model which satisfies many of these requirements is summarised below along with a broad implementation timetable [28
]. (It is contrasted with Medicare Select later.)
Semi-autonomous commissions should be established at either the State or regional levels responsible for the purchase of all hospital and ambulatory including dental and ophthalmological services. The commission should be directed by a board including representatives of the Commonwealth, State and major providers of services and be able to innovate in both the form of purchasing and the physical organisation of delivery.
The reform process
This should be driven by an independent commission which might itself evolve into a statutorily independent body, analogous to the Reserve Bank, for the permanent over-viewing of the health system. The body should not be dominated by 'insiders': health professionals, members of the government health bureaucracy or persons associated with government. (It is too easy for a culture to develop in which common but contestable assumptions become universally accepted. Paraphrasing Donald Rumsfeld, in the Health Sector 'stuff happens' (cf
adverse events); needed change will be implemented by the responsible department and so on.) The Commission's charter, but not its operation, should, of course, be determined politically (see BCA submission to the NHHRC [32
]). Like the Reserve Bank it should have very significant research capacity, for example, incorporating an institute as described below.
Regulation and monitoring
The Commonwealth should mandate a minimum package of services and monitor access to these services with penalties for violation of the principles. However there should be capacity for difference and experimentation.
Pooled government revenues should be based upon a predetermined formula with shares unrelated to any element of delivery. The needs adjusted per capita allocation to the purchasing authority, determined by the Commonwealth, should be phased in to replace the status quo. The formula determining the government shares of the funding is irrelevant for system performance.
Initially, as at present, States should run State hospitals and the private sector run medical, dental, other ambulatory and pharmaceutical services. The Commonwealth should be responsible for negotiating certain prices such as pharmaceuticals and the rebate for fee for service medical services because of the lack of market power by sub-national units.
Private Health Insurance
This should initially be unchanged except for the removal of the surcharge and phasing out of life time tables (efficiency measures). The subsidy should initially be maintained. However research is needed to determine the true effect of PHI on the availability of health services to Medicare patients and the size of the subsidy should be determined in the light of this and further research into population preferences with respect to a multi-tier health system.
At least one, and on the principle of non-monopoly, preferably more statutorily independent institutes should be created similar to but independent from the AIHW. They should have the following functions:
Quality monitoring and assurance
The institute should have powers to acquire and require information and to conduct onsite investigation. It should be required to carry out ongoing international collation of techniques for quality assurance and to translate these techniques into a form compatible with the Australian system.
Comprehensive data provision on issues of access and equity, including hospital specific queues by procedure should be made available on the web.
Technology and innovation
The institute should proactively seek out new technologies (preferably in conjunction with the relevant medical colleges) and refer them to the relevant technology assessment group for possible inclusion in Medicare.
Results of routine health services research and statutorily determined information should be regularly provided to the public regarding the level of disaggregated service use and the (standardised) quality of different provider groups.
Ideas for innovation
The institute should monitor 'good ideas' which have succeeded in other countries and proactively provide these to appropriate bodies throughout the health system.
Ad hoc research
It is highly desirable that issues of current public or political interest should be satisfactorily researched and not be the subject of disinformation and unsubstantiated spin. The institute should have a capacity to conduct research on the request of a Minister and on its own initiative. It should have the task of proactively providing relevant information to members of the media who are perceived to be providing factually incorrect information to the public.
Blue sky research
There should be a capacity to either conduct or promote additional research of a more long term or exploratory nature.
The institute should be responsible for monitoring and recommending measures to ensure a satisfactory health service research workforce. With current 'dab' funding of HSR there is no career path for health economics and unsurprisingly an almost complete dearth of research into health systems. Part of an institute's function should be the training of such a workforce via cadetships in its research divisions in conjunction with relevant university and government departments.
The institute should have a statutory right to all relevant administrative and other data collected by the AIHW but also data which is not collected by the AIHW such as that monopolised by the current Commonwealth Department of Health and Ageing.
In 1973 the Whitlam government created an institute similar to the one described here. The Hospital and Health Services Commission (H&HSC) was statutorily independent and had the ability to analyse, plan, publish, introduce research and recommend policy. It initiated a data based approach to policy development which resulted in the establishment of the Community Health Program which included programs for family medicine, hospital development and initiatives with respect to diagnostic and rehabilitation services, Aboriginal and rural health, health transportation, Aboriginal and rural health and the health workforce [33
]. It differed from the present proposal in two important respects. First, it relied upon existing institutions to obtain data. Secondly, it was largely concerned with the formulation and recommendation of policy.
These differences may have proved lethal for its longevity as the Commission was disbanded with the change of government in November 1975 [34
]. It is for this reason that the present suggestion is for an institute which cannot be seen as political through its advocacy of policies which may become or already have become politically aligned. Since Australia spends about $100,000 million on health services there is, however, a strong case for (at least) two institutes: one concerned with information and its dissemination and one with options formulation and advocacy along the lines of the H&HSC.
With the exception of the creation of one or more institutes for health services research and evaluation most of the suggested functions, or variants of them, could be achieved relatively quickly as they involve governance and financial flows rather than the creation of new physical infrastructure. Initially the public would feel little effect.
Subsequently, the form of delivery might change substantially as the area based commissions responsible for purchasing services experimented with new methods of delivery (such as Kaiser-like clinics for integrated care). An additional option would be a movement towards Managed Competition as private health funds or other groups negotiated a 'carve out' for a voluntary group. Such a task would involve research into the determination of risk related premiums and likely effects upon cost and equity. (Recent evidence from the Netherland's experiment with Managed Competition suggests that this option might result in inequalities unacceptable even to the unegalitarian Australian public.) Evans [30
] notes that from 1995 to 2002 fund specific extra premiums (above needs-based capitation payments) rose from 3 percent to over 50 percent suggesting significant quality differences between schemes. This again illustrates the need for reform based upon careful research and modelling of the impact of different regulatory structures. An indicative timetable is reproduced in Additional file 5
The National Health and Hospitals Reform Commission (NHHRC)
In 2009 several major reports were presented to the government. First, a report to Support Australia's First National Primary Health Care Policy conducted a detailed review of issues and options for the reform of Primary Health Care (PHC). The focus of this and the accompanying draft report was primary services delivered by GPs, nurses, allied health providers, Aboriginal health practitioners and pharmacists. Consistent with the problems identified in this paper the key elements included access, coordination, safety and information [23
Next, in an impressive, evidence based report the National Preventative Health Taskforce released its strategy document recommending policies which would, without doubt alter the unhealthy trajectory of Australian society [36
]. It is almost certainly correct in its assessment that these policies could prevent 'hundreds of thousands of Australians dying prematurely or falling ill and suffering between now and 2020'. But the barriers to these policies are even larger than those which have blocked serious health sector reform, albeit
being of the same political origin.
In the context of health sector reform, the most significant document was the final report of the National Health and Hospital Reform Commission (NHHRC) 'A Healthier Future for all Australians' [37
]. The report is structurally elegant. It focuses upon health and its achievement in a social context as distinct from the services and financial flows which dominate most proposals for system reform. The report is structured according to important and pivotal principles - connecting care, care at different life stages, rural, mental health etc, inequalities and quality. However, none of the resulting sub-principles, excellent though many of them may be, are likely to become embedded in the system unless the governance structure determining regulation and incentives is appropriate and in this respect the report is deeply disappointing. Its discussion of governance is almost completely absent. In one of the second round submissions Andrew Podger notes that:
'Governance is important. It is not a separate issue from practical measures aimed to improve service delivery and health outcomes. It is the means by which the Australian community can be sure that the health system is delivering what it is there for. Moreover, current governance arrangements are contributing directly to current weaknesses in the quality, effectiveness and efficiency of the Australian health system.' [38
The Commission's response was to use this quotation to head Chapter 6 and then provide less argument for their recommendations with respect to governance than in the interim report where it represented one page for each of three options under review.
The focus of the Commission's report also has no overlap with the areas of concern discussed in this paper. This is unsurprising. The present paper highlights errors and failures and then sketches a governance system based upon the principle of error learning. The NHHRC, while noting most of the relevant issues somewhere, does not seriously analyse past failures. It never considers the question why major problems and reforms, known and needed for decades, have been ignored and what structural changes are necessary to guard against a perpetuation of this problem.
As with all other proposals Australians would depend upon the wisdom and benevolence of monopoly bureaucrats for the monitoring and implementation of reform; that is error learning and dynamic adaptation would depend upon the same flawed mechanism as at present, namely a department largely driven by short term ministerial concerns and with significant monopoly control over information, research, venture capital and with powerful personal and institutional incentives for the suppression of the information which drives reform, namely information concerning failures and errors.
This casts some doubt upon the wisdom of the structure of the report. Because 'connecting care', care at different life stages, etc are important, it does not follow that they should have determined the structure of the report. Analogously, while the quality of life, not radiotherapy, may be the endpoint of cancer services, a report into these services should not necessarily make quality of life the structural focus if the core problem is an absence of radiotherapy services. The report should focus upon the cause, not consequences of the problem. The integrity of the report depends upon a correct diagnosis of the core problem and not a description, however accurate, of the downstream problems arising from them.
The NHHRC documents so many - probably correct - downstream problems or potential improvements and so many elements of the current system are acknowledged as sub-optimal that perspective on the problems is easily lost; and it appears to be lost in the report. For example, in the draft report, the Quality of Australian Health Care Study (QAHCS), discussed earlier, is viewed as evidence that 'admission to hospital is not without risk' (p 133). This is analogous to acknowledging that 'the Sahara Desert has dry bits'. An alternative perspective is that the QAHCS revealed the greatest non-military, avoidable calamity in Australia's history and that in another context - say, product safety or occupational health and safety - the subsequent disregard of evidence of widespread death and injury would have led to criminal prosecution. But the potential lessons of this astonishing episode of Australia's health history are lost in a sea of largely unfocused detail. In the final report it is simply noted that adverse events can 'cause harm to a person receiving health care... such events cause patients distress and suffering, (and) compromise operational efficiency...' (p 55).
The chief lesson which should have been learned from the QAHCS and the other failures documented here is that government answerable departments - increasingly dedicated to the short term ministerial task of appeasing politically effective groups - are capable of major failures and are increasingly questionable bodies for the short, or even medium term, direction of the health system. There is a need for the separation of policy and system monitoring on the one hand, from implementation and innovation on the other.
The role of government, more generally, has been the single largest theme in the discipline of economics since Adam Smith highlighted its potential shortcomings, and the largest single theme in the economic health policy debate since the introduction of the UK NHS. However there is no echo of this in the NHHRC report. Australian government and governance are implicitly unproblematical, dynamic and wise. The problems discussed by Donald Horne in the 'Lucky Country' have dissolved with time [39
In the governance structure outlined earlier in this paper the answer to the question 'who guards the guardian' is firstly the Commonwealth regulatory bodies and, secondly, a statutorily independent body which, like the Reserve Bank, has supervisory and regulatory power but no direct responsibility for service delivery. In the Commission's governance structure there is no guardian of the Commonwealth authorities except the Minister and Parliament and it is their impotence on large scale reform which has been the chief problem to date.
The needed governance structure should pre-commit government to certain courses of action and ease the political pain of desirable policy. Analogously, the Reserve Bank may increase interest rates despite short term popular opposition.
These considerations suggest that the NHHRC's chief recommendations with respect to governance are seriously wrong. After a transitionary phase of hospital cost sharing (once believed to be inflationary) they would enshrine a Commonwealth monopoly. The depth of analysis supporting this recommendation in the report, however, is simply lamentable. It argues that '... we heard from many consumers and health professionals - a desire for one health system' (p 147). But the problem documented in Additional file 4
here is the lack of coordination arising from multiple funding sources for the services available to any one individual - integration of primary health and hospital care, step down facilities, etc. This implies the need for a single fund holder for an individual not a single fund holder for all Australia. The case against diversity and experimentation in PHC is simply asserted, 'Our recommendations for ... a transformed comprehensive primary health care platform ...require one government - the Commonwealth Government - to be responsible -... thus we recommend that the Commonwealth Government assumes full responsibility for Primary Health Care Services' (p 148). The argument for economies of scale is untrue and the difficulty tracking border crossing overlooks developments in data processing technology in the last few decades. The Commission argues against regional health authorities because 'there are dangers of 'balkonising' health services, with people's access to care determined by the region they live in' (p 154). The Commissioners do not use irony elsewhere in the report.
In the context of these proposals there is no discussion of regulatory or system incentives for innovation. Almost as an afterthought, however, the Commission does appear to recognise some of the problems inherent in a monopoly and recommends 'Medicare Select' as a longer term governance model. This is a less developed version of Managed Competition than the model advocated by Scotton [40
]. It represents an almost complete negation of the arguments for a monopoly. Concern with 'cost and bureaucracy' dissolve and 'innovative approaches to funding' are advocated (p 158). These must equate with employee contributions (one of the most poisonous elements of the US system) or private contributions favouring the wealthy and copayments (disadvantaging the poor). The concerns discussed above are not mentioned.
As 'the devil is often in the detail' Scotton never envisaged his suggestions as being an implementation plan or one which could be fully evaluated on the basis of his broad description. There is no devil in the NHHRC option as there is no detail for it to be in. There is no possibility of Medicare Select being endorsed, as proposed, and its only contribution to the report is that it allows the Commission to encourage the government to reconsider governance.