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Road map for Australian health care reform - Part I

By Fred Hansen - posted Tuesday, 5 August 2008

Quality - problems with hospital care

In any industry the essence of a business’s identity lies in the value the business provides to its customers. So it should be in health care. Cost shifting, as happening currently, between health funds and providers does not deliver value. It is called negative or zero-sum competition reflecting traditional health care funding with caps on budgets. Across the board we need to replace zero-sum-competition with value-based competition for consumers or patients.

The national competition policy (NCP), introduced in 1995 by the Australian government, worked well in most industries, says Graeme Samuel, President of National Competition Council, only “the health sector has thus far largely avoided the effects of pro-competitive regulation”. Lack of competition translates into low motivation of health professionals and poor quality of services.

And Australia has got a real problem here. Medical errors in the health care system are estimated at between 3.2 and 5.4 per cent in the US, 9 per cent in Denmark, 10 to 11,7 per cent in the UK but a shocking 10.6 to 16.6 in Australia (Bedkober, B., IPA Review, March 2007).


The figure of 10 per cent was just recently confirmed in a government report. According to Wilson (“Quality in Australian Health Care”, 1995) one in six hospital admissions generates an adverse event, half of which is preventable and six in every 1,000 admissions are ending in a preventable death from an adverse event including complications.

According to Rigby the cost of these are $483 million per annum. A later study by Runcimen (A Comparison of Iatrogenic Injury Studies in Australia and The USA II: Reviewer Behavior and Quality of Care) established a figure of 10 per cent adverse effects of all admissions to hospitals.

In the West it is now standard procedure for patients to investigate symptoms on the Internet, learning about diseases and treatments and tracking records of doctors and hospitals. Patients assess the latest clinical trials and experimental procedure. Positive competition based on quality will eventually ring the death bell for one-size-fits-all medicine and will leave the full service hospital obsolete. The new role of active consumers rather than passive patients is a result of stressing prevention and primary care in order to minimise hospital care.

But hospitals as well, like all health care providers, have to be re-organised and re-aligned along health care delivery value chains for every single medical condition. All data collection and team composition has to be arranged according to patient needs. The consumer or patient has to be at the organisational centre for any future health care delivery system. In the long run university hospitals may even change the structure of doctor-focused specialties (old faculties) and rearrange them in disease specific teams.

Pressure in Australian hospitals is rising due to the publication of comparative performance measures such as fatality rates (Hibbard J H et. al, Hospital Performance Reports). However much more information is needed and health care providers are to be fitted with state-of-the-art facilities for measurement and reporting of clinical patient outcomes. This should include mortality, infection rates, accidents, frequency of performed main procedures and adverse drug effects. This is the essential part of consumer-focused health care, which rests on choices and informed decisions.

Equity - transparency and public outcome reporting enables enhances quality of care

Markets always depend on and work best with full information and at present, in health care, the anomaly of very limited information persists. John Paterson, former head of Victorian Health Department, stated: “Improved information is a precursor to more market-oriented reform initiatives”.


Often anticipated benefits from the IT revolution have not yet materialised in health care. Why is that? Bob Douglas, epidemiologist from Australian National University, observes problems concerning current stakeholder monopolies within the health system, “and those monopolies at present have an active interest in hiding information” (Health Policy Roundtable, March 2002; Productivity Commission Working Paper No. 1710).

Openness and transparency is crucial. Once established, electronic medical records could improve the management of chronic conditions which affect 25 per cent of Australians. If they would get computer assisted disease management, Professor Michael Georgeff of Monash University (Australian Center for Healthcare Research, research paper April 2007) estimates up to 50 per cent of hospitalisations and 40 per cent in emergency room visits in this group could be avoided - generating $1.5 billion in health care savings and $4 billion in productivity or workforce participation gains. The latter claim may be overstated given the latest disappointing data form the US Medicare trial, where nearly no savings where reported.

The fact is, however, at present access to the best doctors is erratic and left to the wealthy. Further, exposure to medical errors seems more of a problem for public than for private patients. In this two-tier system the majority of public patients end up on waiting lists and only private patients get access through their referring doctors to what they believe are the best performing hospitals or specialists. This information asymmetry between customers and providers is unique in the health care industry and needs to be addressed. If outcome reporting for all hospitals and other health care outlets became mandatory and was placed in the public domain, an enormous gain in transparency, accountability and fairness would ensue because consumers then have a way to find out where the best doctors are and would flock to them.

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About the Author

Dr Fred Hansen is a science writer having published mostly in Germany and the UK. He came to Melbourne a year ago and has published some articles in the IPA Review. He also has a regular blog at the Adam Smith Institute in London. Dr Hansen was a green MP in the state parliament of Hamburg in Germany in the mid-1990s and chaired the science select committee there.

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