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Cash is not a cure-all for Queensland's health woes

By Des Moore and Mikayla Novak - posted Wednesday, 12 October 2005

The Forster review of Queensland Health's systems covers a wide range of policy issues relevant to improving the delivery of health services. Many of them would require decisions by both federal and state governments.

A more immediate question is whether a major increase in state spending on health can be justified in the mini-budget on October 25. Our analysis of the review raises serious questions about the proposed large spending increase and hence the need for increases in state taxes foreshadowed by Premier Peter Beattie.

The basis for the proposed $1.5 billion in extra spending is that total Queensland expenditure on health in 2003-04 was about $200 per head, 14 per cent lower than the average for the states.


However, this lower level of spending added up to no more than $780 million in 2003-04 and could not now be higher than $900 million. Moreover, it relates to total spending on health services, whereas the obvious policy question is whether additional spending is needed to lift public hospital services to the states' average.

What commentators seemingly overlook is that the review identifies why Queensland's health expenditure is lower than that of other states. The reasons include Queensland's wage levels - 6-7 per cent below the states' average - and that Queensland's public hospitals are 11 per cent more efficient than the national average, when measured on a weighted separation basis.

Remarkably (but correctly), the report says it would be wrong to conclude an additional $200 per person is justified for health services. For many services, Queensland Health provides a similar level of activity but with a lower level of expenditure. In short, any need for additional spending cannot be based on straight comparisons of per head figures. Indeed, given Queensland's hospitals are 11 per cent more efficient, the 14 per cent lower spending on a per capita basis virtually ceases to be of any major significance.

The review nevertheless argues public patient hospital separations should be increased to the national average by financing an extra 37,500 weighted separations. This, we are told, would require increased expenditure of $197 million in 2005-06, plus a further $209 million for 1,000 more nurses and 1,780 more allied health staff.

However, no substantive justification is provided for a policy that would push public patient hospital separations to the states' average. Astonishingly, the review overlooks the main reason those separations are below average: Queensland's proportion of separations by private hospitals (47 per cent) is higher than any other state's.

Implementation of the policy would simply reduce those separations, putting more pressure on an already over-loaded public hospital system.


The review has no proposals for reducing that overload by increasing the private hospitals' role. Indeed, when considering possible future pressures on the public hospital system, it again seems to overlook the potential contribution of private hospitals.

Thus, while assessing that Queensland may need to add 170 beds every year to 2021, the estimated additional expenditure of $45 million a year makes no allowance for the capacity of private hospitals to provide additional beds, as they have done in recent years. Further, in discussing how much more the community might be prepared to pay for health care, there is no serious examination of a role for private hospitals, such as by contracting out certain operations and other functions.

Forster should have started with the Commonwealth Grants Commission's assessment that Queensland's spending on public hospitals was $680 million, or about 22 per cent, less than the states' average in 2003-04. He should then have taken account of the greater efficiency of the Queensland hospital system, and of the Premier's letter to the Australian Financial Review, published on August 30, which pointed out that Queensland health spending has increased by more than 20 per cent since 2003-04. This would surely have led to the conclusion that Queensland's public hospitals are already functioning at or close to average state levels.

Finally - and most importantly - Forster's conclusion that the culture of Queensland Health severely inhibits its capacity to deliver the best possible standard should have indicated that it is not additional expenditure which is needed, but a change to the structure of the public health system.

Yet before he could have received any substantive analysis of the review, the Premier seemingly committed the Government to substantial additional expenditure. This is not prudent government: Cabinet should first have considered a Treasury analysis of the review.

But if jumping the gun will mean increased hospital spending, this should be mainly financed by reducing Queensland's above-average spending of $500 million on general public services (which includes large spending on business regulation). The $934 million budget surplus could also be drawn on. There is no case for tax increases.

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Article edited by Virginia Tressider.
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First published in The Courier-Mail on October 7, 2005.

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About the Authors

Des Moore is Director, Institute for Private Enterprise and a former Deputy Secretary, Treasury. He authored Schooling Victorians, 1992, Institute of Public Affairs as part of the Project Victoria series which contributed to the educational and other reforms instituted by the Kennett Government. The views are his own.

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

Other articles by these Authors

All articles by Des Moore
All articles by Mikayla Novak

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