Health Services in transition:
Privatisation by Stealth

The following is the first of two articles based on a report given by Dr 
Con Costa to the national conference of the Doctors' Reform Society held 
from August 7-8 in South Port, Queensland. Dr Costa is Vice-President of 
the DRS. In his report Dr Costa looks at the direction of changes to 
Australia's health system and the Managed Competition/privatisation model 
which is being promoted by a former architect of Medicare.

Far reaching changes are under way to Australia's health system. These 
changes are gradual, multi-faceted and uneven. They fit with changes taking 
place in other areas of the public sector.

The view of the World Bank and OECD governments (including the Australian 
Government) is to dramatically shrink the role of government in producing 
and distributing goods and services.

Public provision of services is to become the exception rather than the 
rule. State intervention will only be justified where markets fail, e.g. 
defence, rural roads, and some social insurance.

The basic principle is that anything that can be done by the private sector 
will be handed over to the private sector.

This philosophy is being implemented across the board in piecemeal fashion, 
without any formal declaration of intended outcomes.

Government will no longer provide guarantees of adequate living standards 
for all. Rather the intention is to foster greater "personal 
responsibility" for income and welfare.

According to the World Bank, "Social protection will only be targeted at 
those vulnerable groups who need it most" — the "safety net" approach.

There are many common threads in what is happening to unemployment 
services, social services, postal and telecommunications, banking, 
electricity and water.

The processes and terminology have a familiar pattern: corporatisation, 
cost accounting, internal markets, sale of public assets, competitive 
tendering, contracting out the management or provision of services, user 
pays, means testing, competition policy, individual employment contracts 
and downsizing, to name a few.

What does the future hold for health care?

Gradual transition

Perhaps we learn most by looking at what has already happened to education.

In the case of primary and secondary education the distinction between 
public and private sector is becoming increasingly blurred.  Per capita 
funding of both systems is converging — for public schools it is falling 
and for private schools it is rising.

The whole education system is being decentralised.

Responsibility for curriculum development is being devolved to the local 
level. There is the introduction of local (global) budgeting in the public 
system with school principals and their boards having the power to hire and 
fire, determine wages and conditions of staff and make curriculum decisions 
— bringing them closer to the private model.

The future will not be of public or private schools, rather it will be of 
rich or poor schools.

Universities are gradually becoming less reliant on public funding and 
becoming more autonomous, some are registered companies. They are 
developing closer ties with the corporate sector.

The public/ private nature is becoming blurred with the trend towards 
private.

Water, electricity, gas, postal and telecommunications sectors are all 
being corporatised and opened up to competition from the private sector.

Bit by bit the state is divesting itself of social responsibilities and 
transferring them to the private sector and leaving it to the markets.

Managed Competition

Richard Scotton (famous as the other half of Scotton and Deeble who helped 
devise the blue print for Medibank, later Medicare) has now become a prime 
exponent of "Managed Competition".

Managed Competition is a model in which "budget holders" are funded to 
purchase the full range of health services on behalf of a group of 
consumers. Medicare would become a public budget holder competing against 
other private budget holders (e.g. health insurance funds, corporations, 
charities).

The outcome would be a partial privatisation of Medicare, just as Telstra's 
functions were opened up to private competitors prior to its sale to the 
private sector.

Under the model proposed by Scotton individuals would sign up with a budget 
holder. The government would pay the budget holder a specified amount per 
person enrolled equivalent to the basic health care (such as presently 
provided by Medicare).

Budget holders would compete for customers, offering a range of packages at 
additional cost for services over and above a very basic coverage, such as 
treatment in private hospitals.

Scotton describes Managed Competition as a natural development and 
extension of the benefits of Medicare.

The first stage was the establishment of a national health insurance 
program (Medicare) to secure universal access and equitable costs with 
varying degrees of direct government involvement in funding and service 
delivery.

The second stage, in the '70s and '80s, was to control budgetary ceilings 
and "unsustainable rises in health expenditure".

Scotton admits that we have been very effective in controlling the rate of 
expenditure growth and in some cases actually reducing the proportion of 
GDP allocated to health services.

However, he says, we now need to push on the state-of-the-art health care 
resulting from advances in the medical knowledge and technology.

He says that global cuts in health budgets reach the stage of threatening 
access, equity and even quality of care but avoids the full picture, i.e. 
cuts to health budgets are at the behest of the OECD and part of the 
globalisation push and drive for cuts to government spending and 
privatisation.

Medicare successful

Scotton cannot avoid the admission that Medicare, as a publicly financed 
health program, has been very successful in securing access and equity and 
in controlling total health expenditures.

"Australians have much to be pleased about in terms of quality of care 
generally provided, the accessibility of services to people of all levels 
of income, health outcomes and the overall cost of health services to the 
community."

He points to deficiencies in the system e.g. long hospital waiting lists 
and the high cost of private health insurance as well as cost shifting 
between the States and the Federal Government.

He says that Managed Competition has the answer because "it involves the 
use of market tools to guide resource allocation and it also includes a 
regulatory framework to eliminate sources of market failure found in 
unregulated markets for health services", and "it is in the USA that the 
concept of Managed Competition originated and has been most vigorously 
developed".

Scotton claims that Managed Competition, unlike Medicare, is designed to 
affect the way in which services are paid for. 

It is deliberately designed to bring about significant behavioural changes 
on the part of funders, providers and consumers by means of financial 
incentives to bear on their decision making."

He claims that universality of coverage and equitable incidence of existing 
programs such as Medicare will not be affected by the reforms — but 
this claim seems more than a little hollow if not naive.

Perhaps in the beginning it maybe so but it wouldn't belong before the 
government would reduce the amount of Medicare funding per person going to 
the budget holder and before long an adequate standard of health care would 
then only be guaranteed by user pays.

Health markets

In the Scotton/OECD scenario there would be enlarged opportunities for 
existing health insurers to function as competitive budget holders. He says 
that consumers would have "real choice" including the right to vote with 
their feet and change service provider if they are not happy.

Tell that to someone with chronic illness such as HIV in the USA who cannot 
find a private provider willing to take them.

What about the preferential recruitment of low-risk patients to boost the 
budget holder's bottom line — how do we stop budget holders from cream-
skimming low risk patients i.e. avoiding the sick?

And there is the question of complexity. Under the Scotton model there 
would be no more "hassle free Medicare". Instead we would be given "freedom 
of choice" among the hundreds of different budget holders and thousands of 
different types of policies.

Scotton goes on to admit that Managed Care would be an inevitable tool for 
cost control in many packages offered by budget holders.

However "the consumer will have the right of freedom-of-choice of budget 
holder — subject to the proviso that the additional cost of doing so would 
be met by the user".

In other words, if the patient is not happy with their budget holder they 
can change provider — as long as they can afford the cost and they can 
find another budget holder that would accept them (or treat them any 
better).

Next week: So is it happening — privatisation and Managed Competition as 
the future of our health system? Is Medicare unsustainable?