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2011-02-16

Kelly is right: no big bang health reform, just realism

This is an expanded version of my comments online. There is a limit of 1200 characters for comments online for the Asutralian.

Comments on Paul Kelly “No big bang health reform, just realism”, 16/02/2011, http://www.theaustralian.com.au/news/opinion/no-big-bang-health-reform-just-realism/story-e6frg6zo-1226006577132

While the basic framework of equal partnership with 50-50 of increased funding can stick, there is no guarantee that the core concept of the single national pool will survive.

Equal partnership clarifies the role of funding by each layer of government. That will save potential future arguments between the federal and state governments that exist under the current funding arrangement. In that sense, it is good for the federation. It also separates the funding responsibility and operational responsibility. So the state and territory governments will be accountable for hospital outcomes.

Further, it was never a good approach to take money from the States and brand it as Commonwealth funding that was the sticking point with the Rudd package last year. Asking the states to give up 30% of their GST revenue to give that to the Commonwealth and to enable to have 60% of funding was simply a very crude political joke.

But there is still the question of hospitals versus primary health care and the cost shifting between them. Better primary care can reduce the high hospital rates existing now and reduce hospital costs.

The states and territories are unlikely to give up their control over their own potion of the health fund. More importantly, they don’t want their funds redistributed among the states and territories. So it is highly likely that it will be either a single fund in name only with eight separate accounts, eight separate pools, or nine (8+1) pools.

The efficiency argument can be empty without substance if the rise in hospital costs is from increasing demand. Further the concept of efficiency funding is easy to say but very difficult to do.

Wages are different between the states and locations within a state. Transport costs are different. Other costs can also be affected by location within a state and between the states. So the notion of a single efficiency price does not exist in reality. You can only compare likes with likes. You cannot compare pears with apples.

It is likely there are many efficiency prices for the same medical treatment between hospitals across different locations and states to reflect those underlying cost differences beyond the control of individual hospitals.

These kinds of cost differences are best reflected in the costing of state services by the Commonwealth Grants Commission in its work to distribute the GST revenue among the states and territories.

Whether it is the Productivity Commission, the proposed to be created newly independent authority or another agency to do the efficiency pricing, it will be a difficult job and there will be a lot of arguments from different states and different hospitals on how their efficiency price needs to be higher.

The jury is still out on whether Gillard can deliver and the crucial test if the single national funding pool where it is likely that serious problems can arise.

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