The politics of health Vernon Collins Oration The Royal Children s Hospital Melbourne

The politics of health Vernon Collins Oration The Royal Children s Hospital Melbourne John Daley Chief Executive Officer, Grattan Institute 15 October 2015

What would Vernon do? Research matters but so does running the hospital Staffing Holistic approach to welfare and care of children Modern medical records system Accountable in public on ethical issues Vernon was the man who was a little more politically aware, and knew how to use the system to achieve the best results Don Kinsey So what would the well-rounded hospital director, who is politically aware, do today? 2

The politics of health Australian government budgets are under pressure The mining boom and financial crisis masked ongoing Commonwealth deficits Capital accounts masked increasing State deficits Health is the largest budget pressure Health costs are large, and growing much faster Increased costs are due to increased servicing, not ageing Health outcomes are improving Reform will require some difficult decisions Governments are hoping for slower spending growth Australian spending on health is relatively efficient by global standards Victorian government spending on health is already less than other States A more systematic approach is required to cost management, and treatment choice Hospital professionals must choose: either reform, or have reform imposed 3

The Commonwealth s structural deficits was masked by GFC and mining boom Commonwealth budget balance per cent of nominal GDP 3% 2% Cash balance Structural balance Cyclical impacts Terms of trade 1% 0% -1% -2% -3% -4% -5% 2003 2005 2007 2009 2011 2013 2015f 2017f 2019f Financial year ending Note: Cash balance is equal to receipts minus payments, minus Future Fund income, (under 0.25 per cent of GDP) Source: Grattan Institute, Fiscal Challenges for Australia 4

Long term spending increased while revenue fell Commonwealth expenditures and revenues per cent of nominal GDP 27% Forecast 26% Revenue 25% 24% 23% Expenditure 22% 21% 20% 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: Grattan Institute, Fiscal Challenges for Australia Financial year ended 5

State operating budgets balanced, but their capital expenditure did not State net debt and operating balance $2013 bn 1.5 1.0 Net operating balance Forecast 0.5 0.0-0.5-1.0-1.5 Interest and depreciation increased from 7% to 10% of State government revenue Fiscal balance (inc capital works) 2003 2005 2007 2009 2011 2013 2015E 2017E Source: Parliamentary Budget Office, National Fiscal Trends (2015) 6

The politics of health Australian government budgets are under pressure The mining boom and financial crisis masked ongoing Commonwealth deficits Capital accounts masked increasing State deficits Health is the largest budget pressure Health costs are large, and growing much faster Increased costs are due to increased servicing, not ageing Health outcomes are improving Reform will require some difficult decisions Governments are hoping for slower spending growth Australian spending on health is relatively efficient by global standards Victorian government spending on health is already less than other States A more systematic approach is required to cost management, and treatment choice Hospital professionals must choose: either reform, or have reform imposed 7

Health is a material component of all government expenditure Combined government expenditure 2013-2014 100% = $545b Everything else 26% Climate change Foreign affairs and environment Economy and finance Government operations Debt management Other Seniors Family support Workforce Welfare 22% Disability Carers Industry Ageing, community & disability 6% Criminal justice Disability services Ageing and aged care services Community services Infrastructure 7% Defence 6% Schools Education 16% Hospitals Primary care & medical services Health 16% Source: Grattan Institute, Budget Pressures 2014 8

Health is over a quarter of Victorian government spending Disability services Ageing and aged care services Community services Climate change and environment Industry Other Hospitals Health 27% Government operations Everything else 38% Economy & finance Health - other Primary care and medical services Health - NFS Criminal justice Infrastructure, transport & planning 13% Infrastructure, transport and planning Education - NFS Skills Early childhood Note: Other includes legal, arts and sport, housing, emergency services, water and employment. Source: Grattan Institute, Budget Pressures 2014. Schools Education 24% 9

Health is the biggest pressure on government budgets overall Change in Australian governments expenditure 2003-2014 $ bn relative to CPI 50 45 40 35 30 25 20 15 10 5 0 Real growth Growth at GDP Crim justice Health Education Infrastructure Industry Defence Welfare Other Social Debt mgt services Government Source: Grattan Institute, Budget Pressures 2014 10

Health is driving Vic expenditure growth Change in Victorian recurrent expenditure, 2002-03 to 2013-14 Real change in expenditure, 2003 to 2014, $2013 bn 6 5 4 3 2 1 Real growth Growth if revenue a constant % of GDP 0 Health Edu & Infra., research transport & planning Other Social services Crim. justice Industry Govt & econ Note: Other comprises all expenditure not elsewhere included. Social services comprises ageing and aged care services, disability services, and community services. Govt & econ comprises government operations and economy and finance. Source: Grattan Institute Budget Pressures 2014 Supporting Materials 11

Hospitals are the biggest driver of increases in health costs Change in Australian governments expenditure 2003-2014 $ bn relative to CPI 20 Real growth Growth at GDP 15 10 5 0 Hospitals Primary care Source: Grattan Institute, Budget Pressures 2014 Private health insurance Pharmaceuticals Other 12

Health cost growth is driven by servicing, not population ageing Real increase in health expenditure 2003-2013 ($2012 billion) 45 40 35 30 25 20 More, improved, and new services per person GDP growth 15 10 5 0 Source: Grattan Institute, Budget Pressures 2013 Health inflation >CPI Population ageing Population growth 13

Government health spending increased the most for the over 70s Government health spending per person, $2010 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 1988-89 1993-94 1998-99 2003-04 2009-10 $0 0s 10s 20s 30s 40s 50s 60s 70s 80+ Source: Grattan Institute, The Wealth of Generations 14

Medical research spending tripled in a decade NHRMC grants to universities, $2011 m 700 600 500 NH&MRC grants 400 300 200 100 NH&MRC grants if growing at GDP 0 1998 2000 2002 2004 2006 2008 2010 2012 Source: Grattan Institute, Mapping Australian Higher Education 2013, p.46 15

As health spending increased, life expectancy improved Life expectancy at 65 years of age years 90 Expected life quality for 65-year-old years 90 85 80 75 Women Men 85 80 75 Severe or profound core activity limitation Nonsevere disability 70 70 Free of disability 65 1880 1910 1940 1970 2000 Source: Grattan Institute analysis of ABS (2008) cat no 3105.0.65.001 Table 7.6 65 1998 2009 1998 2009 Men Women Source: AIHW (2012), Figure 13 16

As health spending increased, health improved Amenable mortality deaths per 100,000 population 250 Self-reported health status Percentage of population in lowest two categories ( fair or poor ) 20 200 15 150 100 10 Fair 50 5 0 1987 1992 1997 2002 2007 0 2001 2004 2007 2011 Poor Source: AIHW Source: ABS 17

The politics of health Australian government budgets are under pressure The mining boom and financial crisis masked ongoing Commonwealth deficits Capital accounts masked increasing State deficits Health is the largest budget pressure Health costs are large, and growing much faster Increased costs are due to increased servicing, not ageing Health outcomes are improving Reform will require some difficult decisions Governments are hoping for slower spending growth Australian spending on health is relatively efficient by global standards Victorian government spending on health is already less than other States A more systematic approach is required to cost management, and treatment choice Hospital professionals must choose: either reform, or have reform imposed 18

Governments are counting on health spending falling Real annual growth in government health spending 6 Historical Projections 5 4 3 Population increase Ageing Demographic growth 2 1 Nondemographic growth 0 IGR (2010) 1985 to 2008 PC (2013) 1991 to 2011 Grattan 1994 to 2013 IGR (2010) IGR (2015) PC (2013) 2010 to 2050 2015 to 2055 2012 to 2028 Source: Grattan Institute, The Wealth of Generations; Treasury, Intergenerational Report (2015) 19

Helath isn t the only spending forecast that relies on wishful thinking Commonwealth real annual spending growth, per cent 12 10 8 6 4 2 Historical spending growth 2002-03 to 2012-13 Forecast spending growth 2012-13 to 2024-25 0-2 Age Pension Defence Aged Care MBS Schools Hospitals DSP Carer support Child care Family Benefit PHI Rebate Higher ed Newstart Pharmaceuticals Source: PBO (2014), Projections of Government spending over the medium term 20

Australia already gets relatively good value for money in health spending Life expectancy at birth, years, OECD countries, 2008 or latest available 84 82 Japan Australia Switzerland 80 78 U.S. 76 74 72 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Total expenditure on health per capita (US$ PPP) Source: OECD Health care systems: getting more value for money 21

Victorian government spending on health is relatively low Larger State government expenditure/resident $ per capita, 2012-13 10,000 8,000 6,000 4,000 2,000 Infrastructure, transport & planning Other Industry Criminal justice Govt & economy Education Health 0 Source: Grattan Institute, Budget Pressures 2014 Vic NSW Qld WA 22

Costs are someone else s problem Views on own network relative to average Victorian network Proportion of board members of Victorian LHNs, 80% 60% Overall quality of health care Safe and skilled workforce Responding to health care incidents 40% 20% 0% Worse About the same Better or much better Note: n = 233, 70% response rate, 96% of networks included Source: Grattan Institute, Questionable care: avoiding ineffective treatment 23

Variation in the cost of specific operations is difficult to explain away Cost of hip replacement, unadjusted, 2010-11 Range Median ACT TAS QLD SA WA VIC NSW $0 $5,000 $10,000 $15,000 $20,000 $20,000 $25,000 $30,000 $30,000 $35,000 $40,000 Note: I03B, the less complicated DRG category for the procedure Source: Grattan Institute, Controlling costly care 24

Overall variation in public hospital costs is very hard to explain away NSW VIC QLD WA SA TAS ACT NT Hospitals Average level of unexplained costs Avoidable costs unexplained costs above the average level Unexplained costs above the lowest level in each state ($ per admission) Hospitals with the lowest unexplained cost in each state = 0 Note: Some small hospitals (total admissions < 4,000 p.a.) not shown Source: Grattan Institute, Controlling costly care 25

Grattan identified 5 do-not-dos and 3 donot-do routinely treatments Based on NICE, MSAC and Prasad Do-not-dos: Vertebroplasty for osteoporotic vertebral fractures Arthroscopic lavage or debridement for OA of the knee Laparoscopic uterine nerve ablation for chronic pelvic pain Removing healthy ovaries during a hysterectomy HBOT for a range of conditions (inc. osteomyelitis, cancer, and non-diabetic wounds and ulcers) Do-not-do routinely: Fundoplication for gastro-intestinal reflux Episiotomy for spontaneous vaginal births Amniotomy to augment a normal delivery Patients with legitimating diagnoses are excluded 26

Grattan found patterns that are difficult to explain away Proportion of relevant patients getting do-not-do procedure 80% 60% 40% 20% 0% Hospital Average Proportion of relevant patients getting do-not-do routlnely procedure 50% 40% 30% 20% 10% 0% Hyperbaric Arthroscopy Vertebroplasty Ovary removal Nerve ablation Source: Grattan Institute, Questionable care: avoiding ineffective treatment Amniotomy Episiotomy Fundoplication 27

A system for improving practice Continuously improve measurement Linked records pathology, MBS, PBS, hospitals Identify poor treatments Payoff relative to cost Bottom up AND top down Clinical reviews Start local Escalate for investigation and sanctions Report on outcomes System level, by hospital Peer visibility Source: Grattan Institute, Questionable care: avoiding ineffective treatment 28

Clinical reviews with consequences how a system might work Identify outliers Inform outliers that they are being closely monitored No No further action Yes No further action Yes No further action Are they still outliers after one year? Does clinical review support practices? Are targets met? Yes State to initiate external clinical review No Set clear targets for improvement No Financial and/or governance sanctions Source: Grattan Institute, Questionable care: avoiding ineffective treatment 29

The politics of health Australian government budgets are under pressure The mining boom and financial crisis masked ongoing Commonwealth deficits Capital accounts masked increasing State deficits Health is the largest budget pressure Health costs are large, and growing much faster Increased costs are due to increased servicing, not ageing Health outcomes are improving Reform will require some difficult decisions Governments are hoping for slower spending growth Australian spending on health is relatively efficient by global standards Victorian government spending on health is already less than other States A more systematic approach is required to cost management, and treatment choice Hospital professionals must choose: either reform, or have reform imposed 30