Australia’s Big Three health policy challenges

The deficit has been brewing for years, and there’s no one cause.

But the government singled out public hospitals as the primary driver of the blowout. One in every three dollars in the budget goes to public hospitals.

A $227 million bailout for Canberra Health Services in January was a warning sign.

The big fiscal prescription is a $250 health levy on ratepayers.

As taxes go, this one’s not bad.

Land taxes are less damaging to the economy than taxes that stop people hiring, working, or investing.

But a fiscal fix didn’t stop the political buck passing. ACT Treasurer Chris Steel pointed the finger at the Commonwealth, claiming federal contributions to the territory’s public hospitals are slipping to 33 per cent next year – well below the 45 per cent target agreed for 2035.

Federal Health Minister Mark Butler quickly shot back, pointing to recent boosts in funding.

A new funding agreement is being negotiated right now. It will almost certainly include a top-up.

While politicians argue about the split at the till, ratepayers should ask how we ran up such a steep bill in the first place.

The real causes lie beyond the federal-state blame game.

As Australians get older and chronic disease gets more common, hospital costs will keep climbing.

Without action, they will rise fast, forcing much tougher medicine than the new health levy.

Three big reforms are needed to avoid that.

The first is stopping disease before it starts.

Most Australians now live with at least one chronic condition, such as diabetes or heart disease, and a growing number have more than one. As a result, hospital admissions are rising, especially among older people.

Yet Australia spends less on prevention than most wealthy countries.

We’re also lax on the tax, packaging, and promotion laws that other countries use to counter the lure of ultra-processed foods.

More than 100 countries tax sugary drinks.

This year, the UK will ban junk food from the coveted spots at the end of supermarket aisles and checkout areas, and end price promotions such as two-for-one deals in stores and online.

Beyond the South Australian government’s ban on junk food ads on public transport, it’s hard to find an Australian government doing anything even half as ambitious to keep people healthy.

The new Centre for Disease Control, due to launch next year, is a chance to break that prevention paralysis.

To succeed, it must be independent, evidence-based, and properly funded.

A national prevention fund – replacing the one axed more than a decade ago – should then turn its expert advice into action.

The second reform needed is to fix primary care.

Australia’s GP system is funded and structured for the 1980s, when most visits were one-off appointments for short-term sprains or pains.

Today, long-term conditions, such as diabetes and cardiovascular disease, are the main game. We need a system built to manage them.

There needs to be bigger, broader teams of clinicians working with GPs, and a fairer and more flexible funding model. That means moving away from today’s fee-for-service payments, which reward speed and churn over continuity and outcomes.

GP deserts – such as parts of Canberra – must also be addressed.

A minimum level of care should be set through a national GP guarantee. Communities below that level should receive joint federal-territory funding to meet their health needs.

Finally, public hospitals must become more productive. Better prevention and primary care will slow growth in hospital demand, but that alone won’t be enough.

At more than $80 billion a year, public hospitals are the biggest and fastest-growing part of Australian governments’ health spending. It’s not just that we need more care as we get older and sicker: the cost of each admission is rising sharply too.

Nationally, the cost of the average hospital stay rose by 12 per cent between 2018 and 2023.

The cost in the ACT is even higher. In the last year of data available, it was about 18 per cent above the national average.

Some of the rising cost is probably related to the pandemic: staff burnout, infection prevention measures, catching up on delayed care, and the health impacts of COVID itself.

And the ACT has particular challenges attracting some kinds of clinicians, forcing it to pay high wages.

But there are inefficiencies too. In the face of the inexorable rise in spending, every effort is needed to make each dollar go further.

Grattan Institute research has shown substantial cost variation between hospitals, which can’t be fully explained by differences in patients or hospital characteristics.

Joint replacements are an example. Nationally, there’s a huge spread in the average length of stay: some hospitals keep the freshly hipped for, on average, more than 10 days, while others discharge them in less than five.

The Canberra Hospital is close to the national average, with a typical overnight stay of seven days. But that’s much longer than best practice.

NSW and Canada are promoting shorter stays for hip replacements – including same-day surgeries. For appropriate patients, it’s safer, cheaper, and often preferred.

Reducing length of stay isn’t the only way hospitals can deliver better, safer care for less money.

Hospital-acquired complications and low-value care – procedures that are performed with little evidence that they produce better outcomes – cost millions of dollars every year.

Our hospitals are under immense strain. Wait times are long, and many hospital workers say they’re underpaid, overworked, and burning out. So why aren’t we tackling these inefficiencies to meet growing demand and improve care?

Running a hospital means balancing lots of competing priorities: wait times, quality care, and staff satisfaction – not to mention finances.

Bailouts – like the one for Canberra Health Services – push financial performance to the bottom of the list. In effect, they blunt the price signals that drive value.

The next National Health Reform Agreement, now being negotiated, is a chance to spread best practices and sharpen price signals to get taxpayers a better deal.

But that will mean a new kind of agreement. An independent review found that today’s agreement is merely a hospital financing deal, not a reform agreement.

Its replacement must go well beyond splitting the bill.

It should lock in a prevention strategy and guarantee care in GP deserts.

It should drive hospital productivity with a funding model that promotes efficient care.

Hospitals should be paid what best-practice care costs, not what average care costs.

It should shift care out of hospitals to reduce the need for costly new beds.

And it should increase transparency about hospital efficiency.

A new national agreement will lay the groundwork for more sustainable hospitals that can better serve patients. But there’s plenty the ACT government can do in the meantime.

It must get serious about managing hospital finances, closely monitoring overspends to prevent the need for bailouts that perpetuate budget blowouts.

The new health levy will give the ACT budget some breathing space. But without change, hospital spending will continue to squeeze the budget.

We need to treat the disease, not just the symptoms, by reducing avoidable illness, unnecessary hospital stays, and inefficient treatment. Revenue isn’t a substitute for reform.