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Shifting the Dial: 5 year productivity review

Chapter 2: Healthier Australians

Benefits assessment: conservatively in excess of $8.5 billion over 5 years
Healthier Australians: What matters?




Integrated care

  • Primary and hospital care poorly integrated
  • Information flows do not follow the patient
  • Funding is too little focused on long-run health or prevention
  • Insufficiently devolved funding prevents locally efficient solutions
  • New regionally-located care model offering funding and fostering attitude changes
  • Regional alliances between Local Hospital Networks, Primary Health Networks and others
  • Move retail pharmacy into an integrated care system
  • Use information effectively (see below)
  • Direct structured support for disease prevention and management
  • Less duplication of services
  • Care takes place in the right place
  • Data follow patients as they move through the system

Patient-centred care

  • Insufficient attention to patient experiences and outcomes
  • Weak capacity for partnerships between patients and clinicians
  • Poor level of patient literacy
  • Low levels of choice
  • Develop Patient Reported Experience and Outcome Measures, and publish
  • Use My Health Record to improve information flows to patients and increase health literacy
  • Identify and focus on high users of system
  • Improved clinical outcomes
  • Greater empowerment
  • Self-management
  • Fewer medication problems
  • Patient convenience
  • Lower costs

Funding for health

  • Funding not oriented towards innovation or outcomes. Rewards activity instead
  • Commonwealth/State funding split creates poor incentives to integrate
  • Funding pools for Local Hospital Networks and Primary Health Networks to use for preventative care and management of chronic conditions at the regional level
  • Provide greater autonomy to allow regional solutions
  • Better health and reduced hospitalisations and other costs
  • More experimentation and innovation, including in prevention
  • Capacity to tailor solutions to specific regional communities

Quality of health

  • Too many services known
    to be ineffective or outdated
    are still funded
  • Too many hospital-acquired complications
  • Require fast-track assessment of low-value care identified by overseas agencies
  • Educate clinicians and measure and divulge their use of low-value procedures
  • Improve patient literacy
  • Defund demonstrably low-value procedures
  • Remove subsidies for ancillaries in private health insurance
  • Better patient outcomes
  • Less waste and more ability to redirect savings to new and effective procedures
  • Reduced outlays on rebates

Using information effectively

  • Data and information flows are inadequate for genuinely integrated care, and frustrate research into 'what works'
  • Innovation lessons are disseminated too slowly, including process innovations
  • Follow recommendations of the Commission's 2017 inquiry into Data Availability and Use
  • Adoption of eHealth throughout the health system
  • Disseminate best practice through existing agencies
  • Quicker learning about best practice
  • Better, more and faster research into what works
  • More integrated care with improved clinical outcomes
  • Innovation in health care delivery

More than 2000 years ago, the Roman poet Virgil expressed the enduring and widely accepted view that the 'Greatest wealth is health'. The centrality of health to people's lives is hardly surprising. It directly affects their sense of wellbeing, functioning, engagement with their families and society, and labour market prospects. The people striving to assist in our health system create significant unrecognised wealth.

However, compared with the best performing international health systems, there appears to be numerous opportunities to improve health outcomes for given expenditure or to achieve existing health outcomes for less, including by more effective prevention (Supporting Paper 5 (SP 5)).2 Too often, these opportunities are stymied by systemic and jurisdictional barriers. Addressing these offers serious scope to improve lives and to lift both workforce productivity and participation.

Many of the opportunities for improvement in the health system relate to issues other than total resourcing — how it is organised and funded, what it does, and the behaviours of clinicians, administrators, bureaucracies and the people they serve.

Doing better with our health resources can act as
a safety valve for mounting fiscal pressures

That does not mean that funding issues are irrelevant. An ageing population, the inexorable development of new (and often more expensive) technologies, and the ever growing public expectations of a better health system will inevitably and justifiably require further public investments in health. Ensuring that those investments deliver good health outcomes and value for money should be a key goal of governments. Doing better with our health resources can act as a safety valve for mounting fiscal pressures.

2.1 How is Australia's health system faring?

First the good news

Australians are living longer, with less disability than ever before. Australia outranks most other highly developed economies in health outcomes. It has the third greatest life expectancy at birth among OECD countries in 2015 at 82.8 years and a high absolute number of years spent in good health (though a lower than expected number given our life expectancy — SP 4). The overwhelming share of Australians had 'confidence that they would receive quality and safe medical care, effective medication and the best medical technology if they were seriously ill'. Moreover, Australia is faring comparatively well by international benchmarks in certain areas of preventative health — most notably in reducing rates of smoking and transport accident deaths. On face value, the cost effectiveness of Australia's health system also appears relatively high compared with other OECD countries, with Australia spending less on health than many countries for comparable or better outcomes in life expectancy. But such a static measure of the 'bang for buck' is only part of the story, ignoring the many aspects of health care that relate to people's quality of life and, for the purposes of this inquiry, the prospects for long-run productivity enhancement.

Second, the wounds that need salves

While many aspects of Australia's health outcomes are good, the list of problems that should be the target of improvement is lengthy, reflecting deviations from the 'ideal' system depicted in figure 2.1.

Figure 2.1 The ingredients of a well-functioning system

  • This figure depicts the ingredients of a well-functioning health system. The perimeter of this system comprises connected factors spanning a flexible, skilled and ethical workforce; reimbursement for value and results; collaboration and coordinated care; innovation and diffusion of best practices; prevention and management of chronic diseases; and IT infrastructure and data sharing. At the core of the system are individuals who have access to data and knowledge; power to make decisions; getting outcomes that matter most to the person; access to affordable care; and have good experiences of care. These outcomes are dependent on the quality efficiency and responsiveness of health service providers.
Chronic illness harms people, affects costs and requires different health management approaches

Many Australians have, or are at risk from, chronic conditions where there is significant scope for prevention or early treatment — such as mental illness, diabetes, lung cancer and cardiovascular disease (table 2.1). These conditions are now a driving force behind health costs. Risky, but alterable, behaviours, such as poor diet, low exercise levels, hazardous alcohol consumption, smoking (still a major concern) and dangerous driving contribute to the burden of chronic disease. Indeed, Australia has one of the highest obesity rates in the world, and it appears to be still rising. And while Australians have high life expectancy, they also have the highest number of years spent in ill-health compared with other OECD countries.

Table 2.1 A snapshot of Australian's health




Life and health expectancy

Life expectancy

82.8 years people,

80.9 males,

84.8 females

3rd highest among
35 OECD countries in 2015
for all people and males,
and 6th for females

Years spent in ill health

10.9 years

Highest among OECD countries

Selected long-term conditions


1.2 million Australians

5% of population in 2014-15. Rates were 12.8% of obese people and 2.5% of normal weight people

Mental and behavioural problems

4.0 million people

17.5% of population
in 2014-15

Chronic obstructive pulmonary disease

0.6 million people

2.6% of population in 2014-15

Heart, stroke and vascular disease

1.2 million people

5.2% of population in 2014-15

Lifestyle risk factors

High/very high psychological distress

2.1 million people

11.8% of the population aged 18+ in 2014-15


4.9 million people

27.5% of 18+ population
in 2014-15

High blood pressure

4.1 million people

23% of 18+ population
in 2014-15

Daily smoker

2.6 million people

14.7% of 18+ population
in 2014-15

Risky/high risk alcohol consumption

1.8 million people

10% of 18+ population
in 2014-15

No/low exercise level

11.7 million people

65.9% of 18+ population

Inadequate fruit or vegetable consumption

16.8 million people

94.9% of 18+ population

System indicators

Use of cardiac catheterisation

7.4 fold variation in use between areas

Excessive variation may indicate incorrect use

Knee arthroscopies

71 087 admissions

No evidence of clinical
benefits for this procedure
in most cases

Unplanned readmissions

About 7% in
NSW hospitals
in 2014-15

Measure of problems in
initial hospitalisation and
in follow-up care

Antibiotic (vancomycin) resistance in Enterococcus faecium

About 45 per cent resistant

Highest rate compared with
29 European countries

Source: SP 4.
The health 'system' also has deep fault lines

The patient experience of care receives little focus as a goal of the system. Notwithstanding the massive burden of chronic illness, its prevention and proper management is still in its infancy. The system primarily responds to patient crisis. In areas where patient choice is critical — an exemplar being end of life care — many people are disempowered because they do not get adequate access to end-of-life care at home, but are instead treated in a hospital setting.

In part, this situation reflects the fragmented and ill-fitting nature of services. Care pathways — especially between primary and acute care — are often poorly coordinated. A simple indicator of service integration is the proportion of a hospital's patients whose GPs are provided with a discharge summary within twenty-four hours of discharge. Currently, Australia's performance appears poor. Less than 20 per cent of Australian GPs were always told when a patient was seen in an emergency department compared with 68 per cent in the Netherlands, 56 per cent in New Zealand and 49 per cent in the United Kingdom.

Clinicians, patients and researchers operate under a veil of ignorance posed by inadequate information flows and haphazard data collection. Private health insurance sits uneasily with a system of public insurance, with their respective roles weakly defined. Regulatory and jurisdictional obstacles frustrate the capacity of Local Hospital Networks (LHNs), which operate state and territory hospitals, to engage with general practitioners, though doing so would help better manage chronic conditions and reduce hospitalisations. (The names for bodies running hospitals vary across jurisdictions — SP 5 — but we use just one term to avoid unnecessary complexity.)

The imperative is therefore better coordination of the system, giving a greater weight to the role of public health, and acceptance of people themselves as partners in their own health management.

There are problems with quality too. The incidence of bacterial infections that are unresponsive to critical antibiotics is rising following their excessive use. Health outcomes are poorer for low-income households, non-metropolitan regions and particularly Indigenous Australians.

Unjustified clinical variations, including the use of practices and medicines contraindicated by evidence, remain excessive, an indicator of inadequate diffusion of best practice, insufficient accountability by practitioners, and a permissive funding system that pays for low-value services. For example, a knee arthroscopy for degenerative knee disease is a very common orthopaedic operation, but has no proven efficacy in most instances. It is on multiple 'do not do lists', and in the United States, the public system will not pay for it. A group of clinicians at Liverpool, St George and Sutherland hospitals in Sydney have stopped performing arthroscopies on patients aged over 50 years because they do not feel they can clinically justify doing them. Yet unjustified arthroscopies could be wasting approximately $200 million annually in Australia (SP 5).

Hospital readmission rates are excessive and appear to be rising. (The uncertainty about whether rates are rising is a symptom of another problem — the difficulty in constructing meaningful performance indicators.)

GPs are the clinicians that Australians most frequently see and are highly trusted. They will often deal with people who have already acquired chronic conditions or have their time diverted readily into reassurance work — treating people who have minor ailments, many of which will would resolve without any treatment. Yet the aspiration for primary care is that GPs play a prominent role — within the broader, primary health care sector, in preventing chronic conditions. The Australasian College of General Practice has emphasised SNAP — smoking, nutrition, alcohol and physical activity — as key targets for preventative care. Yet most people in the SNAP categories have not had discussions with their GPs about preventative health, including those who are manifestly in the risk category, as in obesity. For instance, only about one in five obese people seeing a GP at least once in a year receive any advice in improving diet.

The uptake of technologies that could lower costs and increase convenience and quality has often been slow. Telehealth is still in its infancy, and restrictions in payment models frustrate its diffusion. More generally, the adoption of eHealth has had a protracted and troubled history in Australia that is only now beginning to be resolved.

The old chestnuts — the anti-competitive regulation of the professions and the incongruities presented by retail pharmacy regulations have proved resistant to repeated calls for reform.

Change offers serious gains

The imperative for policy action is justified on many counts. It will produce better health outcomes and wellbeing, provide more voice to and choice for patients, and result in greater efficiency (section 2.11 and SP 6). Deficiencies in the health system also rebound socially and economically. Ill health directly affects social and economic participation. For example, people in poor health are less likely to be employed, and tend to be less productive and work shorter hours if they are employed (SP 4).

Wasteful expenditure means that resources are being used in the wrong places to no or little effect on health outcomes. The scope for improvement is considerable, not least because some suggest that approximately 10 to 15 per cent of health spending is used inefficiently due to poor quality care. To put this in perspective, health care expenditure from public and private sources is estimated to be about $170 billion in 2015-16 — the equivalent to about 10 per cent of GDP. The implication is that every 1 percentage point reduction in spending achieved through removing waste amounts to a $1.7 billion benefit — and the gains on offer almost certainly exceed this. Given high average growth rates in health spending, the losses from waste and the unrealised gains to patients appear set to rise in the future. (Nominal health expenditure grew by nearly 7 per cent per annum from 2005-06 to 2015-16, faster than GDP growth.)

People in poor health are less likely to be employed,
and tend to be less productive and
work shorter hours if they are employed

2.2 The scope of this chapter

This chapter cannot realistically cover all of the obvious cracks in the system, let alone its numerous imperfect nooks and crannies. Instead, it concentrates on:

  • systemic changes that encourage the system to focus on patients rather than suppliers
  • structures and funding arrangements that will improve coordination of care, especially for people with complex and chronic diseases, but also with an eye to prevention for those at risk of developing such conditions
  • funding arrangements that align with high value care
  • ways of encouraging devolved innovation, experiments and diffusion of evidence-based healthcare and administration
  • the adoption of new technologies and data sharing arrangements that support coordination, give people more control over their healthcare, and that removes redundant intermediaries in the system
  • some neglected economic tools for addressing some lifestyle risks.

For those long active in health care, the familiar term that describes these desirable features is integrated health care (SP 5).

2.3 Towards better integrated care

Integrated care coordinates the actions of the multiple actors that affect a person's health needs (figure 2.2). It includes care managers, GPs and allied services, acute care services, local community groups, research institutions and even businesses lying outside the health system (such as supermarkets, whose actions have implications for public health). At the clinical level, this model of care is usually supported by information systems and incentives that are aligned to efficient service delivery (section 2.7). A key goal of an integrated care system is prevention of disease, and if it is present, to cost-effectively minimise its impacts on the person and society.

The international and Australian experiences with integrated care indicates that, if properly implemented, it leads to gains in health outcomes for patients, improvements in the patient experience of care, reductions in costs, and improved job satisfaction for clinicians (SP 5). Since hospitalisation is the single most costly and distressing part of the health system, effective management of people's conditions in the primary care system is a key element of integration. In 2014-15, over $62 billion was spent on hospital care nationwide, so even a 5 per cent reduction in hospital use would save more than $3 billion annually.

While Australia has been searching for a more coordinated system for nearly two decades, realising the goal has been elusive. This reflects systemic deficiencies in the structure of the health care system — its funding, governance, linkages, attitudes — that inevitably act as stumbling blocks.

Figure 2.2 The essential elements of integrated care

  • Text alternative of figure follows
    Text version of figure 2.2
    • Person centred
      • Change in provider,  funder and policy maker mindsets
      • Health literacy
      • Relevant information
      • Self management
      • Accessible, high-quality  services and choice
      • Shared decision-making
    • Seamless lifetime care
      • Thick linkages across  the health care system
      • Links to public health  and social capital
      • A team ethos across  clinical disciplines and  administrators
      • Incentives aligned to  efficient, patient-oriented  and quality care across  people's lifetimes
      • Data collection and  management
      • Clear governance  and accountability  arrangements
      • Enough time, dollars and supporting staff
    • Dynamic efficiency
      • Innovation
      • Systematic analysis of  data to guide targeted  and early intervention
      • Diffusion of  evidence-based practices
    • Outcomes
      • Improved healthy  life expectancy
      • Effective management  of disease
      • Good patient outcomes  from interventions
      • Empowerment and good  patient experiences
      • Effective prevention
      • Value for money

The solution is not to destroy the current system — a policy adventure with many risks and uncertain outcomes. Instead, there is scope to realise significant changes by adapting and extending features of the current system that are already, albeit in a nascent form, moving to an integrated patient-centred system.

One positive starting point is that all jurisdictions have made some progress towards a regional structure that could accommodate more integrated care. Primary Health Networks (PHNs) are private entities that have been contracted by the Australian Government to improve the efficiency and effectiveness of services and to coordinate patient care in their locality, including by working collaboratively with LHNs. For that purpose, the geographical boundaries of Australia's thirty-one PHNs are generally aligned with those of the LHNs in each state and territory. Creating a coalition of interest between these two entities to improve population health is a central plank in creating an integrated care system in Australia.

2.4 Regional flexibility is critical

Integration of care is generally best managed regionally. This reflects many factors.

In its consultations, the Commission was told that cultivating relationships between hospitals and GPs is critical — especially ones who are receptive to new models, who can then act as trusted agents for change within their professional community. How to engage will change over time and will vary between regions, depending for example on the dynamics of the GP sector.

The task of engagement is probably best undertaken by PHNs, whose prime responsibility is to seek best practice in primary care. GPs are often overstretched, reflecting large patient caseloads, paperwork, training of new staff, and professional development. Long hours and stress are commonplace among GPs. Any proponents of new models of care must therefore credibly demonstrate clinical gains, while not adding to GP workloads. In the Hunter Diabetes Alliance (a successful integrated care initiative), all physicians found the experience positive (SP 5). Expanded initiatives would need to sustain that result.

Health needs vary across regions, with a need for custom-made variations in the allocation of resources. While resourcing for regional variations in care can still be funded centrally (as is the case for the Australian Government's recent funding of suicide prevention in 'hotspots' around Australia), flexibility at the regional decision-making level uses local information better and is more adaptable. For example, in an area where there are concentrations of older people, dealing with falls and loneliness — both associated with avoidable hospitalisation and low wellbeing — would be a higher priority than areas where the average ages were much lower. Diabetes rates (and associated dialysis rates and limb amputations), heart failure admissions to hospital, obesity levels and smoking rates demonstrate large variability across regions. A prescriptive approach to the management of regional health institutions, for example PHNs, will undermine the capacity to respond to the needs of populations in different regions.

Regional flexibility gives permission for experimentation. The international evidence shows there is no best single model of integrated care, and that therefore central governments should step away from prescriptive rules about how it is delivered. There are many examples of innovative initiatives at the regional level in Australia and in other countries, including the potential role of using 'carrots rather than sticks' to encourage people to manage their health (chapter 8 in SP 5).

Of course, experimentation should not be arbitrary as there are common features to effective models of integrated care (illustrated in figure 2.1). That means setting up sensible structures — like compatible eHealth systems and shifts away from fee-for-service — but otherwise letting the regional actors make the decisions and be accountable for them.

Devolution to the regional level can also partly address the perpetual contest between Australian, State and Territory Governments about the role of the central government in orchestrating the system. A regional approach would be a more tractable way of bringing the disparate sources of government funding (and their assorted baggage of rules and demands) into a coherent package aimed at health outcomes — an issue discussed further below. PHNs and LHNs would reach agreements that would offer greater certainty over periods that could span several different governments at the Australian and State and Territory level. This is important because the transition to an integrated system of patient care is an ongoing, long-term endeavour that must continuously respond to changes in patient needs and technologies.

Some PHNs and LHNs have worked together to deliver integrated health — and where they do they have proved effective for improving the coordination of care. For example, the Hunter Diabetes Alliance brought together a multidisciplinary team of health professionals to manage patients' type 2 diabetes. After being in the program, there were large improvements in exercise rates, better medication management, weight loss, improved self-management and lower glycated haemoglobin levels (the key measure of longer-run adverse outcomes like coronary heart disease). And it cost less.

However, such partnerships are rare in Australia, a consequence of relatively weak financial incentives, underdeveloped governance arrangements for their universal adoption and (based on feedback from stakeholders) insufficient funding of PHNs for them to achieve their goals.

Where such partnerships have deepened over time, whether in Australia or elsewhere, they have been characterised by formal linkages including, for example, common strategies expressed in memorandums of understanding and joint boards. To move in that direction, PHNs and LHNs should keep each other informed about their activities in prevention, early intervention and chronic disease management and explore options for formal linkages.

Devolution has its limits

While devolution and links between primary care and hospitals are probably the most important directions for the Australian health system, some functions require coordination and cooperation across regional boundaries, or exhibit significant economies of scale — which means they are best left at the national level. Examples include the centralised purchasing of pharmaceuticals, the assessment of the safety of new technologies and drugs, hospital organ donation, pricing under activity-based funding and the activities undertaken by the Australian Institute of Health and Welfare and the Australian Commission on Safety and Quality in Healthcare.

2.5 Funding models are problematic

Australia's fragmented funding and governance systems for healthcare — which largely reflects Australia's federal system and its hybrid private-public nature — work against achieving the best outcomes for a given overall expenditure.

The policy response to the problems posed by fragmentation has been one of pragmatic incrementalism, which has sought to improve the quality and efficiency of the system within its own limits, rather than to start again. A lot has been achieved this way, but key providers (predominantly hospitals and GPs) still make decisions that determine the level of expenditure under other budgets, such as the Pharmaceutical Benefits Scheme and diagnostics, but without the financial incentives to contain any unwarranted spending.

There is a need to create better structures and new incentives that promote efficient prevention and chronic illness management throughout the health system. That requires communication, data, clinician buy-in, agreement on goals, coordinated care and funding systems that at least do not discourage a 'whole of health system' perspective.

The current system is like a house built on a financial framework that encourages activity (perhaps often desirable activity, but uncoordinated nonetheless), not outcomes, with makeshift extensions that try to address these perverse incentives:

  • Fee-for-service is the dominant payment for primary care. It encourages efficient throughput, but does not reward successful efforts at preventing chronic conditions, or stopping people from entering the hospital system. The Australian Government has attempted to overcome some of these incentives with special Medical Benefit Scheme (MBS) payments oriented at preventative health and the better management of specific chronic conditions. There are over 40 separate MBS items devoted to this role (in areas as diverse as screening for cervical cancer, asthma and diabetes management, care planning, case conferences, medication reviews, and preventative health assessments). However, these extensions to the system are relatively narrow in their focus and are inflexible. Some — like those covered by the so-called Practice Incentives Program — have proven notoriously complicated.
  • Likewise activity-based funding of hospitals — a relatively new model for funding hospitals — has improved their efficiency. However, this funding model means that the LHNs at the state and territory level that run hospitals are penalised if they use some hospital funding to prevent people from entering the hospital system (box 2.1). Even activities arising from hospital-acquired complications can be remunerated (which is currently being partly addressed though funding changes). LHNs cannot, by law, fund GPs directly (SP 5). They must instead discover novel ways of assisting general practices to reduce hospitalisations, such as funding a nurse practitioner in a practice.
  • Private health insurance is highly regulated — with many of the most significant rules stemming from the overarching principle of community rating, which, unlike orthodox insurance products, sets premiums that are unrelated to the claim patterns of the class to which a person belongs. Accordingly, a person aged 70 years old (who has higher than average claims) will pay the same premium as a person aged 20 years (who has low average claims). 'Risk equalisation' underpins community rating by requiring that insurers with healthier members bear some of the costs of insurers with greater representation of less healthy people. While this may be equitable, it has the serious disadvantage of lowering the incentive to invest in preventative care, because any gains made by one insurer are shared with the others. Where insurers are investing in prevention, they could readily lose 50 cents for every dollar of benefit they obtain from avoiding health care costs, which must weaken the commercial viability of such actions.

In other words, Australia's messy suite of payments are largely accomplices of illness rather than wellness, only countered by the ingenuity and ethical beliefs of providers to swim against the current.

The current system encourages activity not outcomes

Changes to hospital funding

Hospital funding needs to create incentives to cost-effectively avoid hospitalisations through investments in public health and in community and primary care.

There are several options for reform, all involving some common issues. It is useful to outline one possibility because it exposes all the main issues. However, we would like to make one point emphatically:

Do not become mired in the specifics. If there are better ways of changing activity-based funding to give LHNs or PHNs the incentives to improve health status, and avoid hospitalisations, hospital durations and other health care costs, then implement those.

One way of formalising a new approach would be to establish a Prevention and Chronic Condition Management Fund (PCCMF) in each local health district, with the Australian Government and the relevant State or Territory Government providing funding equivalent to a modest share (initially say, two to three per cent) of current activity-based funding.

The LHN in each district would decide how and where to spend funds from the PCCMF. There should be few restrictions on the types of investments made by LHNs and they should be given autonomy in decision-making. For instance, if low-cost community initiatives to reduce loneliness among older people improved their wellbeing, and reduced the need for interactions with the health care system (for example, reduced hospitalisations), then this would be an attractive intervention.

LHNs should also be given assurance of the continuity of payment into the PCCMF for a given period (say five years). This would provide them with a capacity for longer-term planning on projects, and for alliances with partners that would realistically need to ensue for more than a period prescribed by the Australian or a State or Territory Government. The scale of the PCCMF could be increased on an LHN-by-LHN basis after demonstration of their effectiveness in achieving outcomes.

The returns from reduced activities would need to be sufficient to recover governments' investments, thus lowering overall future activity-based funding commitments (with service agreements underpinning this). Any gains over the minimum returns specified in the performance agreement would be kept by the LHN for future investments. Accountability would stop with the boards of LHNs (who can be dismissed for under-performance by their State and Territory Government 'shareholders').

From the perspective of current activity-based funding, the model is new, but not revolutionary. It would simply create a new compensable non-admitted hospital activity — preventative care and chronic condition management, accompanied by limits on allowable expenditures, expectations about outcomes, and significant freedom by LHNs about how to manage the PCCMF.

PCCMFs would be able to fund innovation and collaboration

Beyond funding already-established effective approaches for preventative care and disease management, another goal of the PCCMF would be to allow experimentation and hard-headed testing of new approaches (SP 5). Some LHNs would run trials by themselves, across regions with other LHNs, and with PHNs. When resourced properly — as we propose below — PHNs would be natural partners with LHNs because of their understanding of primary care and their agility.

Other more novel approaches using the PCCMF could involve LHN collaboration with parties that are often ignored in health care initiatives — social entrepreneurs in the not-for-profit sector, community groups, local governments, health insurers and businesses. For example, on the latter score, there can be an alignment of incentives between employers aiming to improve the health of their workforce and LHNs/PHNs looking to promote community health. Equally, businesses can contribute as corporate citizens — providing commercial expertise, networks and services. In some local communities, there may be a need for new workforce strategies (for example, developing the Indigenous health workforce in regional Australia), which LHNs and others may foster. Social entrepreneurs — now often in collaboration with commercial entities — can generate ideas and deliver services in different ways. While their primary orientation has historically been in the social welfare and education arena, they are increasingly active in endeavours that have direct or indirect links to community health.

Collaborative ventures can also be attractive because they are able to target broader community issues that have health care benefits (such as homelessness, out-of-home care, domestic violence, and improved parenting), with parties bringing expertise or funding in alignment with the benefits they anticipate.

There may be instances where bolder experiments, such as social impact bonds (SIBs), may be relevant. SIBs are complex, can be costly, and do not always work, but they force participants to collect the evidence and monitor outcomes, offer the scope for innovative solutions, and even if they fail, can be a major source of learning. In the United States and the United Kingdom, they are increasingly seen as promising in health care applications. Health-connected SIBs are in the pipeline for chronic disease in New South Wales, mental health in South Australia, and drug and alcohol abuse in Victoria. In later 2017, the NSW Government will commence the Resolve program (funded using a SIB) to provide care for people with mental illnesses, partnering with Social Ventures Australia and a not-for-profit provider, Flourish Australia, with $7 million in total committed over a 7 year period. If permitted to build the capabilities and the license to act, LHNs could potentially act as equity holders or as project initiators of SIBs without necessarily needing authority from a state government.

LHNs might adopt various governance models for experimentation, including a separate arm free from the daily business of running major hospitals, but in all cases, there would be a need to demonstrate impact through evidence.

Changes to primary care funding

One US economist reached the acerbic judgment that all the simple payment methods are bad:

There are many mechanisms for paying physicians; some are good and some are bad. The three worst are fee-for-service, capitation, and salary. Fee-for-service rewards the provision of inappropriate services, the fraudulent upcoding of visits and procedures, and the churning of “ping-pong” referrals among specialists. Capitation rewards the denial of appropriate services, the dumping of the chronically ill, and a narrow scope of practice that refers out every time-consuming patient. Salary undermines productivity, condones on-the-job leisure, and fosters a bureaucratic mentality in which every procedure is someone else's problem. (Robinson 2001, p. 149)

The evidence suggests that while Robinson's assessment is too bleak, his proposal to implement mixed payment systems has merit. One such model would maintain fee-for-service as a major portion of GP revenue, combined with risk-adjusted capitation payments. This would ensure GPs retain an incentive to provide necessary services via multidisciplinary teams, while gaining an incentive to play a greater role in preventative health and management of chronic conditions. Finding an effective mix may require some experimentation and may vary between regions, which is the advantage of running trials, and suggests leaving open the scope for regional health entities to develop funding variants.

More flexible funding pools and partnerships at the regional level are also needed to give general practice and other health professions working with them the scope to adopt more innovative models of care. LHNs should be given the legal capacity to fund GP practices to undertake specific tasks (which they are currently not able to do), including for GPs to work with hospitals to better manage the care of patients with complex and chronic conditions. Funding might also be directed at allied professionals, who have a smaller scope of practice than GPs, can have lower caseloads and therefore may be more available for rapid professional development. PHNs and LHNs should take a collaborative approach, underpinned by MOUs and joint governance arrangements to any commissioning by LHNs of primary care services. Otherwise, there would be a risk of multiple coordinators of care working against each other. The introduction of performance indicators by their respective funding sources may be required to ensure that PHNs and LHNs do work in partnership. State governments might also elect to implement their policy objectives at a regional level by funding PHNs directly. Regular meetings between PHNs and the Minister for Health in New South Wales illustrates the structural shifts that are already occurring in this space, laying the foundation for states to inject funds into PHNs.

Under a regionally-based integrated care model, MBS funding would continue, but its role would generally diminish as PHNs and LHNs sought other ways to remunerate GPs for clinical outcomes, or for processes that have a strong link to good outcomes.

There are two broad caches of Australian Government funding that would need to fit into any genuinely integrated system:

  1. MBS payments aimed at preventative health and chronic disease management, including the Practice Incentives Program, soon to be adapted to the more streamlined PIP Quality Improvement Incentive
  2. funding of the impending Health Care Homes program.

The two are chalk and cheese in their conceptual underpinnings.

The Medical Benefits Schedule is a necessary evil under fee-for-service

Once medical professionals are paid on a fee-for-service basis, a funder must tell them what they can be paid for, especially when the patient does not bear the full costs and is often ill-informed about the value of the service. Hence, Australia has a long list of closely defined compensable activities, accompanied by bureaucratically-determined prices that are generally fixed across the country — the MBS.

As will always be the case with even very long lists of this kind, they will still fail to cover all the activities that a clinician might reasonably undertake in a genuinely integrated system, and can be slow to adapt to technological developments.

The introduction of telehealth provides a good case study. Prior to mid-2011, MBS payments for telehealth were restricted to tele-psychiatry and tele-radiology. This was subsequently broadened to many more services, but the payment is still restricted to regional areas, must include video (that is, telephone services are not permitted) and are for specialists' advice, not for GPs (except when at the patient-end in a supported consultation with a specialist). However, as discussed in chapter 4, being in a big city does not guarantee low travel times or travel costs. And many people still feel discomfort in physically travelling to a practice. Accordingly, in principle, telehealth services should extend to metropolitan areas, as some insurers have argued. The 'internet of things' has also opened up the possibility of remote sensing of patients' health status.

There is no conceptual argument against providing treatments using the best enabling technology. Remote provision of medical treatment is not really as novel as it looks. Nearly all pharmaceutical products are delivered remotely, that is, the consumer is in control of the treatment without any present physician (even though medication compliance is often poor). The major potential drawback of telehealth is over-servicing and fraud. Those risks arise in any fee-for-service model (though whether the risks specifically for telehealth outweigh the benefits is insufficiently researched, and could be assessed).

Regardless of whether the Australian Government decides to list this or other new ways of engaging with patients, preventing ill-health or managing chronic conditions, its permission will often come late or fail to take account of local context or capabilities. One of the advantages of PHNs and LHNs as regional decision makers is that if they expect good outcomes, they can fund delivery mechanisms that are not (yet) Medical Benefit Schedule items.

Accordingly, while a Schedule of some kind must remain in any model with a fee-for-service component (which the Commission supports), it does not have to extend as far as it does. Instead, just as the Commission proposes that LHNs obtain access to a pool of funds that they can use to buy prevention and integrated care, so too should their regional primary care counterparts. Accordingly, the Australian Government should allocate the principal MBS payments oriented to preventative care and chronic condition management to PHNs. This has already been done for some mental health services through the creation of the Primary Mental Health Care flexible funding pool. In moving in this direction, the Australian Government observed:

To successfully deliver a stepped care model it must be recognised there are individual needs and challenges that are specific to communities that do not always fit the one size fits all model of service delivery run from Canberra. (Ley 2015)

How do Health Care Homes fit into this funding picture?

The need for an organiser of coordinated care has given rise to the notion of general practices as so-called medical 'homes' (and in its recent Australian manifestation, Health Care Homes). It is not a new idea, but originated in the United States more than 50 years ago for paediatric care. The 'home' is not, as the name unfortunately implies, a residential facility, but a place to go for a person's medical needs. Its function is ambitious:

… the patient-centered medical home integrates patients as active participants in their own health and wellbeing. Patients are cared for by a physician who leads the medical team that coordinates all aspects of preventive, acute and chronic needs of patients using the best available evidence and appropriate technology. These relationships offer patients comfort, convenience, and optimal health throughout their lifetimes. (American Association of Family Physicians from Brooks 2010, p. 1)

The Australian Government is trialling coordinated care through a variant of the health care home concept — with patient enrolment beginning with 20 practices in October 2017. The name is different, but these resemble many aspects of the coordinated care trials of the late 1990s and early 2000s (SP 5). In Health Care Homes, the GP acts as a health care navigator (often with the aid of a nurse), who helps a patient to develop a care plan and then provides or arranges for the bundle of care according to the care plan.

The Health Care Home model does not impose MBS-like restrictions because it is funded by a capitation payment system, leaving physicians free to decide how to deliver preventative and chronic illness management services. It might be a standard visit, a case conference, a home visit, an SMS, a phone call, an emailed online link, a mobile phone videoconference, or remote telemonitoring, to name a few possibilities. On face value, telemonitoring of vital signs appears to have good potential for lower-cost management of chronically ill patients. A one year trial of telehealth undertaken by CSIRO found about a 45 per cent reduction in MBS expenditures, a 25 per cent reduction in Pharmaceutical Benefit Scheme spending, a 50 per cent reduction in hospitalisation (and shorter stays if admitted), and more than a 40 per cent reduction in mortality (Celler et al. 2016). Most clinicians involved supported it.

New approaches to delivery of health care in health care homes might be initiated by the GP, but carried out by a nurse or some other person. No forensic search for a compatible MBS item is required. There is little incentive for a clinician under a health care home model to over-service (indeed, the concern is the opposite — hence the concept of blended payments discussed above).

While the Australian Government's Health Care Homes program gives GPs a large amount of freedom about how to deal with patients with chronic health conditions, some key aspects of the model are set at the national level, such as the regulated payment levels for the three allowable risk categories of patients. There is a tension between this prescribed payment structure and regional flexibility. Fixed structures preclude regional decision-makers from varying the categories and the payment structures that they find more effective. In any case, patients do not come in three sizes alone.

The 2016 COAG agreement on public hospital funding left open — albeit vaguely — a role for State and Territory Governments in participating in Health Care Homes. State and Territory Governments are partners in Health Care Homes in that they have agreed to form bilateral agreements with the Australian Government about how Health Care Homes will work in the relevant regions in their jurisdictions. However, the content of such agreements is very loosely defined — it may include elements involving coordinated planning, blending funding and collaboration between LHNs and PHNs where feasible, with the possibility that after the trials have been completed that there may be 'collaborative, joint or pooled funding arrangements'.

We propose a more concrete framework. It is critical for the effectiveness of health care homes that they collaborate with LHNs as well as PHNs. The new funding model for regional bodies recommended by the Commission will facilitate that — including by allowing LHNs and PHNs to participate in formal alliances to make additional financial or in-kind contributions to Health Care Homes. At the very least, LHNs can share the patient data needed to stratify patients according to their need and to otherwise support patient management by health care homes. If necessary, the performance indicators of LHNs should require that such data sharing takes place.

Given that 180 of the 200 proposed health care homes will not be in place for some time, it would be desirable to move away from the prescriptive nature of the current pricing regime for health care homes to the pooled funding model above (or to allow a certain number of the proposed health care homes to move in that direction).

The Australian Government's version of the medical home relates only to patients with chronic and complex conditions. The rationale for this is that these are the highest-cost patients in the health care system, and that better management can improve their lives and potentially reduce costs. However, a preventative care model would ideally also provide capitation payments for people who are at clear risk, but have not yet acquired a chronic condition. Notably, for every 100 adults already with type 2 diabetes, there are an additional 20 who have just developed the condition, and another 100 who are at high risk.

This is not a decision that the Australian Government is best placed to make. An alternative approach would be to allow PHNs and LHNs to co-design the form of the integrated health model for their communities, and leave it to them to decide the scope of patient types enrolled into the health care homes (and the funding arrangements that underpin this). Relationships of LHNs with health care homes should extend beyond funding. The goal would be that all the main entities involving regional health care — PHNs, community health centres, LHNs, local governments and not-for-profit organisations could collaborate in any activity that had promising outcomes for people.

Of course, any such collaboration must involve clinicians — and given their key role as gatekeepers — especially general practitioners.

Recommendation 2.1 Implement nimble funding arrangements at the regional level

The Australian, State and Territory Governments should allocate (modest) funding pools to Primary Health Networks and Local Hospital Networks for improving population health, managing chronic conditions and reducing hospitalisation at the regional level.


Set aside a small share (say 2 to 3 per cent) of activity-based funding to hospitals to create a Prevention and Chronic Condition Management Fund (PCCMF) for each Local Hospital Network (LHN) to commission activities that improve population health and service quality, or reduce hospitalisations and broader health expenditures.

Where they are directly related to prevention and management of chronic conditions, allocate the expected funding from the Practice Incentives Program and other Medical Benefit Schedule items to Primary Health Networks (PHNs) in each region.

Give LHNs autonomy about how they spend from their PCCMF (including a license to fund innovations) and give them certainty over future funding contributions to allow planning.

Assess the returns from PCCMF investments. Let LHNs retain some of the returns from PCCMFs, with the remainder shared among Australian, State and Territory Governments.

Disseminate the lessons from effective interventions funded through PCCMFs to other regions.

Ensure formal collaboration between LHNs and PHNs to improve population health and the effectiveness and efficiency of primary health care. Where relevant, involve other regional groups with capabilities in managing population health, including Local Governments and community organisations.

The Australian Government should allow LHNs to commission the services of GPs by amending section 19 of the Health Insurance Act 1973 , with the proviso that the LHNs operate in formal agreement with their region's PHN. The Australian Government should also remove any administrative constraints on PHNs allying with LHNs to commission GP services.

Amend the Australian Government's prospective Health Care Home model so that LHNs and PHNs can introduce local variants, with supplementary funding and design features determined by them through collaboration.

Clinician buy-in is essential to achieving change and will be led by PHNs, which have often built good relationships with local leaders.

Further details are in Conclusions 6.1, 6.2 and 6.3 of Supporting Paper 5.

Removing some shackles from private health insurance

As noted earlier, like all the other actors in the system, private health insurers face mixed incentives to encourage preventative care.

There are several options for addressing the current deficit in risk equalisation, including a prospective system (as used in the Netherlands) in which transfers between the funds reflect the differences in expected claim costs, rather than ex post claims. Another option might be the rigorous independent assessment of the net benefits of private insurers' Chronic Disease Management Programs (box 5.1 in SP 5) with these benefits being largely quarantined from risk equalisation.

A further option, which would require a less significant (or no) overhaul of risk equalisation, is a cooperative approach by insurers to manage chronic illness. This would reduce free riding. Under current policy settings, private health insurance premiums have been rising at rates well above the CPI, and for the first time in 15 years, the proportion of the population covered by private health insurance has fallen. It is in all insurers' interests to reduce those pressures. It may be feasible to develop some common approaches to reduce claims through better management of chronic conditions, even if the strategies are executed differently from fund to fund. The high cost of prostheses and the strategic activities of public hospitals to switch patients admitted into emergency departments to privately-insured status have also been important drivers of premiums, although policies have changed recently to reduce those pressures.

Funding of quality in an integrated system

While the above policy changes would help to finance initiatives that reduce hospitalisations and other health care expenditure, safety and quality in healthcare are sometimes tenuously linked to funding. As discussed earlier, many costly and intrusive medical interventions lack compelling scientific justification. The funding of 'never' events has just been removed (outcomes that should never have happened, like leaving surgical instruments inside a patient). There are also tentative steps at defunding the activities that ensue from hospital acquired complications (HACs), and for providing information to clinicians about their outcomes compared with peers, recognising that information has independent impacts. (Private health insurers are being far more active in this area than public sector purchasers, though this is being met with considerable resistance from private hospitals.)

We have been told by stakeholders that specialists highly value their reputation for clinical proficiency among their peers. The recommended introduction of PCCMFs should also help contain HACs, since the LHN would now have an incentive to limit costly activities.

Some care is needed in defunding activities associated with HACs because they can sometimes arise without any deficiencies in the practices of hospitals and medical professionals. Given the current reform agenda, the best policy is monitoring of progress in containing HACs and identifying the approaches that have been most effective in achieving this.

Progress to limit low or no-value services has been slow. For instance, the evidence that arthroscopy for knee osteoporosis has no or low value in the bulk of instances has been known for more than a decade. Yet in Australia the relevant standard (issued by the Australian Commission on Safety and Quality in Health Care or ACSQHC) is merely advisory, noting that knee arthroscopy 'is costly, may cause harm, and has repeatedly been shown to bring minimal benefit to patients with osteoarthritis, and yet it remains a common form of treatment'. As an advisory, the standard could be ignored without query by any standards body.

Arthroscopy for knee degeneration is just one of many costly treatments lacking an evidence base or that do not pass a cost-effectiveness test. In Australia, approximately 75 per cent of acute bronchitis is treated with antibiotics, when the evidence suggests that the rate should be near zero. The Australian Atlas of Healthcare Variation shows large differences in the prevalence of many treatments across 309 statistical areas in Australia, which cannot be explained by differences in population health.

There are too many unjustified medical procedures

For example, there were approximately 27 500 hospitalisations for hysterectomy for women aged 15 years and over without a diagnosis of gynaecological cancer. The rate per 100 000 women aged 15 years and over varied from 115 to 763 across Australian statistical areas. Rates were higher for regional Australia and areas of higher socioeconomic disadvantage. The Australian Commission on Safety and Quality in Health Care noted that the variations could reflect lack of facilities and training of physicians about other effective, much less intrusive, methods of treatment than major surgery. And to complete a bad picture, Australian procedure rates are markedly higher than other comparable OECD countries.

One surgeon has puzzled over why low-value care persists:

To deliver a do not do procedure a medical practitioner must first be credentialed, have a defined scope of practice and operate within their clinical team alongside support services and the governance structures of an organisation. Start counting how many people are involved. Therefore, the question we should be asking is: how is it possible for inappropriate care to occur? And what systems level agreements perpetuate this situation? (Ibrahim 2015, p. 162)

Several factors are likely to be at work.

One is that many practices in any profession becomes customary, even as evidence slowly undermines their legitimacy. A leading Australian orthopaedic surgeon is sceptical of a range of commonly performed orthopaedic procedures, including knee arthroscopies. He observed:

I am not suggesting that surgeons are recommending operations knowing that the potential risks outweigh the potential benefits. Largely, surgeons believe that they are doing the right thing, but often they are not aware of the strength (or weakness) of the supporting evidence or, what is more often the case, there is simply no substantial or convincing scientific evidence available. Without good scientific evidence, surgeons perceive the procedures they recommend to be effective – otherwise their colleagues wouldn't be doing them, right? Put simply, a lack of evidence allows surgeons to do procedures that have always been done, those that their mentors taught them to do, to do what they think works, and to simply do what everyone else is doing. (Harris 2016, pp. 1–2)

Another is patient expectations. Survey data from the United States suggest that more than 50 per cent of physicians acquiesce to patient requests for unnecessary medical practices. It would be surprising if this were a US peculiarity, and indeed some Australian clinicians freely admit they face the same dilemma. In the case of hysterectomies cited above, the ACSQHC considered that patient expectations, preferences and health literacy played a role in the variations (as well as clinicians' skills and preferences).

Some have suggested that the persistence of low value interventions can be ascribed to decisions by clinicians to recommend procedures that raise their incomes. There is little evidence that this is a major factor. It could not explain the large geographical variations in procedures.

Physicians sometimes acquiesce to patient
requests for unnecessary medical practices

There are several initiatives that could reduce low value interventions. One is the faster development of clinical standards and 'do not do lists' by the ACSQHC, with transparency about deviations from best practice, and dissemination of best practice among clinicians (which could also entail targeted approaches for those clinicians who appear to be overusing a procedure). Australia could readily draw on comprehensive assessments of low-value procedures from overseas institutions like the United Kingdom's National Institute for Health and Care Excellence. Education of patients is a second step as misperceptions about medical interventions can drive demand. Health literacy also enables patients to seek explanations from a clinician about the treatment being suggested. Finally, where there is clear evidence of lack of efficacy or cost effectiveness, and the circumstances where this occurs can be reasonably specified, treatments should no longer receive public funding.

The policy issues related to low-value surgery funded by private health insurers involve similar issues. Given spiralling costs, insurers have incentives to inform consumers about low-value care and to exclude cover. However, consumers are not well-informed and thus may continue to demand cover for low-value procedures, with private insurance a dominant funder of certain low-value procedures. (80 per cent of knee arthroscopies are in the private sector). The justification for the Australian Government's private insurance subsidies is weak for services that would (or should) not be supplied by the public system. It may be that this issue will vanish if clinicians adhere more stringently to medical guidelines. If not, it suggests that certain surgical services funded by insurers should be ineligible for the tax rebate.

Taxpayers also provide subsidies for ancillaries funded by private health insurance. Ancillaries cover includes services that have no proven efficacy, such as homeopathy, usually delivered by practitioners without any recognised medical qualifications. It is questionable whether items that have no efficacy should receive any effective support by taxpayers. Removing the taxpayer subsidy for ancillaries would resolve this problem. In any case, such a policy shift is justified because the subsidies relate primarily to services that insurance holders would be ineligible to receive through the public system.

Recommendation 2.2 Eliminate low-value health interventions

Australian governments should revise their policies to more rapidly reduce the use of low-value health interventions.


More quickly respond to international assessments indicating low-value medical interventions.

Create more comprehensive guidelines and advisory 'do not do' lists.

Disseminate best practice to health professionals, principally through the various medical colleges, the Australian Commission on Safety and Quality in Health Care and similar state-based bodies.

Collect and divulge data at the hospital and clinician level for episodes of care that lead to hospital-acquired complications and for interventions that have ambiguous clinical impacts (such as knee arthroscopies).

Provide accessible advice to patients about potentially low-value services and improve their health literacy using the measures covered by Recommendation 2.3.

Ensure that ongoing processes for reviewing existing Medical Benefit Schedule items are more rapid and comprehensive than occurred under the arrangements prior to the Robinson Review.

Give priority to de-funding interventions that demonstrably fail cost effectiveness tests, moving from volume to value.

Remove the tax rebate for private health insurance ancillaries.

More details are in Conclusion 7.1 of Supporting Paper 5.

2.6 Governments need to commit to a patient-centred approach and measure their achievements

Health care is still too supplier-centric and its payment structures and information provision are only slowly moving away from this model. When the UK television program, Yes Minister , characterised an efficient hospital as one without patients, it was clearly a satirical caricature. However, it still has some resonance because while patients are in the health system, few would argue that they are near its centre yet.

Evidence on patient experiences provides startling incidents of inadequate communication between clinicians and patients. In 2015-16, among those who saw three or more health professionals for the same condition, one in eight reported that there were issues caused by a lack of communication between the health professionals, and this was worst for those who were least healthy (more than one in six).

In Queensland emergency departments, only 46 per cent of people were fully advised about the side effects of new medications, and 80 per cent were not advised about how long they might wait to be examined. The same survey found major differences between regions across all dimensions of the experience of care. For instance, full advice about side effects varied from 61 to 32 per cent across the best and worst performing Queensland hospitals, while the share of people who said that health practitioners talked in front of them as if they were not there varied from 4 per cent to 23 per cent.

While most Australians can get access to clinicians, about 16 per cent of patients considered that they waited longer times than acceptable to get an appointment with a GP, and this was nearly 25 per cent for specialists.

The use of telehealth for just 10 per cent of consultations
would save over $300 million annually in travel and waiting times

Waiting has another much overlooked dimension too. Most people say that being seen by a GP at the appointed time is very important. While it may seem that the costs of waiting in a waiting room are trivial for any given person, the cumulative effects of waiting times in doctors' offices is likely to impose costs on Australians of approximately one billion dollars annually — testimony to the millions of physicians visits (SP 5). The use of telehealth for just 10 per cent of consultations would save over $300 million annually in travel and waiting times. Even when waiting is unavoidable — as it is any customer service industry — waiting rooms could be used as a place for community health initiatives about risks. For example, this could include the simple Chronic Obstructive Pulmonary Disease COPD Assessment Test and the Royal Australian College of General Practitioners' Family history screening questionnaire. The use of rooms for such purposes seems to be rare.

Australian doctors are, by international standards, less receptive to patients' capacity to access their own medical records. To illustrate, an international survey found that 16 per cent of Australian doctors said that patients should have no access to their own medical record.

In other respects, most patients have a reasonably high regard for their doctor's interactions with them. Patient survey evidence indicates that about 75 per cent of patients thought that GPs always listened carefully, while only about one in twelve considered that their GP did this 'sometimes, rarely or never'. Perceptions of respect were also generally positive (with 80 per cent saying their GP always showed respect). Outcomes were similar for specialists. However, people who had the highest level of socioeconomic disadvantage and the worst health status fared least well on most of these measures, which is a concern since they are the most vulnerable. It is also notable that the share of dentists who 'sometimes to never' respected, listened or gave enough time to their patients were 40 to 60 per cent lower than GPs and specialists.

Overall, the evidence suggests that Australia has not moved sufficiently to a patient-centred model across key parts of the health care system. There needs to be acceptance by all the actors in the healthcare sector of a premise that patients are the centre of the system in the same way that disability care has shifted. The American cardiologist and geneticist, Eric Topol captured the essence of the idea in the title of his book on the topic: The Patient Will See You Now.

'Patient-centred' care gives prominence to the preferences, needs and values of consumers. In a better system, patients' time would be recognised. Patients would be given the information and power to be co-contributors to treatments and disease management. Medical records would be owned by patients and they would be able to add comments. The Commission sees such rights to data as a broad requirement across many public and private services. Where choice was feasible, it would be facilitated.

A patient-centred system must take account of patient's experiences and outcomes — an area where Australia lags. There are now well-established ways of assessing patients' experiences through Patient Reported Experience and Outcome Measures (PREMs and PROMs). These ask patients for their views about post-operative outcomes (say their capacity for doing everyday tasks after a knee replacement), distress, pain levels, time spent waiting, and the quality of communication, among other things. For example, it is common for people undergoing kidney dialysis to feel depressed, suffer pain and be chronically tired. Not measuring such patient experiences can forgo some clinical opportunities for improvement. Patient reports can be used to make systemic changes to clinical processes. Research shows it also leads to better clinical outcomes. Some jurisdictions are using PREMS and PROMs for some of their health services, but their adoption is in its infancy. There are existing tools that should be used for adopting PREMs and PROMs — there need not be any Koala variant.

A cornerstone of patient-centred care is knowledge about each person in the system. This is all the more important since a very few people can account for a large share of costs — so-called 'frequent flyers'. In New South Wales, one per cent of the population were admitted to hospital three or more times in 2012-14, accounting for 46 per cent of 7 million bed days. There are hotspots in use in other areas too. The Ambulance Service of NSW found that 10 people accounted for 1360 ambulance uses over the two-year period from July 2013. Case management of such high users to deal with the complex psychosocial and health issues that precipitated their service usage patterns has proven very successful in reducing (very costly) ambulance call outs.

Quite apart from the structural and attitudinal changes needed to the health system to respond better to patients, there is a glaring gap in peoples' capabilities for exercising more control — a lack of health literacy (SP 5). The majority of Australians have inadequate health literacy, and the share is greatest for those with chronic conditions. Even 40 per cent of people with a qualification related to health have inadequate health literacy. Poor health literacy has adverse effects on health outcomes, a reflection of a weaker capacity to self-manage care and to follow medication guidance. The immediate implication of such low levels of literacy is that clinicians must tailor their communication with patients. Several approaches for raising health literacy are promising, including regional initiatives that take account of the needs of local populations, improving the existing teaching of health literacy in schools, using settings where people are already unwell to improve their health understanding, and using My Health Record as a tool for raising literacy and for transferring accessible information suited to the person (section 2.7). My Health Record is also a natural vehicle for testing 'what works' in raising health literacy.

Overall, the evidence suggests that Australia has
not moved sufficiently to a patient-centred model

Recommendation 2.3 Make the patient the centre of care

All Australian governments should re-configure the health care system around the principles of patient-centred care, with this implemented within a five year timeframe.


Develop well-defined measures of people's experience of care and the outcomes they observe (so-called Patient Reported Experience and Outcome Measures — PREMs and PROMs), and integrate these into disease registries. The Australian Commission on Safety and Quality in Health Care should be the orchestrator of these developments.

Publish results so clinicians, hospitals and patients see how the system is working at a grass roots level.

Consult with consumer groups representing patients and with the various medical colleges to achieve acceptance of the new model and its implications for practices.

Improve patient health literacy to a level that far more people would have a capacity to self-manage chronic conditions, make informed end of life decisions, and be able to solicit from, and interpret information given by, clinicians (Supporting Paper 5).

Use My Health Record and other IT platforms to involve people in their health decisions.

Give people a greater capacity for making choices between alternative suppliers, underpinned by transparent measures of prices and performance.

Give greater weight to patient convenience, and develop and disseminate technologies that assist this.

Systematically include an understanding of patient-centric care in the education and training of new health professionals, and use the various professional bodies to disseminate an understanding of the issues to existing health professionals.

Use data analysis to identify very high service users across all major service types and discover the reasons for their high use (Recommendation 2.4). Use this to customise care plans and other targeted early interventions to improve their health status and reduce their use of services.

2.7 Information sharing can be akin to 'pinning the tail on the donkey'

Integrated and effective data and information systems are a critical element of an integrated system of care. The use of data in healthcare is not new. The clinical medical record has a long history dating back to antiquity, but the systematic use by clinicians of patient health histories (in paper form) commenced only in the early 20th century — and provided many benefits to patients.

What has changed is that information technologies have lowered the cost (and increased the speed) of dealing with data. IT has provided the capacity to collect, link, analyse, aggregate and store vast amounts of data on what is done to patients, who does it, billing, the performance of health providers, and to some degree, the outcomes for people of health interventions. IT also has the capacity to empower patients by giving them information about their own health and the performance of the clinicians and providers with whom they interact. Data can revolutionise research into 'what works'.

The OECD has characterised Australia as
relatively poor in its capacity to collect and link health data

These aspirations have only been partially realised. The OECD has characterised Australia as relatively poor in its capacity to collect and link data. While a huge amount of data are collected, there are substantial gaps, a lack of integration and sporadic use. More than 40 per cent of GPs were unsatisfied with information about the patient's functional status on discharge from hospital (and as noted earlier, many do not even know a person has been to hospital at all). Clinicians may have access to systems that guide their clinical judgments or help them interpret a patient's record, but they do not always use them or have the incentives to do so. Systems may not be interoperable, even within the same hospital. Patients may not get access to their records, initiate the steps to do so, or understand their meaning.

Nor do current information systems provide consistent quality assurance at the site and clinical level. There are changes afoot — such as the Australian Atlas of Clinical Variations and initiatives like the NSW Agency for Clinical Innovation's Stroke Clinical Audit Process (SCAP). The latter is an exemplar of what data collection, analysis and learning at the site level can do. The SCAP was able to identify exactly what happened to patients when they were admitted to different hospitals with strokes, thereby isolating practices that should change (such as having a swallow test or providing an anti-thrombotic on discharge). Ideally, patient level data like this would be routinely collected at the hospital level for high-risk admissions, and would provide continuous feedback to hospitals so they can improve so-called 'decision support systems'.

General practice has engaged far more with information technology than others in the health care system. In June 2017, approximately 6100 general practices were registered for My Health Record, representing about 85 per cent of practices. While 96 per cent of general practitioners used computers for clinical purposes, prevalence rates for specialists (37 per cent) and surgeons (22 per cent) suggest that they cannot efficiently transfer information — a critical feature of integrated health. As one clinician remarked:

I use a fax machine almost daily, as well as other arcane technologies, such as the pager that has to be carried around at all times. These rather quaint examples make for fun anecdotes to regale non-medical friends with, but they speak to something more profound: the generally abject quality of the communication tools employed by health care practitioners. This is especially clear in our handling of medical records. It's ironic, given that our profession takes so much pride in the ability to tell the story in a succinct and a systematic way, that we are so tolerant of platforms that obscure rather than illuminate the important points in a patient's history. Even within a single hospital network, the archive can be dense, chaotic and generally migraine-inducing. It's not uncommon to find a crucial operation report hidden among a dozen computer-generated data logs or lost at the end of a digital cul-de-sac. (Dando 2017, p. 1)

Overall, the dividends from good data management for patients appear to be high. Electronic medical records can reduce the risk to patient health of incomplete or inaccurate patient information — which results in up to 18 per cent of medical errors in Australia. Accurate information also reduces the risk of duplicating tests or of conflicting medical treatments. In Australia, medical tests are duplicated for about 10 per cent of adults with chronic conditions, thereby adding to costs without adding value.

The concerns about data extend beyond sensitive information on individuals. There are a maze of websites and agencies reporting health information across the various jurisdictions. All jurisdictions conduct regular surveys on population health risks and report regional results in their jurisdictions. State Government bodies also undertake patient experience surveys, typically using different instruments and covering different periods. There is no single place that even the aggregate results are available.

The Australian Government's open data portal ( includes a hotch potch of 'data' sets relating to health, many of which are lists of facilities by location (to name a few: ice skating centres in Victoria; playgrounds in the City of Greater Geelong, and the location of European Wasps in the ACT). The AIHW's list of data sources for monitoring health conditions only relates to national surveys. The difficulty of accessing data forgoes opportunities for richer analysis, including causal analysis of the factors that affect population health, benchmarks for performance at the regional level, and a greater capacity for testing the efficacy of some health promotion initiatives.

Many of these problems can be solved, although they require action on multiple fronts. The Commission undertook an extensive inquiry into Data Availability and Use , which sets out a comprehensive suite of policies that make data a useful asset — not just in health, but across the economy. That inquiry provides the roadmap for reform, including the need for more open data, and protocols that would allow the data to be linked and used for the public good, while addressing privacy concerns. Chapter 9 of SP 5 also outlines the multiple strategies needed to use data in an integrated system.

One sometimes overlooked issue is that the most elegantly designed information sharing and management system will not deliver its full benefits if clinicians and others do not enter reliable data or use it for managing the treatment of patients. That cannot be assumed. The Australian Government's Diabetes Care Project showed that provision even of a sophisticated information management capability for GPs was not used by those practices that did not also have incentives to provide special diabetes care. There are also unfortunate examples of online databases intended to provide patients with access to information about practitioners that are nearly empty of entries. Such online resources are only useful if maintained and reasonably comprehensive, and the benefits of doing that should be weighed up against the considerable costs.

The role of My Health Record

An effective My Health Record is an important foundation for an integrated health system. The introduction of an opt-out system (compared with the initial opt-in approach) will lead to nearly universal coverage of Australians, as very few people in the trial opt-out sites chose to opt out. Given high take-up by providers, there is some promise that My Health Record can provide a central, lifelong depository for each patient's medical records, regardless of provider, in an electronic format accessible by providers and patients.

There are compelling grounds to use My Health Record as a platform for providing clinically-proven advice to patients, rather than just as a method for collecting data for clinicians. For example, a person might be reminded of the potential need to have a vaccination or a screening test, such as a check for osteoporosis for post-menopausal women. The Australian College of Nursing supported a role of My Health Record as a source of information for self-care. The form of the advice that has the highest degree of compliance could readily be tested — the right words and the right technology (smart phone app, SMS, email, letter) — geared to the traits of the person. The clinician would ultimately be the decision maker (and their decision could be undertaken remotely in many cases). General practice could also receive online reminders. Currently, 56 per cent of Australian GPs say they routinely receive computerised reminders for guideline-based intervention or screening tests — though how often they act on these is not known.

There is some evidence of a lack of awareness by people of the potential uses of the Record. For example, only 971 people (0.002 per cent of registered users) had used My Health Record to lodge an Advance Care Planning Document, despite the relevance of such a document to all Australians. Clearly, communication of opportunity in data systems for patients is currently failing. This and other barriers will need to be overcome (section 3.2 of SP 5).

2.8 Disseminating best practice

Inertia is a characteristic of many parts of life — in business, government, in ordinary people's lives (including their lifestyle choices), healthcare providers and clinicians. One of the biggest brakes on productivity in an economy — or any part of it — is that learning is slow. In the early 1980s, beta blockers were shown to reduce mortality rates by up to 25 per cent after a heart attack, yet by the early 2000s in the United States, median state-level use was still below 70 per cent

One of the biggest brakes on productivity in an
economy — or any part of it — is that learning is slow

Addressing inertia in health care is demonstrably difficult, else the persistence of clinical variations could not be explained. Some of the measures already discussed above will help overcome such inertia. Not paying for unjustified treatments would certainly have rapid impacts. But more empowered consumers, vigorous dissemination of best practice clinical guidelines (including 'do not do' lists) by the medical colleges and the ACSQHC, and transparent measures of performance (SP 5 and SP 3) will also play a major role.

However, there is no formal established vehicle for diffusion of innovations in commissioning healthcare. Innovations at the state and territory level do not always diffuse quickly, even when their value is patent, as in the NSW Government's case management of high users of ambulance services. We have recommended a more devolved system of health care that would encourage even more innovation at the regional level. There are already some informal mechanisms for disseminating best practice in these areas through meetings between various regional PHNs and LHNs, but governments should implement a more systematic approach, using existing bodies with proven expertise. The ACSQHC, in collaboration with other State and Territory Government agencies, like the NSW Agency for Clinical Innovation, should be a clearinghouse for the results of evaluations of innovations in local areas, and report on the diffusion of substantiated best practices across regions.

A more devolved system of health care would
encourage even more innovation at the regional level

Achieving diffusion may also need 'champions' — people who have led innovative ideas and who can transfer them well to others because they have hands on experience with the relevant innovations and know the practical obstacles and how these can be overcome. The concept is well known in business, and increasingly so in health care, but needs to extend beyond clinical champions. One possibility is that PHNs and LHNs (and possibly State and Territory Governments) agree to create a national 'championship' program, where champions of an innovative idea assist other PHNs and LHNs to more speedily adopt new ideas. Regardless of whether that is the best vehicle, there is a need to recognise that changed practices often required persuasive and trusted advocates.

Technology and disintermediation in healthcare

The potential to use technology in new ways to provide government services is a cross cutting theme in this inquiry. Technology has always played a major role in providing new treatments and ways of providing care, but it has not diminished the overall demand for health care professionals (appendix C of SP 5). In part, this reflects that technologies are tools for clinicians rather than substitutes for them or their service support. Another factor has been that the large growth in the demand for health services has still enabled job growth even though technologies have reduced the needs for health professionals in some areas. Nevertheless, digital disruption and automation appears likely to produce job losses for some health occupations, notwithstanding growth in the health care sector. This will occur wherever the technologies produce higher quality services for patients or/and are less costly — two beneficial outcomes for people.

Pharmacy is a key occupation where technology, antiquated regulation, and changing models of integrated care converge at significant unnecessary cost to the nation. A fundamental policy shift is desirable, and again technology more than policymakers' efforts is poised to change the game. This would go well beyond the shifts raised in the recent Australian Government review of pharmacy.

Recommendation 2.4 Use information better

Australian governments should cooperate to remove the current messy, partial and duplicated presentation of information and data, and provide easy access to health care data for providers, researchers and consumers.


Identify the key relevant health datasets, including those that provide aggregated information about population health, and ensure that:

  • links to health datasets and survey results are included on the Australian Institute of Health and Welfare website
  • registers of health care data are created and published on, in line with recommendation 6.4 of the Productivity Commission's inquiry into Data Availability and Use (PCDAU).

Implement recommendation 6.6 of the PCDAU regarding the establishment of the Office of the National Data Custodian, which will have responsibility for the implementation of data management policy for health care and other data.

Streamline approval processes for access to data, in line with recommendation 6.7 of the PCDAU.

In doing so, priority should be given to making health datasets available, with a focus on projects that:

  • allow evaluation of initiatives by Primary Health Networks and Local Hospital Networks at the regional level
  • use data analytics to discover bottlenecks in integrated care systems, prospectively identify high-risk groups, identify the long-run effectiveness of preventative measures, and better isolate low-value interventions.

Governments should cooperate to reduce the existing inconsistencies in the multiple population health surveys and hospital and other satisfaction/experience surveys, accompanied by the development of benchmarks for gauging the relative performance of health care providers and purchasers across all national regions.

Any webpages or other sources that provide information to consumers about health care services should be comprehensive and maintained, and if that is not cost-effective, they should cease to be funded by governments.

Ensure uptake of electronic medical records by health professionals and hospitals by making them easy to use, and in some cases, linking access to additional funding to their adoption of integrated information systems.

Use My Health Record for both information and as a platform for providing clinically proven advice to patients, with the potential development of links between it and wearable technologies.

The Australian Commission on Safety and Quality in Health Care, in collaboration with other State and Territory Government agencies, should be a clearinghouse for the results of evaluations of regional innovations, and report on the diffusion of substantiated best practices across regions.

Create a cooperative 'Champions Program' that uses people with hands-on-experience with innovations to assist others to copy them.

A new model of pharmacy would adopt now-available technology — for example, e-scripts and machine dispensing of drugs — and recognise retailing as incompatible with a genuine clinical function for pharmacists (SP 5). As one party put it to the Commission in this inquiry, the availability of unproven and sometimes harmful medical products and confectionary at the front of the pharmacy is not reconcilable with an evidence based clinical function at the back. An Australian Government review into various natural remedies — widely available in pharmacies — suggests that most had no strong evidence of benefits to users.

Recognising this at an early stage, the Commission advocates preparing for the inevitable via development of a model that would increase the role of pharmacists in the multi­-disciplinary management of complex and chronic conditions. Machine dispensing (now a well-proven technology) will, absent government and pharmacist moves to prevent it, overtake retail dispensing simply due to its inherent commercial efficiency benefits.

And in planning for this, its oversight would be better placed in the hands of a new occupation. This would involve people with good social skills and trustworthiness (with support from information technologies), but who would not need the clinical and scientific abilities of pharmacists. This new model would not, under any realistic assumptions require anywhere near the current 20 000 pharmacists who provide clinical services, and so would require a transition to a much smaller employment base.

The Sixth Pharmacy Agreement means that immediate reform is not possible, but it gives time for the determination of the right VET skills for those who oversight machine dispensing, trials of pharmacists in multidisciplinary teams in Health Care Homes, tests of machine dispensing, and the resolution of practical issues like the security of machine dispensing. The Australian Government should also signal to the various university departments of pharmacy that the industry structure sustained through government fiat is likely to eventually crumble, leaving young pharmacists exposed to large occupational risks. Ignoring the inevitable transformation of pharmacy is to expose a generation of new pharmacists to avoidable risks. Going down this path means that competition reforms for retail pharmacy that have long been advocated — such as in the Harper Review — can now be viewed as at most transitional steps. New pharmacy could translate into a genuine role in chronic disease management, suited to the capabilities of its professional membership (appendix C in SP 5).

In these circumstances, the Australian Government should also remove the anticompetitive regulations that raise prices of pharmaceutical products for the Australian public (and require hundreds of millions of dollars of taxpayer support).

Recommendation 2.5 Embrace technology to change the pharmacy model

The Australian Government should move away from community pharmacy as the vehicle for dispensing medicines to a model that anticipates automatic dispensing in a majority of locations, supervised by a suitably qualified person. In clinical settings, pharmacists should play a new remunerated collaborative role with other primary health professionals where there is evidence of the cost-effectiveness of this approach.


Identify the best dispensing technologies from those that are currently available.

Determine the necessary credentials for the supervisor of automated dispensing, but with those qualifications involving substantially less training than currently are required for pharmacists.

Consult with the relevant training institutions — most likely in the vocational education and training sector — to develop courses for such qualifications.

Inform the various university departments of pharmacy about the reduced need for future supply of pharmacists.

Determine the locations for automated dispensing, taking into account accessibility and security, but eliminating unnecessary boundaries on locations now endemic in pharmacy planning rules.

Trial the technologies in remote and rural areas where there are currently shortages of pharmacists.

In consultation with Primary Health Networks, Local Hospital Networks, the various medical colleges and any other relevant clinical bodies, define the role of pharmacists in a collaborative clinical model.

Identify where it is cost effective to use pharmacists in primary health, taking into account the capabilities of lower-cost health professionals, and the increasingly greater capacity for information systems to provide accurate advice about medicines to GPs and other professionals.

Phase in the changes after the Sixth Pharmacy Agreement has lapsed, using the time to test it in some natural settings to refine the model.

2.9 Community wide public health initiatives

Substance abuse, poor nutrition, smoking and low physical exercise predispose people to chronic health conditions. This chapter has emphasised the importance of an integrated health system in addressing these or managing their consequences — mainly through primary health care and patient engagement.

However, the Commission has not examined public health in any detail in this inquiry — though we have emphasised that it should be seen as critical to a truly integrated system (appendix D and chapter 4 of SP 5). The Commission's inquiries into gambling indicate the multiple ways in which social and economic environments, individual traits, and the nature of risky goods and services lead to major public health problems. Prevention of harm often requires tailored solutions — and the regional model we recommend will go some way to providing some solutions.

Other remedies have to be system wide. Complemented by other initiatives (such as school-based education, community information campaigns and regulation), tax measures have a significant role to play in Australia's public health system (appendix D of SP 5). They can account for the negative spillovers created by harmful products and improve wellbeing by reducing their consumption. Their effectiveness is exemplified by smoking rates, which tumbled from 28 per cent in 1989 to 15 per cent in 2013, following a range of anti-smoking measures, including substantial tobacco excise increases from the early 1990s.

An ongoing question is whether taxes should play a bigger role for other products with harmful effects. There has been much recent debate about the taxation of alcohol and potential taxes on sugary food and beverages.

Alcohol taxes — a mess with damaging health outcomes

The negative effects of excessive alcohol consumption on the health and wellbeing of Australians are well-known to clinicians and researchers, if not always the public at large. These harms can include cancer, cognitive decline, cardiovascular disease, liver disease, birth defects, self-harm, assault, domestic violence and road deaths from drink driving, among many others. The Australian Institute of Criminology estimated in 2013 that the cost of alcohol consumption to the healthcare sector was about $1.7 billion each year, with further costs incurred in the criminal justice system, traffic accidents and lost workforce productivity.

As there are strong links between higher prices for alcohol and reduced consumption levels, alcohol taxes have long been proposed as a harm minimisation measure, often in concert with regulatory changes and information provision. However, Australia's current alcohol taxation system is a mess, with alcohol content taxed at multiple rates, with no rhyme or reason for the variations, bar history and vested interests. Most alcoholic beverages (with the exception of wine) are taxed within the excise system at one of 10 different duty rates based on their alcohol content ('volumetric' taxation). These different rates reflect a range of different concessions, including reduced rates for brandy, draught beer (in kegs greater than 48 litres), non-commercial beer, and beer produced in non-commercial facilities.

Wine is the odd one out. It is taxed under an entirely different system (the wine equalisation tax or WET) based on its value (29 per cent of the final wholesale price), rather than its alcohol content. The implication is that it is possible to buy high-alcohol wines (cask wines and fortified wines like port) at very low prices, despite these products being major culprits in alcohol abuse. To illustrate, the WET on a standard drink of cask wine can be as low as five cents, whereas excise on a standard drink of spirits is over 20 times this.

Any tax reform should aim to raise the price of low-value, high-alcohol products given the hazards these pose for public health.

There are several potential directions for reform, of which the simplest is the application of a single volumetric tax on most forms of alcohol. Exemptions could be made for the first 1.15 per cent of alcohol (consistent with the current policy for beer), as it is not possible to raise blood alcohol levels to a problematic point through overconsumption of products with alcohol content below this threshold.

A volumetric tax is widely supported by experts in prevention of alcohol problems and the various Australian medical colleges. It has sound evidence suggesting it would be effective in reducing alcohol-related chronic illness and premature deaths. Its health benefits would predominantly be realised by current heavy drinkers. The level of volumetric tax chosen by the Australian Government should primarily be driven by the goal of harm minimisation, which in any case, is aligned with the revenue needs of government.

Reducing the current concessions and shifting to a uniform volumetric basis of alcohol taxation would also have the ancillary benefit of making the tax system simpler and less distortionary.

Most of the impacts of volumetric taxes fall on heavy drinkers across the income spectrum, with relatively modest impacts on other drinkers. However, transitioning to a single volumetric tax rate is complicated by other distributional concerns. Taxes on expensive, luxury wines would decrease substantially. For example, the non-GST tax on a $100 bottle of wine would fall from about $15 to less than $5 if the volumetric rate was aligned with the highest current excise rate on beer. This could make moving to a single volumetric tax rate politically unpalatable. Moreover, surveys of public opinion have usually been hostile to alcohol tax increases, though the acceptability of change appears to be greater if any additional revenue is allocated to preventative health policies.

Alternative options that align with the overarching goal of harm minimisation through higher prices for low-cost, high-alcohol drinks might include:

  • modifying the WET to introduce a minimum volumetric tax rate alongside the current 29 per cent rate on the final wholesale price. Liable parties would then pay whichever amount was greater. Its main deficiency would be that it could be complex for wine producers and wholesalers to administer
  • using regulation, rather than the tax system, to increase the price of low-cost, high-alcohol drinks by introducing a floor price per standard drink. However, producers rather than taxpayers would obtain the benefits from increased prices, while different state and territory licensing regimes would complicate its national implementation.

Accordingly, no tax arrangement is perfect. Nevertheless, all of the above are likely to be superior to current arrangements, and address an unjustified anomaly. Combining tax measures with complementary measures aimed at addressing the harm associated with excessive alcohol consumption (such as education and treatment) is likely to amplify the benefits, while also soliciting greater public support.

Too little is known to immediately endorse a sugar tax

More recently, there have been calls by the Grattan Institute and various public health experts for the introduction of taxes on Sugar-Sweetened Beverages (SSBs) in Australia to combat obesity and diabetes (an issue explored in greater detail in appendix D in SP 5).

Seven OECD countries currently impose taxes (Mexico, Norway, Hungary, France, Finland, Chile and Belgium) as do various US cities. The UK Government has announced a Soft Drinks Industry Levy set to begin in 2018 to encourage soft drink manufacturers to reduce their sugar contents below certain thresholds. However, Denmark repealed a longstanding sugar tax in 2014 (and a fat tax in 2013), so the direction has not always been to impose a tax.

Recommendation 2.6 Amend alcohol taxation arrangements

The Australian Government should move towards an alcohol tax system that removes the current concessional treatment of high-alcohol, low-value products, primarily cheap cask and fortified wines.


Ideally, this would be achieved through a uniform volumetric tax rate for alcoholic beverages, calibrated to reflect the health impacts of alcohol consumption. Exemptions could be made for the first 1.15 per cent of alcohol (consistent with the current policy for beer).

A transition period would be needed to allow the wine industry time to adapt.

Phasing out the existing range of concessional alcohol excise rates — including for draught beer and brandy — would also help to simplify the tax system and make it less distortionary.

Alternative models that would avoid significant price reductions for expensive products — with the regressive income impacts this would entail — could include a modified WET (wine equalisation tax) system with a minimum volumetric tax or the introduction of floor price regulation.

However, further work on these options is needed to determine their feasibility in light of likely administrative burdens and implementation issues.

Tax measures should be accompanied by other policies that increase education about alcohol and assist people with alcohol-related conditions.

Putting aside the role of policy, there are strong grounds for Australians to reduce their sugar intake given its contribution to diabetes and obesity. Soft drinks are very high sources of sugar (nine teaspoons in a typical 375 ml can), and may be particularly problematic given high consumption by adolescents.

A tax could have benefits if consumers' reduce their demand for SSBs, or if manufacturers reformulate their products to reduce sugar content, thereby reducing price effects (and their associated income impacts for consumers).

However, evidence concerning the effectiveness of sugar taxes in reducing health risks, especially those relating to obesity, and their optimal design to do this, is still developing. The design of any tax matters, as does its public acceptability. For instance, the UK tax exempts fruit juices and milk products, which can still have high sugar content. Sugar taxes usually relate to beverages, and so there is the potential for people to maintain their caloric intake by shifting their demand to other foods. If properly evaluated, the outcomes of the UK provisions should provide clearer evidence, informing any further action in Australia. In the meantime, nothing precludes discussions with the major manufacturers of SSBs about the scope for voluntary reductions in sugar content.

2.10 Dollars on the pavement that we have not yet picked up

Health is a multifaceted and complex area, with opportunities that extend beyond this report. There are many other avenues for obtaining large public interest gains by making Australia's health system more oriented to achievement of outcomes rather than payment for services. Exploration for these new riches could consider:

  • the design and purpose of private health insurance (PHI). Reflecting the view that its services relieve pressures on the public system, PHI members are the beneficiaries of effective taxpayer transfers of about $8.5 billion in 2015-16. There are multiple concerns about PHI, including premium pressures, risk equalisation arrangements, administrative costs, rebate arrangements, regulation, out-of-pocket expenses, and product coverage and complexity. The cost of prostheses has been a major concern for the industry (accounting for about 14 per cent of PHI-funded hospital costs) and is under review by the Prostheses List Advisory Committee. The Australian Government also formed a Private Health Ministerial Advisory Committee (PHMAC) in late 2016 to examine reforms to PHI. This may address some concerns, but some key questions — most notably the role of PHI in the wider health system — are not a focus. It would be best to re-assess PHI after reforms proposed by PHMAC have been progressed — which is outside the timeframe of the first five yearly productivity review. However, this chapter makes observations about risk equalisation and taxpayer-funded rebates for ancillaries cover, as these warrant obvious policy change (and fit into the issue that governments should only fund evidence-based healthcare)
  • the functioning, funding, role and governance of public health (a multi-jurisdictional responsibility). Many frameworks for healthcare cite public health as the base of a pyramid of policy initiatives. Yet, neither the dollars, the effort, or policy emphasis reflects its position there
  • the role of consumer choice across all of the health system — an issue that is fundamental to a patient-centric system
  • anticompetitive restrictions on medical professionals, including restrictions on entry and unjustified limits on the scope of practice of alternative professions
  • the performance of Australia's health research system, and the capacity for it to translate discovery into good clinical outcomes and commercial success
  • the efficiency and effectiveness of Australia's approval processes for new drugs and medical technologies, including the role for regulatory 'sandboxes' of the kind recommended by CSIRO for low-risk technologies (CSIRO 2017). Recently, the Australian Government has implemented worthwhile changes to approval processes, but there are questions about whether they go far enough (chapter 6)
  • the level of funding of health services — a perennially vexed issue. An evidence-based approach would start to look more strictly at the criteria for making decisions about where to spend money, on whom, when, and for how long
  • the role of private versus public service providers
  • the role and level of patient copayments. The current copayment arrangements vary considerably by place and by the nature of the service, and relatively little research has been undertaken into their impacts on health costs and outcomes in an Australian context. It should not be assumed that wider adoption of copayments or increases in existing ones would be necessarily good (as discussed in section 8.1 of chapter 8 in SP 5). To the contrary, there is evidence that copayments are discouraging chronically ill Australians from seeking the medical attention that they need, which could be raising the risk of more expensive health services later on
  • Australia's pharmaceutical purchasing practices. In the 2017-18 budget, the Australian Government announced sensible shifts in pricing for purchasing arrangements for pharmaceuticals that are likely to shift doctors' prescribing habits more to generic drugs (which have the same molecules as branded out-of-patent drugs, but are cheaper). The Australian Government has also announced changes that would reduce the price of patented drugs. The Grattan Institute has recently recommended further changes — principally pricing listed drugs according to global benchmarks and by requiring that patients bear any additional premium for therapeutically-similar patented drugs within a wider range of therapeutic groups (Duckett and Banerjee 2017). They have claimed this would be worth billions of dollars over the usual budget forward estimates without affecting clinical outcomes. They provide evidence that Australia pays much more for some drugs than the United Kingdom and New Zealand, though there were examples where Australia had the lowest prices. Medicines Australia, which represents many major pharmaceutical companies, rejects the Institute's recommendations and its estimates of savings. The issues are not straightforward. For example, external pricing can be very complex and can be gamed, different pricing arrangements may affect the timing of access to new drugs, and it is not always the case that global price benchmarking produces the lowest price compared with alternative pricing arrangements (Docteur and Lopert 2017; Ruggeri and Nolte 2013; Schneider and Habl 2017; Vogler, Vitry and Ud-Bin-Babar 2015). Given the large differences in drugs prices between countries, the importance of evidence-based decisions about drug listing, and the significance of the Pharmaceutical Benefit Scheme's budget, the kinds of issues raised by the Grattan Institute deserve greater scrutiny.

2.11 The estimated impacts of the recommendations

Based on Australia's experience to date with integrated care, the Commission estimates that implementing the recommendations will lead to substantial improvements in the health of Australians, particularly those who are the most dependent on health services. This would bring welfare gains for the individuals concerned, savings for the health system and gains for the economy more broadly, some of which are reported in table 2.2 (further details are in SP 6).

Table 2.2 Estimated impacts of recommendations.a 2016 prices


After 5

After 20 years

Personal welfare gains from improved health




Personal welfare gains from less waiting




Workforce impact (as a GDP gain)



4 200

Health expenditure dividend


7 900

33 400

Total economic impacts


8 500

38 500

Health expenditure dividend as a share of total health spending




a The interpretation of these measures is discussed at length in SP 6.

Source: Commission estimates.

The net present value of the future stream of economic impacts over 20 years is estimated at about $140 billion, though in any given year the benefit is a fraction of this.

These are conservative figures.

The estimate is based on the assumption that it takes LHNs and PHNs twenty years to adopt an integrated approach to care — reflecting the pace at which LHNs have adopted proven integrated care solutions, such as health pathways. Health pathways are online, evidence-based tools detailing how to treat patients with given conditions.

It also assumes that few regions are able to replicate the effectiveness of leading innovators in integrated care, such as the Western Sydney diabetes initiative and the Hunter Diabetes Alliance.

Reform to our health system could save $140 billion over 20 years

Were Australian LHNs and PHNs to prove more successful at adopting integrated care, the 20-year stream of economic benefits could be over $200 billion.

None of these estimates includes hard-to-measure personal benefits to patients. Avoiding chronic illness may well be worth far more than the gains above.


  1. Three supporting papers for this chapter are available on the Commission's website at and are referenced throughout this chapter using the abbreviation 'SP' and the relevant number. They are SP 4 (Why a better health system matters), SP 5 (Integrated care) and SP 6 (Impacts of health recommendations). Locate Footnote 2 above

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