A vision for a high performing and sustainable health care system

By Martin Bowles

Tuesday November 22, 2016

Australia,  the United States – and many countries across the globe – face similar issues with their health systems.

We have ageing populations, and rising life expectancy – in Australia, it’s 80 for Australian boys, mid-80s for girls.

At the same time, the prevalence of chronic and complex conditions and their risk factors continues to rise. More than half of all Australians now have at least one chronic disease. Almost one in four has two or more chronic conditions.

Australia like many countries is struggling with obesity – nearly three quarters of us are overweight.

Health consumers also have high and rising expectations about what the health system can provide for them.

We want ready access to primary and acute care, to affordable treatment and medicines, and to high-cost preventive and treating technologies. This will increase as we explore genomics and precision medicine.

In the face of these challenges, Australia retains a strong, safe and quality health system.

By world and OECD standards, our health system performs well and achieves good health outcomes quite efficiently – but for many it’s not affordable and not accessible.

I mentioned our long life expectancy.

Yet we still have a 10-year gap between our Indigenous population the Aboriginal and Torres Strait Islander people and non-Indigenous Australians.

That is unacceptable at any time, let alone 21st century Australia.

Bridging the city–country divide in a continent as geographically dispersed as we are is also an ongoing challenge.

The Australian advantage

The Australian health system is built on two great subsidised pillars of health care – Medicare and the Pharmaceutical Benefits Scheme, or PBS.

Medicare was introduced 32 years ago and, despite the massive changes in health care needs and demands on the system over that time, Medicare continues to serve us well.

Medicare provides universal health care for Australians from cradle to grave – the right to free treatment in public hospitals, and subsidies for services provided by private sector primary and specialist health services with priority determined by clinical need, not capacity to pay.

While it’s up to the individual provider whether or not they charge over and above the Medicare subsidy, most general practitioner services – around 85% – are provided at no cost to Australian patients.

The Australian government also subsidises essential medicines through the PBS minimal co-pays for low income earners; affordable co-pays for the better off.

New medicines are continually added to the PBS as they are proven safe, effective and of benefit to the Australian community. Under the PBS, what could cost an individual tens of thousands of dollars without subsidy, generally costs consumers $38.30 and concessional consumers, such as pensioners and veterans, $6.20.

Together, Medicare and the PBS provide universal access to health care which is found in few countries. But they come at a cost.

The leaking bucket

Medicare costs the Australian taxpayer over $20 billion dollars a year and growing at about 4.5% per annum.

Likewise, the PBS costs us $9 billion – $6 billion for the products and $3 billion to supply them through wholesalers, pharmacies and hospitals.

After some negative growth for the first time in 2014­–15, the PBS is now growing again – by 4% in 16–17 – following the listing of several high-cost Hep C medicines, game changers in the fight against costly, chronic ailments.

And the costs are on the rise.

Over the past 25 years, Australia’s total health expenditure has increased from 6.5% of Gross Domestic Product to 10% of GDP in 2014-15.

And while growth in health has slowed in recent years, it is still growing faster than the economy.

Within the Australian system, our funding mix is complicated. While our annual expenditure is in the region of $160 billion a year on health, funding flows from the federal government, our states and territories and through private insurance or individuals. These sources, fund different parts of the health system which, on occasions, can get quite complex.

The Department of Health now spends about 20% of the Australian government budget. Our states and territories also spend big on health – more than 25% of their budgets. Overall, 41% of health funding comes from the Australian government, 27% from the states, and 32 from the non- government sector, including co-payments by individuals.

It’s a growth trend that’s not sustainable and that’s why health reform is overdue. That’s why doing nothing about health reform was not an option.

We had to find ways to improve, streamline and integrate the system, not continue to just pour in more money.

Health reform

The Australian government’s health reform agenda is about:

  • putting the patient, not the provider, at the centre of the system
  • introducing new models of care and new structures
  • providing better access to services particularly for vulnerable groups, better quality in primary and acute care, and better efficiency.

We are building data collection and analytics into our system so that we can properly assess its performance, monitor compliance, assess health needs, design and fine-tune programs and, most importantly, empower consumers.

For the first time, we’re providing national systems to harness digital technology in service delivery and in-patient records.

The result will be the most comprehensive changes in our health system in decades.

Change is generally uncomfortable – and radical change frequently meets with resistance.

But we are getting better at it.

A key reason has been developing the reforms through extensive and ongoing consultation with those who contribute to the complex web which is our health system – clinicians, industry, other providers and consumers.

We acknowledged that reforms will only succeed through effective partnerships. So we extended our hand, we listened, we learned, we responded to concerns – and created real collaboration across the health system.

Breaking down those barriers which had turned the “system” into a series of fragmented silos.

Artificial barriers between medical and other health care, acute care and primary care, health and aged care, mental health and physical health, state and federal, public and private.

We have drawn all of those elements together into a comprehensive reform agenda.

We are making a coherent whole which works so much better for patients by providing integrated, coordinated care, soon to be funded, and enabled and powered by My Health Record.

These changes are under way. They will give our health system flexibility and the ability to innovate to meet evolving health priorities, and new challenges.

Let’s have a look at the key elements of Australia’s health care reform agenda.

Primary Health Networks

Primary care is the touchstone, the first port of call for most of us when we become unwell.

And stronger, better primary health care is recognised as the key to an efficient and cost-effective health system.

Reforms in primary care are delivering more effective funding and service delivery models – especially for people with chronic or complex conditions, who are the big users of the system.

First we set up a new structure to plan, guide and assess health care at a regional level.

Our national network of Primary Health Networks, covering every part of our nation, began operations in July last year.

Each PHN is advised by a clinical council led by local GPs – to ensure that it focuses on the unique needs of its community.

It works with all local health services, integrating primary, community and hospital sectors.

The PHNs have funding and power to assess gaps (and duplication) in local services.

Fundamentally – and this is the big change – they don’t just identify service gaps. They can commission services to fill those gaps.

Because these Networks are commissioning services, this gives them greater autonomy to make strategic and local decisions that best serve the specific health needs of their community.

PHNs are making primary health care services work more effectively together so that they can give better care to their patients and help them stay out of hospital.

And this now includes mental health services, suicide prevention and drug and alcohol services, with the ice scourge being the latest evil to have so devastatingly affected Australian families.

All government mental health services are now commissioned by PHNs to ensure that the services are relevant to their unique populations.

Nationally, we are also developing a new stepped care approach to mental health care which includes a consumer friendly digital mental health gateway.

The gateway will optimise the use of digital mental health services and technology. It will effectively triage users, directing them to most appropriate online and telephone service or a face to face practitioner depending on their needs.

All patients are different. A regional approach, led by primary health networks, will plan, integrate, and commission mental health services at a local level which will work in partnership with other relevant services.

I think Australians are yet to realise the nation-changing potential that PHNs offer.

Health Care Homes

The other major reform in management of chronic and complex conditions – the health challenge of our times – is a new model of primary health care funding and service delivery.

Health care homes will help people with multiple morbidities to manage their problems – such as diabetes, obesity, mental illness,  heart disease, or any combination of these and other complex conditions.

Under this new model, eligible patients can enrol at a general practice or Aboriginal medical centre which becomes their health care home base.

The health care home will coordinate their different care needs, ensuring that each patient does not get lost in the system.

They will monitor and also empower patients to manage their own health and help them to make decisions about their lifestyle.

The potential benefits are huge. People with chronic and complex conditions are more likely to experience fragmented care.

They also find it harder to navigate the system and so more likely to access costly hospital care.

We are not introducing health care homes nationally to start.

We will begin with a trial in varied regions with varying needs, coast to coast.

Each will be given capitation funding for each enrolled patient – not a fee for each service.

And they will be able to use any mix of professional, remote or supportive services to meet their patients’ needs, no longer relying on a rigid fee-for-service payment system.

Patient outcomes will be measured and compared to those of other practices not involved in the trial and those results will be used to fine tune the model before it is rolled out further.

MBS Review

Patient outcomes are also the bottom line of the review of the Medicare Benefits Schedule, an essential part of the reform agenda.

The clinician-led taskforce is considering all 5700 items on the Australian MBS. Some of those items have been on the schedule for about 30 years, and have never been reviewed.

I don’t have to tell you that clinical knowledge and treatments have changed dramatically over that period.

Are these services still relevant and best practice? Are they being used appropriately?

This is not a cost-cutting exercise – it’s an appropriateness exercise.

It is about ensuring that taxpayers, through Medicare, are funding optimum health care for Australia.

It’s a slow and considered process, carefully investigating each item, line by line, to assess its currency and effectiveness.

The strength of the MBS review is that it is being conducted, not by the bureaucrats, not by the politicians, but by the clinicians themselves – the people who use it every day, who know what works and what doesn’t.

Data from Medicare itself is hugely helpful to the review.

We have been collecting data for decades – but it is only now that we are starting to exploit it.

The amount of data we have at my department is phenomenal, yet we haven’t been using it anywhere near its potential.

That’s why I have put data analytics, evaluation and research at the centre of our policy thinking.

Investing in making sense of our data, and understanding how data links to policy outcomes, is pretty much where we need to go in the future.

There is huge potential here and I am delighted that it is part of the discussions at this symposium.

I must say that it has been a source of considerable pride to me that I have managed to overcome a lot of bureaucratic and political barriers to data sharing.

The states and territories and the Federal government should be on the same page – but historically we have been rivals,

That is in no one’s interests.

It took quite a bit of prodding even of my own department – I was initially given 100 pages of legal advice on why we could not share Medicare data with other governments.

When I said but what if we want to? I was given just a few pages on how it could be done.

This is not an isolated example.

We need data collection and analysis to happen across every part of our health system.

So all of the parallel reforms that are under way now – from pharmacy and therapeutic goods regulation to primary care and mental health – include new elements to use data.

To keep our health system in top shape, we need it to be based on the best evidence – at every level.

So that every taxpayer dollar spent on health is well-spent and lands as close to the patient as possible.

Hospital funding

Hospital funding is a case in point – things are really starting to happen.

Federal and state discussions on hospital funding have, over the past decade or more, been typically arguments – to put it politely – over who is to blame for patients waiting too long.

But earlier this year we agreed to historic funding reforms building on the architecture of national activity-based funding in the hospital system – all aligned to a national efficient price.

This builds on the established efficiency gains already achieved through the national efficient price. Over the past five years, since the introduction of activity-based funding (or ABF), annual price growth for public hospitals has gone from 5.1% per annum to around 2% and projected to go even lower:

  • shaving billions off the federal and state budgets
  • built on collaboration
  • driven by solid data analytics
  • incentivised through revised payments methodology, and
  • externally, independently monitored and publicly reported.

The new public hospital approach is also funding new efficiencies across the public hospital system, cutting waste and duplication and improving safety.

The new deal will mean the Australian government will only pay hospitals for what they do, not what they might do. We will introduce pricing for safety and quality that means when hospitals consistently underperform on patient safety, they pay a price – not the taxpayers or the funders.

Hospitals now have an incentive to pursue quality and efficient care, because their performance is being measured and their payments adjusted for quality of care.

Digital health

Digital technology makes it much easier to collect and interpret data.

It is providing new ways to deliver services in rural and remote parts of Australia; and it hold the promise of greatly reducing errors and duplication in treatments, via electronic patient records.

Australia is now on track to have a really functional, national system for consumers to electronically manage and share their health information with their healthcare providers across the system.

My Health Record is now a consumer and doctor-friendly database with strict privacy controls.

Health consumers can decide who or what services they can share their My Health Record information with.

New incentives have rapidly expanded use of the system by GPs and trials are under way on new ways to encourage consumers to sign up – as it is voluntary. We are trialling ‘opt out’ options in 2 locations with opt out rates currently very low.

My Health Record is also, now, mobile accessible – it works with all smartphones and tablets.

This allows app developers to get on with the innovation to turn this data into useful advice and information for consumers and healthcare providers.

More information for consumers, more evidence, equals better health care.

Rock solid national legislation enshrines the consumer’s privacy, yet enables and drives the productivity and quality benefits for the future.

Private health insurance

Another way that we can empower consumers is to give them better, clearer choices about private health cover.

The reform of private health insurance is a three year program. It will benefit insurers – with reduced costs and the ability to provide more cost effective products to consumers.

Essential elements are:

  • transparent product description
  • progressive elimination of poor policies
  • pulling back unnecessary regulation, and
  • overhauling risk equalisation to incentivise prevention of disease and health promotion.

Aged care reform

I also want to acknowledge our aged care reforms as part of the continuum of health care throughout life.

This is an area which is facing rapid growth in demand. Australians are living longer. We have a large migrant population with different needs, and the vast majority of older people want to live independently for as long as possible.

Aged care is primarily provided by the private sector or not for profit organisations, not by government.

But it is subject to government standards accreditation and other regulation.

A key theme of our aged care reform – like our health reforms ­– is to put people at the centre of their care.

From February 2017, home care packages will be allocated to consumers, who will be able to direct government funding to their provider of choice. Packages will follow the consumer, not the provider. This gives them the flexibility to move to different services as and when they want.

This is something I think all Australians truly appreciate. It opens the door to a major expansion in aged care places – especially community based services rather than residential places.

These reforms are well accepted by the sector.

Again, because we genuinely engaged with the sector in developing and implementing them.

Not only did we undertake extensive collaboration and consultation – we introduced a co-design process for drawing up the detail of the reform.

Effectively that meant that providers and consumers worked directly with staff in my department to work out a solution that everyone was happy with.

We came to a position so well supported that the aged care industry lobbied our parliamentarians to make sure they did not amend the legislation when it went through Parliament.

Aged care reform has been a model – some say the model – in government and sector collaboration.

It will require aged care providers to adjust – of course. But by being genuinely collaborative and sharing their expertise and objectives, they have got a result, and a certainty, that they can work with and benefit from.

Further reform is on the way with the government and the sector working together on a formal roadmap to chart our future directions.

Medical research

Health and medical research is essential to improving both our health care delivery and our health outcomes into the future.

Australia has long punched above its weight in health and medical research. Think Cochlear, think HPV vaccination.

And we continue to pursue innovation in our methods of supporting and funding health and medical research.

We have set up two new funds for this purpose.

Australia’s Medical Research Future Fund is a capital protected fund.

The $20 billion MRFF is a dedicated vehicle for investment in medical research. It will operate as an endowment fund, with the capital preserved in perpetuity.

The Fund will address medical research priorities, drive innovation, improve delivery of health care, boost health system efficiency and effectiveness and contribute to economic growth. Once it matures in four years, it will effectively double the government’s contribution to medical research.

It will influence research directions, encouraging strong partnerships between researchers, healthcare professionals, governments and the community.

It’s not a one-off – its flow of funds for research will continue for many years.

Complementing it is the Biotechnology Translational Fund.

As the name implies, it will provide funding specifically for the commercialisation of biomedical research into new products and services. It will give us an innovative approach to stimulate rather than replace private sector investment and ensure that more of our cutting edge research benefits patients.


Reforming a complex health system is not easy. It requires everyone to come on board. How do you achieve that? The short answer is – together.

To succeed, health reform needs to meet several criteria:

  • Meaningful engagement and involvement by all in the space – political vision, bureaucratic capability, and stakeholder consensus
  • It needs to assert the integrity of reform – in other words, it needs to be real not rhetorical, not change for change’s sake
  • It needs to tick two essential boxes – patient centricity and system sustainability
  • It needs to be cohesive – not piecemeal, but underpinned by a long-term, integrated strategy.

I have put a lot of effort into strengthening my department’s ability to be the centre of policy advice, a strategic advisor to government, and the steward of the national health system.

We have shifted our thinking from being tactical and responsive, to being strategic and forward thinking.

Being open to advice and other views, being sincere in consultation.

Our health system is highly valued by Australians. It must reflect our national ethos – a fair go for all.

The reforms I have talked about tonight will improve the performance and structure of the health system for all Australians, in a financially responsible way.

This is in turn will ensure the future of universal and affordable access to care and medicines.

The results so far are very encouraging.

This article is based on Martin Bowles address to the Commonwealth Fund Symposium in Washington DC on November 16.

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