Peter Dutton (Dickson, Liberal Party, Shadow Minister for Health and Ageing) Share this | Hansard source

The National Health Reform Amendment (Independent Pricing Authority) Bill 2011 proposes to establish the Independent Hospital Pricing Authority. It will amend the National Health Reform Act 2011 to provide for inclusion of provisions relating to the Independent Hospital Pricing Authority. It will add a new chapter (4) establishing the Pricing Authority and providing for its functions, powers, obligations, liabilities, privileges, membership, appointment, formation of committees associated with its functions, staffing and procedures. Another additional chapter (5) includes provisions relating to privacy and confidentiality.

The Independent Hospital Pricing Authority, we are told, is to promote improved efficiency in, and access to, public hospital services by providing independent advice to the Commonwealth, state and territory governments about the efficient costs of services and to develop and implement systems to support activity based funding for those services. It is to formulate the national efficient prices for healthcare services provided in public hospitals funded on an activity basis and make decisions about block funding for hospitals that are too small, remote or otherwise unable to be funded on an activity based mechanism. The authority, we are also told, will deal with cost shifting issues between the various jurisdictions and cross border disputes. The bill provides for the formation of two committees to assist the pricing authority: firstly a clinical advisory committee to advise on the formulation of case-mix classifications for healthcare and other services provided by public hospitals and, secondly, a jurisdictional advisory committee which will maintain a schedule of public hospitals and the services each provides, advise on funding models for hospitals and determine adjustments to the national efficient price to reflect variations in the costs of delivery of healthcare services.

It has taken a long time to get here. I quote from an article posted by the Parliamentary Library titled: 'National Health Reform Agreement: what might it achieve?' It reads:

After nearly four years in government, an 18 month independent inquiry into the health system, a Prime Ministerial listening tour of the nation's hospitals, several fraught Council of Australian Governments (COAG) meetings and one unsuccessful attempt, the federal Labor Government has finally secured a health reform deal with all states and territories.

The National Health Reform Agreement announced this week is essentially a detailed implementation plan for the Heads of Agreement on National Health Reform, which was negotiated at COAG in February 2011. Most commentators agree that the scope of reform has been scaled back over time. The reforms outlined in this Agreement and the earlier Heads of Agreement are less extensive than those outlined in the April 2010 National Health and Hospitals Network … Agreement … The contentious proposal to hold back GST from the states in order to fund reforms has disappeared …Other discarded reforms include plans for a Commonwealth 'take over' of primary health care and to become the majority funder of public hospitals.

So that is this government's record as assessed by an independent source.

What we have before us today is a bill to establish the third new bureaucracy created under the government's National Health Reform Agreement. This latest body comes at a cost of almost $100 million over the forward estimates. Indeed, the acting CEO for the interim pricing authority, Dr Tony Sherbon, told the Senate inquiry that the pricing authority when fully functional would have a full-time staff of 42 and would cost around $31 million dollars this year. Now this bill follows legislation to establish the National Health Performance Authority. The performance authority is to monitor and publish reports on the performance of local hospital networks, public hospitals, private hospitals, primary healthcare organisations, and other healthcare organisations providing health services.

It will also formulate performance indicators to be used as measures of health service providers' performance; collect, analyse and interpret performance data; promote, support, encourage, conduct and evaluate research relating to the performance of health service providers; and advise the Minister for Health and Ageing on the performance of health services providers.

And before the performance authority came the establishment of another related body—the Australian Commission on Safety and Quality in Health Care as an independent authority. Still to come is a national health funding organisation with a national health fund administrator and no doubt administration to distribute federal and state funding to hospital networks. I am sure the House will recall this was originally going to be another independent authority. It was held up at the time by the health minister and former Prime Minister Rudd as the body that would ensure transparency about where every dollar came from and went to in relation to public hospitals. Members will remember it disappeared almost immediately after it was announced—as the ABC's AM program reported on 17 June 2010:

The Rudd Government has made a pre-emptive strike on one of its health reforms, even before the measure saw the light of day.

The Federal Government has been accused of axing a health funding watchdog, which was supposed to oversee payments to the states under its new health and hospital network.

…   …   …

A spokeswoman for the Minister says the decision to scrap the funding authority removes a layer of bureaucracy, and she says the Commonwealth's investments in health will be transparently reported in the Budget papers.

Questioned about this matter later, Minister Roxon told journalists:

… we've made it … clear we don't want to increase the size of the bureaucracy—it's not appropriate for us to establish an authority where there is not a need to do so.

In Labor's health reform mark 4—the deal of August this year—the funding body is back. All this is simply instructive as to how Labor has lurched from one so-called reform deal to the next: not really knowing where it was going and doing whatever deals it could to be seen to be doing something.

Now all these additions to bureaucracy come at significant costs of several hundreds of millions of dollars—dollars that the coalition considers could have been better spent on frontline services. The coalition supports a move to activity based funding, but we do not accept that all of these new authorities are needed to achieve change in hospitals and the healthcare system when there is a health department with 5,000 staff already in existence within which the commission on safety and quality has functioned for years. Perhaps this minister and Prime Minister and government as a whole should have taken more heed of their former finance minister, Lindsay Tanner, with regard to these matters when on 14 October 2009 he had this to say about creating new authorities:

The indiscriminate creation of new bodies or failure to adapt old bodies as their circumstances change increases the risk of having inappropriate governance structures. This in turn jeopardises policy outcomes and poses financial risks to the taxpayer.

Mr Tanner also said:

Incorporating a new function within a department is almost always the preferred option because of the difficulties a small body faces in meeting its own needs.

Plenty of food for thought there for a government that splurges taxpayer funds in every direction and often, sadly, for very poor outcomes.

Now the organ this bill is creating—that is, the pricing authority—would definitely fall under Lindsay Tanner's criteria and it faces a monumental task. It is worth noting that only the largest hospitals, a minority of the nation's hospitals, will actually operate under an activity based funding model. We have not heard any firm figures from the minister on this, we only have the numbers that Mr Rudd revealed in 2010 as he bragged about how activity based funding would transform the health system only to find the states warning it would lead to closures of smaller and regional hospitals. The then Prime Minister was forced to hurriedly backtrack and assure that block funding would continue for most hospitals. At that time he told the ABC's 7.30 Report:

Of the 764 [hospitals], you got about 165 who are the larger hospitals, that is those who are delivering large-scale accident emergency services and surgical services, etc. They'll form the core element of the activity-based funding arrangement. The others are very small hospitals, usually in rural areas and these will be funded by what we call block funding arrangements, enabling those smaller hospitals, … providing lesser levels of service to continue in the future …

It is also worth noting that most of these bodies that Labor insists are necessary for reform in Australia's health system were supposed to be operational from July this year. But as the government's attempts to negotiate with the states staggered from April last year to February this year then to August before the Commonwealth could secure an agreement, we are left with a somewhat uncertain timeframe for the formation of these bodies and the formulation of their requirements on hospitals and the health system more widely. Given the missed time lines already, it is perhaps foolhardy for the minister and the government to continue to set new time lines, but that is what they have done. In her second reading speech on this bill to establish a pricing authority Minister Roxon told the House:

….the reform agreement will deliver activity based funding across the country from 1 July 2012. Local Hospital Networks will be paid for the services that they actually provide.

Now, there are more than a few concerns about that. The pricing authority is yet to be formed. Local hospital networks do not exist in parts of the country and they, too, will only be in the process of formation around that deadline. It is a formula for trouble—something this government is all too accustomed to. Again the minister is ignoring warnings that it could go off the rails. An article in the Australian of 21 February this year says:

Health experts are warning the federal government to push back its self-imposed 16-month timeframe for the introduction of activity-based funding for public hospitals, saying much more planning is needed.

Well, we are no longer 16 months away—we are just eight months away from the deadline—and the government is no further advanced than it was in February this year.

One of the experts the Australian quoted was John Dwyer, the founding president of the Australian Health Care Reform Alliance and former head of medicine at Sydney's Prince of Wales Hospital. He told the newspaper that 'July 2012 was not an achievable deadline' for introduction of activity based funding.

The Australian Healthcare and Hospitals Association executive director Prue Power was quoted as 'cautioning the government to go slowly in this process towards national pricing…it needs to be done very carefully'. She went on further:

We have to be able to measure quality outcomes before we can really apply a national approach to funding, and we can't do that until we have better measurements.

According to the article she said:

That's going to take longer than the (July 2012) timeframe ... it will take at least another year, maybe more.

Now, I would have thought those warnings would be cause for the minister to at least pause and consider the way ahead, because the government has been here before. The minister should recall that the Healthcare and Hospitals Association warned as early as March this year that the government was failing to recognise the formal role of state and territory governments as majority funders and system managers of public hospitals and health services when it was formulating legislation to establish the National Performance Authority, an entity related to the pricing authority. The minister pushed on then, even though the warnings were sounded again during a Senate inquiry into the Performance Authority Bill. The House, I am sure, will recall the outcome. The minister had to put that legislation on hold, go away and redraft a substantial number of significant amendments acknowledging the very fact that the states owned and operated the nation's public hospitals and Canberra could not impose its will upon them.

The contents of this bill do not match the rhetoric of the health minister and the former Prime Minister from the time the Independent Hospital Pricing Authority was first mooted. While this new pricing authority is to set a national efficient price for each activity conducted in hospitals, that price will only guide the Commonwealth's contribution to growth funding for public hospitals. As Catholic Health Australia points out in its submission to the Senate inquiry:

The bill needs to be understood for what it does not do; it does not set a nationally agreed public hospital payment.

Catholic Health went on:

It is therefore understood that where as the Authority will determine a national efficient price, it will remain a responsibility of State and Territory Governments to determine the actual amounts paid for hospital services ... there may not be certainty on how much the States or Territories will actually contribute.

So for the states, the national efficient price set by the pricing authority will be advice—that is, it will be nonbinding. Payments the states make to their local hospital networks could be above or below that price at their discretion, which may all mean that the blame game, which Australians were told would be ended by Labor's changes to the health system, may remain very much alive. As the Bills Digest states:

It is likely that debates about the adequacy of public hospital funding by each level of government will continue for some time.

The COAG communique of April last year also made another commitment about the pricing authority—that it was to end the blame game. The communique stated:

As a further measure to address cost-shifting, the Independent Hospital Pricing Authority will be empowered to make binding determinations about cost-shifting and cross border issues in the health and hospital system.

Unfortunately, it is yet another commitment that appears to have disappeared when this bill was finally brought before the House.

I refer back to the Bills Digest assessment on this point. The digest says the bill empowers the IHPA to investigate cost-shifting and cross-border disputes and define cost-shifting and cross-border disputes, and sets out processes jurisdictions must follow to initiate an investigation by the IHPA. But it then goes on:

It—

the bill—

is silent, however on what actions jurisdictions must take if they are found to be complicit in either cost-shifting or in a cross-border dispute. In the event of a cross-border dispute the IHPA may provide advice to the Commonwealth about funding adjustments to relevant jurisdictions.

It went on to say:

The Commonwealth has limited powers with regard to the operation and management of public hospitals and is unable to compel a jurisdiction to make payments to other jurisdictions or alter their policy settings.

The digest points out that the pricing authority can publish information about jurisdictions found to be cost-shifting, but its advice to health ministers about the matter is not publicly available. It concludes on the point:

This would appear to undermine transparency and the extent to which these disputes can be resolved.

Now, throughout this odyssey of so-called health reform under the Rudd and Gillard governments, all the measures have been trumpeted to the public as being actions to ensure transparency and accountability in the healthcare sector. Yet key stakeholders constantly point to a perceived lack of both transparency and accountability of the pricing authority.

In the minister's second reading speech the following statements were made:

The authority will have strong independent powers: it will be for public hospitals what the independent Reserve Bank is for monetary policy. This is unprecedented for the public hospital system.

The result will be a thorough and rigorous determination without fear or favour to governments. The government is confident that the authority will provide the health system with the stability and robustness that the Reserve Bank has provided for monetary policy for decades.

The Australian Private Hospitals Association begs to disagree, noting in its view the disclosure regime for the authority does not aspire to the same standards as those required of the Board of the Reserve Bank. Its submission to the Senate stated:

APHA believes these provisions fall a long way short of the practise of the Board of the Reserve Bank of releasing its decisions and its monthly Minutes publicly with no prior comment by the Executive.

Dare I say, it is yet another case of over-the-top, overblown rhetoric by the minister?

I turn to some of the other concerns expressed in submissions to Senate committee inquiry and raised during the committee's public hearings. The Healthcare and Hospitals Association, the peak body for the public hospitals that will be affected by the pricing authority, warned in its submission that the government must take care because the authority's decisions would have an immediate and wide impact on hospital services across country and that, rather than drive reform, there was a serious risk the introduction of activity based funding in this form would simply reinforce existing models of care. It believes the authority should not be based in Canberra and it wants due consideration given to the burden of compliance on hospitals. Its submission states:

The development of new classification systems invariably translates into additional requirements for the information systems capturing data. The cost of upgrades to systems and staff re-training to capture data consistent with any new classification systems … could be a significant risk for hospitals and will need to be taken into consideration by the IHPA and others.

The minister has reiterated to the House the National Health and Hospitals Reform Commission estimate that the introduction of activity based funding could result in efficiencies in hospitals that would make savings of $500 million to $1.3 billion. The Healthcare and Hospitals Association warns that those expectations may be 'unrealistic'.

The Australian Medical Association picked up on similar theme, also calling for every effort to be made by the authority and government to 'minimise data collection duplication and therefore unnecessary administrative burden on healthcare providers'. The AMA also submitted that there remained a problem regarding the collaboration between the pricing authority and the other new authorities this government has instituted. This is a matter the coalition has been concerned about since the first bill to create the first authority, the safety and quality commission, was introduced. We have sought that the government provide all the legislation for each of the authorities together so that the full extent of their impact on the health system and their possible duplication of roles could be understood and canvassed. The government ignored this reasonable proposition and continued in its piecemeal fashion.

As I commented earlier, the result of this approach was a considerable number of significant amendments to a previous bill. The situation remains unresolved. The Australian Institute for Primary Care and Ageing, which has made this point before, summed it up in its latest submission, stating:

There is very little integration between the statutory bodies … there is a risk of duplication or even triplication—

which could—

create a significant burden for health services ... their isolation from each other is counter productive….

They are comments with which the coalition certainly agrees.

I turn now to what appears to have been a critical weakness in the way the government has proceeded here, and it is the lack of involvement of the private sector. The Australian Private Hospitals Association, Medibank and Catholic Health Australia all pointed out the importance and expertise of the private sector in provision of both public and private hospitals services in Australia. That expertise has been untapped. As the APHA pointed out:

Private hospitals have for many years been contracting with private health insurance funds, as well as with the Department of Veterans' Affairs on the basis of funding for activity carried out.

The regime is rigorous and well understood by the private hospital sector.

This depth of expertise in the private hospital sector has been a continuing cause for query by APHA that the private hospital sector has not to date been consulted by the government about its public hospital funding reform agenda. APHA has frequently offered to make its members' expertise available. They said:

We believe we have a real contribution to make, given that private hospitals perform 65 per cent of all elective surgery in Australia.

We were disappointed, but not surprised, to see no reference in the Bill to the need to draw on the knowledge held by the private hospital sector.

Catholic Health pointed out that it operated 21 public hospitals in Australia, some of them large, iconic, well-known public hospitals, providing 10 per cent, or 2,700, of the nation's public hospital beds. While considered public hospitals, they operated in a vastly different way from public hospitals operated by state governments. Chief Executive Officer of Catholic Health, Mr Martin Laverty, told Senate hearings that for this bill to be effective it needed to have regard to the unique nature and the slightly different legal status under which CHA's 21 public hospitals operate. He said:

Nearly all of the evidence presented to this inquiry from organisations will argue, and we are no different, that the operation at both government and operational level of this authority should involve people from outside of the public sector, outside of government.

Medibank pointed out to the committee the expertise it had gathered over a long period of time in negotiating with healthcare providers for efficient price outcomes and effective health outcomes. It offered to share that expertise with the new authority; I would hope that is taken up. It is difficult to understand that that expertise in the private sector has not already been taken up.

The government has before it a Productivity Commission study into public and private hospitals, which found: on average: that treatment in private hospitals costs less per casemix adjusted separation than in public hospitals; when analysing the costs that private hospitals can control, they found that they cost 32 per cent less than public hospitals; private hospitals have a more complex casemix than public hospitals; and private hospitals offer more timely access to elective surgery. Analysis by the commission also showed that private hospitals carry out more elective surgery with patients from disadvantaged socioeconomic backgrounds than public hospitals. As the Private Hospitals Association stated, there are:

… compelling reasons why the private hospital sector should be an integral part of developing reform solutions …

Finally, a number of the submissions regarding this legislation raised concerns about how teaching, training and research would be funded under the new pricing authority and activity based funding. The department appeared before the Senate committee and advised that in the Commonwealth's agreement with the states there are specific provisions for these crucial areas to be block funded under negotiations yet to be undertaken. Regarding many of the other matters raised, the department assured that the framework of operations for the pricing authority would allow for input from all sectors of health care and other interested parties. We wait to see the outcome.

But the question posed by the numerous policy and program outcomes this government has inflicted upon Australia is simple. Can we trust the Gillard government to get it right? Can we trust them to deliver on the commitments that they make? The track record, unfortunately, does not provide confidence that we can. The coalition does not oppose this legislation, but we raise as part of our contribution to this debate all of those learned contributions. In flagging concern about the government's efforts in this area we hope that they heed some of that concern and we fear that basically, by ripping away the independence that was first projected, this government sets itself up to fail on yet another area of public policy.

See this speech in context