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Universal health care is the cheapest option.
Anything less costs more.

Starving the health system of money and resources is the economics of stupidity. Any savings are soon eclipsed by the massive cost to the economy, to the society and to government budgets.

For decades – and particularly in the last 20 years – governments have reduced the growth in their health budgets by transferring the financial responsibility to individuals. This has caused many problems – and, as a result, healthcare in Australia has become less cost-efficient and less equitable. Eventually, many of these costs rebound on government which ends up paying more and getting less.

Most individuals do not have the personal wealth to meet the ever-increasing costs of care. Private health insurance is becoming too expensive for many individuals, who are downgrading or abandoning their cover. Patients have no pricing power when dealing with doctors or private hospitals: the power and information are all on the supplier’s side.

So prices increase unchecked, and those who cannot afford private care are thrust into a public system which too often cannot deal with them adequately or at all. People who cannot access a GP have nowhere to go except to an emergency department that cannot handle them. People needing a specialist consultation must pay up or wait for years on a public hospital outpatient list. Only emergency cases can be reasonably assured of getting the acute surgical and medical care they need. Others wait, often in pain, until they too become emergency cases. By then, their treatment is much more expensive.

RATIONING TIGHTENS, SO COSTS SOAR

As overcrowding worsens in public hospitals, staff work less and less efficiently. Fewer patients are treated and each one costs more.

The shape of the future can be seen in the experience of Tasmanian hospitals, which have for many years been Australia’s most resource-constrained. In 2015-16, the cost of treating an average inpatient was in line with the national average. For a while, doctors and nurses nationally and in Tasmania were able to deal with increased caseloads, so per-patient costs briefly declined. But overcrowded hospitals are always less efficient, so before long costs started to soar. Nationally, the cost of treating an average inpatient rose by 9% in two years; in Tasmania, where overcrowding was the most serious, the increase was 23%.


The currently available costing figures only go up to 2019-20, so they do not reflect the full seriousness of the situation that has now spread to every state and territory. As overcrowding worsens in almost every major public hospital, they face the same pressures as those already in Tasmania. As the chart above shows, this trend began around the nation well before the start of the pandemic in March 2020.

When hospitals can no longer deal with every patient needing care, rationing is the only option. Measuring this is a bit technical, but bear with me.

There are two main measures of what it costs, on average, to treat each patient. One is a crude measure – the total number of inpatients divided by total cost. The second weights each admission for cost and complexity. By comparing the two, we can find out whether there’s a trend toward treating more complex and urgent cases – which are more expensive than average – with less complex ones.

If all patients needing care were being treated, you’d expect these two measures to be more or less in line with each other. But when there are fewer weighted than unweighted cases, it means more serious and expensive cases are being treated at the expense of those that are less serious. When you can’t treat everyone, the most serious cases get priority.

This chart measures that gap – for the bell-wether state of Tasmania, and for the nation as a whole. Nationally, the gap increased by a quarter over a six-year period. In Tasmania, in contrast, it almost tripled in the first four years before the state government began (yet another) elective surgery blitz. This treated disproportionately large numbers of people needing cheap cataract and colonoscopy procedures. So the gap temporarily narrowed.

Since then, the overcrowding in public hospitals across the country has soared. Because rationing of care is the only short-term way the hospitals have of dealing with this, we can expect the Tasmanian situation to be duplicated widely around Australia.

 THE CRISIS IN GENERAL PRACTICE

A 2019 report by Deloitte Access Economics estimated that by 2030, Australia’s shortage of full-time equivalent GPs would be 9,300 greater than it was in 2019. Even at baseline, there was a major shortage, most serious in the three biggest states. South Australia and Western Australia arguably had enough, though not necessarily in the right places. But by 2030, all jurisdictions except the Northern Territory can expect to have serious and worsening shortfalls.

 

Once again, we can see the economic stupidity of neglect. Even these dire figures would be worse if Australia had not been able to recruit so many GPs from other countries – often, countries that need doctors even more than we do. Cutting back on training places, in line with the government’s policy of slashing university budgets, means Australia cannot train anything like the number of doctors it needs. And because the Medicare rebate has been severely cut back by the government's five-year freeze, a greater proportion of graduates are choosing to go into specialities where they rely less on Medicare, earn more for greater status and, often, less work.

As the GP shortage escalates, it becomes harder and harder for patients to see a GP. In some areas – particularly in the country – all practices have closed their books to new patients. Even existing patients must often wait far too long for an appointment.

As the Medicare rebate has become increasingly irrelevant to the costs of running a practice, doctors protect their incomes by charging patients. The government is fond of claiming that bulk-billing rates in general practice are high – currently around 90% – but the statistics lie. If a doctor notionally bulk-bills a patient but separately charges a co-payment, that consultation shows up as being bulk-billed. It has been estimated by UTS academic Dr Margaret Faux that non-compliant billing by doctors accounts for between 5% and 15% of Medicare’s cost, or $1.2 billion to $3.6 billion. The practice is common, largely because of what Faux calls the “labyrinthine” nature of Medicare rules. Doctors don’t intentionally mislead – but they do anyway.

THE NURSE SHORTAGE

Around the world, nurses are in short supply. Every Australian jurisdiction is trying to recruit from within Australia and overseas. The Labor proposal for nurses in aged care facilities will further stretch the supply and increase competition.

This country has failed for many years to train enough nurses. And the pressures of working in chaotic, overcrowded and under-funded hospitals causes widespread burnout and problems with mental health, so large numbers of qualified, experienced nurses have left the system. There are major, ongoing problems with wages and work conditions that state and national governments have consistently ignored.

The most authoritative study of nurse shortages was completed in 2014 by the government’s own Health Workforce Australia. From a 2012 baseline, it projected the likely levels of supply and demand through to 2030. By 2030, the authority concluded, Australia would need an extra 123,000 FTE nurses just to get the health system back to the limited capability it had in 2012. According to that estimate, we will need almost 50% more nurses than we actually have.


It’s not as if the government hadn’t seen this coming. They were warned by their own agency eight years ago – amid many warnings from multiple experts – that training, recruitment and retention needed to be urgently improved. Little was done, and here we now are.

That neglect has created three sets of costs. The first is the need to create all those extra nurses, through increased training, recruitment of within Australia of people who have left nursing, and improving wages and conditions to encourage retention. Every Australian jurisdiction will have to compete with each other and with the rest of the world.

The second set of costs is the damage to other aspects of the health system. Without enough nurses, almost every other area works below its optimum capacity and efficiency. That’s yet another driver of increased costs. Once again, governments end up paying more and getting less.

The third set of costs is to patients who have been denied the care they need. This is likely to be the greatest cost of all, although the most difficult to identify and calculate.

 WHO PAYS THE PRICE OF NEGLECT?

The price of illness is more than the costs ascribed to the health system. The impact on patients also comes dearly.

Health economists use a tool to assign a dollar value to the length and quality of life as a result of illness. It’s called a Disability-Adjusted Life Year (DALY), and it’s a proxy for a single year of perfect health. In Australia, any intervention that costs $50,000 or less to achieve a single DALY is regarded as cost-effective.

The total economic impact of avoidable ill-health is impossible to quantify, but $50,000 for a single DALY gives us some idea. It is immense, and almost certainly eclipses the money taken away from the health system in the name of fiscal responsibility.

 

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