Inside Story

Medicare’s forty-year update

The federal government’s plans are receiving cautious support in unexpected quarters

Mike Steketee 1 November 2023 2926 words

A bit of sand in the oyster: health minister Mark Butler foreshadowing his Medicare plans at the National Press Club in May. Lukas Coch/AAP Image

If “cautiously ambitious” is the best description of the Albanese government’s approach to reform, it is well and truly captured in health policy.

Its reforms to Medicare have the potential to transform the operation of a system that, despite its reputation for good health outcomes, is creaking if not yet collapsing. Much more healthcare would be delivered through general practitioners and much less through hospitals and emergency departments. Fee-for-service remuneration for doctors, long a barrier to reform, would be diluted by alternative funding models based on the needs of individual patients.

In turn, GP practices would take on nurses, nurse practitioners, physiotherapists and other professionals, enabling doctors to focus on the more complex cases for which their training qualifies them. Continuity of care would be given greater emphasis, particularly for the rapidly rising number of patients with chronic conditions.

That is the ambition. The announcements in the May budget were a first cautious step down this path. Given the history of false starts in health reform in Australia, the challenge will be implementation, and that means overcoming resistance from the medical lobbies. As health minister Mark Butler put it in May, stakeholders in health “have sharp elbows and loud voices and they don’t always agree.”

In the same speech Butler characterised the Medicare scheme introduced by the Hawke government as a great system for the 1980s but wholly inadequate forty years later. That makes a change from the traditional political boast that Australia has one of the best, if not the best, health systems in the world.

Butler said that chronic conditions were now the leading cause of illness, disability and death in Australia. More than 13,000 patients went to hospital ten or more times a year. Rather than sporadic visits to the doctor, he argued, they need a coordinated team of health professionals — GPs, allied health workers, nurses and specialists, among others.

The statistics are confronting. Chronic conditions such as heart disease, diabetes and mental illness comprised 12 per cent of GP case loads in 1962, had more than doubled to 27 per cent by 2015 and are now close to 50 per cent. A fee-for-service system that results in average GP consultations of fifteen minutes is unsuited to such a reality, as are regulations that discourage the involvement of other health professionals.

Butler argued that general practice was in its worst state since the introduction of Medicare, with a fall from 50 per cent to 14 per cent in medical graduates choosing it as a career. Rebuilding general practice is the government’s highest priority, he added, including reversing the substantial decline in bulk-billing.

The biggest gripe among doctors has been the refusal of successive governments to increase Medicare rebates, which remained frozen for a good part of the past decade. Despite that, profit margins for GP practices, which have in many cases expanded from small or solo enterprises into large businesses, have remained at about 35 to 38 per cent of turnover over the last decade, according to the Melbourne Institute. And despite the shortages of GPs in rural areas, OECD figures for 2020 showed Australia with 123 GPs per 100,000 people compared with an OECD average of eighty-eight. One reason for this difference is the dominance of GPs in Australia, compared with a greater reliance on other health professionals overseas.

May’s federal budget funded a small general increase in rebates but also included a more targeted approach, tripling bulk-billing incentives for consultations involving families with children under sixteen, pensioners and Commonwealth concession card holders. That increase translates to an extra $13.80 for a standard consultation in metropolitan areas up to an extra $26.50 in very remote areas. It applies from 1 November, so its effectiveness remains to be seen.

Meanwhile, bulk-billing rates have been falling and the Australian Medical Association has recently recommended higher fees for patients. In some areas outside the big cities the challenge is finding any GP, let alone one who bulk-bills.

Steve Robson, president of the Australian Medical Association, is offering no guarantees on the bulk-billing incentive. “My sense is that it will probably stabilise things,” he tells me. “In the longer term the question is if we are to make care available, equitable and affordable for the patients who are most vulnerable, there are going to need to be more strategies in place than bulk-billing incentives.” Elizabeth Deveny, chief executive of the Consumers Health Forum, is slightly more hopeful. Though the incentive is no silver bullet, she believes bulk-billing rates will rise.

The government is promising fifty-eight urgent-care clinics as alternatives to overburdened and costly hospital emergency departments. Extra funding will help bring what is still an antiquated system of digital health records into the modern age with the aim of ensuring ready access to patient information.

Perhaps of greatest longer-run significance are the other measures announced. The budget provides funding for more nurses, including those working in primary care with GPs, and offers incentives for practices to employ them and other health professionals such as physiotherapists. Again, the idea is to free doctors from tasks that others can perform — signing off on repeat prescriptions, for example, which currently involves four million GP visits a year — enabling them to concentrate on more complex services, including treating chronic conditions. The Grattan Institute estimates that every ten GPs in Australia are supported by three nurses or other clinicians, compared with ten in Britain.

Extra funding is promised for consultations of sixty minutes or more, which are typically required for chronic conditions. Rebates will rise for nurse practitioners, the highly qualified professionals who play a major role in many countries but have been marginalised in Australia.

Under a new MyMedicare program, the government is encouraging patients to enrol with general practices — a system widely used overseas — to provide continuity of care and funding based on patient needs. As Butler said in his May speech: “MyMedicare is the foundation upon which we can build a range of blended funding models to better serve the needs of patients that fall through the cracks of our 1980s Medicare.” It will extend to multidisciplinary care for chronic diseases and frequent hospital users.

The Grattan Institute’s blended funding model would provide multidisciplinary medical practices with 70 per cent of their existing funding through “capitation payments” — payments per patient rather than per consultation — and 30 per cent through fee-for-service. (In other words, the fee-for-service component would be 30 per cent of the current rate.) Capitation is calculated according to the health, risk and socioeconomic profile of patients who enrol with a practice. Practices would be encouraged to opt into this model with a $25,000 grant from the government.

Blended funding, together with many of the government’s other announcements are not so much new as recycled ideas or extensions of existing programs. Stretching back to 1997, several rounds of coordinated care trials have tested multidisciplinary care for mainly complex cases. But they were not continued. Blended funding models were tried in different programs between 2011 and 2014 and between 2017 and 2021.

The Grattan Institute study, which noted that health has seen “more pilots than Qantas,” found that many trials suffered from design problems and insufficient implementation time. It also reported concerns about “stakeholder capture” — a polite way of describing doctors defending their patches.

Creating multidisciplinary teams of health professionals and more alternatives to expensive hospital care harks all the way back to the community health centres established by the Whitlam government in the early 1970s, for which funding was cut by subsequent governments.

“Other countries have reformed general practice and their rates of avoidable hospital visits for chronic disease are falling,” says Grattan. “Australia has spent twenty-five years on a merry-go-round of tests and trials that have not changed the system and our rates are holding steady. We are spending more and more on hospitals, while neglecting general practice: the best place to tackle chronic disease.”

The OECD also stresses this point in its latest economic review of Australia. Noting the relatively high cost of hospital treatment, it points out that hospital admission rates in Australia for diseases that can be treated by GPs are close to the highest in the developed world.

If the history of healthcare in Australia shows anything it’s that reforms are hard-won. When the recently departed Bill Hayden, as health minister in the Whitlam government, moved to bring Australia into line with every developed country apart from the United Sates by introducing a universal national health system, doctors’ groups ran a campaign against “nationalised medicine” that would make Donald Trump proud. One article in an AMA journal compared the threatened “enslavement” of the medical profession to that of Jews in Germany, and a poster featured the slogan “Heil wHITLAm.” Maliciously false rumours were spread that Hayden had been a corrupt policeman and was mentally ill.

Although the Fraser government systematically dismantled Hayden’s Medibank it was resurrected as Medicare by the Hawke government in 1984 — although not without another nasty campaign by doctors spreading false rumours about health minister Neal Blewett, who successfully sued for undisclosed damages.

The Coalition kept campaigning against the scheme until shadow health minister Michael Wooldridge persuaded John Howard to support it in the 1996 election because it had become too popular to oppose. That didn’t stop the Howard government from chipping away and undermining it.

Despite their periods of paranoia, doctors have generally done well out of Medicare, notwithstanding funding cuts under Coalition governments. Not only are they no longer campaigning against Medicare, but they are voicing support for the Butler reforms. The minister’s decision to include representatives of all the main health professions on his taskforce no doubt helped, with its report paving the way for the subsequent announcements. It gave doctors a stake in the plans and allowed them to claim some of the credit.

As AMA president Steve Robson put it, “something unexpected happened” following the AMA’s campaign to modernise Medicare. “Government listened,” he added, and went on to recite a list of budget initiatives.

Nicole Higgins, president of the Royal Australian College of General Practitioners, was positively effusive, welcoming the budget as “a game changer… For the first time in decades we have a government that’s committed to strengthening Medicare and general practice care.”

Former federal health department head Stephen Duckett, until recently health program director at the Grattan Institute and now an honorary professor at Melbourne University, puts this new mood into perspective. “Up until very recently the medical profession was opposed to any hint of any move whatsoever away from fee-for-service,” he says. “What has been announced so far is not going to fix primary care itself but what it is doing is signalling the direction of change. It is like putting a little bit of sand in the oyster: eventually a pearl will emerge.”

In between his work as an obstetrician and gynaecologist and as AMA president, Robson has been studying for a master’s degree in health economics, which he says has fired his interest in and concern about the economic sustainability of the health system. Reminded of the AMA’s reputation as the Builders Labourers Federation of the medical profession, he laughingly responds, “I think that award has gone to the Pharmacy Guild” — a reference to that organisation’s over-the-top campaign against the government’s introduction of sixty-day prescriptions.

But the heavy artillery remains ready to be deployed. Or, as Robson puts it, “There is a time to hold a hand and a time to slap it. At the moment we want to make it very clear that we are very keen to work with the government on sustainability and at the same time to make sure we are respected for the care we provide.”

Given the increased emphasis Butler is placing on the primary care provided by GPs, that approach makes sense for the doctors’ groups. Robson’s interpretation of blended funding under MyMedicare is that extra money for enrolled patients will be provided on top of existing fee-for-service payments — in other words quite different from the Grattan model of patient-based payments substituting in part for fee-for-service. Duckett suspects the Grattan formula, which follows overseas practice, may be too big a political hurdle for the government. Peter Breadon, Grattan’s health program director, says restricting patient budgets to a small part of total funding would be a missed opportunity for meaningful reform.

Given the doctors’ sensitivity, the government is treading warily, not responding to my request for clarification about how blended funding will work. It doesn’t use the word “capitation” in the context of blended funding because it raises red flags. “What we want to get completely away from is the UK system of capitation,” says Robson, a view echoed by the RACGP’s Higgins. Importantly, capitation-based patient enrolment is compulsory in the British system but would not be here. But Breadon argues that the real problem with Britain’s National Health Service is the severe austerity under which it operates, with long waiting lists and chronic workforce shortages. It’s not the British funding model that’s the problem, he says, “it’s the funding quantum.”

Nor, despite the increases in Medicare rebates and the bulk-billing incentive, is Robson making any concessions on rebates. To cover costs, he argues, they need to double from an average $40 per GP visit. As to whether the government is amenable to further increases: “They are not going to have a lot of choice if they want to make the health system sustainable.” So expect some future slapping.

Plenty of problems remain to be tackled. While bulk-billing rates for GPs are falling, they remain higher than for other health professionals. In 2021–22 the rates for allied health services were an average of 51 per cent compared with 88 per cent for GPs.

And in that year nearly half a million Australians decided against seeing a specialist because they couldn’t afford it. On average, about 50 per cent of initial appointments with a dermatologist, urologist, obstetrician or ophthalmologist cost more than double the $90 Medicare schedule fee. As with allied health care, those most affected were the ones who needed the services most, namely the sickest and the poorest.

The Commonwealth Fund, a US-based health research body that conducts international surveys, found that 28 per cent of Australians reported out-of-pocket expenses equivalent to more than US$1000 a year in 2020, exceeded only by Switzerland and the United States among eleven higher-income countries. Thirty-two per cent skipped dental care, which is not covered by Medicare, because of cost, second only to the United States.

Fee-for-service’s continuing predominance encourages overservicing. According to a 2015 OECD study, knee-replacement surgery in Australia occurred at almost twice the rate of France and almost five times the rate of Israel. Antibiotics were prescribed at twice the rate of the Netherlands.

Despite large government subsidies, private health insurance remains a bad deal for many patients, with premiums rising faster than inflation and significant out-of-pocket costs for private hospital treatment. Nor does the evidence show that this form of insurance has done anything substantial to fulfil its claimed objective of taking pressure off public hospitals, mainly because private practice is much more lucrative for doctors, as well as much more expensive for patients.

Prevention remains the Cinderella of the health system, neglected and funded at lower rates than in most OECD countries. Isolated examples of success, including one of the lowest rates of smoking in the developed world, haven’t brought forth similar efforts in areas crying out for attention, such as Australia’s high rate of obesity. The Abbott government abolished the Preventive Health Agency and only now is an interim body planned while legislation is brought forward for an independent Centre for Disease Control, expected to be running by early 2025. Its focus will be on preparing for future pandemics, but it also will have a broader prevention brief.

Then there’s the overall financing of health, which remains a muddle of overlapping Commonwealth and state responsibilities. The states run hospitals but they are jointly funded by the Commonwealth; when problems arise, they blame the Commonwealth and demand more money. Many aged care residents spend excessive and very expensive periods in hospitals because the Commonwealth funds aged care and lacks the incentive to move people to more suitable and much cheaper facilities. Thirty or more years of reports, recommendations and attempts at reform — most recently under the Rudd government — have failed to bring meaningful change.

National cabinet agreed in August to devote a special meeting before the end of the year to this and other issues in health. But there is still no word on a date or an agenda for this meeting.

For Labor, the longer-term question is whether caution will overcome ambition. On this, the last word belongs to Ian Hickie, professor of psychiatry at Sydney University’s Brain and Mind Centre:

Back in 2008 I had a book contract to describe the obvious failings in Australian healthcare. It was planned to challenge the national myth that our system was “exceptional,” literally “best in the world.” I didn’t persist as prime minister Kevin Rudd was promising sweeping national reforms and there was genuine community enthusiasm for a major revamp of Medicare.

How I wish I had persisted! The glaring structural faults in the system have simply grown wider and deeper over the last fifteen years. Now the federal health minister Mark Butler is saying in public what his predecessors would only discuss in private. Our 1980s-style Medicare no longer delivers a fair, equitable or sustainable system… The challenge for the Albanese government is not to get stuck in the arguments about how best to re-design the Titanic. •