managed competition the future of health care funding? dr richard scotton

Managed CompetitionManaged CompetitionThe Future of Health Care Funding?The Future of Health Care Funding?

Dr Richard Scotton

MANAGED COMPETITION MANAGED COMPETITION

1. WHY?

2. WHAT IS IT?

3. WHAT WILL IT ACHIEVE?

4. IMPLEMENTATION

MANAGED COMPETITION :MANAGED COMPETITION :WHY?WHY?

The basic objective of Medibank / Medicare was EQUITY

Historically, this is the primary reason for government

intervention in health care.

NOTHING HAS CHANGED IN THIS RESPECT


On the contrary,increasing inequalities in income

(and associated health status) have given increasing

emphasis to the equity objective.

The only acceptable basis for health care financing is:

a system which operates within a universal, equitably

financed framework.


What has changed since the introduction of Medibank / Medicare?

(i) Massive and continuing increases in complexity of

inputs : diagnostic and treatment technologies

outputs : investigative and treatment processes,

(i) Corresponding increases in the efficacy and cost of state-of-the-art health care.

[Note that this INCREASES the social importance of the equity objective - - - - - when health care was cheap and useless,

accessibility was not a social issue]

MANAGED COMPETITION:MANAGED COMPETITION:WHY?WHY?

What are the implications of these developments for policy?

Basically, that it has become MUCH more important to achieve

efficiency

(i) in economic sense (allocative efficiency -- to secure best use of scarce resources allocated to health care)

– this includes lowest cost methods of doing what is done, AND

– use of lowest cost path for satisfying wants, and

(ii) in achieving the (extra-welfarist) objective of using health care resources in such a way as to maximise health gains.


The present combination of

(i) program mutiplicity and fragmentation

(ii) funding & service overlaps between Commonwealth and state governments and authorities

(iii) disjunction between public and private sector funding and service provision

(iv) remuneration arrangements largely unrelated to outputs and outcomes

impose barriers to greater efficiency and, to some extent, offerpositive incentives to inefficiency.

MANAGED COMPETITION:MANAGED COMPETITION:WHAT IS IT?WHAT IS IT?

Taken together, these considerations point to the desirability of moving toward a more comprehensive model,

WITHIN THE UNIVERSAL FRAMEWORK, incorporating efficiency-promoting structures and incentives.

Such a model would involve:

(i) amalgamation of programs, with population-based funding

(ii) a greater role for market competition in the health caresystem, and

(iii) substitution of market incentives (i.e price signals) for many features of the command economy ( i.e. government regulation, subsidy of providers and direct service provision).

MANAGED COMPETITION :MANAGED COMPETITION :WHAT IS IT?WHAT IS IT?

This is the background to my prescription of managed competition.

The problem is to devise a framework which will make market forces operate in the theoretical manner,

taking into account the special features which complicate the treatment of health services themselves as tradeable commodities . . . . .

(unlike some “economic rationalist” proposals)


FIRST,

All existing publicly funded programs to be combined into a single program:

- - - - - hence

removing barriers to efficient substitution


SECONDLY

Clear and separate roles for Commonwealth and state governments:

Commonwealth government:

* to legislate and regulate coverage, benefits and the “rules of the game”;

* to collect revenue and pay for all services, by risk-adjusted capitation grants to budget holders

State governments:

* to plan and provide publicly provided health services; * to supervise and underwrite regionally-based public budget

holders

Note: This would eliminate cost-shifting


THIRDLY

Private sector funding and service provision would be substantially integrated into the national program:

* private budget holders would receive risk-adjusted capitation payments for all people enrolled with them

* and would provide them with all benefits and services covered by the program

* but would also collect premiums to cover administrative costs and additional services (including, at least, a minimum access to private hospital care -- not covered

by public budget holders)


FOURTHLY

BUDGET HOLDERS are the core element of managed competition. Their functions would:

* be to provide (or contract for the provision of ) all covered services to the people enrolled with them

- - - in return for the risk-adjusted capitation payments paid by the Commonwealth government on behalf of the enrollees

Hence, they would fulfil the dual roles of insurers and of organisers of service provision.


FIFTHLY

More on budget holders:

Since they would receive global income based on the needs of their enrollees, they would have strong incentives to control costs by

(i) bargaining keenly with providers in purchasing/contracting for services, and

(ii) managing service use/provision to achieve

efficient cost control and resource allocation


SIXTHLY

Service providers (public and private) would have to contract with budget holders

-- either directly, or through sub-contracting agencies (which would include state governments in the case of public providers)in order to be remunerated for their services.

The form of remuneration would depend on the contract, but could be expected to include episode and population-based components, in addition to fees-for-service.

Profound changes in the structure and organisation of service provision could be expected to evolve as a result.


FINALLY

This has been a sketchy outline of what is necessarily

-- a complex solution to an extremely

complicated set of problems

The best descriptive account is in Mooney & Scotton:

Economics and Australian Health Policy, ch.11

MANAGED COMPETITION :MANAGED COMPETITION :OUTCOMESOUTCOMES

The rationale of the managed competition proposal --

is NOT conceptual neatness

but that IT IS THE ONLY WAY

IN WHICH IT WILL BE POSSIBLE TO DEAL WITH A NUMBER OF

SPECIFIC PROBLEMS

- - - - - which are increasingly intractable under the present

arrangements.


(1) COSTS

(a) How to contain total outlays on health care in the face of rising real costs, without imposing increasingly severe and arbitrary rationing of particular services AND/OR extending inequalities of access

(b) (subset of the above) how to contain the costs of pharmaceuticals

(c) (another subset) how to improve management of aged care

(d) how to improve management of care provided to people with multiple and/or chronic and degenerative conditions-- i.e. co-ordinated care


(2) SERVICE DELIVERY

(a) how to maintain and support the public hospital system

as a pillar of the health system as a whole

(b) how to support and improve the availability of health

services to non-metropolitan populations

(c) how to improve/support the primary care system (esp.

general practice), with emphasis on efficient use of

all resources, including people with qualifications

other than medical degrees


(3) ORGANIZATION

(a) how to resolve disjunctions in the system due to inconsistencies between private and public sector financing and provision - - - - the growth of corporate medicine will intensify this problem

(b) how to make better use of the $2 billion plus private health insurance subsidy

(c) how to eliminate Commonwealth/state service overlaps,cost -shifting etc

MANAGED COMPETITION :MANAGED COMPETITION :IMPLEMENTATIONIMPLEMENTATION

ESSENTIAL STEPS (1)

RISK-ADJUSTMENT CAPITATION FORMULA

-- central to operation of the scheme.

considerable progress has been made with the development of DCGs (diagnostic cost groups), a classification system which is methodologically similar to DRGs.

Like DRG payment systems, their operation would generate further refinement of the categorisation and costings.

MANAGED COMPETITION:MANAGED COMPETITION:IMPLEMENTATIONIMPLEMENTATION

ESSENTIAL STEPS (2)

MERGING PUBLIC HOSPITAL PAYMENTS INTO THE SAME BUDGET PROCESS AS OTHER PROGRAMS,

-- to enable substitution of other services for inpatient care.

How?

-- by abandoning Commonwealth funding of public hospital through grants to thestates

-- and substituting cash benefits (related to output expressed in terms of DRGs)

This could be done ahead of the implementation of managed competition, and would be worthwhile for its own sake, even if managed competition was not implemented

MANAGED COMPETITION :MANAGED COMPETITION :IMPLEMENTATIONIMPLEMENTATION

POLITICAL DIFFICULTIES:

Ideologically, managed competition lies in a no-man’s-land, between two rigidly held positions.

Fortunately this is not my problem: the role of an academic health economist is to point out the destination, not to steer the course!

managed competition the future of health care funding? dr richard scotton

Documents

market competition

health care resources

health care system

health care financing

health gains

future of health care

implementation slide

respect slide