Privatising Medicare payments is a distraction from real reform

February 10, 2016

10 February 2016

by Warwick Smith

The West Australian newspaper broke a story yesterday claiming that the Federal Government has a well-advanced investigation into the possibility of outsourcing the Medicare, Veteran’s Affairs and aged care payments systems.

Medicare is one of the world’s most efficient healthcare providers and is instrumental in our consistently high ranking in international comparisons of health expenditure efficiency. For example, Bloomberg’s 2014 ranking of health efficiency put Australia at number six in the world.

That said, there’s no doubt that there is waste and inefficiency and the potential for billions in savings. Previous investigations have identified huge waste in the unnecessary use of expensive treatments and diagnostics and big savings to made through greater use of preventative measures.

By contrast, the privatisation of the Medicare payments system hasn’t rated a mention by any recent major investigation or review of the healthcare system, with the exception of the Government’s own Commission of Audit. The Productivity Commission’s recent review of the efficiency of the healthcare system didn’t mention the payments system as an area of interest or concern, let alone make any recommendations that it be privatised.

Does any of this demonstrate that this isn’t a worthwhile reform? No, but it definitely should make us suspicious. International comparisons tell us that privatisation in medicine often leads to lower efficiency. The US provides us with the clearest example with by far the highest per capita expenditure on health care for only mediocre outcomes. However, this is not a proposal to outsource the provision of medical care, only the payments system.

Could a provider that already has a modern payments system in place do the job more efficiently than Medicare? It seems that is at least possible. Can they do it more efficiently than Medicare plus make a profit and still come in cheaper than Medicare? Again, possible, but a bit less likely.

Historically, the government has a terrible record when it comes to IT service procurements with massive cost blow-outs and the now cliche of redundant public service IT staff returning to do the same work as consultants for three times the money. It’s been well demonstrated that in-house investment in IT by government departments lifts productivity but the impact of the privatisation of IT services is a lot more patchy with no consistent benefits.

While it might appear that organisations like Australia Post or the banks have the infrastructure necessary to deliver this service, the reality is almost always much more complicated, with each system being unique and often requiring building from the ground up. If it’s necessary to build a new payments system, why not invest in the capacity within Medicare which has proven over four decades to be a very efficient organisation?

Medicare has recently transformed its client side payments system with the introduction of mobile apps through which claims can be made – thus avoiding turning up at a crowded office with paper receipts. These changes have met with approval from many users and show progress towards more efficient service delivery.

Efficiency isn’t the only consideration though. In order to provide this service, the private provider would have to have unprecedented access to Medicare and other records of all Australians. We have to ask whether or not this is desirable and what reductions in government spending make the potential breaches of privacy worthwhile. Other important considerations include dispute resolution and customer complaints. The costs of dealing with performance issues are often borne by the public when government services are outsourced. Buck passing between governments and private providers is common and accountability can be opaque.

For many, these reforms will be seen as yet another Coalition attack on our iconic national healthcare system. The Liberals have a love hate relationship with Medicare. They are forced to love it (or at least pretend to) because the Australian people do. They hate it because its efficiency and effectiveness are a thorn the side of their small-government pro-private-sector ideology.

They can’t dismantle Medicare, as John Howard wanted so badly to do, because it’s too popular. Instead they have tried to incrementally erode its universality and effectiveness through the creation of incentives to take up private health cover, the tightening of bulk-billing criteria and the proposed introduction of GP co-payments to name just a few. This proposal could be a continuation of that long-standing death by a thousand cuts approach to Medicare reform, or it could be a genuine attempt to improve service and efficiency. History would tell us the former is more likely.

Meanwhile, let’s see if the Turnbull Government can deliver on real efficiency and service improvements like increased focus on preventative medicine and more targeted use of expensive diagnostic equipment as mentioned above. There’s not only billions to be saved there, but also a lot of political mileage for any government that can make genuine improvements to our much-loved Medicare.