Opinion Piece: How to improve health services in the bush in the next ten years

Thursday, 29 May 2014

John Menadue AO

John Menadue had a very distinguished career in both the private sector and the Public Service. He is founding Chair of the Centre for Policy Development and has chaired health reviews in NSW and SA. This is an edited version of the address he gave to the Adelaide to Outback GP Training Program on 24 May 2014.

In considering our health services we need to keep some perspective. In world terms we have good health care. The Commonwealth Fund in the US places Australia number three in its world rankings in healthcare. It uses a wide range of criteria. We are behind UK and the Netherlands but ahead of Canada, Germany and NZ, with the US coming a bad last. Medicare is standing the test of time although it must be improved.

The key issue is not who delivers health services but how they are funded. My view is that a single public funder, with power in the market, is vitally important to contain costs.

There is clearly a health deficit in the bush compared with the rest of Australia. Our politicians, both Labor and Conservative, have failed in country health.

In January this year the National Rural Health Alliance described the problems very bluntly. “In aggregate, people who live in rural areas have shorter lives and higher levels of illness and disease risk factors than those in major cities. This can be explained in part because they have poorer access to goods and services and educational and employment opportunities, as well as lower levels of income.” The Alliance went on to point to problems.

  • The health of rural people lags well behind that of their city counterparts in such areas as alcohol risk, obesity and smoking.
  • Access to primary care, dental care, allied health and specialist services is becoming more difficult and in many regions requires greater time and expense on travel and accommodation.
  • Shortages of doctors, nurses, allied health professionals, paramedics and dentists persist, with the seriousness of these shortages only partly masked by success in recruiting overseas-trained workers.
  • The state of Indigenous health is a national disgrace and around 70 per cent of the nation’s Aboriginal and Torres Strait islander people live outside the major cities.
  • Other areas of rural and remote health in which urgent attention is needed include mental health, oral and dental health and maternity services.
  • Medicare expenditure on mental health services in 2011-12 was $42 per head in major cities and $9 per head in remote and very remote areas.

How to begin to address these rural health problems within Australia-wide health services

Primary care

This is by far the top priority if we are to improve overall health and particularly rural health. It was the major thrust of the SA Generational Health Review that I chaired in 2003. Australia has an obsession with hospitals. The largest component of health spending is public hospital services (32 per cent) followed by medical services (18 per cent) and medications (14 per cent). The hospital/government complex drives health spending at the expense of primary care.

The South Australian government is spending $3 billion on a new state-of-the-art Royal Adelaide Hospital. There would have been better value for money to spend, say, half of that in primary health care. Several years ago we estimated that it would cost about $20 million in capital expenditure to custom build multi-disciplinary primary health care centres across Australia to serve on average a population of about 100,000 people. $1.5 billion saved on the Royal Adelaide Hospital would have provided substantially improved primary healthcare coverage for 1.5 million people in South Australia. (Recurrent costs would have come from existing Medicare, PBS and other programs.)

Hospitals should be the last resort rather than the first. Countries such as the UK and NZ have high quality care in part because they are grounded in primary care which is the most efficient and equitable way to deliver health services. The Productivity Commission reports that about 750,000 hospital admissions could be avoided if we had effective intervention in the last three weeks before hospitalisation. We keep putting money into hospitals because that is where Ministers and the media focus attention. The 'urgent', such as hospital waiting lists and emergency department delays, replaces the important, such as care in the community, prevention and chronic care. (I note that in the Budget the Australian National Preventative Health Agency is to be abolished. This will bring pleasure to the alcohol, tobacco and junk food industries.)

Remodelled primary care is the most important initiative we need in Australia and particularly for rural Australia.

Around the world the trend is to establish primary care systems that encourage citizens to enrol in a wellness maintenance program and benefit from the delivery of healthcare by teams of health professionals. The psychology associated with voluntary enrolment is important. The philosophy involves acceptance of the principle that we need to take more responsibility for our own health but with personalised and ongoing assistance, when necessary, from appropriate health professionals and not just doctors. 85 per cent of New Zealanders are enrolled in a primary healthcare organisation. It is where care is best integrated.

The 61 Medicare Locals, with committed funding of $1.8 billion over four years, are to be abolished. They were designed to coordinate and plan health services, including after-hours GP services and particularly the link between hospital and non-hospital care. These Medicare Locals are now to be morphed into a smaller number of Primary Health Networks which will be more clinically focussed and move primary care away from its broader mandate of disease prevention, health promotion, equity and social determinants of health. Those communities in need, particularly rural communities, will be most affected. These new Primary Health Networks face an uncertain future. Further, the Budget papers say that these new PHNs will be open to tender to partner with such organisations as Medibank Private and BUPA. If these private health insurance firms are successful, this will move us further away from efficient and equitable healthcare.

The future of GP Healthcare Clinics and GP Plus Super Clinics is not clear. But a wind-back is on the cards. $650 million was allocated for 60 clinics. There are centres in South Australia in Aldinga, Elizabeth, Marion, Morphett Vale, Woodville, Modbury, Noarlunga and Ceduna, with one centre under construction at Port Pirie.

Workforce reform

Health is the largest and fastest growing sector of the Australian economy. Its structure and workforce are riddled with 19th Century demarcations and restrictive work practices. For example there are several hundred nurse practitioners in Australia mainly working in hospitals in the cities when there should be thousands working across Australia. We must also train assistant physicians. About 10 per cent of normal births in Australia are delivered by midwives. In NZ it is over 90 per cent. Nurses, allied health workers and ambulance staff are denied opportunities to upgrade and realise their professional potential. Pharmacies, rather than being primarily retail enterprises, should be better integrated with primary care. There will never be adequate delivery of service to people, particularly the aged and rural people, without radical workforce reform, mainly within primary care. The MBS needs to be drastically overhauled to attract and remunerate a whole new range of health workers.

Fee-for-service (FFS) is a major barrier to improved primary care. FFS may be appropriate for episodic or occasional care for walk-in patients but it is not appropriate for chronic and long-erm care. The government should pursue contractual arrangements with general practice as an alternative to fee-for-service. NZ pays episodic care by doctors on a FFS basis but chronic care is paid on an annualized basis.

The matter of doctor numbers and their distribution is a vexed question. There are two important issues. The first is the total number of doctors. There are no international comparisons that I can find that show that we have a shortage of doctors in Australia. In fact, we may be moving into having a surplus of doctors. In 2004 when Tony Abbott was Minister for Health he decided against advice that we had a mal-distribution rather than a shortage of doctors. As a result the number of domestic students graduating from medical schools in Australia increased dramatically from 1,287 in 2004 to 2,507 in 2011. It has been described as a 'tsunami' of medical graduates. We know that this increase in numbers is making it very difficult to find training places for medical graduates. We also know that with bulk billing and with patient dependence on the advice of their doctor about future appointments, tests and referrals, doctors have an ability to generate work for themselves and other professionals. Doctors can and do drive the demand for their services through FFS. That has serious cost implications.

The second issue is the distribution of doctors across Australia. This issue is influenced by the fact that we now have about 3,000 International Medical Graduates (IMGs) who are tied to areas of need. These IMGs have performed a useful role in rural areas although there has been some concern. However it seems to me logical and legally defensible ('civil conscription') that if we can determine where IMGs can work, we should also be able to do the same for Australian medical graduates and insist that new provider numbers only be issued according to need in Australia. We don’t need more provider numbers and doctors in Torrens Park, Vaucluse and Toorak, but we do need them in rural and remote Australia. Through governments, taxpayers subsidise medical education and about 80 per cent of the remuneration of doctors comes from government. There is a legitimate interest in new doctors working in areas of need, at least in the early stages of their career. Hopefully they will find professional and personal satisfaction in country areas and decide to stay.

In the Budget there is provision for an increase of GP training places in primary care to a total of 1,500 in 2015. There is also a doubling of the teaching payment for GPs to train medical students from $100 to $200 per three-hour session. There are also 175 infrastructure grants for GPs in rural and remote Australia to build training facilities in their practices and an increase in the funding available for incentive payments under the GP Rural Incentives Program for GPs to work in rural and remote areas. These measures are welcome but there is a lack of the significant and major workforce reform which is required.


The current traditional Minister/departmental model allows vested interests to dominate the debate and the allocation of resources. Those vested interests are the major reason for increasing cost and obstacles to reform. The public ‘conversation’ is not about health policy, but rather about how the Minister and the department respond to vested interests that set the agenda: the AMA the Private Health Insurance lobby, Medicines Australia, the Pharmacy Guild and state governments and their health bureaucracies. The public is excluded and the media is heavily dependent on these special interests for stories. The whole debate is skewed.

The Reserve Bank provides a useful model of the direction in which we need to move – an independent and professional commission with economic expertise that funds and directs health services subject to government policies and guidelines. The Reserve Bank has proven to be immune from special interests and their pleading. It is respected for being professional and serving the public interest. It effectively informs the public on key issues. This does not happen in the health field. The government shows little interest in combatting the special interests.

Private health insurance (PHI)

The Commonwealth Government subsidy of about $5b should be progressively eliminated and the funds used to directly fund other health services, e.g. rural and Indigenous health care. The main attraction of PHI is that it enables policy holders to jump the queue for beds in private hospitals. It penalises country people because there are few private hospitals in the bush. It is remarkable how country MPs support a government subsidy that so overwhelmingly assists wealthy city people. PHI duds country people in a big way.

PHI is inefficient, with administrative costs about three times higher than Medicare. The subsidy has not taken pressure off public hospitals. Private gap insurance has facilitated enormous increases in specialist fees. Most importantly, the expansion of PHI progressively weakens the ability of Medicare to control costs. The evidence world-wide is clear that countries with significant PHI have high costs. The stand-out example is the US.


It needs a review. Medicare has become a passive but efficient funding mechanism rather than the public insurer it was intended to be. After all, it is called the ‘health insurance commission’. It is now nothing of the sort. It is not even within the health portfolio. Why can’t Medicare offer policy options beyond a default available to all? Medicare has a remarkable database which should be used to highlight and inform policy concerning over- and under-utilisation of services across the country. Medical services should be subject to the same rigorous cost-benefit examination as pharmaceutical services. Medicare is not doing it - and the Government shows little interest.


We do see our doctor too much. Some of it is driven by ageing of the population, but Medicare services per head have increased dramatically for all age groups. In 1984-85 we used about seven Medicare services per head. In 2012-13 it was 15 Medicare services per head. We must address this dramatic escalation in services. One cause of this escalation is the method by which we remunerate doctors. In particular, the fee for service system promotes turnstile and short-duration consultations. We must scale back FFS.

Another way to address this escalation of medical services is through a well-considered co-payments scheme. But they are a mess, with the level of government subsidies varying enormously. Co-payments contribute about 18 per cent of total health funding. That is very high by world standards. But there is no rhyme or reason in these co-payments. As a proportion of total funding co-payments by individuals are as follows: medical services 12 per cent; PBS and repat. medicines 16 per cent; dental services 61 per cent; aids and appliances, such as hearing aids, 70 per cent; and non-PBS medicines 94 per cent. We need to rationalise this dog’s breakfast of co-payments and not add to the inefficiency and inequality by a $7 co-payment. It makes little sense on its own. Furthermore, the $7 co-payment will be messy to administer and will probably result in an increase in fees as doctors move away from bulk-billing. Medical and pharmaceutical co-payments have little in common. The safety nets are unfair and lead to abuse.

People with high incomes should pay more for health services through efficient and defensible co-payments. A ‘universal service’ does not necessarily mean it should be free. Subject to a means test, there needs to be more discipline by consumers in their use of health services.

The Blame Game

Attempts to resolve the Commonwealth/State blame game have been largely unsuccessful and certainly expensive. We have nine departments of health for a population of 23 million. Yet the Commonwealth Government now seems intent on winding back its role in health. It is proposing a reduction of $80 billion in school and hospital funding over the decade to 2024-25.
This will take us straight back to the blame game in health. The budget announcement is a major breach of faith between the Commonwealth and the States.

The Commonwealth has unilaterally cut $1 billion from State budgets from 2017.
The Commonwealth will no longer honour an agreement to fund some growth in State hospital costs. The Commonwealth had pledged to partly fund this growth in State hospital costs, provided those costs were based on efficient costs determined by the Independent Hospital Pricing Authority. (We know that there are major differences in costs not only between hospitals but also within hospitals.) This increase in funding based on improved performance by State hospitals has now been abandoned.
Furthermore, by sharing the costs of hospital growth for the first time, the Commonwealth had a direct interest in containing hospital costs by making primary care work better and reduce hospital admissions.

Over the last seven years there has been confusion about the role of the Commonwealth in hospitals. In 2007 John Howard offered to underwrite community organisations that offered to take over State hospitals. (Mercy Hospital in Launceston.) In 2009 in his book Battlelines, Tony Abbott said that a Commonwealth withdrawal from hospitals would be a ‘cop out’. It would be anachronistic and inefficient. Kevin Rudd threatened to take over State hospitals if a satisfactory arrangement could not be made with the States but backed down even though opinion polling showed strong support for a Commonwealth takeover of State Hospitals.

Personally, I would favour a Commonwealth takeover, but it is not politically practical. That is why I have supported what I have called a ‘Coalition of the Willing’. In such an arrangement the Commonwealth should offer to set up a Joint Commonwealth/State Health Commission in any state that will agree. That Commission would be jointly funded by the Commonwealth and the State. There would be one pool of money. This joint Commission would plan the delivery of health services in the State and so provide more cohesive hospital and non-hospital health services. It would be a small planning and funding Commission with little or no net increase in bureaucratic overheads. Delivery of health services would continue through existing health agencies, Commonwealth, State and local government. The new Commission would be jointly appointed by the two governments and with agreed dispute resolution arrangements. In the event of a disagreement, the Commonwealth position should prevail as it would be the chief funder. Tasmania and SA should be obvious starters given their size and difficult financial position. Hopefully success in one State would then encourage other states to improve their health services by cooperating with the Commonwealth.

Health or health services

Many of the improvements and reforms in health will have to come from outside the health portfolios. Unfortunately Ministers for Health are invariably ministers for health services rather than ministers for health. The major social determinants of health which affect health outcomes quite dramatically are outside the health portfolio – poverty, homelessness, poor diet, unemployment, poor education, poor transport and communications (NBN) are critical for wellbeing. But I do not see any ‘joined-up’ approach to health issues across relevant portfolios.

It is not clear how all of these things will unfold. But as a nation we can do even better - and when we do, people in rural and remote areas will be among the chief beneficiaries.


Very much enjoyed reading this analysis. Wondered how e health fits in as a mechanism for delivering interventions for prevention, well being, and for early intervention.

A refresshing critique of current issues. The status quo has for too long been unchecked and unchallenged. When - if ever,for example, has there been an audit of health records in remote area Aboriginal communities? When, if ever, has the usefulness and reliability of performance indcators been critically reviewed? where is the accountability of health care providers?

A great review of the current lack of committment to a Primary Health Care Approach - thats talked about but never seems to get to the implementgation phase - Maybe because of the stakeholders with their own agenda

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