What is managed care and can it help fix the Australian private health sector?

This is an edited version of a piece published in Crikey on 2 July 2021. 

It looks like Australian health funds will get more say in how care is delivered in the future if the ACCC’s draft decision giving health fund Nib more leverage to negotiate contracts with providers, and Medibank  purchasing a stake in both a private hospital and a chain of medical practices are anything to go by.

This is a pretty major shift in the private healthcare sector and providers are worried. The Australian Medical Association (AMA) is reacting strongly, claiming that such “managed care” will reduce care quality and compromise outcomes. These claims are made as self-evident and tend to escape proper scrutiny. This isn’t right given what’s at stake.

Not only is the current private health model financially unsustainable, but there’s a lot to suggest that medical decisions often don’t reflect the best interest of the patient. The Royal Commission into Aged Care Quality and Safety demolished the wisdom of leaving providers of an asymmetric service to it with little oversight. We may have a similar problem in health care and it needs to be addressed. Greater involvement of those who pay the bills is among several options that include fee transparency, outcomes data, and newer remuneration models, but it needs to be debated.

First, let’s examine if under the current arrangements Australians receive quality health care based on their medical need and their personal preferences.

In the absence of reliable data on outcomes (an ongoing hindrance to good practice and policy), one way to flag potential problems is by measuring standardised differences in service provision between regions. While some variation is warranted, dramatic disparities can indicate problems with medical practice and/or lack of access and facilities.

Analyses by the Australian Commission on Safety and Quality in Health Care suggests  situation that can be described as a medical postcode lottery.

For example, an adult living in Dubbo is 56 times more likely to undergo a heart perfusion scan than someone residing in Onkaparinga, South Australia. This is after adjusting the data for demographic differences. Neither region is classified as remote, so lack of service availability is unlikely to be a major factor.

Is it down to levels of heart disease? Perhaps, but it’s very unlikely to explain such magnitude. In fact, a 2016 variation study (using the larger geographic units of Medicare Locals) found surprisingly little geographic association between the rates of coronary angiography — another cardiac investigation — and levels of heart disease. However, a strong association between angiography and private hospital admission was found. This suggests factors other than medical ones play a part.

In addition to unwarranted variation, too many “low value” procedures and tests with little proven clinical benefit are commonly performed in the private sector. Some of these have now thankfully been amended or removed from the MBS as part of the recent review.

And then there’s questionable adherence to clinical standards and guidelines. Two peer-reviewed Australian studies looking at common adult and child health conditions found that clinical encounters complied with best-practice in fewer than 60% of cases on average.

While such problems are not unique to Australia, the causes can be distilled to the changing nature of healthcare and a private sector funding model that encourages volume over value.

So why is this happening and what can be done?

Firstly, healthcare is not a cottage industry any longer. Good care is more than the sum of individual medical interactions. Not only are patients now medically more complex — with multiple health problems that require sustained management across disciplines and professions — but biomedical science and knowledge is vast and expanding rapidly.

Safe, high-quality care is now a team sport and the collaborative model works best when GPs, specialists, nurse practitioners and the patient use the same electronic platform to communicate and view results and medication updates.

This approach is highly suited to “provider networks”, which can offer the necessary central administration and management. It also happens to be a key feature of managed care and a departure from the quaint sole practitioner model of yesteryear.

Secondly, the Australian private health sector is characterised by a fee-for-service payment model along with a firm separation between payers and providers.

This combination encourages growth in activity and in fees, with little incentive for restraint or value. There are currently no limits on what providers can charge, and ample evidence suggests that they will lean towards options that generate the most revenue rather than alternatives that are more conservative but equally effective.

To put it bluntly, every dollar of expenditure is a dollar of income so it’s unsurprising that providers will resist changing the current arrangement. It’s worth recalling that Nye Bevan, the creator of the British NHS – when asked how he managed to persuade medical specialists to sign up to the scheme – remarked that he “stuffed their mouths with gold”.

Medicare expenditure is outpacing GDP growth


Moreover, there’s also little association between medical fees and quality. Higher costs, meanwhile, are borne by insurers, patients and — via Medicare — the taxpayer, reflected in growing premiums, out-of-pocket costs and Medicare expenditure.

Now, there is no question that health professionals believe that they act in their patient’s best interest. But they are human, and healthcare is very complex. Research shows that they are often unaware that treatment may be inappropriate or even harmful, and that medical decisions are driven by a range of incentives, including financial ones.

This, along with the provider protestations, remind me of a story recalled by Archie Cochrane, the father of evidence-based medicine (and an irreverent Scot).

Cochrane was speaking to a group of eminent cardiologists about a clinical trial comparing clinical outcomes of coronary care units with normal home care. Preliminary results suggested a slight numerical advantage to home treatment. He decided to have a bit of fun. Before the official presentation, he showed some of them a reversed version of the results (suggesting slightly higher mortality in home care). They condemned the study, called him unethical and beseeched him stop the trial at once. After hearing them out he apologised, saying that he had mixed up the results and it was, in fact, home care that appeared to be slightly more effective. This was met with dead silence.

While concern about insurers owning hospitals is understandable, the opposite is also true: provision that is completely decoupled from financial risk can generate overtreatment and higher costs with little value added.

This can be tempered if the payer has some say in what and how care is provided. For example, joint replacement using a short-stay model produces the same outcomes as a longer, more expensive admission. Patients prefer it and it’s cheaper overall, but many private sector providers resist it — despite it being routine in the public sector.

In fact, there’s nothing radical or dangerous about removing the payer-provider separation.

Israel’s health system is considered among the best in the world. It’s also comprised entirely of health maintenance organisations (HMO) — payer-provider entities that are a feature of managed care.

Clalit Health Services, Israel’s biggest HMO, looks after 4.6 million people who receive excellent care when needed, but also cutting-edge preventative interventions designed to keep people healthy and out of hospital. It is in both Clalit’s and the patient’s interests to do so. The excellent analytics are due to an enviable, all-encompassing dataset on enrolees’ health, care and lifestyle factors (which, incidentally, enabled the lightning-fast observational study of the Pfizer vaccine). This is unimaginable in the Australian system.

Under the much-maligned US system, the payer-provider model has actually been a success. Kaiser-Permanente delivers evidence-based, efficient care and excellent outcomes without breaking the bank (or bankrupting the patient). US health professionals are actively involved in generating patient care pathways and enjoy being part of a system that is focused on outcomes. The result? Coordinated services involving screening, prevention, primary care, outpatient care and hospital care — again, impossible under the fragmented Australian system.

An we already have good examples of payer-providers here in Australia. Public hospitals are both funded and managed by state and territory governments and perform very well considering their casemix and community obligations. Plus, let’s not forget that the aged care royal commission found that public facilities provided better quality care than their private counterparts.

Giving payers more say in how care is delivered is not a silver bullet. If we really wanted to improve patient choice and care quality we could enforce much more transparency on medical fees, mandate routine data on actual outcomes, and explore remuneration models that reward value over volume.

But it isn’t a radical change, either. It’s how public hospitals are managed and Medicare already dictates what can and can’t be done privately.

Dismissing it without debating the evidence has a whiff of “nothing to see here” and is a wasted opportunity to explore on option for improving Australian healthcare … without stuffing any mouths with gold.

This piece benefited from input by orthopaedic surgeon Ian Harris, professor at UNSW medical school and honorary professor at the University of Sydney‘s School of Public Health.


About Luke Slawomirski

Health economist, formerly OECD, policy wonk. @LukeSlawomirski on Twitter
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3 years ago

The excellent analytics [of the Israeli managed care system] are due to an enviable, all-encompassing dataset on enrolees’ health, care and lifestyle factors

And there we have the core of the doctor/patient “relationship”. I’ll put it this way: doctors will run your life for you – in grinding detail – if you let them.

pf actually likes this, I suspect, as it offers such control over the lives of the plebs.

Of course the Private Health system in Aus is lumpy and disorganised. All four components – patients, doctors, funds, governments – often enough have conflicting aims. One of the core principles is supposed to be that a patient presenting for consultation, hospital procedure or longer hospitalisation is not required to declare if they are a member of a fund or not; use of this is entirely at the patient’s discretion. As is the doctor’s or hospital’s right to charge what they may think the traffic will bear. Except both doctors and hospitals use whatever methods they have to determine this and so then determine their overcharge from the govt-prescribed Medicare fee. Local GP’s even decide whether to bulk-bill or overcharge on the basis (eg) of whether the patient is seeking a prescribed vaccine for visiting an overseas country – that is, one fee for the normies, a higher one for the perceived “rich” for exactly the same service. Perhaps pf would endorse that too, so then why not charge like that for a loaf of bread in a supermarket ? That can be done by simply regulating an estimate of “bread consumption” at tax time.

In short, the conflicting and mostly hidden demands cannot be resolved with the totalitarian control we see pined for in all these columns. The Aus dentists make this an irrefutable point as they simply refuse to play.