Schools, universities, hospitals holding us back - Productivity Commission

Automatic dispensing machines would replace pharmacies, low-value healthcare procedures would be defunded, people with real-world skills would be made teachers, and drivers would be charged for the use of roads under a series of audacious proposals the Productivity Commission believes could add $80 billion per year to economic growth - an amount it says would grow over time.

The five-year program, requested by the Treasurer Scott Morrison, is designed to jump-start innate, or so-called "multifactor" productivity, which the commission believes has barely grown since 2004.

The productivity boost brought about by economic reforms in the 1990s produced almost all of the decade's spectacular lift in living standards. Since 2004 innate productivity growth has produced almost none, with most of the productivity growth that has been achieved the result of investment spending and most of the income growth the result of the mining boom.

Productivity Commission chairman Peter Harris said the slowdown in Australia's capacity to "do more with the same" was puzzling because scientific and technological knowledge had seemingly advanced. In 2003 there was no "cloud", no "internet of things" or smartphones and music and software were provided in physical forms.

Without action to remove the last big obstacles to productivity, Australia might consign itself to half a century of low income growth.

The obstacles were predominantly in the public sector, in the way it provided health and education and managed cities. It was as ripe for reform now as manufacturing was in the 1980s.

Twenty seven per cent of adults were obese, holding back their ability to contribute to the labour force, although Australians life expectancy was the third-highest in the developed world, the 11 years spent in ill-health was the third worst in the OECD.

Medical best-practice was often ignored. Seventy five per cent of bronchitis was treated with antibiotics, when the correct rate was close to zero, 71,087 knee arthroscopies were performed per year in most cases without evidence of benefits, 27,500 hysterectomies were performed without a diagnosis of cancer. Often it was because doctors didn't know how to say "no" to patients, and because patients didn't know what best practice was.

The commission recommends defunding low value procedures and creating scorecards for the performance of providers to enable patients to compare outcomes.

Medicines would be dispensed by ATM-style machines or by staff without pharmacist qualifications. "This new model would not, under any realistic assumptions require anywhere near the current 20,000 pharmacists who provide clinical services, and so would require a transition to a much smaller employment base," the commission says. Universities would be informed of the need for fewer pharmacists, some of whom could transition to other forms of medical work assisting doctors. The new dispensaries would not be bound by the location rules that prevent pharmacies from competition.

The Pharmacy Guild - one of the country's most powerful lobby groups - instantly rejected the recommendation as "radical and unworkable", saying it would "dumb down" an entire profession.

The commission wants universities to provide honest assessments of the employability of their graduates before enrolment and to be subject to competition law where they could be made to provide refunds or replacement courses.

"If you buy a kettle and it doesn't perform, you've got the right to return it and get a new kettle," Mr Harris said launching the report. "If your education doesn't perform as promised, the same law should apply."

Mr Harris said one-in-five university graduates were underemployed, up from one-in-10 a decade ago. His report discusses, but does not recommend, stopping fees imposed for university teaching being used to fund university research.

The report imposes a five-year timeframe for lifting teaching standards, noting that the performance of 15-year-olds in maths has slipped to the level of 14-year-olds in the year 2000. It says 30 per cent of year 7 to 10 information technology teachers have neither studied the subject at second‑year tertiary level nor been trained in how to teach it at tertiary level.

"Fifteen-year-olds are being taught by people who may not necessarily know the subject and can't answer questions because it's not their field," Mr Harris said.

One solution was to "take people who aren't necessarily trained teachers and train them up". Another was to train teachers in specialist fields such as maths and IT.

Other recommendations include phasing out stamp duties in favour of land tax and trialing pay-peer-drive charges for roads as an alternative to petrol excise.

"None of these ideas are new, we didn't make them up," Mr Harris said. "But when people tell you they are already being implemented, don't believe them. That's what we are trying to achieve."

Mr Morrison said he would work with the states on the ideas, beginning with the treasurers' conference on Friday.

In The Age and Sydney Morning Herald

 

Pharmacists are unfinished business

Why pharmacists? They've got off lightly. Peter Harris, the head of the Productivity Commission, worked for the prime minister's department in the 1990s when the Hilmer competition reforms were ending cozy arrangements for just about everyone, and earlier on prime minister Bob Hawke's personal staff.

Manufacturers lost tariff protection, banks suffered an onslaught of foreign competition and unions were denied industry wide bargaining. Only three industries survived completely unscathed, each due to impressive lobbying.

One was the taxi industry. It has since been buried by the GPS (anyone can find a street) technologically-driven undercutting. Another was newsagents. The cozy rules that prevented one from encroaching on the turf or another and guaranteed they changed hands for high prices have been rendered irrelevant by digital direct delivery.

The third was pharmacies. Incredibly profitable, protected by a thicket of impenetrable rules that prevent one from competing with another within 1.5 kilometres, or 500 metres inside a shopping centre subject to the provision of a surveyor's report, they get guaranteed business "sustained through government fiat".

Like once-valued taxi drivers, they have special skills that are no longer especially special. Machines can read prescriptions, select the right pills and stick labels on bottles. In some parts of the world they operate like ATMs. In others they work with the assistance of sales assistants without a detailed knowledge of pharmacology.

Harris can see what will happen to pharmacists (and is happening already through the online delivery of medicines from overseas). He wants a new less-skilled workforce trained to work with the machines and universities told to produce fewer pharmacy graduates.

It's an inconvenient recommendation for a government that has just signed a new long-term agreement with the Pharmacy Guild, as is the recommendation for a carbon price, a land tax in lieu of stamp duty, a fair use regime for copyright and taxing wine as if it was beer. It is a tribute to the Treasurer Scott Morrison that he commissioned the report without knowing what would be in it.

The traditional targets for productivity reform; unions, industries protected by tariffs, have few further to offer. The big ones left are in the public sector where hospitals, schools and universities operate pretty much as they did in the 1970s.

Harris wants them subject to the same sort of market discipline as manufacturers. They shouldn't be rewarded for producing products that don't work and consumers should have the right and the information needed to shop around. Teachers should know about what they teach and universities should provide refunds if their courses don't work.

Harris is bothering because without a new push on productivity, living standards are likely to stagnate. The targets he has picked are the big ones left.

In The Age and Sydney Morning Herald

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'Mediscare' worked because we were already scared

Scare campaigns only work when they reinforce or add to what is already known. 

Within weeks of its election in 2013 the Coalition entertained a proposal from a former advisor to Tony Abbott as health minister to end free visits to the doctor by requiring a mandatory co-payment of $6. Anyone who didn't like it would be invited to take out private health gap insurance.

Its Commission of Audit recommended a co-payment of $15 per visit and $5 per concession card holder, and then its first budget announced that "previously bulk-billed patients can expect to contribute $7 towards to cost of standard consultations." Medicare Rebates would be cut by $5 and bulk billing incentives would "only be paid to providers when they collect the $7 patient contribution". It encouraged public hospitals to charge public patients who walked in off the street in order to stem the leakage from doctors.

Seven months later Abbott dumped the $7 co-payment and replaced it with a $5 co-payment, all of which was to come from doctors, also abandoning that a few months later. Then he announced plans to slash the Medicare Rebate for short visits from $37.05 to $16.95, also abandoning that a few weeks later.

In his second budget he extended an existing one-year freeze on the Medicare Rebates by a further five years to 2020. By then doctors incomes would have fallen 15 per cent relative to other incomes unless they abandoned bulk billing.

And he booked a budget saving of $57 billion over 10 years by lifting grants to states for running hospitals by much less than the cost of running them, a good deal of which is still baked in to the Turnbull government's budget numbers.

Within a year of taking office he called for expressions of interest from the private sector in running the $29 billion Medicare and Pharmaceutical Benefits Scheme claims system. Among the Australian firms that are believed to have responded are Eftpos, Australia Post and Telstra offshoot Stellar. Among the foreign companies are British services giant Serco, which provides immigration detention centre services, Japanese-US technology giant Fuji-Xerox, German software house SAP and US professional services firm Accenture.

Malcolm Turnbull went into the election campaign continuing to defend the outsourcing option, only to abandon it on Q&A after it came to be conflated with privatisation.

The scare campaign worked because Medicare's supporters were already scared.

In The Age and Sydney Morning Herald

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Who's Medicare's friend? Examine bulk-billing

The key to examining whether one side or the other wants to destroy Medicare is the baked-in feature that makes it work: bulk-billing.

It's far more clever than is widely realised, far more than a convenience.

Gough Whitlam and his social security minister, Bill Hayden, faced a problem in the mid-1970s when they swept away the confusing dog's breakfast of schemes that left some people unable to afford visits to the doctor. If they simply paid doctors on behalf of their patients, the doctors would take the money and charge more on top, right up to what the market could bear, which is probably what they were charging in the first place. It's what happens these days with childcare rebates, with subsidies to farmers to cover the cost of fodder in droughts and with first-home buyer grants. The alternative of forbidding doctors to charge more than they were offered would have been attacked as socialised medicine and might have been unconstitutional.

So they came up with an ingenious scheme to encourage doctors to charge no more. Those who chose to accept just 85 per cent of the scheduled fee would get a Rolls-Royce payments service. In return for sacrificing 15 per cent of their reasonable fee and the right to add more on top, they would be paid automatically and wouldn't need to hassle their patients. They wouldn't even need tills. If they wanted more, all of the convenience would be withdrawn. They would have to present their patients with bills setting out the full horror of what they were charged. In those days, before the widespread adoption of credit cards, the patients would have to pay by cash or cheques. And they would have to claim the rebate themselves, quite possibly travelling into town to do it. Doctors who chose this route would be disadvantaged. Over time they would lose customers to those who bulk-billed.

The Coalition twice knocked it back in the Senate, forcing Whitlam to call a double dissolution. When the newly re-elected Senate rejected it again he called Australia's first joint sitting of both houses of parliament to ram it through, fending off a High Court challenge from the Coalition in the process. (Malcolm Turnbull has threatened a second joint sitting later this year, in order to get his Building and Construction Commission legislation through).

The full scheme had been operating for only a month when Whitlam lost his job. While campaigning, the Coalition's Malcolm Fraser promised to maintain it, but in office wound it back. The authors of the best account of what happened, Making Medicare, Anne-Marie Boxall and James Gillespie say "even at the time it was difficult for people to understand the Fraser government's changes".

He abolished bulk-billing for everyone but pensioners and the disadvantaged, made private health insurance compulsory on pain of a tax levy, then made it voluntary, then abolished Labor's scheme altogether.

Bob Hawke won office in 1983 partly on a promise to restore it and his legislation sailed through with scarcely any Coalition opposition. The proportion of services bulk-billed climbed each year as it was designed to, growing from 44 per cent to 76 per cent as (at least in the big cities) surgery after surgery stopped charging in order to remain competitive.

After winning office promising to maintain Medicare, although as a "safety net", John Howard used his first budget to freeze doctors rebates so that they no longer climbed with inflation. At first slowly, and then quickly, they bailed. The bulk-billing rate slid to 72 per cent.

Then, chastened by a 2004 election campaign fought largely over bulk-billing, he switched course. Reversing the decline he had helped start became an absolute priority. Flush with money from the mining boom, his health minister Tony Abbott bought an increase. He boosted the rebate to 100 per cent of the scheduled fee and threw in an extra payment of $2.50 for each bulk-billed concession card holder. It worked. The Coalition left office with the bulk-billing rate approaching 80 per cent.

But its heart might not have been in it. In its final year, as a convenience to patients, it allowed doctors to install Medicare Easyclaim terminals. Patients could pay and claim with a swipe of a card. The built-in inconvenience – a central design feature – had been broken.

And then, on the way out, Labor did what Howard did on the way in. It froze doctors' rebates, initially for a year. The Abbott and Turnbull governments extended the freeze, and then extended it again. It won't come off until 2020, by which time the incomes of doctors who bulk-bill will have fallen 15 per cent compared to other incomes. For now, bulk-billing numbers are at a record high. No one wants to be the first in their street to leave. But as the squeeze bites they'll be forced to ditch bulk-billing, at first in a trickle and then in a flood. It's happened before.

Who's the best friend Medicare ever had? You can look at what they say or look at what they've done. History suggests that, with one important exception, it hasn't been the Coalition.

In The Age and Sydney Morning Herald

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The pharmacy protection racket that keeps prices high

Do you ever yearn for a return to the days before supermarkets when shopping meant a separate trip to the green grocer, the dry goods grocer, the butcher, the baker and the delicatessen?

Me neither. Life has become busy. Two-earner families shop at one-stop shops because we no longer have time for repeated stops.

Except for chemists, where we are forced to.

Hours after last week's Harper Competition Review recommended an end to pharmacy ownership and location rules the Pharmacy Guild defended them by appealing to nostalgia.

"By ensuring that pharmacy ownership is widely spread, the major supermarket chains are prevented from securing the high degree of market dominance they have obtained in other areas such as grocery retailing" it said, apparently under the delusion that we would prefer our groceries to be sold by someone other than the big supermarket chains.

The truth is we've voted for the supermarket chains with our with our feet. We are likely to continue to vote for them should they be able to sell pharmacy-only medicine and dispense prescriptions (using qualified pharmacists) as they can in the United Kingdom. The best guess is its decision to allow supermarkets to sell medicine cut the prices charged by 10 to 30 per cent. Few in the UK would turn back the clock.

The rules governing Australia's pharmacies are so strange we've come to think of them as normal. They apply in no other industry. Whereas any Australian can own a doctor's surgery or an electrical or plumbing business, only qualified pharmacists can own new pharmacies. The restriction isn't to ensure that those qualified pharmacists work in the pharmacies, many of them own many pharmacies or are retired. It's to make sure no-one else can own them, because apparently supermarket goods and pharmacies don't mix. 

It's illegal for a pharmacy receiving government payments to be located in or accessible from a supermarket, defined in the 56-page handbook as "the type of store in which a person could do their weekly shopping from fresh food (e.g. dairy, meat, bread), pantry items, cleaning products, personal care items and other household staples (e.g. laundry pegs, plastic food wrap)".

Except for those supermarkets operated by pharmacists *within* their pharmacies. Brisbane's SuperPharmacyPlus has set up an IGA within it allowing customers to "grab it and go".

If you can't find a pharmacy near you, there's a good reason. The industry is effectively closed to new entrants. Any pharmacist trying to set up a shop within 1.5 kilometres of an existing one is denied the use of the Pharmaceutical Benefits Scheme. There are exceptions - pharmacies can be closer within shopping centres (so as not to annoy the likes of Westfield) but there needs to a distance of 500 metres between them when measured in a straight line "from the mid point at ground level of the public access door of each of the premises". In country towns pharmacies have to be 10 kilometres apart.

The Guild says the rules ensure pharmacies are evenly distributed. But they don't always.

The Canberra suburb of Hackett remains a black hole after a pharmacist went to the expense of fitting out a shop only to be told she couldn't use the Pharmaceutical Benefits Scheme because she was 1.345 kilometres rather than 1.5 kilometres away from her nearest competitor. The Harper Review was told a much needed medical centre at Ingham in North Queensland was all set to go until an existing pharmacist moved to a boatyard within 1.5 kilometres of it preventing it from incorporating the pharmacy that was needed to make it a commercial proposition.

The more important effect of the location rules to protect pharmacies from price competition and from competition for the government payments that make up over half of pharmacies' income. Harper says if there are areas of Australia left unserved after the location rules go (as there are now in Indigenous areas) the government should consider allowing doctors to dispense medicines themselves.

It's far from true that Australian pharmacists support the restrictions. The Pharmacy Guild of Australia represents only the the 4000 who own pharmacies. Another 20,000 are locked out of ownership and forced to work for those who got in early. These "employee pharmacists" are represented by Professional Pharmacists Australia which supports a review of the location rules and has incidentally asked the Audit Office to conduct a complete audit of all public money handed to the Guild.

The Audit Office had a brush with the Guild just last month. In its report on the Guild's funding agreement with the government it didn't know what to make of an organisation it described as variously: an industry association, a publicly funded administrator at times acting as an agent for the department of health, a recipient of government grants, an owner of businesses selling products to pharmacies, and an advisor to the health department through its membership of boards.

The Community Pharmacy Agreement agreement pays the pharmacies to do the things many of us might have thought they did routinely, such as dispensing drugs and keeping electronic records. Its annual cost has climbed from $546 million in 1991-92 to $3.087 billion in 2013-14. Not that you've seen this in the budget papers, where it is lumped in with the cost of the Pharmaceutical Benefits Scheme. The Audit Office had to work it out itself. Its report found the health department kept no formal records of its negotiations with the Guild ("not consistent with sound practice"), paid it $31.2 million over five years to administer the agreement (some of it without informing the health minister), and was unable to get data from it about how much its members actually paid for the medications they sold.

It would be easy to get the impression pharmacy owners have access to government funds and government protection on a scale undreamed of by other industries now that the car industry is departing. It would be easy the get the impression that the comments about record keeping and financial management reflect badly on the then head of the department of health Jane Halton, who now runs the department of finance. It would be easy to get the impression that something has to give. Harper has given it a push.

In The Age and Sydney Morning Herald

Related Reading

. Want a pill that will make you rich? David Leyonhjelm, Australian Financial Review, September 19 2014

. A prescription for privilege, Terry Barnes, June 16, 2011

. A prescription for pharmacy reform, Terry Barnes, Policy Summer 2011-12

. Harmacy: The Political Economy of Community Pharmacy in Australia, David Gadiel, Centre for Independent Studies, 2008



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Trans Pacific Partnership a threat to health, says assessment

A comprehensive review of the proposed Trans Pacific Partnership between Australia and 11 other nations including the United States and Japan has found it is likely to push up the price of medicines, stop some Australians from taking their medicines and make it harder to restrict the sale of tobacco and alcohol.

The so-called health impact statement, compiled by the Centre for Health Equity Training Research and Evaluation at the University of NSW relies on leaked texts of draft chapters of the agreement Australia is preparing to seal within weeks.

More than 20 chapters long, the text won’t be made public until after the the trade ministers shake hands at a meeting in Hawaii set down for next month.

The Trans Pacific Partnership encompasses almost 40 per cent of the world’s economy: the industrialised nations of Australia, Canada, Singapore, Brunei, New Zealand, Chile, Mexico, the United States and Japan alongside the less developed nations of Malaysia, Peru, and Vietnam.

Although its stated aim is to bring down trade barriers and allow mutual recognition of standards, many of its provisions deal with medicines and make it difficult for member countries to move against foreign owned corporations.

The health impact statement follows Commonwealth guidelines for such statement in place for more than a decade. Although such statements are not required for new projects in the same way as are environmental impact statements they are an accepted procedure for establishing the impact of new proposals on health.

Prepared by five health specialists from the universities of Sydney and NSW and La Trobe University the assessment took 15 months, beginning in late 2013 after some drafts texts of were published by Wikileaks...

The report says the US is seeking to prevent signatories from refusing to grant patents for minor variations to existing drugs even when there is no evidence of additional benefit. It says the provision would encourage “evergreening” where manufacturers gain extra patents to extend their monopolies in order to ward off competition from generics.

The US is also seeking to lengthen the period during which generic manufacturers cannot use clinical trial data produced by a manufacturer to obtain marketing approval. Under the Australia-U.S. Free Trade Agreement, Australia already provides at least 5 years of protection. The US is seeking at least 3 additional years of protection for new uses of existing drugs and 12 years for so called biologic drugs and vaccines.

The provisions in the draft healthcare transparency annex of the agreement would outlaw therapeutic reference pricing, a mechanism for ensuring that the prices paid for medicines reflects their clinical benefit and require more consultation with drug manufacturers about listing and pricing decisions.

“In the past, the Pharmaceutical Benefits Scheme has increased patient co-payments in order to accommodate rising costs,” the report says.

“A systematic review of evidence from 1990 to 2011 found that co-payments decrease prescription use, can impact patient medicine use compliance, and can adversely impact disadvantaged populations.”

The report finds that proposed investor-state dispute settlement procedures would make it difficult for governments to legislate in ways that harmed tobacco, alcohol or food manufacturers.

Trade minister Andrew Robb told Fairfax Media last month that many of the critics had only seen proposals, not what would be in the final agreement.

“I am not going to do something that I think is not in the public interest,” he said.

In The Age and Sydney Morning Herald


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Trust. Why Abbott has become a brake on the economy

Here's what's missing: trust. Not just between Abbott and his backbenchers, but also between Abbott and us. If anything,  the leadership contest has made things worse.

As Abbott brought forward the timing of the leadership vote on Sunday his supporter and finance minister Mathias Cormann told the ABC the economy was "heading in the right direction".

He wanted "to build on the achievements we made in 2014".

Take a moment to consider the achievements and the direction in which things are heading.

That year began with a quarterly rate of economic growth of 1 per cent. After the budget it slid to 0.5 per cent, and then to 0.3 per cent. It's falling, rather than rising. The direction is down.

(Ignore the through-the-year figures Cormann quoted. They make the budget look good by including the very strong economic growth that preceded it.)

The Reserve Bank made its view about economic growth clear on Tuesday. Here's what it said when it cut rates an hour or two before its governor briefed Cormann and others in cabinet:

"In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak."

It's weak and it's bleak. It isn't heading "in the right direction".

Looking ahead the Reserve Bank expects growth to remain "a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected."

Unemployment has climbed from a quarterly rate of 5.3 per cent at the end of 2012 to 5.8 per cent at the end of 2013 to 6.2 per cent at the end of 2014. We get the first figures for 2015 on Thursday.

The direction is undeniably clear, but it's not the right one. Unemployment is worse than it was at the peak of the global financial crisis. The Reserve Bank expects it to get worse still...

Hockey and Cormann will tell you that while unemployment is growing, employment is too. But it's not, really. The number of hours worked per month grew barely at all throughout 2014. More people may have been employed at the end of the year than the start but on average they've been working less, some shifting to part-time work and others to fewer hours of full-time work. Disturbingly, the Reserve Bank says the number of hours worked per month has scarcely changed since December 2011 despite three years of population growth.

None of these facts would surprise anyone in business or anyone looking for a job. What would surprise them would be to hear from the team at the top that things are "heading in the right direction". It would make them think they were being lied to.

When trust vanishes, it's awfully hard to restore. That's because it vanishes slowly.

Joe Hockey's first budget was far worse than it seemed on the night in part because he didn't tell us the truth about it on the night. The usual calculations showing the households that won or lost were missing.   The treasury had prepared them as usual, the treasurer withheld them.

And he made up stuff. He said treasury had told him that fuel excise was "a progressive tax". It hadn't. He said the poorest Australians "either don't have cars or actually don't drive very far in many cases," something many of them know to be untrue. Petrol takes up a much bigger share of a low-income budgets than high-income budgets.  

He said his own wealthy electorate of North Sydney had "one of the highest bulk-billing rates in Australia". It had one of the very lowest in all of Sydney. He said "higher income households pay half their income in tax". They pay nothing like half. Even those on $200,000 pay just 36 per cent. Back from his holidays this January he revived the claim and went further saying typical Australians pay nearly half their income in tax.

"When Australians spend the first six months of the year working for the government with tax rates nearly 50 cents in the dollar it is a disincentive. You're working July, August, September, October, November, December just for the government and then you start working for yourself and your own household income after that for another six months, he said.

But Australia's tax-to-GDP ratio is around 30 per cent, including account all taxes, state and federal. It simply can't be the case that typical Australians pay nearly half their income in tax. They don't.

And exaggerated claims have eaten away at trust. Hockey said Australia was on track to run out of money to pay for its health, welfare and education systems. The figures put forward by his then health minister suggested otherwise. In ten years the cost of Medicare had climbed 124 per cent, the cost of the Pharmaceutical Benefits Scheme 90 per cent and the cost of public hospitals 83 per cent. But Australia's gross domestic product - the money we would use to pay for these things - climbed 94 per cent.

The government tells us it's concerned about future generations, but won't release the treasury's intergenerational report. It tells us it wants a discussion about tax, but won't release the tax discussion paper finalised late last year.

Without trust we lack confidence. We are neither spending nor investing what we should. Business and consumer confidence has been sliding since September.

Specific businesses are at a standstill. Universities don't know what fees they will be allowed to charge, students enrolling don't know what fees they will eventually be asked to pay, doctors don't know what will happen to their incomes, electricity generators don't know what will happen to the renewable energy target, big businesses don't know whether they will be hit with the 1.5 per cent paid parental leave levy and what it will be used for.

If they applied themselves, Abbott and his ministers could methodically work through each of these issues. But they wouldn't be trusted.

The government itself has become an impediment to economic growth. It had the ability to make a fresh start. On Monday it didn't take it.

In The Age and Sydney Morning Herald


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Why you'll pay much more for the doctor. The three-card trick that purports to save $3.5 billion

How can a $5 GP co-payment that excludes the young and those on benefits save just as much as a $7 co-payment that applies to everyone?

That's what we'll be asked to believe when the budget update is published next week. We'll be told Prime Minister Tony Abbott's new health package will save $3.5 billion whereas his old package would have saved $3.6 billion.

Part of the trick is that it isn't the co-payment that saves the government money, it's the cut to the Medicare rebate. That cut was always going to be $5 per consultation. If doctors had had the ability to charge a $7 co-payment they would have got an extra $2 in their pockets. Now they won't.

Another part of the trick is that the government will now cut some rebates by much more. Standard so-called Level B consultations of up to 10 minutes currently attract a $37.05 rebate. Under the changes they will classified as Level A and attract $16.95 for the young and concession holders and $11.95 for everyone else.

And the two-year freeze on increasing the amount of Medicare rebates that was going to extend to June 2016 will now become a four-year freeze, extending to June 2018.

Doctors will lose just as much as before, but in different ways and for longer.

At least that's what the budget update will say.

All of the changes but one will be introduced through the back door by regulation rather than by legislation, which requires the approval of Parliament. But regulations can be disallowed by the Parliament after they are introduced. Just last month the Senate disallowed the regulations that purported to water down consumer protection under financial advice law.

There's every reason to think it's prepared to do so again if it doesn't like co-payments, meaning that, while the $3.5 billion saving will be in the budget update, most of it will never be banked.

In The Age and Sydney Morning Herald


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Abbott's GP co-payments aren't dead: it's a tweak not a termination

Tony Abbott has cut the size of the co-payment and he has excluded children and Australians on benefits, but he is insisting on a co-payment, or as he puts it a "price signal".

Like a price signal for pollution (the carbon tax) or a price signal for traffic congestion (road tolls) the theory is that if we are charged for something we'll use less of it.

But visits to the doctor aren't quite like those other things. One of the things we are buying when we go to the doctor is information - information about whether we really needed to go in the first place. We can't know until we go. Doctors and patients have what health economists call an "information asymmetry". And so that makes it entirely possible that co-payments could deter necessary, as well as frivolous, visits.

It's what the giant Rand health experiment in the United States found. It sent some people to the doctor for free, charged others small fees and others big fees. In the words of the Rand report: "Cost sharing did not seem to have a selective effect." Serious as well as trivial visits were equally discouraged and those visits that were discouraged were almost entirely first visits, those that let the patients know whether it's serious or trivial...

His move might help the budget, but it might not help public health, and there's reason to think it mightn't even help the budget as much as he thinks.

If general practitioners do find their work their work slowing down as patients are turned away by co-payments, what are they expected to do? What they are likely to do is to see other patients more intensively - to recommend follow-ups and to make their consultations last longer. They'll get less from the government per consultation (Abbott is cutting the Medicare rebate by $5 for all but young patients and concession card holders) but they are unlikely to put in fewer hours.

And these changes are unlikely to pass the Senate. Most of them are being introduced by regulations rather than legislation bypassing the need for Senate approval, but the Senate still has the ability to disallow regulations, and just last month it showed it was prepared to use it when it was presented with watered-down financial advice regulations. It isn't over yet.

In The Age and Sydney Morning Herald


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Tony Abbott: the most radical prime minister since Whitlam

I and many others got the Abbott government wrong. It’s turning out to be more like Whitlam’s than Howard’s, perhaps the most radical in Australia’s history.

My first mistake was to think his first budget would be a typical first budget, full of cutbacks to be followed later by generosity nearer the next election.

It’s been the other way around. The immediate impact of his first budget is close to nil. That’s not how Abbott sells it and it’s not how Shorten sells it, but it’s how the governor of the Reserve Bank sees it. Here’s what he said at the Economic Society conference in Hobart last week: “Over the next couple of years the estimated impact of the budget is not very different from what we had previously been assuming”.

The cutbacks are “actually not particularly large” in the governor’s words.

But that’s just in the here and now. In the longer term the changes will be profound if the newly-installed Senate approves them. The only prime minister in living memory to have put forward such a far-sighted a program is Labor’s Gough Whitlam. And just as many of Whitlam’s measures became part of the social fabric and almost impossible to undo, Abbott’s changes will stick.

If you doubt that he is governing for the long-term rather than the electoral cycle, consider the timing. Almost all of his measures build up slowly, beginning to have an effect at or just beyond the next election.

Pensions. Whitlam announced that pensions would climb until they hit 25 per cent of average male earnings. Abbott has announced that they will fall relative to male earnings without limit, being indexed only by the consumer price index from 2017.

Whether or not you think that’s a good idea (I do, I can’t see why pensions should have had first call on the proceeds of economic growth) you would have to agree that it’s farsighted. It’ll change society in long term rather right now. It’s also far reaching. It’s difficult to imagine a new government rolling it back. A new government would face its own budget pressures and would have other priorities. CPI adjustment would become the norm.

The Commission of Audit recommends much the same thing for minimum wages. They would increase by CPI minus 1 per cent for the next ten years after which they would settle at a new permanently lower level relative to other wages.

States. Whitlam took responsibilities from the states. Howard took more. Abbott is shoving them back. If they want to maintain their hospitals and schools in the future they will have to do it themselves. He will lift grants to hospitals only in line the consumer price index and population even though medical costs are rising rapidly. All he will offer them is the ‘opportunity’ to lift the GST. White papers on both the federation and the tax system are due before the election. If they take the opportunity to lift the GST schools and hospitals will become their problem from then on, not the Commonwealth’s.

Medicare. Whitlam made it easy for doctors and medical providers to pro vide services without charge. His successor Fraser undid Medibank and his successor Hawke reinstated it as Medicare. With one brief exception the option of free medical care been sacrosanct ever since, until now. Once fees are in and the reward for waiving them is removed it’ll be hard to go back...

Universities. For as far back as anyone can remember bright students have been able to get into university for free. The method used to be the Commonwealth scholarship, then it was free education under Whitlam and after that a loans scheme under Hawke where the debt didn’t accumulate in real terms if you were unable to pay it off. Abbott’s proposals allow universities to charge what they like (up to an international ceiling) and require students to repay loans at a rate well above the rate of inflation. For students who move quickly into good jobs that won’t be a problem. For those that do not the debt will build and build toward a crippling burden making university an attractive financial option for people with poor financial prospects. Future governments will be unable to reverse the decision to charge a real interest rate because fees will be by then so expensive the cost will be prohibitive.

Financial advice. Independent advisers want to ban  kickbacks and the misery they have caused. That’s what the previous government did and what would have come into force on July 1 had not the Coalition sneaked through regulations that will continue to allow kickbacks for “general advice” so long as the kickback is not solely for that purpose and so long as the adviser is affiliated with institution handing over the money. It’ll allow “general advisers” to set up in competition with genuinely independent personal advisers stifling the best chance the industry ever had of turning professional. And the general advisers will win. The kickbacks will make their conflicted service cheaper.

Regulation. The Australian Securities and Investments Commission is about to lose 12 per cent of its budget. It’ll have to adopt a lower-cost model of catching corporate crooks notwithstanding a damning Senate report about how little it was able to do with the budget it had. Neither corporations nor charities are universally honest. Labor’s Charities and Not-for-profits Commission was the best chance Australia ever had of subjecting non-profit organisations to the same sort of scrutiny as companies. And the good ones loved it. It was a one-stop shop. If it is abolished as Abbott intends it’ll be hard to restore.

Energy. We are in the middle of a life or death struggle between coal and gas fueled electricity generation and renewable energy led by wind. Only one side will win. The Renewable Energy Target has tipped the scales in favor of wind. If it stays coal-fired power station are likely to close. If it goes we’re likely to have seen our last big new wind farm. Abbott is siding with his coal. If the Senate lets him remove the target we will wear the consequences a long time.

It’s said that when you change the government, you change the country. That wasn’t true of Howard and it wasn’t true of Rudd or Gillard. It’s only true of governments with plans. We live with them for decades.

In The Age and Sydney Morning Herald


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"A crime", "absurd". Stiglitz on the budget changes to health and education

The government's plan to deregulate universities is "a crime" and the move for co-payments for medical services is "absurd" in the view of visiting Nobel prize-winning economist Joseph Stiglitz.

Asked by Fairfax Media to nominate the two biggest mistakes the government could make that would take it down the American path of widening inequality and economic stagnation, Professor Stiglitz chose the budget changes to university fees and Medicare. Each would make Australia more like the US.

"Countries that imitate the American model are kidding themselves," he said. "It seems that some people here would like to emulate the American model. I don't fully understand the logic."

In the lead-up to the budget Education Minister Christopher Pyne said Australia had much to learn about universities from overseas, "not least … from our friends in the United States".

Professor Stiglitz said Australia had "a system that is really a model for the rest of the world", and deregulating fees would move the entire system in the wrong direction.

"Trying to pretend that universities are like private markets is absurd. The worst-functioning part of the US educational market at the tertiary level is the private for-profit system,'' he said. ''It is a disaster. It excels in one area, exploiting poor children.

"If you're rich your parents can pay the fees, but if you are poor you are going to worry about how much debt you're undertaking.

"It is a way of closing off opportunity and that's why the US doesn't have educational opportunity.

"While we in the US are trying to re-regulate universities, you are talking about deregulating them. It really is a crime."

Professor Stiglitz said Australia also had one of the best healthcare systems in the world.

"Your outcome per dollar is probably the best or one of the best. Your equality of access is one of the best...

"Why would anybody … try to make your system like the American system? The US is at the bottom.

"As for talk about a price signal, people don't make decisions about medical tests and procedures based on price. Maybe for cosmetic surgery they do, but for poor people, price signals price them out."

He said the typical inflation-adjusted income of a US household was lower than it was 25 years ago. The typical inflation-adjusted income of a male full-time worker was its lowest in 40 years.

"You have to say that the American market model has failed. It's a very strong statement for someone who believes in a market economy. But at the bottom it's even worse. The minimum wage is about where it was almost a half century ago."

Asked what Australia had done right that the US had not, he said: "unions".

“You have been able to maintain stronger trade unions than the United States. The absence of any protection for workers, any bargaining power, has had adverse effects in the United States.

“You have a minimum wage of around $15 an hour. We have a minimum wage of $8 an hour. That pulls down our entire wage structure.”

The elite, the top one per cent are not too concerned. When you have so much inequality those at the top say: I don't need public transportation, I have a helicopter, I don't need public schools, I don't need all these other public services and so the result of that is - you look at America today we have some of the best universities, but our average education performance is mediocre.”

Professor Stiglitz nominated politics as the reason for enormous advances in wealth and income at the top of the US distribution, and falling living standards in the middle and below.

“I agree with Thomas Piketty who in his new study says inequality began growing at the start of the 1980s. I think President Reagan's election was a marking point. That’s when the rhetoric about small government took over.”

With weaker regulations, particularly in the financial sector, it became easier for firms to lobby governments for favours than to obey rules. The result was the global financial crisis.

In The Age and Sydney Morning Herald

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Anyone who doubts the Medical Research Fund is a fig leaf..

It took Mark Latham to say the unsayable. “If a cure to cancer is to be found, most likely it will happen in Europe or the United States,” he wrote in the Weekend Financial Review. Spending scarce funds to find a cure ourselves is a waste of money, a political fig leaf to cover the electoral pain of the GP co-payment.

Anyone who doubts that the Medical Research Future Fund is a fig leaf or an afterthought, needs to only look at the pattern of leaks and speeches leading up to the budget. Ministers spoke often about the need to restrain the cost of Medicare, scarcely at all about the need to boost medical research.

They weren’t able to prepare the way for the medical research future fund because it didn’t come first. It isn’t that pharmaceutical benefits, doctors rebates and future hospital funding are being cut to pay for the fund. It’s that the fund was evoked late in the piece to smooth the edges of the cuts.  

Under the descriptions of 23 separate cuts in the budget are the words: “The savings from this measure will be invested by the government in the Medical Research Future Fund”.

The cuts hit dental health, mental health, funding for eye examinations, measures to improve diagnostic images, research into preventive health, a trial of e-health and $55 billion of hospital funding over the next 10 years.

We’re told the cuts are to build a $20 billion Medical Research Future Fund, but the immediate purpose is to cut the deficit.

The wonders of budget accounting mean that the savings notionally allocated to the fund will actually be used to bring down the budget deficit except for when money is withdrawn from the fund to pay for research.

It’s the same trick Peter Costello pulled with the Future Fund. The government gets two gold stars for the price of one. It can both cut the deficit and build up the funds for medical research. And it isn’t yet too sure about what type of research.

Under questioning by senators on Monday, health department officials revealed that they didn’t even know about the fund until late in the budget process and even then provided no advice on how it would work.

Asked about the kind of things the fund would finance, the department's secretary Jane Halton said the questions were hypothetical.

Would it include evaluations of potentially life-saving preventive health measures such as SunSmart and anti-tobacco programs? “I think it’s unlikely based on the description I have seen, but again we are in an area that we probably can’t yet answer,” she replied.  

A few minutes later she asked for her words to be expunged saying she really didn’t know. “We need to work through this level of detail” she told the senators.

We know that cures for cancer, Alzheimer's and heart disease will be part of fund’s remit, because the Treasurer told us so. “One day someone will find a cure for cancer,” he said after the budget. “Let it be an Australian and let it be us investing in our own health care.”

Latham’s point is that the idea is silly. By all means contribute proportionately to a global effort to find cures for diseases, but don’t try and lead the pack by taking scarce dollars away from applying the medical lessons we have already learnt.

Small countries like Australia are for the most part users rather than creators of technology, and our funds are limited as Joe Hockey well knows.

The Medical Journal of Australia isn’t fooled. This month’s editorial says a government genuinely concerned about extending the working lives of Australians would be investing more in preventing chronic disease, not less.

“The direct effects of the proposed federal budget on prevention include cuts to funding for the National Partnership Agreement on Preventive Health, loss of much of the money previously administered through the now-defunct Australian National Preventive Health Agency, and reductions in social media campaigns, for example, on smoking cessation,” it says.

“Increased funding for bowel cancer screening, the Sporting Schools initiative, the proposed National Diabetes Strategy and for dementia research are positive developments, but do not balance the losses.”

It’s the indirect effects of the measures the fund seeks to make palatable that have it really worried. The $7 co-payment will work out at $14 for patients with chronic diseases. They’ll pay once to see the doctor and then again to have a test. The editorial quoted four studies which have each found that visits for preventive reasons are the ones co-payments are most likely to cut back.

“The effects of these co-payments on preventive behaviour are greatest among those who can least afford the additional costs,” it observes. Which is a pity because “the potential for prevention is greatest among poorer patients, who are often at a health disadvantage”.

We’ll all suffer if co-payments cut vaccination rates, even those of us who aren’t poor, and even if the Medical Research Future Fund finds a cure cancer.

The journal’s biggest concern is that the cuts to hospital services will hit preventive health measures because they are seen as less urgent.

“The greatest pity of all is that the proposed cuts to funding for health come at the time when the first evidence is at hand of potential benefits of the large-scale preventive programs implemented under the national partnership agreements,” the journal writes. “A slowing in the rate of increase in childhood obesity and reductions in smoking rates among indigenous populations have been hard-won achievements.”

Withdrawing from measures ;we know will work in order to fund measures we think might work is a daft way to manage our health. But it'll help cut the deficit.

In The Age and Sydney Morning Herald

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Tips for Hockey's budget: Spare health, hit super and pensions

Lifting the pension age and imposing a deficit reduction tax are just the start.

Here are the other things I would like Joe Hockey to announce on budget night in a bid to bring down the deficit.

1. Scrap the regularly scheduled increases in compulsory super contributions. The first of them, last July, increased employers’ contributions from 9 per cent of salary to 9.25 per cent. Another this July  will lift them to 9.5 per cent. Coming at the same time as the 0.5 percentage point jump in the Medicare levy it’ll rip billions out of the economy. But, unlike the Medicare levy, the lift in super contributions will cost rather than earn the government money. That’s because our pay rises will shrink to fund them - the figures show it has already begun to happen. Smaller pay rises will mean smaller increases in income for the government to tax.

In opposition the Coalition promised to pause the climb to 12 per cent for two years, boosting the budget by $1.5 billion. It should axe the entire process and save five times as much.

2. Adopt another of the Henry Review’s recommendations and tax all super contributions as income at the taxpayer’s marginal rate, replacing the tax concessions with a flat-rate refundable tax offset. Tax concessions cost $13.5 billion to $16 billion ayear. Most go to high income earners. The offset might cost half as much.

3. Make super cheap. The Grattan Institute believes we pay two to three times what we should in fees. It suggests the government tender out the right to manage all newly opened default accounts every two years. The rest of us would be invited to switch. To accelerate the process the government could make the funds invoice us rather than silently remove our money.  On conservative assumptions Grattan thinks the tenders could boost retirement incomes by 25 per cent.

4. End or severely wind back access to the Seniors Health Card. It is available only to those retirees too well off to qualify for a part pension; couples with combined incomes of more than $70,000 and assets of more than $1.1 million not counting their family homes. The Seniors Health Card has no effective income test and no assets test. It gives well-heeled retirees access to cheap medicine denied to less well off workers.

With the card comes the seniors supplement and associated carbon tax compensation. Abolishing those two would save $2 billion a year.

5. Tighten access to the age pension and increase it more slowly. Raising it in line with the consumer price index instead of male earnings would save $900 million a year, increasing by $900 million more each future year. At the moment pensioners get to cherry pick the highest possible increase in their income each six months. When wages increase slowly they get the CPI. When the CPI increases slowly they get the increase in wages. Other Australians don’t have that luxury.

6. Leave the carbon tax in place. The government has already committed itself to keep the income tax cuts that were delivered in compensation for the tax, so it may as well also keep the tax. It is due to shrink soon when it transforms into an trading scheme tied to the lower European carbon price. Leaving things as they are would save the budget $6 billion in four years, according to the parliamentary budget office.

7. Keep the mining tax as well. That it raises little money at the moment isn’t a fault, it’s a design feature. The up side is it’ll give the government more money when mining profits improve. Joe Hockey is alive to the argument. When Labor introduced the latest version of the mining tax it also introduced another measure subjecting onshore and previously exempt North West Shelf gas to the offshore petroleum resource rent tax. Hockey has kept that measure. He wants the money.

8. Build up the funds needed to cut company tax down the track. Right now foreigners are keen to invest in Australia. But they won’t always be, and as other economies recover they will begin cutting their own company tax rates. We need to be able to cut ours when needed.

9. Plan to raise the goods and services tax after the next election. It’s a fiction that all the states need to agree and a fiction that it all needs to be spent on the states. Lifting the rate from 10 per cent to 12.5 per cent would bring in an extra $6.4 billion a year. Some could go to the states. Extending the GST to education and health would net $3 billion a year.

10. Stop attempting to run schools. Close that part of the Commonwealth education department and stop distributing grants to both state and private schools. Give the states more money and let them decide how to run their schools and whether or not to support private schools.

11. Reconsider plans for a co-payment for free visits to the doctor. General practitioners are cheap compared to specialist and hospital services. If they can direct people away from more expensive services where appropriate or to direct them there quickly in emergencies the entire system will save money.

12. Announce a date for the end of fuel excise and the introduction of telemetric pay-as-you drive road user charges.

13. Limit negative gearing (saving $2 billion), restore full capital gains tax ($5 billion) and end the private health insurance rebate ($3 billion).

Bank the proceeds and use them to run down debt. Later they can be used to fund expected increases in health spending and to cut income tax.

Peter Martin is economics editor of The Age.

In The Age and Sydney Morning Herald

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Spending on health is sustainable precisely for the reason that we want to sustain it

Unsustainable? A generation ago the veteran Labor MP Barry Jones led an inquiry into expectations of life in the 21st century. He said the question was being framed as whether Australia could "afford" an ageing population. "At first sight this seems an ordinary sort of accountant's question," he reported. "Like: can we afford a new car?''

"But decisive differences emerge when we consider the answers. If we can't afford a new car, we don't buy one, and nobody suffers. But what if we decide that we can't afford the coming increase in the aged population?"

Jones said it was a deeply sinister question. Or a silly one.

Peter Dutton is Australia’s health minister. Joe Hockey is Australia’s treasurer.

(Dutton shouldn't be confused with the assistant health minister Fiona Nash who is more famous for pulling down health websites and defunding preventative health organisations).

Within weeks of taking on the health job last year, Dutton declared the system was on track to becoming "unmanageable".

Last week, in an address to the Committee for Economic Development of Australia, he said spending on Medicare was "spiralling", future costs were "staggering", and we were on an "unsustainable path with no prospect of meeting the needs of the health of our nation in the 21st century".

Then Hockey piled in: "If our health, welfare, and education systems stay exactly the same, Australia is going to run out of money to pay for them," he said as the G20 summit got under way.

Hockey is one of the few people who has read the Commission of Audit report. His concerns would reflect its concerns. But when it comes to health they are misplaced.

Health is about the last thing we will run out of money for. It matters more to us than does almost anything else. Jones was right. Spending on health is sustainable precisely for the reason that we want to sustain it.

We are spending more on health because more of us are getting older (the phenomenon Jones was inquiring into) and also because we are buying new and better health services. We would be mad not to. It is not normally thought of as waste to spend more to buy something that is better.

A year ago, Hockey had a relatively new form of surgery known as a gastric sleeve. As much as 80 per cent of his stomach was removed to make it more like a sleeve. It's expected to save lives. A few years ago it wasn't possible. It costs Medicare millions.

Offered a choice between an old dial-up internet connection and a new broadband service most of us would opt for the broadband. It isn't wasted money. Nor is it unsustainable, given rising incomes. Broadband matters to us. Health matters even more.

But the difference is that health is predominantly provided by governments. We tend to see it as a problem when governments buy more, even if we want them to, whereas we don't worry when we do.

There's little doubt that we want to pay more tax for health. The latest increase in the Medicare levy (due in July) was approved with scarcely a murmur. It'll help fund the National Disability Insurance Scheme.

Some 19 per cent of the Australians surveyed in the latest Australian National University election survey rated health as their No.1 priority. Only 11 per cent nominated tax. It used to be the other way around.

As recently as the 1990s, Australians were more concerned about tax than health. But we are richer now, and older. We are able to, and keener to, spend more of our GDP on health.

It's always wise to get value for money, but it would really be stupid to buy less of what we really want.
In The Age and Sydney Morning Herald

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Medicare. What would charging for a previously free visit to the doctor achieve?

There’s something odd about the plan to charge six dollars (“the price of two cups of coffee or a Big Mac with a side of fries”) for previously free bulk-billed visits to the doctor.

The Australian Centre for Health Research has told the Coalition the fee would make us “think twice about going to the doctor about minor ailments”. But it also says we could buy private health insurance to cover the fee, meaning those of us who did wouldn’t need to think twice at all.

It’s less odd when you realise the Centre was set up with a grant from a private health insurance fund, Australian Unity.

Other things are odd about the proposal as well.

At first glance it’s simple economics. If we are charged for a product we’ll want less of it than if it’s free.

But the charge would apply to all visits to the doctor, both serious and frivolous. And we are not skilled at deciding what’s frivolous. That’s why we go to the doctor. Their product is partly advice about whether we need it.

There’s no need to guess about the effect of charging for previously free medical services. It is “one of the most thoroughly discussed issues in the health economics literature,” according to a 1991 health department report. The massive Rand Corporation experiment in the United States was almost certainly the most expensive ever conducted.

Rather than compare naturally occurring different methods of charging for the doctor in different cities the Rand Corporation created them. Between 1974 and 1977 it funded visits to the doctor for 5809 Americans in six different cities at four different rates. Some were charged so-called copayments of 95 per cent of the fee, some 50 per cent, some 25 per cent and some zero, as happens in Australia with bulk billing.

It also collected data on their social status and health, not only by questionnaires but also by physical examinations. All up it accumulated 20,190 person years of data.

If found a copayment of 25 per cent cut the use of services by around 8 per cent. But the $6 fee proposed in Australia is much lower than the Rand Corporation’s 25 per cent fee and US medical charges are higher. As a result, Australia's Health Department was warned that here fewer patients would be turned away.

In the US they were as easily turned away from care for serious problems as for trivial ones...

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In the words of the Rand report: “Cost sharing did not seem to have a selective effect”. And where it did have an effect it was almost entirely on first visits to the doctor, those that determine whether further visits are needed.

Nevertheless Rand concluded that on average the health of those asked for a copayment got no worse than those provided care for free. Although it noted a disturbing possibility: The health of some of those asked for co-payments might have got worse while the health of others asked for copayments might got better. Too many visits to the doctor can damage health for patients with some conditions while too few can harm health for patients with others.

The broader advice proffered to Australia’s health department was that in the real world the Rand findings wouldn’t apply. There might well be next to no impact on the number of visits to the doctor because of the actions of doctors themselves.

Rand provided health care funding for just a few thousands of Americans spread across six cities. The relatively few that were turned away from each surgery made each no less busy. But if an entire state or country switched from free medicine to fees, doctors deprived of business would respond, either by cutting their fees or providing more treatment.

Jeff Richardson is the foundation director of the Monash University Centre for Health Economics. He is the author of the 1991 health department report.

He says the technical term for what happens is “supplier-induced demand”. But he doesn’t like it.

“It conjures up wrong behaviour. I think that's probably wrong,” he says. “I suspect doctors work until they finish their working week believing with some justification the services they give are needed. Doctors can quite ethically treat patients more intensively, or for slightly longer believing it helps. It's not the same as saying they are crooks.”

Richardson’s rule of thumb puts supplier-induced demand at 50 per cent, meaning that if the Rand study showed copayments would cut visits to the doctor by 3 per cent (at Australian prices) the actual outcome might be 1.5 per cent.

And the few who are denied medical care would be overwhelmingly those on the lowest incomes. The Rand study provided free care at random. Australian doctors do not. Meliyanni Johar of the University of Technology Sydney examined the records of 2.3 million consultations between 2006 and 2009 and found that where they could doctors varied what they charged according to income. Their poorest patients were the most likely to be bulk billed.

And general practitioners are cheap compared to other forms of medicine. They account for less than 10 per cent of health spending. They act as gatekeepers, directing Australians to hospitals and more expensive specialists only when needed. They are not where costs are rising. They are among the last places costs should be cut back.

In The Canberra Times, The Sydney Morning Herald and The Age


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The dietonomics of fat. Correlation does not mean causation

Repeat after me.

In economics as in medicine one of the easiest mistakes is to assume that correlation means causation.

In 2010 two of the biggest names in international economics produced a study showing that when a nation’s government debt hit 90 per cent of gross domestic product its economic growth fell. Politicians used the finding to promote austerity in Europe, with unfortunate results. But the researchers hadn’t proved causation. It was just as likely that low economic growth caused the high debt to GDP ratio as it was the other way around.

Science writer Gary Taubes who was interviewed on the Catalyst program believes that’s how it is with fat.

People who are fat either eat more than thin people or do less exercise. We’ve come to believe it’s the eating or lack of exercise that’s making them fat. But it could be the other way around. Their body’s compulsion to store and hold fat might be forcing them to eat more and stripping them of the energy they need to exercise.

Sugar creates such a compulsion. It produces insulin which pushes fatty acids into fat cells and temporarily locks them there removing a source of energy. Its why people feel weak as they are eating a sugary or carbohydrate-laced meal and hungry for more.

Taubes says that in contrast fat itself doesn’t do that. Taken without carbohydrate fat doesn’t make us fat. After all, we have been eating it for millennia and sugary foods are relatively recent. Which would mean the traditional food pyramid should be turned on its head. Instead of being told to eat only small amounts of fat and large amounts of carbohydrate we should be told to do the reverse (except that we couldn’t eat large amounts of fat - it satisfies rather than builds an appetite). But changing the advice would mean organisations such as the Heart Foundation admitting they have been wrong. Cardiologist Ernest Curtis ruefully told Catalyst, “that’s not going to happen”.

And it would antagonise incredibly important industries. How would the sugar industry cope if food producers tried to remove it from virtually every processed product? How would the grains industry react if we were advised to abandon porridge, corn flakes and bread in the morning?

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Part of a larger piece for the Sydney Morning Herald on the ABC Catalyst controversy


Below, Robert Lustig explains the damage caused by sugary foods.

Warning: The video is 90 minutes! (Watch the rest later here)







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Grattan: Why we're facing a decade of deficits

Australia faces a decade of budget deficits with the annual total set to pass $60 billion in 2023 unless governments take tough action to “share the pain,” a leading think tank has warned.

The Grattan Institute’s assessment comes as Treasurer Wayne Swan confirms the budget had taken a $7.5 billion hit since the mid-year update in October.

“We have seen a really unique event in our economic life,” Mr Swan told the ABC from Washington where he has been attending international meetings.

“We have seen the terms of trade come down but the dollar didn't move. That's caused a hit, if you like, a sledgehammer to revenues in the budget since the mid-year update of something like $7.5 billion.”

“And of course the impact won't just be in this financial year, it will also be across the forward estimates.”

The Grattan Institute says while notionally on track to surplus at the moment, the combined total of state and Commonwealth budget deficits should reach 4 per cent of gross domestic product by 2023, which is around $60 billion in today’s dollars and would be around $100 billion in ten year’s time.

“Initiatives such as national disability insurance scheme, the education reforms, direct action on climate change and parental leave are only a small part of it,” Grattan Institute chief executive John Daley said.

“The big driver, costing $30 billion, is extra spending on health. Contrary to popular belief the extra spending isn’t being driven by aging. It’s that compared to ten years ago today’s 60 year olds see the doctor more often, have more tests, face more operations and take more drugs. We are getting something out of the extra spending, more people are staying alive, but the question is - who is going to pay for it?”

The Institute also believes welfare spending will have to climb in part because the present Newstart unemployment allowance is unsustainably low...

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It says company tax revenue, mining and carbon tax revenue and general tax takings will slide as a proportion of the economy as the price of exports slips.

“The problem is the attractive solutions won’t buy that much money,” said Mr Daley. “Cutting middle class welfare won’t be enough, Australia doesn’t have that much. Even if you axed the baby bonus, the schoolkids bonus and parts of Family Tax Benefit B that go to high earners you’d only make $4 billion.”

“Eliminating government waste won’t help much either. Axing the Commonwealth departments of education and health might save the wages of $5000 public servants, but that’s only around half a billion.

The Institute says the gap can only be closed by higher taxes, meaning the days of “painless” budget fixes are over.

“The places to look are company tax and company tax concessions, income tax and goods and services tax. The old idea that you can introduce a change with no losers (at least none earning less $100,000) won’t work.

“Everyone will have to share the pain. Victoria’s Kennett showed what could happen in the early 1990s. It was explicit about saying that everybody was going to have to share in bringing the budget back into surplus.”

A spokesman for Mr Swan rejected the suggestion the Treasurer would not take hard decisions saying its new spending on schools was funded by cutbacks in other areas.

It had tacked health spending by means testing the private health insurance rebate and “cutting the millionaires’ dental scheme.”

Mr Swan told the ABC he was not going to make up for a shortfall in May’s budget by “savage cuts”.

“That would not support jobs and growth and it would lead to higher unemployment,” he said.

In today's Sydney Morning Herald and Age


$60 BILLION IN DEFICIT

The Grattan Institute’s 2023 forecast

$30 billion - Extra health spending

$7.5 billion - Extra welfare spending

$7.5 billion - Gonski and other initiatives

$7.5 billion - Weaker company tax

$7.5 billion - Weaker mining and carbon tax

Total deficits of all Australian governments, in 2013 dollars

Grattan Institute, Budget Pressures on Australian Governments April 2013






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