Benign-looking budget uses hidden fangs to drain money from health

Budget: The Longer View. The dust has begun to settle on Tuesday’s federal budget – and some key issues and themes are emerging. What are they? This long-read essay is part of a special package intended to answer that question.

People looking into the impact of this year’s federal budget on the health sector may well conclude the government has kept its promise to deliver a “dull and routine” budget.

Relatively few measures were announced (31 compared with 58 last year), many of the proposed (and leaked) changes to the pharmacy sector didn’t happen, and there were no measures announced in response to the Mental Health Commission’s recent review of programs and services.

After the controversy surrounding the GP co-payment last year, delivering a boring or “small-target” budget was clearly deliberate. But we shouldn’t gloss over it too quickly. As both the prime minister and health minister have pointed out, this budget is an important part of the government’s overall strategy for more responsible economic management, greater efficiency, and productivity.

It should be interpreted alongside last year’s budget, but also against the myriad funding decisions made throughout the year that never appear in budget papers.

On the same theme

When we look at it in the context of this government’s overall approach to health, it’s clear the same main objectives remain: constraining health-care expenditure by ensuring that Medicare is sustainable, and health services are cost-effective, and reducing duplication and waste.

Although this budget has a very different feel to last year’s, the methods the government has used to achieve its cost constraint objectives remain largely unchanged. While the balance between various such methods has altered a little from last year, the government has sought to find its savings by:

• using price signals (or co-payments) to reduce demand
• tightening up eligibility and funding rules for benefits
• cutting funding for health programs or agencies – or both
• re-negotiating agreements with service providers, including states and territories, non-government providers and the private sector.

The most controversial element of last year’s budget was the proposed A$7 co-payment for GP services; a price signal designed to reduce demand, and therefore the cost of health care. While the attempt to make general practitioners charge co-payments has gone, Medicare rebates (the payments made to general practitioners) remain frozen. And this squeeze on GP incomes will create new pressures to restrict bulk billing to low-income earners.

Despite delivering a purportedly ‘dull’ budget, last year’s theme of cuts are still feeding underlying tensions.AAP Image/Lukas Coch

And legislation to increase co-payments for prescriptions under the Pharmaceutical Benefits Scheme (PBS) is still before the Senate. Its fate is likely to become clearer once the government announces details of the Sixth Community Pharmacy Agreement, which is currently being negotiated with the Pharmacy Guild of Australia.

There’s no indication yet about the extent of savings it will secure, but leaks about the deal, along with the protracted negotiations, suggest it will go some way towards reaching the speculated savings figure of A$3 billion over the five-year agreement.

Whatever the outcome, co-payments for medicines and a range of other health services and products are likely to remain a staple for governments seeking to curb health-care costs.

The government is also continuing its push to tighten eligibility and funding rules as a way to reduce health-care expenditure. This year, it announced changes to the indexing arrangements for children’s dental care benefits, made eligibility for some childcare benefits contingent on compliance with vaccination schedules, and extended arrangements put in place last year that made it harder for people to qualify for the PBS safety net scheme.

Cuts everywhere

The large-scale, holus bolus cuts to commonwealth-funded programs and agencies in last year’s budget were not evident this year. Instead, the focus turned to the federal health department, with measures announced to find savings by making operational changes and reducing duplication across agencies.

No doubt many of those affected by last year’s cuts were pleased to see the Department of Health taking a closer look at its own internal affairs to secure savings.

The government’s enthusiasm for finding savings by re-negotiating contracts with providers, including the states and territories, non-government organisations (NGOs) and the private sector, has not waned either.

The A$2.3 billion cut to states and territories for public hospitals and preventive health outlined in last year’s budget remain in play. The real impact of these cuts is actually set to be in the order of A$50 billion over ten years, and this is what the states are really concerned about.

But the states did receive a temporary, small-scale reprieve from commonwealth cutbacks in this budget. The A$390 million funding agreement for public dental services that was put on hold last year was allocated A$155 million for a 12-month period.

After the controversy surrounding the GP co-payment last year, delivering a boring orAAP Image/Joel Carrett

In contrast, cuts to funding for NGOs, provided through the Department of Health’s Flexible Funds, were ramped up. Last year, cuts of A$197 million over three years were announced; this year, the secretary of the Department of Health announced those cuts would increase to A$500 million over four years.

Many of the NGOs funded through these funds deliver frontline services, such as mental health care and drug and alcohol treatment, and operate in rural and remote areas where people have no other options for care.

Commonwealth-state relations

The amount of Commonwealth money channelled through contracts with direct service providers is massive. So it should come as no surprise that the government has identified this as a prime method for achieving savings. But its heavy reliance on renegotiating contracts, or reneging altogether on agreements made with the states in order to achieve savings in health care is a major concern.

Because it has vastly greater capacity to raise revenue than the states, the Commonwealth usually has the whip hand in negotiations. And despite all the talk in recent years about “co-operative federalism” and “ending the blame game”, commonwealth-state relations remain fraught.

Underlying tensions over the GST – the rate and its distribution between states – remain unresolved, as do tensions over the roles and responsibility of both levels of government in health care. Although it has initiated high-level inquiries into these important issues, they’re nowhere near being resolved. Still, this has not prevented the commonwealth from using its fiscal clout to play the old game of shifting costs – and the odium of making cuts in services – onto the states.

States and territories are unlikely to forget the crushing effects of Commonwealth cuts as they struggle to meet growing demand for health-care services. And that’s not a great starting point for conversations about reforming the federation and clarifying the roles of government in health care.

Halting steps towards the more efficient pricing of hospital services in states, such as New South Wales, were pushed along because of the commonwealth agreement to share increases in hospital spending. But Tony Abbott’s hospital cuts ended this pressure to reform. And sadly, while both levels of government call for better integration of care for people living with chronic conditions – regardless of who pays for it – the rebirth of the “blame game” has destroyed the goodwill needed for real reform.

Although it’s hard to see this by simply reading the budget papers, the greatest shame here is the lack of any reformist imagination. Better health care for patients, and a more efficient, effective and sustainable health system, can only come about through better collaboration across the system.

Budgetary constraints built on shifting costs off the commonwealth balance sheet – onto GPs, consumer out-of-pocket payments, or state and territory governments – will just intensify the current climate of suspicion and defensiveness of sectional interests.

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.