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The Australian Health Care System

by Lucinda Glover

What is the role of government?

Three levels of government are collectively responsible for providing universal health care: federal; state and territory; and local. The federal government mainly provides funding and indirect support to the states and health professions, subsidizing primary care providers through the Medicare Benefits Scheme (MBS) and the Pharmaceutical Benefits Scheme (PBS) and providing funds for state services. It has only a limited role in direct service delivery.

States have the majority responsibility for public hospitals, ambulance services, public dental care, community health services, and mental health care. They contribute their own funding in addition to that provided by federal government. Local governments play a role in the delivery of community health and preventive health programs, such as immunization and regulation of food standards (Department of the Prime Minister and Cabinet, 2015).

Who is covered and how is insurance financed?

Publicly financed health insurance: Total health expenditure in 2013–2014 represented 9.8 percent of gross domestic product (GDP), an increase of 3.1 percent from 2012–2013. Two thirds of this expenditure (67.8%) came from government (Australian Institute of Health and Welfare [AIHW], 2015).

The federal government funds Medicare, a universal public health insurance program providing free or subsidized access to care for Australian citizens, residents with a permanent visa, and New Zealand citizens following their enrollment in the program and confirmation of identity (AIHW, 2014). Restricted access is provided to citizens of certain other countries through formal agreements (Department of Human Services [DHS], 2015). Other visitors to Australia do not have access to Medicare. Government funding is raised through general federal taxes and through the Medicare Levy, which raised an estimated AUD10.3 billion (USD6.7 billion) in 2013–2014 (The Commonwealth of Australia, 2013). (In July 2014, the levy was expanded to raise funds for disability care.)

Private health insurance: Private health insurance (PHI) is readily available and offers more choice of providers (particularly in hospitals), faster access for nonemergency services, and rebates for selected services. Government policies encourage enrollment in PHI through a tax rebate and, above a certain income, a penalty payment for not having PHI (the Medicare Levy surcharge) (PHIO, 2015). The Lifetime Health Coverage program provides a lower premium for life if participants sign up before age 31. There is a 2 percent increase in the base premium for every year after age 30 for people who do not sign up. Consequently, take-up is highest for this age group but rapidly drops off as age increases, with a trend to opt out at age 50 and up.

Nearly half of the Australian population (47%) had private hospital coverage and nearly 56 per cent general treatment coverage in 2015 (Private Health Insurance Administration Council, 2015).

Insurers are a mix of for-profit and nonprofit providers. In 2013–2014, private health insurance expenditures represented 8.3 percent of all health spending (AIHW, 2015).

Private health insurance can include coverage for hospital, general treatment, or ambulance services. When accessing hospital services, patients can opt to be treated as a public patient (with full fee coverage) or as a private patient (with 75% fee coverage). For private patients, insurance covers the MBS fee. If a provider charges above the MBS fee, the consumer will bear the gap cost unless they have gap coverage. The patient may also be charged for costs such as hospital accommodation, surgery fees (implants and theater fees), and diagnostic tests.

General coverage provides insurance for dental, physiotherapy, chiropractic, podiatry, home nursing, and optometry services. Coverage may be capped by dollar amount or number of services.

Private health insurance coverage varies by socioeconomic status. PHI covers just one-third of the most disadvantaged 20 percent of the population, a proportion that rises to more than 79 percent for the most advantaged population quintile. This disparity is due in part to the Medicare Levy surcharge applied to higher-income earners (Australian Bureau of Statistics [ABS], 2013).

What is covered?

Services: The federal government defines Medicare benefits, which include hospital care, medical services, and pharmaceuticals, to name a few. States provide further funding and are responsible for the delivery of free public hospital services, including subsidies and incentive payments in the areas of prevention, chronic disease management, and mental health care. The MBS provides for limited optometry and children’s dental care.

Pharmaceutical subsidies are provided through the PBS. Pharmaceuticals need to be approved for cost-effectiveness by the independent Pharmaceutical Benefits Advisory Committee (PBAC) to be listed. War veterans, the widowed, and their dependents may be eligible for the Repatriation PBS (DHS, 2015).

Nearly half (48%) of federal support for mental health is for payments to people with a disability; remaining support goes to payments to states, payments and allowances for caregivers, and subsidies provided through the MBS and PBS (National Mental Health Commission, 2014). State governments are responsible for specialist and acute mental care services.

Home care for the elderly and hospice care coverage are described below in the section “How Is the Delivery System Organized and Financed?”

Cost-sharing and out-of-pocket spending: Out-of-pocket payments accounted for 18 percent of total health expenditures in 2013–2014. The largest share (38%) was for medications, followed by dental care (20%), medical services (e.g., referred and unreferred private health insurance), medical aids and equipment, and other health practitioner services (AIHW, 2015).

There are no deductibles or out-of-pocket costs for public patients receiving public hospital services. GP visits are subsidized at 100 percent of the MBS fee, and specialist visits 85 percent. GPs and specialists can choose whether to charge above the MBS fee. About 83 percent of GP visits were provided without charge to the patient in 2014–2015. Patients who were charged paid an average of AUD31 (USD20) (DH, 2015).

Out-of-pocket pharmaceutical expenditures are capped. In 2015 the maximum cost per prescription for low income earners was set at AUD6.10 (USD3.97) with an annual cap of AUD366 (USD238). For the general population, the cap per prescription is AUD37.70 (USD24.55) per prescription, which reverts to the low income rate cap if they incur more than AUD1,454 (USD947) in out-of-pocket expenditure within a year. Consumers pay the full price of medicines not listed on the PBS. Pharmaceuticals provided to inpatients in public hospitals are generally free.

(Please note that, throughout this profile, all figures in USD were converted from AUD at a rate of about AUD1.54 per USD, the purchasing power parity conversion rate for GDP in 2014 reported by OECD (2015) for Australia.)

Safety nets: Beginning in January 2016, a new Medicare Safety Net will replace the previous Original Medicare Safety Net, the Extended Medicare Safety Net, and the Greatest Permissible Gap arrangements. Medicare will reimburse 80 percent of out-of-pocket costs (up to a cap of 150 percent of the MBS fee) for the remainder of the calendar year once annual thresholds are met: AUD400 (USD260) for concessional patients (including low-income adults, children under 16, and certain veterans); AUD700 (USD456) for parents of school children and singles; and AUD1,000 (USD651) for all other families.

In addition, patients with out-of-pocket expenses for disability aids, attendant care, or aged care can claim the income-tested Net Medical Expenses Tax Offset. This arrangement had applied more broadly to out-of-pocket expenses but is being phased out. The remaining offset will be eliminated in July 2019 (Australian Taxation Office, 2014).

How is the delivery system organized and financed?

Primary care: In 2013, there were 25,702 GPs, and a slightly higher number of specialists (27,279) (AIHW, 2015a). GPs are typically self-employed, with about four per practice on average (DH, 2015, and DHS, 2015). In 2012 those in nonmanagerial positions earned an average of AUD2,862 (USD1,864) per week. The schedule of service fees is set by the federal health minister through the MBS.

Registration with a GP is not required, and patients choose their primary care doctor. GPs operate as gatekeepers, in that a referral to a specialist is needed for a patient to receive the MBS subsidy for specialist services. The fee-for-service MBS model accounts for the majority of federal expenditures on GPs, while the Practice Incentives Program (PIP) accounts for 5.5 percent (ANAO, 2010).

State community health centers usually employ a multidisciplinary provider team. The federal government provides financial incentives for the accreditation of GPs, multidisciplinary care approaches, and care coordination through PIP and through funding of GP Super Clinics and Primary Health Networks (PHNs). PHNs (which replace Medicare Locals) are being implemented in 2015–2016 to support more efficient, effective, and coordinated primary care.

The number of nurses working in primary care has been increasing, from 8,649 registered or enrolled nurses primarily working in a general practice setting in 2011 to 11,370 in 2014. Their role has been expanding with the support of the PIP practice nurse payment. Beyond this, nurses are funded through practice earnings. Nurses in general practice settings provide chronic disease management and care coordination, preventive health education, and oversight of patient follow-up and reminder systems (Health Workforce Australia [HWA], 2015).

Outpatient specialist care: Specialists delivering outpatient care are either self-employed in a solo private practice (6,745 specialists in 2013) or employed in a group practice (5,257) (HWA, 2015). Patients are able to choose which specialist they see, but must be referred by their GP to receive MBS subsidies. Specialists are paid on a fee-for-service basis. They receive a subsidy through the MBS of 85 percent of the schedule fee and set their patients’ out-of-pocket fees independently. Many specialists split their time between private and public practice.

Administrative mechanisms for direct patient payments to providers: Many practices have the technology to process claims electronically so that reimbursements from public and private payers are instantaneous, and patients pay only their copayment (if the provider charges above the MBS fee). If the technology is not in place, patients pay the full fee and seek reimbursement from Medicare and/or their private insurer.

After-hours care: GPs are required to ensure that after-hours care is available to patients, but are not required to provide care directly. They must demonstrate that processes are in place for patients to obtain information about after-hours care, and that patients can contact them in an emergency. After-hours walk-in services are available, and may be provided in a primary care setting or within hospitals. As there is free access to emergency departments, these may also be utilized for after-hours primary care.

The federal government provides varying levels of practice incentives for after-hours care, depending on whether access is direct or provided indirectly through arrangements with other practitioners in the area. Government also funds PHNs to support and coordinate after-hours services, and there is an after-hours advice and support line.

Hospitals: In 2013–2014 there were 747 public hospitals (728 acute, 19 psychiatric) with a total of 58,600 beds and 612 private hospitals (326 day hospitals and 286 other) with 31,000 beds (AIHW, 2014a; AIHW, 2014b). Private hospitals are a mix of for-profit and nonprofit.

Public hospitals receive a majority of funding (91%) from federal and state governments, with the remainder coming from private patients and their insurers. Most of the funding (62% of the total) is for public physician salaries. Private physicians providing public services are paid on a session or fee-for-service basis. Private hospitals receive most of their funding from insurers (47%), federal government’s rebate on health insurance premiums (21%), and private patients (12%) (AIHW, 2014b).

Public hospitals are organized into Local Hospital Networks (LHNs), of which there were 138 in 2013–2014. These vary in size, depending on the population they serve and the extent to which linking services and specialties on a regional basis is beneficial. In major urban areas, a number of LHNs comprise just one hospital.

State governments fund their public hospitals largely on an activity basis using diagnosis-related groups. Federal funding for public hospitals includes a base level of funding, with growth funding set at 45 percent of the “efficient price of services” of activities, determined by the Independent Hospital Pricing Authority (IHPA). States are required to cover the remaining cost of services, providing an incentive to keep costs at the efficient price or lower. Small rural hospitals are funded through block grants (IHPA, 2015). Starting in July 2017, the federal government will return to block-grant funding for all hospitals.

Mental health care: Mental health services are provided in many different ways, including by GPs and specialists, in community-based care, in hospitals (both in- and out-patient, public and private), and in residential care. GPs provide general care, and may devise treatment plans of their own or refer patients to specialists. Specialist care and pharmaceuticals are subsidized through the MBS and PBS.

State governments fund and deliver acute mental health and psychiatric care in hospitals, community-based services, and specialized residential care. Public hospital-based care is free to public patients (AIHW, 2015b).

The federal government has commissioned the National Mental Health Commission to undertake a review of all existing services (NMHC, 2015).

Long-term care and social supports: The majority of people living in their own homes with severe or profound limitations in core activities receive informal care (92%). Thirty-eight percent receive only informal assistance and 54 percent receive a combination of informal and formal assistance. In 2009, 12 percent of Australians were informal caregivers and around 30 per cent of those were the primary caregiver (carer). In 2011–2012, federal government provided AUD3.18 billion (USD2.07 billion) under the income-tested Carer Payment program, and AUD1.75 billion (USD1.14 billion) through the Carer Allowance (not income-tested, and offered as a supplement for daily care). Government also provides an annual Carer Supplement of AUD480 million (USD313 million) to help with the cost of caring. Recipients of the Carer Allowance who care for a child under the age of 16 receive an annual Child Disability Assistance Payment of AUD1,000 (USD651). There are also a number of respite programs providing further support for caregivers (AIHW, 2013).

Home care for the elderly is provided through the Commonwealth Home Support Program in all states except Western Australia. Subsidies are income-tested and may require copayments from recipients. Services can include assistance with housework, basic care, physical activity, nursing, and allied health. The program began in July 2015 as a consolidation of home and community care, planned respite for caregivers, day therapy, and assistance with care and housing (Department of Social Services, 2015). The Western Australian Government administers and delivers its Home and Community Care Program with funding support from federal government.

Aged care homes may be private nonprofit or for-profit, or run by state or local governments. Federally subsidized residential aged care positions are available for those who are approved by an Aged Care Assessment Team. Hospice care is provided by states through complementary programs funded by the Commonwealth. The Australian Government supports both permanent and respite residential aged care. Eligibility is determined through a needs assessment, and permanent care is means-tested (AIHW, 2015c).

In 2013, federal government, in partnership with states, implemented the pilot phase of the National Disability Insurance Scheme. The scheme provides more-flexible funding support (not means-tested), allowing greater tailoring of services.

What are the key entities for health system governance?

Intergovernmental collaboration and decision-making at the federal level occur through the Council of Australian Governments (COAG), with representation from the Prime Minister and first ministers of each state. The COAG focuses on the highest-priority issues, such as major funding discussions and the interchange of roles and responsibilities between governments. The COAG Health Council is responsible for more detailed policy issues and is supported by the Australian Health Ministers Advisory Council.

The federal Department of Health (DH) oversees national policies and programs such as the MBS and PBS. Payments through these schemes are administered by the Department of Human Services. The PBAC provides advice to the Minister for Health on the cost-effectiveness of new pharmaceuticals (but not routinely on delisting).

Several national agencies and the state governments are responsible for quality and safety of care (see below). The AIHW and the Australian Bureau of Statistics (ABS) are the major providers of health data.

Regulatory oversight is provided by a number of agencies, such as the Therapeutic Goods Administration, which oversees supply, imports, exports, manufacturing, and advertisement; the Australian Health Practitioner Regulation Agency, which ensures registration and accreditation of the workforce in partnership with National Boards; and the Australian Prudential Regulation Authority, for private health insurance. The Australian Competition and Consumer Commission promotes competition among private health insurers. Beginning in July 2016, the Australian eHealth Commission will take over responsibility from the National eHealth Transition Authority for matters relating to electronic health data.

State governments operate their own departments of health, and have devolved management of hospitals to the LHNs. The LHNs are responsible for working collaboratively with PHNs. There are patient consumer organizations and groups operating at the national and state level.

What are the major strategies to ensure quality of care?

The Council of Australian Governments (COAG) has endorsed the National Healthcare Agreement that provides an overarching strategy for quality care in Australia. The agreement sets out the common objective of Australian governments in providing health care—improving outcomes for all and the sustainability of the system—and the performance indicators and benchmarks on which progress is assessed. It also sets out national-priority policy directions, programs, and areas for reform, such as major chronic diseases and their risk factors. Indicators and benchmarks in the agreement address issues of quality from primary to tertiary care and include disease-specific targets of high priority, as well as general benchmarks.

The Australian Commission on Safety and Quality in Health Care (ACSQHC) promotes, supports and encourages the implementation of arrangements, programs and initiatives relating to health care safety and quality matters. The ACSQHC has developed health service standards that have been endorsed by health ministers. These standards require hospitals and day procedure services to routinely conduct patient surveys. Meeting these standards is a requirement for accreditation.

The Australian Bureau of Statistics (ABS), the national government statistical body, also undertakes an annual patient experience survey.

The ACSQHC has approved nine nongovernment agencies to accredit health service organisations. States license and register private hospitals, legislate on the operation of public hospitals, and work collaboratively through a National Registration and Accreditation Scheme, which registers and facilitates workforce mobility across jurisdictions while maintaining patient protections.

The Royal Australian College of General Practitioners has developed standards for the accreditation of general practices. The Medicare Benefits Scheme (MBS) includes financial incentives such as the Practice Incentives Program (PIP), and approximately 80 percent of GPs are accredited.

To be eligible for government subsidies, aged care services must be accredited by the government-owned Australian Aged Care Quality Agency.

There are a number of disease and device registries. Government-funded registries are housed in universities and nongovernmental organizations, as well as within state governments. ACSQHC has developed a national framework to support good governance of clinical quality registries.

The former National Health Performance Authority (soon to be replaced by the Australian Institute of Health and Welfare) reports on the comparable performance of local health networks, public and private hospitals, and other key health service providers. The reporting framework was agreed to by the COAG, and includes measures of equity, effectiveness, and efficiency.

The federal government has regulatory oversight of quarantine, blood supply, pharmaceuticals, and therapeutic goods and appliances. In addition, there are a number of national bodies who promote quality and safety of care through evidence-based clinical guidelines and best-practice advice. They include the National Health and Medical Research Council, Cancer Australia and the National Blood Authority.

What is being done to reduce disparities?

The most prominent disparities in health outcomes are between the Aboriginal and Torres Strait Islander population and the rest of Australia’s population; these are widely acknowledged as unacceptable. In 2008, the COAG agreed to a target date of 2031 for closing the gap in life expectancy. Its strategy goes beyond health care, seeking to address disparities in other areas such as education and housing. The Prime Minister makes an annual statement to Parliament on progress toward closing the gap.

Disparities between major urban centers and rural and remote regions and across socioeconomic groups are also major challenges. The federal government provides incentives to encourage GPs and other health workers to work in rural and remote areas, where it can be very difficult to attract a sufficient number of practitioners. This challenge is also addressed to an extent through the use of telemedicine. Since 1999, the Australian Government has funded the Public Health Information Development Unit for the purpose of publishing small-area data showing disparities in access to health services and health outcomes on a geographic and socioeconomic basis.

What is being done to promote delivery system integration and care coordination?

Approaches to improving integration and care coordination include the PIP, which provides a financial incentive to providers for the development of care plans for patients with certain conditions, such as asthma, diabetes, and mental health needs. The PHNs were established in July 2015 with the objective of improving coordinated care, as well as the efficiency and effectiveness of care for those at risk of poor health outcomes. These networks are funded through grants from the federal government and will work directly with primary care providers, health care specialists, and LHNs. Care may also be coordinated by Aboriginal health and community health services.

What is the status of electronic health records?

The National eHealth Transition Authority has been working to establish interoperable infrastructure to support communication across the health care system. A national e-health program based on personally controlled unique identifiers has commenced operation in Australia, and 2.5 million patients and nearly 8,000 providers have registered (DH, 2015a). The record supports prescription information, medical notes, referrals, and diagnostic imaging reports. Following a review, government is taking a number of steps to increase uptake by both patients and providers, which has been poor to date, by improving usability, clinical utility, governance, and operations. In addition, an opt-out approach will be tested to replace the current opt-in approach. The new Australian Commission for eHealth will begin oversight in July 2016, taking on the e-health roles of the Department of Health and the National eHealth Transition Authority. The current PIP eHealth Incentive, which aims to encourage GPs to participate, will also be reviewed for potential improvements.

How are costs contained?

The major drivers of cost growth are the MBS and PBS. Government regularly considers opportunities to reduce spending growth in the MBS through its annual budget process and has established an expert panel to undertake a review of the entire schedule and report by the end of 2016.

Government influences the cost of the PBS in making determinations about what pharmaceuticals to list on the scheme and in negotiating the price with suppliers. Government provides funds to pharmacies for dispensing medicines subsidized through the PBS and to support professional programs and the wholesale supply of medicines. This arrangement is through the current Community Pharmacy Agreement (the Community Pharmacy Agreements were instituted in 1991 and are subject to renegotiation every five years). The Sixth Community Pharmacy Agreement, which began in July 2015, supports AUD6.6 billion (USD4.3 billion) in savings through supply chain efficiencies (Ley, 2015).

Hospital funding is set through policy decisions by the federal government, with states required to manage funding within their budgets.

Through the 2015-2016 budget, the federal government also consolidated the back-office functions of a number of its health agencies to generate AUD106 million (USD69 million) in savings. Beyond these measures, the major control is through the capacity constraints of the health system, such as workforce supply.

What major innovations and reforms have been introduced?

In 2015, the federal government announced a number of reforms to primary care, including implementation of the aforementioned PHNs and the MBS Review. In addition, the government has established the Primary Health Care Advisory Group to consider innovations to funding and service delivery for people with complex and chronic illness, including mental health. Together, these three reforms seek to ensure that primary care is being delivered efficiently and effectively and that Medicare is put on a sustainable funding trajectory. The group’s advice, which will be submitted to the government by the end of 2015, will consider how to best utilize the PHNs. The primary care reforms come on the heels of the 2014 announcement of a new copayment for GP visits (AUD5.00, or USD3.26), to serve as a price signal to patients and a source of revenue.

The government is also reforming care for the aging. In addition to the implementation of the Commonwealth Home Support program outlined above, a new funding model is pursued whereby allocations will be made directly to consumers based on their care needs instead of directly to service providers, affording them greater choice in providers and stimulating provider competition. This reform will take effect in February 2017.


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