COMMUNITY HEALTH STUDIES VOLUME V, NUMBER 2, 1981

COMMENTARY: UNSTATED ASSUMPTIONS, PARTIAL ANALYSIS AND UNCONSCIOUS IRONY: THE JAMISON REPORT Introduction

‘it is not an exaggeration to state that the health care delivery system could become a bottomless pit down which an ever increasing proportion of Gross Domestic Product could be poured with- out any real increase in the health standard of Australians.’

It is a sad irony that Mr. Mackellar’s misgivings were expressed after a decade of rising expenditure, half-a-dozen changes in f u n d i n g a r r a n g e m e n t s a n d a Roya l Commission of inquiry.

From 1968-69 to 1978-79 expenditure on health in Australia increased from 5.4 percent to 7.9 percent of the gross domestic product. Following the introduction of Medibank in 1975 this increasing expenditure gave rise to parliamentary and press concern that something was amiss with the method of financing health care. By October 1976 the first of a succession of sweeping changes had been made to the system of universal health insurance. Persons wishing to receive medical benefits though Medibank were required to pay a levy on taxable income of 2.5 percent while persons wishing to be insured with a private health insurance fund were exempt from the levy. In addition, the hospital cost-sharing agreements were modified so tha t t he Commonweal th Government would meet only fifty percent of approved net operating costs of State hospital systems.

In July 1978 direct billing of Medibank by doctors was abolished for all but Pensioner H e a l t h B e n e f i t c a r d h o l d e r s a n d ‘disadvantaged’ persons, a n d medical benefits were reduced from 85 percent of the schedule fee with a $5 gap (the maximum direct payment by the user for any service) to 75 percent with a $10 gap. In November 1978 Medibank Standard was disbanded, the health insurance levy was abolished and a Commonwealth medical benefit of 40 percent of the schedule fee with a $20 gap as a universal benefit w a s introduced. In S e p t e m b e r 1979 t h e v a l u e of t h e

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Commonwealth medical benefit was almost halved, covering only charges in excess of $20 of the schedule fee for any service. Throughout all these changes free standard ward treatment was available in ‘recognised’ public hospitals to all persons [although charges could be levied on insured persons using recognised hospitals in some States).

Within this climate of continual change and g r o w i n g conce rn t h e C o m m o n w e a l t h Government and the State Governments of Q u e e n s l a n d , Wes te rn A u s t r a l i a a n d Tasmania established the Commission of I n q u i r y i n t o t h e E f f i c i e n c y a n d Administration of Hospitals with Mr. J.H. Jamison as chairman [hereafter the Jamison Commiss ion ) . T h e Commiss ion w a s establ ished in September 1979 w i t h instructions to produce an interim report in June 1980 and a final report by 31 December 1980. This deadline was met, although only at the cost of dismal editorial standards.

The final report consists of three volumes of over 1100 pages: 140 recommendations; discussion on thirty one subjects from, and related to, the terms of reference: and four papers prepared for the Commission by outside consultants and the results of a survey conducted by Commission staff.

While the title of the Inquiry suggested a narrow focus on hospitals the terms of reference were very wide:-

To inquire into and report upon: 1. Factors behind thecosts andescalation of

costs of hospitals and associated or related institutions and services;

2. E f f e c t i v e n e s s of m a c h i n e r y f o r determining objectives, policy and resource allocation in hospitals and associated or related institutions and services;

3. Ways in which the efficiency of the hospital and associated or related health systems and services might be improved; and

4. Ways in which cost increases in hospital and associated or related services can be constrained;

and to make recommendations arising out of

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the inquiries into the above matters. The Commission was further directed to

attend to nine groups of specific matters such a s the ‘budgetary process for, and cost accountability of, hospitals’; methods of payment and conditions of service for medical and other practitioners using hospital facilities . . .’; and ‘any other matters of significant importance to (1) and (4) above.’

The Report - Comments and Criticism Because of the size of the Report and the

la rge number of recommendat ions it contained, comment must be selective. The following a spec t s of t he Report a r e considered: (11 The Commission’s interpretation of the

Terms of Reference and the implicit framework in which its recommenda- tions are set;

(2) findings in relation to term of reference 1; (3) recommendations on Commonwealth

(4) recommendations on health insurance; (5) recommendations on medical manpower

and physical resources; (6) other recommendations;

Interpretation of the Terms of Reference and Implicit Framework

Unlike the terms of reference of the Nimmo Inquiry of the late 1960% which sought to limit recommendations to change within the voluntary insurance system, the terms of reference given to the Jamison Commission were very wide and were interpreted widely by the Commission. Hence it i s difficult to understand some of the self-imposed limits that appear in the detailed discussion papers in volume 2. Examples of these are

the preservation of a ‘mixed’ system especially in the hospital sector (2.166, 2.314) and, by implication, private health insurance funds (2.149)’; Compulsory insurance and income- related contributions are portrayed as ‘unacceptable’. (2.174); the apparent unquestioning acceptance of fee-for-service methods of payment, despite many unfavourable comments (e.g. 2.440 and following); the recommendation that the hospital- cost sharing. agreements and other

2.149 refers to page 149 of volume 2

State Cost-sharing agreements;

1 of the report.

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Commonwealth health care payments be amalgamated into a block funding grant. I t is not clear whether this recommendation was a starting point in the Commissions deliberations or an end point.

There were two major omissions from the Report. Firstly, there is no discussion of the philosophical or political framework in which the Commission saw itself a s making recommendations. There is no discussion of the following issues: - why is it a matter of concern that the

percentage of GDP devoted to health is rising? (Is health a ‘superior good’ as some studies suggest?)

- Is there a desirable maximum level 01

expenditure on health? If so, how is this determined? If, as the Commission recommends, the bulk of health services should be funded b y p r i v a t e insurance, should the Government seek to limit expenditures through the private

i n d i v i d u a1 s t h r o u g h

sector? - If the private market increases prices oi

heal th serv ices , how should the Government control i t s outlay for pensioners, veterans, disadvantaged persons, the chronically ill, nursing home patients etcetera?

- should the Government be concerned with its expenditures only or with total health care expenditures?

- what are the social implications of Government -suppor ted beneficiaries queueing for non-urgent services while rich persons can queue-jump by using private insurance, doctors and hospitals (See 2.645 for Commission’s endorsement of queue-jumping).

- Is the market the appropriate mechanism for allocating medical care or can medical opinion and informed administrative decision produce a better national health outcome?

Secondly, there is no coherent discussion of those factors that affect supply of and demand for medical, hospital and other health services. It is difficult to deduce from the recommendations how the Commission sees the system as working. There are a number of places where contradictory opinions are expressed by the Commission. For example, in discussing the Medibank Mark I 1

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arrangements (that is, levy plus opting-out) the Report states I . . . in many ways the concept is attractive'. I t then lists a number of desirable features of the scheme and concludes 'Its demise is to be regretted' (2.162). Yet, when discussing the Japanese health insurance arrangements a few pages later (2.174)'. . . thecommission believes that both compulsory insurance and income- related contribution are unacceptable in this country '.

The lack of any explicit framework into which to slot the recommendatiory, the number of contradictions within the report, t he number of implicit se l f - imposed constraints and the absence of any discussion of possible longer term implications of the two tier, rich-poor, private-public system proposed all make i t possible to think that this Report was seen by the Commissioners themselves as yet another stop-gap measure.

Factors Behind Costs and Cost Increases The first term of reference, on the factors

behind the costs and escalation of costs of h o s p i t a l s a n d a s s o c i a t e d o r r e l a t e d institutions and services, was discussed in the Interim Report and little was added in the final report. The Commission identified a number of factors which led to increases in total health care expenditures: labour costs (including equal pay for women etc.); specialisation (in equipment and manpower); medical manpower; utilisation of services; new facilities; new technology; population factors; funding mechanisms; and inflation.

While the Commission tried to quantify some of these factors it failed to make any subs tan t ia l progress in dissecting the increases, due to 'a lack of data and restriction of time . . .' (2.22). This was an unfortunate failing. Though it is true that there is a lack of data concerning matters such a s the impact of technology on costs, for many of the other factors there is adequate data to provide useful guides as to the magnitudes of their impacts on cost. For example no estimate was made of the impact of an ageing population on hospital and nursing home utilisation even though some States have long series of appropr ia te census da t a and hospital morbidity data. The Commission's excuse that time prevented these analyses from being undertaken is only partly acceptable since it employed consultants for other purposes. The employment of a consultant to

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complete this work would have represented a worthwhile attempt -to introduce an element of rational discussion into the debate on the increase in health costs. Quantification of these factors would have contributed materially to the debate.

A factor which was not included in the Commission's list, but would also have been of interest, is the increase in health care costs flowing directly from Government decisions. For example, how many new nursing home beds were approved between 1968-69 and 1978-79 and what are the costs of filling these; what has been the cost of new hospitals in poorly-served areas of the capital cities. These increases in costs did not just happen: they were not a result of inefficiency on the part of hospital administrators; they were not the result of irresponsibility on the part of consumers of medical services. These generators of costs, and many more, resulted from explicit political decisions. Conversely, some analysis of overseas experience, especially in systems with different methods of services delivery and of payments, might have thrown some light on the impact of technology on health care costs in Australia an area in which political will has been lacking.

In a number of places (such as 2.15) the Commission goes close to saying that additional expenditures onhealth care do not reduce mortality or increase life expectancy and, therefore, cuts can be made in the health care sector without any loss of benefits. No reference was made to recently-measured decline in mortality and the increasing life expectation of persons in Australia. It is no longer enough to say that expenditures can be reduced without considering the possible effects of these reductions.

Commonwealth-State Cost Sharing Agreements

Under the Constitution the States have the primary responsibility for the provision of health services while the Commonwealth Government has power, under section 96, to make special purpose grants to the states and, under section 51 (XXIIIA), to pay prescribed benefits (medical, pharmaceutical etcetera) to ind iv idua ls . However , d i f fe ren t ia l Commonwealth subsidies paid to various providers of services (almost 100 percent for some nursing homes, 50 percent of net operating costs for recognised hospitals, no

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subsidy to State psychiatric hospitals] give the Commonwealth Government a far greater impact on the health care delivery systems of the States than would be expected from a reading of the Constitution. The Commission argues that by injudicious use of these subsidies the Commonwealth has biased the d i s t r i b u t i o n of h e a l t h c a r e t o w a r d s institutional care (1.39). I t recommends that the present form of cost-sharing be replaced in the short term by a single block grant which includes all present Commonwealth health-related grants plus 'an element for psychiatric hospitals, State Government nursing homes and deficit-financed nursing homes' (1.5). The grants would bedetermined by a formula which allows for the age and sex of the population, for the number of aboriginals, and possibly for factors such a s hospital size and/or 'a standard mortality ratio' (1.6).

In the first year of operation the grants would be based on the actual amounts paid during the previous year, adjusted for those items not previously covered. Initially, then, t h i s p r o p o s a l w o u l d r e t a i n t h e r e i m b u r s e m e n t s a p p r o a c h w h i c h t h e Commission criticised so strongly. Later there would be a change to a formula-based reimbursement as described above. These are but the caterpillar and chrysalis stages of a fully-fledged, needs-based, minimum cost grants butterfly - which the Commission hopes might emerge by 1985 or earlier. By that time the Commission believes, or hopes, that the new management accounting systems (R73-80), hospital morbidity and relative stay indices (R65), and analysis carried out in the new Bureau of Health Economics (R5) and other areas of Commonwealth and State bureaucracies, would allow grants to be based on 'needs' and costed at minimum cost. [2] No attempt is made to define 'needs'.

During the development of the needs-based grants the Commission would further constrain States in anumber of ways (R13ta)- 13lg)). The principal requirements which Jamison suggests are that the States should agree: - to limit the total number of hospital beds

(private, public and Veterans' Affairs) to current approved numbers,

2 in volume I of the Report.

R65 refers to recommendation number 65

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- to guarantee access to public hospitals of all patients;

- to provide free treatment to eligible pensioners and eligible veterans;

- to make special arrangements for 'disadvantaged' persons

- to levy public hospital charges as determined by consultations between the Commonwealth and States.

Some aspects of this proposal warrant further attention. The basic assumption of the Commission is that State governments are better placed to determine the needs and priorities of their people than i s the Commonwealth Government. It also assumes that, no longer being misled by the presence of differential subsidies, State governments will rationalise existing services, placing emphasis on the most efficient forms. Nonetheless the Commonwealth is still to play big brother and is to be provided with enough information to monitor standards, costs and determination of needs (R13(d) and (e)). Surprisingly, a role is also seen for Section 96 grants.

The most notable omission from this proposed arrangement is in respect to the payment of medical benefits. Constitu tionally, this is clearly a Commonwealth f u n c t i o n , b u t t h e logic b e h i n d t h e Commission's proposal should have led to a recommendation that this also be included in the Commonwealth-State agreement. States would then have greater scope to experiment with alternative forms of payments for medical services (perhaps indus t ry- or regional-based prepaid health plans) and cou ld s t r u c t u r e med ica l b e n e f i t s to r e d i s t r i b u t e d o c t o r s u p p l y i n a geographically more desirable way [for example, high benefits in poorly-supplied areas). Control of medical benefits by the States would also reduce the buck-passing possibilities of transferring medical costs b e t w e e n C o m m o n w e a l t h , S l a t e s a n d insurance funds. The Canadians have a wealth of experience in the a rea of fed e r a 1 f prov i n c i a1 sha r ing of medic a 1 benefits and claim this as an element in their success in cost control.

The efficiency aspects of the Commission's block grant proposals have much to recommend them. However conflict is possible over the size of the Commonwealth grants or, in the longer term, over the

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differential impact of a needs-based formula on the States. The imposition of charges for standard ward treatment in recognised hospitals is crucial to the Commission’s proposals to force people to join ‘voluntary’ private health insurance funds and is discussed in the next section. Recommendations on Health Insurance

Chapter 7 of volume 2 of the report covers a large number of options for changes to the hea l th i n s u r a n c e a r rangements . T h e discussion is of variable quality, with touches of the superficial [for example, the discussion on prepaid health plans, 2.1751, the comic [‘Community-rated insurance is not designed to cope with disasters’ 2.166) and the impractical [the complex free service as tax benefit in kind proposal (2.153)).

Apart from a clear intention to encourage [or force) as many people as possible into private insurance, it is difficult to find any c o n s i s t e n t t h r e a d t h r o u g h o u t t h e recommendations. A series of proposals appears designed to ensure that people will be penalised if they are uninsured and rewarded if they do insure: - no commonwealth medical benefits for

the uninsured (R22) - charges for standard ward hospital

treatment and for outpatient attendances - no tax rebates of net medical and hospital

expenses for uninsured persons. (R23). The Commission foreshadows significant

rises in recognised hospital charges and, hence, in hospital insurance rates (2.178) but also proposes a number of changes which could reduce the cost of insurance if hospital charges remained unchanged: - fund nursing home benefits to be

discontinued (R25); - h o s p i t a l s p e c i a l a c c o u n t t o b e

reintroduced (RZ6)lOr Commonwealth contribution to the reinsurance pool to be a fixed proportion of the deficit (R27);

- waiting times for eligibility for benefit for certain elective items to be increased (R32J;

- payment of hospital and medical benefits for short s tay acute pat ients in psychiatric hospitals (R24).

The most likely consequence of the recommendations is that many people currently uninsured will insure. There are two major groups in this category, healthy persons who elect not to insure and low

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income persons who cannot afford to insure. The net effect of forcing these groups into private insurance will be for the healthy to subsidise the sick - a clear violation of the government’s “user pays” principle - and for the poor to subsidise the rich. There is an element of coercion in the proposals in that tax-financed medical benefits and tax rebates on net health costs are to be denied to those who do not insure. The proposals are doubly regressive in that insurance costs will be the same for all insured income groups while tax rebates will, in practice, be of benefit only to the rich.

Throughout the discussion the Commission introduces explicit cri teria and other considerations for judging the desirability of proposals for change to the current health insurance arrangements. Without any e x p l a n a t i o n t h e C o m m i s s i o n t a k e s preservation of the future viability of private hospitals and private medical practice as a requirement of any scheme. It is not immediately obvious why the preservation of a private hospital sector is desirable, given the Commission’s proposals to regulate private hospitals by controlling the number of private hospital beds [R13), supervising quality of care [R61), controlling use of beds and purchase of major equipment (2.226) and proposals to further subsidise selected private hospitals (R50).

In comparison with existing arrangements, the proposals increase the likelihood that low income families will be unable to insure because of the costs of insurance, but will face greater costs if they fall sick. In addition, the proposals probably will induce many of those presently uninsured because they are “good risks” to insure and, hence, may lead to an increase in utilisation of services by this group.

As compared to a Medibank Mark 11 arrangement (health insurance levy plus opting out), the Commission’s proposals are both less equitable and more expensive [since collection costs are more expensive with private insurance than with a levy). They also involve a similar degree of either compulsion or coercion; but do not necessarily provide any greater certainty that the private hospital and medical sectors will survive, and they provide no greater incentives for control of utilisation since both would reimburse a portion of medical expenses.

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Only upon one, unstated political criterion can the Commission’s proposal be the preferred option: Its proposal gives the appearance of a smaller government sector by forcing subsidisation through the private sector instead of through a government program. Given the inequi tab le a n d apparently politically-motivated nature of its o w n hea l th in su rance proposa ls , t he Commission’s recommendation for further inquiry into health insurance arrangements has much to commend it!

Recornmendotions on Medical Manpower ond Physicol Resources

Although it does not provide a clear description of the workings of the health care sector, the Commission places great emphasis on control over the supply of doctors, specialists, hospital beds and physical facilities as devices for limiting costs. I t recommends that intakes to medical schools be reduced from 1982 (RlOO), existing controls on the immigration of doctors remain (R’LOI) and the number of specialist vocational training positions be reduced except in areas of scarcity (R102). Reference was made earlier to recommendations to control beds and equipment in all hospitals.

Other Recornmendotions Over half of the recommendations in

volume 1 were directed to State health authorities. The majority deal with matters of admin i s t r a t ive and manager ia l de ta i l , inc luding the necess i ty to in t roduce m a n a g e m e n t a c c o u n t i n g i n f o r m a t i o n procedures (R73), generic prescribing in hospitals (R82) and exchange between central health authority staff and hospital administrators. I t would be easy to describe m a n y of t h e s e r e c o m m e n d a t i o n s a s ‘motherhood’ statements were i t not for the fact that many are just in the experimental stages in some state health authorities - and not even that advanced in others.

Twenty-seven recommendations dealt with Community Health, Aboriginals. the Handicapped and the Aged. With one exception these will not be addressed here. R120 s ta tes that ‘the support of the Community be sought to attain the objectives of the community health program, even to the extent of raising capital from community sources for desired community projects’. This could lead to resources being channelled to

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wealthy areas away from poor areas that cannot make a significant contribution to capital items. One wonders what warm confus ion over took the Commiss ion’s collective mind when it wrote the word “community”.

Summary T h e p r i n c i p l e s e m b o d i e d i n t h e

Commission’s cost-sharing recommendations are likely to attract widespread support. Indeed one could argue that the funding mechanism of medical benefits might also have been shared with the States. If, however, the Commonwealth Government seeks to use the recommendations a s a vehicle to push c o s t s o n t o t h e S t a t e s , t h e n t h e recommendations themselves may unjustly be brought into disrepute.

The general thrust of recommendations that sought to control increases in cost by a tight control on medical manpower and physical resources is also likely to obtain substantial support and, if adopted, could significantly restrain health care costs in the medium to long run. The presence or absence of private hospitals or nursing homes is probably irrelevant in a system which embodies tight controls over physical resources.

The most contentious of the recommenda- tions are those related to health insurance. The private health insurance option appears to have been selected in the interests of ‘small government’ rather than in the interests of obtaining an equitable and efficient method of subsidising high users of services.

The Government Decisions The Jamison Report was published in

December 1980. The government announced its responses on 29th April, 1981. At first sight it appears that the Government has adopted the principles espoused in the Report. The policy on health insurance is very similar to that proposed by the Report but with very generous subsidies to privately insured persons through the special tax rebate provisions (uninsured persons get no compensation for loss of tax indexation).

The cost sharing arrangements adopted are similar to those proposed in the Report, although psychiatric hospitals are not funded. However the detailed formula and funding proposed in the Report has not been adopted. The Government intends that yet

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another body is to deliberate on the funding formula.

T h e J a m i s o n R e p o r t , f o r a l l i t s shortcomings in relation to health insurance, recommended a sens ib le cos t - shar ing program to be backed up by action to control medical manpower, physical resources in public and private hospitals, and to monitor

the quality of care in hospitals. It will be disappointing if the block grant proposals - which was the front running policy option before the Inquiry was established - and the inequitable health insurance proposals are the only ones adopted.

Roy Harvey, Health Research Project,

Australian National University.

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