Introduction to the public hospital sector

In Chapter 1 we indicated that the Australian health care system was a mixed one of public and private provision of care. The public system is primarily paid for through Medicare. Medicare is financed through taxation including a special levy and divided into two main areas: the payment of doctor’s fees through a Medicare rebate, and funds to the states and territories to run the public hospital system. Negotiations over the payment of these funds to the state and territory governments occur every five years through the Australian Health Care Agreements (AHCAs).

Australian Health Care Agreements

Australian Health Care Agreements (AHCAs) contract the Commonwealth government and the states and territories to the provision of public hospital services. The fundamental principles of the AHCAs are that each eligible person is entitled to receive free public hospital services as a public patient with equity of access based on clinical need. The funding does not go directly to public hospitals, but is allocated to each state and territory to fund their respective hospital services. Each agreement nominates the amount of funding the Commonwealth will contribute to each state and territory and requires a reciprocal agreement from each state and territory to match the Commonwealth’s contribution. The agreement may include other items such as the funding of palliative care or mental health services. In 2007 the states and territories contributed a higher percentage of funds towards public hospitals than did the Commonwealth, but overall the Commonwealth contributes more to health services.

The work of public hospitals

Public hospitals in Australia have inpatient and outpatient services. When admitted as an inpatient to a public hospital, a Medicare-eligible patient has the choice of being treated either as a public or private patient. Patients are not required to reveal if they have private health insurance. Those who choose to be admitted as a private patient have the choice of their own doctor, providing the doctor has visiting rights at that hospital, they can ask for a private room (but not necessarily get one) and are charged for their care by the hospital and treating doctors. Some of the costs for private patients will be covered by their private health insurance and some through Medicare. There are a small number of patients seen in public hospitals each year who are not Medicare eligible; for example, international visitors, who may need to pay for the services they receive. Conversely there are a small number of patients from other countries, such as Finland, Ireland, Italy, Malta, Norway, Sweden, the UK and New Zealand, who are eligible for care through Medicare because Australia has entered into reciprocal agreements with these countries (Duckett 2007).

Admissions to acute care hospitals are usually for acute events requiring medical care, acute medical procedures, surgery, maternity or non-acute services. Patients may be admitted as emergency or elective admissions. Between 1999 and 2005 there was a 10% growth in admissions to public hospitals from 3.88 million to 4.28 million (Australian Institute of Health and Welfare [AIHW] 2006d). In 2005–06, approximately 65% of admissions received acute medical care which are (usually) day-only procedures performed with specialised medical equipment and may or may not require a general anaesthetic. Acute medical care treatment accounts for the largest growth in services in public hospital admissions, increasing by 23% since 1998–99 and 7% between 2004–05 (Commonwealth Department of Health and Ageing 2007a).

In 2005–06 surgical patients accounted for 18% of emergency and elective admissions to public hospitals. The capacity of hospitals in each state and territory to provide elective surgery to patients within the recommended timeframe is an important performance measure and one that is closely watched by media and politicians alike due to its politically sensitive nature. As a result of the growth in acute medical care treatment in public hospitals, private hospitals have increased their role with elective surgery (Duckett 2005a). In 2005–06, only 44% of elective admissions were in public hospitals. Non-acute services include palliative care, temporary help until long term living arrangements can be made, and physiotherapy, although only a small percentage (1.5%) in 2005–06 were in this category (Commonwealth Department of Health and Ageing 2007a). Through their outpatient departments, public hospitals also treat patients not requiring admission to hospital. Outpatient services include diagnostic procedures, palliative care, and rehabilitation. This may also include ongoing treatment from hospital-employed physiotherapists, dieticians, podiatrists, psychologists or social workers as well as doctors or nurses.

Complicated state–Commonwealth relationship

The Commonwealth government involvement in health care was established by an amendment to the Australian Constitution (section 51(xxiiiA)) following a referendum in 1946. However, there has not been clarification on the division of roles and responsibilities between the Commonwealth and the states and territories. As a result both the Commonwealth and state and territory governments blame each other when any perceived shortcomings in the provision and funding of public hospital services are revealed. There are other pressures on public hospitals that drive up costs besides high rates of emergency admissions. These include the proliferation of expensive technology, the ageing population and increasing consumer demand. These factors make it difficult for governments to maintain Medicare as a universal health care service and have been described as a ‘strife of interests’ by the late Dr Sidney Sax (Sax 1984).

The impact of the proliferation of technology and demand for these services

Technology is used to both diagnose and treat patients and improve patient comfort. The expansion of technology has been accompanied by increased demand for medical services. The demand on these services is infinite, yet in a welfare state model of health care the money to pay for these services is limited (Leeder 2005). As a result, while once a doctor would make decisions based purely on their clinical judgment of what optimal treatment a patient’s condition requires, governments now ask clinicians to consider the economic cost of medical technologies. Consequently, many large public teaching hospitals have moved to divisional structures headed by doctors, with a managed budget, making doctors take account of the financial issues involved. Many doctors find this difficult to manage as it appears to violate the doctor–patient relationship (see the Introduction to this book).

Health economists argue that economic evaluation ensures that limited resources are used to maximise wellbeing for all (Richardson 2005). The medical specialist who engages in rationing the use of costly drugs in his or her division is actually part of a bigger economic picture ensuring that equally needy areas are also able to be funded. This sort of thinking becomes technically complex. Economic models are used to try and weigh up the value of human lives against the money available. It is the choice between, for example, the number of quality adjusted life years (QALYs) which can be purchased using one intervention as opposed to another.