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It is, as usual, extremely difficult to cut through the spin and work out, in real terms, how the budget cuts affect hospital services. What is clear is that savings being made in administration do not appear, for the most part, to be going into patient services.

The big question is whether the government’s claimed spending increase over the current year of $65 million represents a real increase (after taking increased prices and demand into account) or whether it will leave us worse off than before.

The answer, fairly clearly, is the latter. This money – a nominal increase of less than 5% – will not address growing demand. The number of people needing care, and being unable to get it, will go on increasing. Overall spending on Tasmania’s health system, as measured by the Australian Institute of Health and Welfare, has historically risen by around 10% to 12% a year.

It has been reported that the funding increase is roughly in line with health inflation. Well, it depends what you mean by that term. To be realistic, we need to look at four things:

Price inflation: the price increase or decrease of the things we already buy and will go on buying. A particular piece of standard equipment may cost more this year than last but existing drugs tend to fall in price as generic makers replace high-price designer manufacturers. Wages tend to go up, despite governments’ attempts to prevent them from doing so.  Nationally, overall price inflation in hospitals has been running at around 2% to 3%, not far off consumer price inflation. But this is not the main driver of health and hospital costs.

New drugs and technologies: All over the developed world, this has been for a long time the biggest driver of cost. New drugs, equipment, techniques and approaches come along constantly, and they almost always cost more – usually much more – than what they replace. Together, these two factors – the price of existing things, and the cost of new things – are likely to exceed 5%, whether or not the government gets its one-year pay freeze.

Increasing demand: The number of people who are treated in our hospitals constantly increases. According to the budget papers, the number of weighted separations (that is, the number of treatments received by admitted patients weighted for complexity) rose by 7%. This sort of increase will not be possible in the rest of 2014-15 or, to judge by the forward estimates, in following years. The number of people unable to receive treatment in Tasmanian public hospitals will continue to grow, probably faster than in the past. The government’s determination to make hospitals work within their budgets is also of concern: many of the budget ‘blow-outs’ in the past have happened when hospitals have got through their budgets before the end of the financial year but kept on treating patients anyway. Relatively poor efficiency is one cause of this, but making efficiency cuts before increased efficiency is achieved will hurt patients, not politicians, and is a highly questionable strategy.

New and existing unmet demand: The number of people needing care and not being able to get it is unknown but there are a number of indications it has been growing steadily for many years. Waiting lists (published and hidden) are one of those indications. Another is the fact that the state spends no more than the national average on health and hospitals (in fact a bit less than the average) even though we have an older, sicker and poorer population than the rest of Australia which needs more care, not less. (This is backed up by Commonwealth Grants Commission calculations). As a result of this budget the reservoir of people unable to be treated will increase further.

The $76 million for elective surgery over four years (which was announced three years ago and has been re-announced many times since) will not be enough to shorten waiting lists.

The bottom line is that the government’s pre-election promise that front-line services would not be hit by budget savings is being broken.

A great deal of weight in the budget is put on the 12-month pay freeze. But there are a few points to make here. One is: what will happen when the 12 months are over, and public sector employees push to increase their wages to the level they would have reached without such a freeze. The second is that a continued pay freeze for doctors will boost the push by individual surgeons and physicians to reach special contract deals. These special deals were a major cause of the blowout in doctor costs between 2010-11 and 2012-13, when doctor numbers went down by 21% but the cost of paying each remaining doctor went up by 32%.

And that’s just the start.

Over the full four years of the forward estimates, the government will cut $210 million from health ‒ $111.3 million from the Tasmanian Health Organisations (in other words, the hospitals) and $99.1 million from the central Department of Health and Human Services. It defies credibility that further cuts of this magnitude ‒ on top of the swingeing and highly damaging cuts already made by the previous government ‒ can be made without having a major effect on patient services.

The savings strategies listed in the budget papers will not plausibly deliver the gains the government requires. The list is very similar to the one put forward by the Labor government three years ago: consultants, desk shuffling, phone calls, trying to get better deals on supplies. The only new strategy is the 12-month pay freeze and the promise to sack public employees.

A repeat of the string-and-paper-clips strategy will not produce major savings. A pay freeze ‒ if it holds ‒ will last only for a year, and is likely to be followed by an even stronger push for catch-up salary increases. Doctors and nurses unhappy with their pay and with the immense stresses of a problematic and under-funded hospital system will continue to leave.

The government has not said, and probably does not know, how many public employees will leave the health system, where they will come from or how their work will continue to be done in their absence. We have not been told how many are likely to go through natural attrition and how many will need expensive redundancy pay-outs.

Efficiency savings can and should be made but these ought to go back into the health system to treat more patients. From the point of view of people working in public hospitals, there is little point in co-operating with clinical re-design or a new efficiency push if any gains will be taken away from their hospital and given to the Treasury. And without that co-operation, major efficiency gains are unlikely.

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