The buck stops here: Health Minister Michelle O’Byrne and Premier Lara Giddings. Picture: Rob Walls,

Every year for the past fifteen, figures emanating from the nation’s most authoritative health information agency have shown Tasmania’s public hospitals becoming more wasteful and less efficient. And every year Tasmanian politicians and health bureaucrats have ignored the message.

Click here to view Martyn Goddard’s detailed analysis:

One figure stands out in the Australian Institute of Health and Welfare data. The cost of the average service, weighted for complexity so like is compared with like, is higher here than in any other state or territory. That includes even the Northern Territory, which has some excuses: a large, scattered indigenous population and vast distances.

We are worse than the ACT, with its notoriously expensive Canberra Hospital. And we are worse than Queensland, where the immense inadequacies of the state health department helped tip out the previous Labor government.

Our costs per service are 20% higher than a not-very-impressive national average and 31% higher than Victoria’s, the most efficient state.

That figure helps explain another: that our public hospitals are not only Australia’s most wasteful: they are also its least accessible. The measure for this is the number of hospital services for every 1000 population. The national average is 112, Victoria is 114.5 and we are 92.2. This cannot be explained by the general health status of Tasmanians, who tend to be older, sicker and poorer than the average. You would expect them to need more, not fewer, services than most other Australians.

Large numbers of Tasmanians are going without treatment, and some are dying, because our hospitals are so badly run ‒ and have been for decades.

The poorer health of the Tasmanian population also does not explain why an average service is so much more expensive here. A hip replacement, or a course of intravenous antibiotic, should cost about the same no matter where it is delivered.

We spend more ‒ again, on a per-service basis ‒ on buying drugs and supplies, particularly surgical prostheses, than any other system. We pay 26% more than the national average for drugs and 32.5% more than Victoria and South Australia. And we pay twice as much for supplies as Victoria and 135% more than South Australia.

If the Tasmanian government formed a buying consortium with Victoria and let hospitals order from central lists, we would save at least $50 million a year. But nobody seems to have thought of it.

So how did it get this way?

It’s a combination of ignorance, special pleading and looking the other way. Even though the government spends far more on health than on anything else, the level of health policy knowledge among all but a very few Tasmanian politicians is abysmal. What passes for debate is about an opposition scoring points and a government fixated on mere survival and continually trying to convince a highly sceptical electorate that, despite the evidence, all is well.

None of the health unions has any serious capacity for policy analysis and development. In other states, universities undertake health policy research ‒ but not here. The University of Tasmania’s schools of government and economics both essentially ignore the most important and expensive government activity in the state.

Public attention is given to symptoms of the malaise, almost never to the underlying cause. New ministers, coming into the health portfolio with little knowledge of the area, are the captives of their bureaucrat advisers who give them the department’s party line ‒ and that almost never involves asking why Tasmania is doing so much worse than anywhere else. The AIHW’s highly credible figures are routinely dismissed. They don’t apply to us, we are told: it’s different here. Ministers are told the same.

Despite all of this, successive ministers have realised that the system is in dire need of improvement and that our hospitals waste at least one-fifth of their budgets on poor systems, bloated administrations, slack purchasing practices and change-resistant clinical empires.

Ministers have repeatedly tried to reform the system and have repeatedly the hospitals have defied them. In eight years we have had the Richardson Report, the Tasmanian Health Plan and National Health Reform, as well as various smaller initiatives such as those on elective surgery. None has worked. The system is worse than ever.

The ministers have tried to use the only weapon they believe is at their disposal: using budget pressure to try to force efficiencies. Not only has that technique also failed: it has often had the opposite effect. The intentions of the swingeing budget cuts of 2011 had little to do with efficiency or productivity but the hospitals’ response shows what happens when the blunt instrument of budget reduction is applied.

Take the Southern Tasmanian Health Organisation, centred on the Royal Hobart Hospital. In the year after the budget cuts the numbers of clerks and administrators was reduced by 2% and health service officers (cleaners, caterers and laundry workers) by 1.2%. But doctor numbers were cut by 5.6% and nurses by 8.5%.

Obviously, the Royal Hobart Hospital was less efficient and less productive after the cuts than before, even though money was saved for the government. Clerks and cleaners are public servants and therefore difficult to get rid of. And they earn much less than doctors and nurses, so sacking clinical staff instead gives the bottom line a temporary, if damaging, fix.
From the point of view of employment security in our hospitals, it is far better to have nothing whatever to do with patients.

It is becoming increasingly clear that the present system of block-funding hospitals is entrenching inefficient systems and allowing hospital staff and managements to defy ministers.

When global budgets are set on the assumption that the money will be spent efficiently, hospitals have simply overspent, knowing that an opportunist Opposition and an ill-informed public will back them and that the government will have no choice but to retreat and bail them out.

There is a well-tried alternative. Casemix (or activity-based) funding gives hospitals not a fixed block of money (which may be moved from efficient services to prop up inefficient ones) but pays instead for each service the hospital provides. Each service has its own price, according to what it should cost in a reasonably efficient system. Hospitals which provide a service for less than the casemix cost are allowed to keep the money; those which spend more have a strong incentive to reform their systems. Casemix has been in place in Victoria for some 20 years and in South Australia for almost that long. It is no coincidence that the two states which have the best record of economic efficiency are those in which casemix funding is in operation. The Commonwealth Department of Health and Ageing has been refining the system for some 30 years: it is a highly sophisticated process which has been proved in practice.

A buying consortium for drugs, prostheses and other supplies should be established with Victoria, saving some $50 million a year and, because prices go up from year to year, well over $200 million over the four-year budget estimates period.

Two new public elective surgery hospitals should be established within the Calvary campuses in Hobart and Launceston, along the lines of non-government public hospitals in other states, with set-up costs shared between Calvary and the government. Running expenses should be funded according to a cost-efficient, activity-based system. At the same time, patient flow protocols should be introduced. Elsewhere, these reforms have repeatedly been shown to improve cost levels and, by insulating elective patients from competition from emergency cases, to massively reduce the expensive and disruptive levels of surgery cancellation currently seen in Tasmanian public hospitals.

Similarly, all systems and processes in our hospitals, in all departments, should be reviewed and fearlessly reformed. The cloud of state government secrecy surrounding health policy data should be lifted so the electorate knows what is happening and what the government is trying to do.

The political and administrative difficulty of these reforms should not be under-estimated, as it has often been in the past. These changes will require a government with substantial political capital and the willingness to spend a good deal of it on this goal. The government must have a firm and well-defined program, explain it to the people and seek their support, release all the relevant information so an informed and balanced discussion can take place, and pursue intensive reform for several years against strident opposition from vested interests, including some unions, administrators, politicians, certain doctors and others. The program of reform will be complex, easier to misrepresent than to explain. But other states have done it: surely, it cannot be beyond the wit of Tasmanians to do as well.

ABOUT THE AUTHOR: Martyn Goddard is an independent health policy analyst based in Hobart. He has been a member of several key Commonwealth committees, including the peak ministerial advisory group on AIDS and hepatitis, and was the first consumer member of the Pharmaceutical Benefits Advisory Committee, which evaluates drugs for listing on the PBS. He has conducted many policy reviews and submissions for Commonwealth and other organisations, and is a former health policy spokesman for the Australian Consumers’ Association. Before becoming involved in health, he was a journalist and documentary producer, mainly at the ABC in Sydney and Melbourne. This paper has not been funded or in any way controlled by any person or organisation other than the author.

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