By Ross Gittins
Just about everyone associated with healthcare professes to have a soul above money. It's only the best interests of patients they care about - unless they discover their incomes are threatened, of course.
The plain fact is that money matters. It matters to voters who, on one hand, have an insatiable desire for more and better healthcare but, on the other, have a strictly limited willingness to pay the taxes needed to cover the cost.
Reports have shown our health system lacks efficiency, with much of the inefficiency having its origins in the divided responsibility for the system, which leaves both federal and state governments with insufficient power or incentive to improve matters.
The likelihood that we're going to be pouring vastly increased sums into healthcare in coming decades makes it all the more necessary for us to reform the system and raise its productivity.
Sensibly done, this will improve health outcomes without compromising quality, giving us greater confidence that the extra dollars we'll be spending - and the extra taxes we'll be paying - will deliver value for money.
While the public's concerns will always be with the symptoms of inefficiency - such as long waiting times in hospital emergency departments - it was good to see that Kevin Rudd's reform plan gets to the root causes.
The plan greatly strengthens lines of responsibility by having the feds pay the majority (60 per cent) of the cost of public hospitals and all of the cost of GPs and other ''primary care''. This allows the feds to dictate the terms on which they will fund public hospitals and gives them unfettered policy control over primary care.
It effectively establishes a ''purchaser/provider model'' for health. The feds pay almost all the cost of the total system (which includes the medical benefits scheme, pharmaceutical benefits scheme and aged care) but leaves the provision of services to others.
The next-most important proposal to improve efficiency is to fund hospitals not with state block grants but with ''activity-based'' payments (also known as ''casemix funding''). For each service a hospital provided, it would receive the pre-determined ''efficient price'' for that service. If the actual cost exceeds the efficient price, tough. If it's less, the hospital keeps the change.
The efficient prices would be set by an ''independent umpire'', to a large degree removing them from the realm of political pressure.
People who say (correctly) that the Victorian hospital system is working well compared with NSW and other states are resting their judgment on the success of casemix funding.
The third efficiency move is the plan for federal payments to be made direct to small groups of hospitals, bypassing the state governments. Transferring power to the local level should increase responsiveness to local needs and permit innovation.
Leaving the states funding 40 per cent of the efficient price (plus any cost in excess of that price) leaves them with ''skin in the game'': they benefit from the success of casemix and lose from its failure.
The fourth efficiency move is the plan for the feds to take over total policy and funding responsibility for GPs and other primary care. This should reduce duplication, gaps in services and cost-shifting.
The plan to earmark a third of proceeds from the goods and services tax for healthcare means that, for the first three years, these changes would involve no net cost to the federal government. So what's the benefit to the states?
It comes in the following years because the cost of health care is expected to grow by about 10 per cent a year, whereas the GST is likely to grow by only 6 per cent a year. Over the five years to June 2020, this could cost the feds a cumulative $15 billion - of which Victoria's saving is $3.8 billion.
Which brings us to a quite different efficiency gain: the taxes the states would have increased to cover that cost are a lot more distorting than those the feds would levy.