Dr Kerryn Phelps, to Committee for Economic Development of Australia (CEDA), CEDA Boardroom, Sydney

As AMA President, I often present my opinions of the health system to the Government - publicly and privately. The AMA is well placed to advise on health policy.

The AMA is a truly independent organisation representing the professional interests of its 27,000 members.

We are a powerful advocate for the public health and public hospital system, which means we are strong advocates for patients.

The AMA receives no recurrent funding from the Government and is not compromised in any way in formulating our views on issues in health or in communicating those views.

Our views cannot be bought or influenced by anyone other than our members and their patients.

Governments can feel threatened by these qualities in an organisation. They much prefer organisations with less independence. In fact, some Ministerial advisers have told the AMA that they prefer lobby groups who do deals. It makes their jobs so much easier.

I am proud to say we are not one of those organisations.

Contrary to uninformed views, we do not always criticise the Government.

For example, on 5 April, Health Ministers met and issued a communique on the renegotiation of the Australian Health Care Agreements due to be renewed in June 2003.

They said that in renewing these agreements they were going to put the interests of patients first, they were going to have a process informed by proper research, and they were going to consult, including with the medical profession.

The AMA applauded this approach. It only remains for the AMA to keep them to their promise and we have indicated our intention to work with governments at State and Federal level to help ensure the progress on these agreements is practically-based.

So let's have a look at the health of our health system.

If you started from first principles, you could not design a sillier system than the one we have.

The Commonwealth and the States share policy, funding and service delivery responsibilities which are at best confused and at worst act directly against the best interests of patients as they move through the various health programs they require.

This results in tangling of bureaucratic wires, frustration for doctors, and confusion for patients. It is particularly dysfunctional in indigenous health and aged care.

The ACCC, it is said, is an organisation created to improve competition in the Australian health system - to protect consumers. In health, it is doing the opposite. More on them later.

The biggest threat we have seen to the provision of medical services in Australia is the disaster that is medical indemnity insurance.

We have been trying to tell the Government for 12 months now that the medical indemnity arrangements in Australia were unstable.

Yet with all this notice, we have a last-minute scramble to salvage something from the wreck we all saw coming.

How this current crisis will be resolved for the long-term is unclear. We will need to wait and see. But it is a good example of the complexity of factors influencing health care.

The longer term reforms involve changes to the tax treatment of settlements and tort law reform - and this involves both Federal and State Governments acting in unison and co-operation...and swiftly and efficiently. This is a big ask.

It takes one or more responsible political leaders to develop a profound understanding of the issue and to take the case on personally for us to make any progress.

Barring another rush of boat people or another war on terrorism, health and education should be - must be - the issues at the next election.

The health financing arrangements in Australia

Acute health services are funded by both the Commonwealth and the States, are delivered by the States, and the policy surrounding that is determined by the Commonwealth.

Patients who in a single episode of care need acute care, medical care, pharmaceuticals, residential aged care, rehabilitation and community care move through a bewildering array of programs managed and/or funded by State, Commonwealth, private and contracted provision.

Is the current health care financing structure working?

Problems have emerged and more are emerging.

From our perspective, the Medicare Benefits Schedule (MBS) is seriously under-funded. The public hospitals are seriously under-funded. Aged Care is seriously under-funded.

The PBS is in trouble with high annual expenditure growth being queried by the central Departments such as Treasury and Finance and solutions being raised seem to depend more on the short-term Budget bottom line rather than the long-term, evidence-based, patient benefit.

On the medical side, in the first year of Medicare's operation in 1984-85, the aggregate gap between fees charged and rebates paid was $200 million per annum.

By 2000-01, this figured had increased to $1.5 billion. This is the amount now picked up by households because the MBS hasn't kept pace with reasonable economic indices.

The Relative Value Study was a seven year joint effort by the government and the AMA to find a way to properly assess the value of medical services across the spectrum of specialties. It told us that the Medicare Benefits Schedule was $1.6 billion under funded.

The Government has done nothing to address that. Leaving doctors to subsidise the shortfall through bulk-billing discounts or patients through increased contribution from household budgets.

The public hospitals are under-funded. You don't have to take my word for it. Ask anyone who works there or the people on trolleys in the corridors.

In 2000, the Senate Community Affairs References Committee looked at the public hospitals and said they needed an immediate injection of $900 million over two years plus capital funding which had been allowed to run down. This is now over the one-billion-dollar mark and rising.

Neither the States nor the Federal Government has taken up this recommendation and the public hospital system just staggers on in a state of progressive neglect.

The Pharmaceutical Benefits Scheme (PBS) is regarded by some in Government as a big problem - for the Budget bottom line - that is becoming a bigger problem.

So we have these major health programs which most would agree are under-funded.

This under-funding leads to access problems like rationing in some cases (waiting lists) or to large gaps in some cases (specialist medical services) or even the complete absence of some services such as public child disability services in Australia.

Where these services are provided, they must be provided free of charge at the point of delivery for inpatient care.

In the case of medical services, Governments are critical of practitioners whose charges are above the MBS even though the MBS has not kept pace with the increased cost of running a medical practice.

But in the Budget bidding war, Health must compete against big-ticket items like Defence and education. This year, with the war against terrorism and the rage against refugees and universities screaming for money, you can be sure there won't be a massive boost in health funding.

So the Government can't go on saying we'll have a universally accessible, equitable, high quality system funded through the taxation system, and provided free of charge at the point of delivery, but we are not prepared to fund it and we will offer no other solution.

This is not reasonable and the profession and the better-informed public won't accept it.

We know the Government is not going to provide the money…not this year anyway

The second option is for the Government to acknowledge that there will be service gaps, rationing and fee gaps. This is not the Government's long suit.

It is not very good at acknowledging that the Government cannot provide everything the electorate wants. You will note that it is never the Government's fault that there are gaps, or waiting lists or service gaps. It is always the public, or the other tier of government or, best of all, the doctors who are to blame.

The third option is to say, given we won't fund the system and given we won't acknowledge that fact publicly, can we introduce private financing into the health system?

Can we somehow encourage more private contributions to health? The 30% rebate is the first step down this track and you would have to admit it has been successful in that limited objective.

We have seen a 50% increase in the level of private health participation and some real prospect in the long term of taking the load off the public system. The danger, as we are seeing with recent premium increases, is a cost blow-out…for the taxpayer. This will need to be addressed, or the public system will be overwhelmed again.

There are risks for the Government in this last option. Medicare has been seen as part of the social "accord". In the context of increasing income disparities between the rich and the poor, Medicare has been seen as a way of decreasing those disparities.

There is a very real possibility that increased private financing will reduce that impact and we will have a two-tiered Medicare system. Such a move would be labelled the slippery slope, the Trojan Horse, the thin end of the wedge, or all of the above. This is the cry whenever these proposals are mooted and, up until now, have been sufficient to sink such proposals.

I think a greater role for private financing is inevitable. There are very few ways to do it well and these do not enjoy support within the broader community or even the medical community.

Whichever way we go, there will always be a need for a high quality robust public hospital sector providing good care for Australians and also training the next generation of medical practitioners.

Responsibility for public hospitals is distributed between two levels of government. Links to other health programs such as Aged Care and indigenous health are problematic and provide some inappropriate incentives.

These issues were examined by the National Health Strategy Review conducted by Jenny Macklin, now Deputy Leader of the Opposition, in July 1991. In an Issues Paper called "The Australian Health Jigsaw" the Review described all the problems of barriers between programs such as public hospitals and Residential Aged Care, cost shifting, dilution of responsibilities, lack of accountability etc and proposed 6 options for improvement.

In the 11 years that have elapsed since that report was published, no progress has been made.

The impediment to progress has been the reluctance by State and Federal Governments to accept change. We cannot have an efficient, seamless system until there is change.

The fact that all State and Territory Governments are now Labor Governments may make a difference but you need two to tango and the Federal Government has to be inclined to dance.

At the very least, we need transparency in the level of funding of the public hospital system. At the moment, only the Federal Government has to be transparent in its commitment to public hospital funding over the life of the Australian Health Care Agreement.

This needs to be extended to include the State Governments along the lines agreed to by the State and Territory and Federal Health Ministers on April 6 this year. That agreement has the potential to revolutionise the relationship between the Commonwealth and the States and provide a backdrop for national public hospital and community health care standards.

We need to see national standards for reporting and accountability on the key performance indicators for public hospitals - access (more commonly known as waiting lists), quality and efficiency.

Although we have seen some improvement in the quality and timeliness of information on public hospital performance over the past 5 years, there is still some way to go and we need to go for it.

Hopefully, our Governments will not pike out on the big ticket items for reform.

We need better links between public hospitals and Residential Aged Care for the Aged and between GPs and hospitals and these can best be achieved by fundamental change.

These changes are not without threat to the medical profession but the medical profession is prepared to look at them and evaluate their impact on patients and the profession.

My hope is that governments will be prepared to do the same.

The future of General Practice

Nowhere is the impact of long term government neglect more evident than in General Practice.

The AMA fee for a Level B consultation is $48.50. The MBS fee for the same consultation is $28.75 and the rebate is $24.45. The $24 difference represents the product of governments sticking their heads in the sand for over 18 years and also the difference between high-quality satisfying general practice and what many doctors practice today.

There is a certain predictability about the way the Government behaves on these matters.

They were successful in getting GPs to bulk bill nearly 80% of their services. At the beginning it looked like a pretty good deal. A fair fee and no worries about fee collecting or bad debts.

But now, when a medical practitioner decides to bulk bill a patient, the decision has the following implications:

1. The medical practitioner must be prepared to accept 75% of the MBS fee for inpatient services and 85% for other services as full and total payment for the medical service provided. The 85% figure was originally based on the untested assumption that the difference between the MBS fee and the rebate represents the practice cost savings from bulk billing.

2. For patient billed claims, the Government imposes inefficiencies on doctors and patients. All claims on the HIC could now be handled electronically and that would reduce the costs of administration within the HIC and medical practices. The Government is therefore deliberately holding up health transaction costs.

3. For a bulk billed service, no other charge can be levied on the patient, even for expensive disposables like bandages or dressings. The service is free to the patient at the point of service.

4. The patient assigns their rebate benefit to the medical practitioner by signing the appropriate HIC form to this effect and the medical practitioner can then lodge a claim on the HIC for the payment of the rebate to the medical practitioner.

5. A copy of the completed assignment form must be given to the patient and if the form is lodged with the HIC electronically, the medical practitioner must retain that electronic record for two years.

6. The medical practitioner has no say in the level of the MBS fee or the rebate. A medical practitioner who direct bills all patients is effectively surrendering the control of the price for their service to the Government regardless of the costs of running their practice.

Understandably, the proportion of services direct billed is now falling and it will continue to fall. A downwards movement in the proportion of services direct billed indicates that the method by which the Government indexes the rebate is not matching the medical practitioner's experience of the real increase in the cost of running a medical practice.

Worse, it is not encouraging high quality general practice in this day and age.

The Government likes direct billing and encouraged Australians to expect to be bulk billed. It then characterises doctors who do not bulk bill as avaricious. Having done that, it drops the ball on rebates.

Between 1991-92 and 2000-01, the MBS Level B consultation fee grew at 1.5% per annum. Through the same period, Average Weekly Earnings (AWE) grew by 4% per annum. The Level B fee was 12.5% higher in 2000-01 than it was in 1992-3. Over the same period, AWE grew by 36.9%.

Whereas a Level B MBS consultation fee was 4% of average weekly ordinary time earnings in 1991-92, by 2000-01, it had declined to 3.3% of AWOTE (Average Weekly Ordinary Time Earnings).

There is an obvious impact on doctors' incomes but that is not the main point. The real impact is on Australians in rural and outer metropolitan areas who need GP services.

The orthodox view has been that there is an overall surplus of General Practitioners in Australia but a maldistribution particularly in rural areas. This has enabled the Government to criticise and blame doctors for not moving to rural areas and it has been in the Government's interest to perpetuate the myth of oversupply.

When I became aware, in late 2000, that the Australian Medical Workforce Advisory Committee (AMWAC) had concluded that there was a large surplus of GPs, I started asking questions because the feedback I was getting from AMA members, from community groups and from Members of Parliament, was that GP shortages are endemic and spreading.

I therefore asked Access Economics to conduct a thorough survey of General Practice and to provide the AMA with detailed analysis of the demand for GP services in Australia compared to the actual supply of doctors, now and in the future.

The primary findings of this investigation are that, contrary to conventional wisdom, there is currently an overall shortage of GPs in Australia - as well as a maldistribution.

These shortages are not confined to rural and remote areas but are increasingly apparent in outer urban areas. Inner urban areas generally have an adequate supply. Very few areas are in surplus.

Looking into the future, there will be a large increase in the demand for GP services as the population ages.

Based on current working patterns and assuming current policy settings are maintained the number of GPs required will rise from 22,000 in 2000 to 33,000 by 2020.

Assuming current policy settings, the number of GPs supplied will increase from 20,000 in 2000 to just over 22,000 by 2020. There is a yawning gap that needs to be addressed by changing the policy settings.

The levers affecting supply of GPs are firmly in the hands of the Government and include the number of university entries into medical training, the number of GP trainees who are allowed, the supply of overseas trained and temporary resident doctors and remuneration for GPs.

Given there can be 10 year time lag before a decision to increase university entry and a GP working on the ground, we suggest the Government needs to start pulling the levers very soon and very hard.

Both the current health financing arrangements and GP shortages are matters that the government should be addressing now.

Private health insurance

The Minister has just announced a review into the regulatory environment surrounding private health insurance in Australia. This followed the unwelcome premium increases in private health insurance premiums in March 2002 which were followed by the demise of the CEO of Medibank Private, Mr Mark Burrowes. The government is now rumoured to be looking at a sell-off of Medibank Private.

The ostensible intention of the review is to improve competition in the private health insurance industry - and ease the over-regulation.

It is clearly a justified review. There has been virtually no new entry into the private health insurance industry over the last 10 years. Management expenses as a proportion of benefits paid have steadily increased over the last ten years and are now 15% on average and, for some funds, 28%.

The insurers increasingly look to the Government for leadership and assistance whereas most of us would look in every other direction than there.

The Government controls what is paid, who is paid, how premiums are determined, what premium increases are granted, lifetime community rating, solvency requirements, reinsurance arrangements, Gap Cover Schemes, gap campaigns, data reporting.

The industry can't sneeze without Ministerial approval.

We don't mind if the Government frees up some of this regulation.

There is definitely a need for new entry to the private health insurance industry and no decent competitor would enter the way things are. Our concern is that the insurers will do what they have always done and say that although they are faultless, the providers are not and need to be controlled.

We are not sure whether increased controls on providers are part of the agenda. The terms of reference are a press release put out by the Minister. We have asked if there is more but the answer is No. No wonder we have problems.

ACCC

Doctors are expected to meet the most elevated standards and to practise evidence based medicine and rightly so - but the Government does not practice what it preaches.

The ACCC is making a mess of it in health. Rostering and sharing the market are endemic practices in health. Health is a 24 hour a day, 365 days a year industry. To get a night off, you need rosters and agreements on sharing the market.

Relatively minor behaviour by doctors has been met with a massive over-reaction by the ACCC.

It is not uncommon for a doctor to be confronted by six or more ACCC inquisitors who can interrogate the doctor for hours on end without the benefit of legal representation.

Fines are totally out of proportion to the gravity of the breach. Instead of having the effect of increasing competition, doctors are walking away and leaving communities without medical cover.

Through its bovver boy antics, the ACCC has effectively put an end to after hours anaesthesia services in the private sector in Australia, hindered the supply of VMO services to public hospitals, hindered the supply of rural GP medical services, and is in the process of significantly reducing the supply of rural obstetric services. It may even destroy surgical training in Australia.

The problems in the health system cannot be resolved by the rigorous application of Trade Practices law - particularly when it is enforced by a zealot who takes great pleasure in sneaking up behind medical practitioners and walloping them with a big stick.

We have had to persuade the Government to have an inquiry into the powers and behaviour of the ACCC particularly as it affects rural communities. We await with interest the outcomes of that inquiry.

The AMA does not wish to be removed from coverage by the Trade Practices Act. We are happy to be covered provided the Act can be amended to take into account the matters peculiar to health which were not considered when the legislation was originally drafted.

I suppose every industry says it is different but we actually think we are justified in saying we are.

Conclusion

In closing, let me say that a mixture of bureaucracy and medical practice is not necessarily the best cure or treatment.

Good medicine is all about the doctor/patient relationship, the best treatment for an individual condition and timely action and intervention…and compassion. Bureaucracy is exactly the opposite.

In my view, it is always better to put the patient ahead of the paperwork.

Thank you.