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1301.0 - Year Book Australia, 2003  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2003   
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Contents >> Health >> Health care delivery and financing

Government role

The Commonwealth has a leadership role in policy formulation, particularly in areas such as public health, research and national information management. It funds, directly or indirectly, most non-hospital medical services, pharmaceuticals and health research. With the states and territories, it jointly funds public hospital services, and home and community care for aged and disabled persons. Residential facilities for aged persons are funded by a number of sources, including the Commonwealth. Public health insurance is provided through Medicare, which is discussed in more detail later in this chapter.

The states and territories are primarily responsible for the delivery and management of public health services and the regulation of health care providers. They deliver public hospital services and a wide range of community and public health services. For example, some state and territory government funded organisations provide school dental care and dental care for low income earners, with other dental care being delivered in the private sector without government funding. Local governments within states deliver most environmental health programs.

Public hospitals, which provide the majority of acute care beds, are funded by the Commonwealth Government and the state and territory governments, in addition to receiving revenue from services to private patients. Large urban public hospitals provide most of the more complex types of hospital care such as intensive care, major surgery, organ transplants and renal dialysis, as well as non-admitted patient care. Public hospitals have their own pharmacies which provide medicines to admitted patients free of charge and do not attract direct Commonwealth subsidies under the PBS. This is discussed in more detail later in this chapter.

A small number of doctors and paramedical professionals are salaried employees of the various tiers of government. Many salaried specialist doctors in public hospitals are able to treat some private patients in hospital and usually contribute to the hospital a portion of the income earned from fees charged. Other doctors may contract with public hospitals to provide medical services.

Private sector role

The strong private sector, operating in the delivery of, and insurance for, health services, receives substantial direct and indirect government subsidies. Within this sector, organisations operating for profit and not for profit play a significant role in providing health services, public health and health insurance. For example, privately owned nursing homes provide the majority of long-term aged care beds.

In the past, private hospitals tended to provide less complex non-emergency care, such as simple elective surgery. However, they are increasingly providing complex, high technology services. Separate centres for non-admitted and day-only admitted patient surgical procedures are mostly located in the private sector. This sector includes a large number of doctors and paramedical professionals who are self-employed, generally providing services such as general practice and specialist services, diagnostic imaging, pathology and physiotherapy.

Most prescribed pharmaceuticals dispensed by private sector pharmacies are directly subsidised by the Commonwealth through the PBS.

An important component of the Australian health care system is private health insurance, which can cover part or all of the hospital charges to private patients directly, a portion of medical fees for services provided to private admitted patients in hospitals, paramedical services, some dental services and some aids such as spectacles. The Commonwealth subsidises private health insurance premiums through a 30% rebate.

National health care system

Australia has a national system for the delivery of health care which generally covers all permanent residents of Australia. The system is financed largely by general taxes, a proportion of which is raised by an income-related Medicare levy. This is discussed in more detail in the following section.

There are five major kinds of Commonwealth health funding mechanisms:

  • grants to state and territory governments under the 1998-2003 Australian Health Care Agreements to assist with the cost of providing public hospital services
  • medical benefits, providing patients with rebates on fees paid to privately practising doctors and optometrists
  • pharmaceutical benefits, through the PBS, providing patients with access to a broad range of subsidised medicines
  • Health Program Grants to government and non-government service providers for a range of health services (e.g. radiation oncology (capital component), pathology and primary medical services). Health Program Grants are used to achieve health policy objectives such as improving access for specific population groups, influencing the growth and distribution of selected and potentially high cost services, or providing an alternative to fee-for-service arrangements, such as the Medicare and PBS
  • the 30% private health insurance rebate.

In some instances, the level of benefit for medical services and prescribed pharmaceuticals may be higher if the patient is receiving an age or disability pension or other types of government support payments.

In addition to the specific funding mechanisms mentioned above, health services receive part of the Goods and Services Tax (GST) revenue, general revenue assistance and Specific Purpose Payments provided by the Commonwealth to state and territory governments.

Medicare levy

When Medicare began in 1984, the levy was introduced as a supplement to other taxation revenue, to enable the Government to meet the additional costs of the universal national health care system, which were greater than the costs of the more restricted systems that preceded it.

The Medicare levy, which was increased from 1% to 1.25% of taxable income on 1 December 1986, increased to 1.4% on 1 July 1993 and to 1.5% on 1 July 1995.

For 2001-02, the general Medicare levy rate was 1.5% of taxable income. For persons who were not eligible for the Senior Australians' tax offset or the pensioner tax offset, no levy was payable by individuals with income less than $14,539 per year or by families with income less than $24,534, with a further $2,253 per year allowed for each child. Under the Senior Australians' tax offset, no levy was payable by individuals with income less than $20,000 or families with an income less than $31,729. Under the pensioner tax offset, no levy was payable by individuals with income less than $16,571 or families with income less than $24,534. Single people with incomes above $50,000 and families with incomes above $100,000, with a further $1,500 after the first child, who were not covered by private health insurance, paid a levy of 2.5% of taxable income, which includes a 1% Medicare Levy Surcharge.

From 24 May 2000, high income earners ($50,000 single, $100,000 families) who purchased a high front end deductible (FED) health insurance product were not exempt from the Medicare Levy Surcharge from 1 July 2000. A high FED costs over $500 for single participants and over $1,000 for families.

In 2000-01, revenue raised from the Medicare levy was approximately 18% of total Commonwealth health expenditure. The Australian Taxation Office estimated revenue from the Medicare levy to be $4.6b in 2000-01.

The Commonwealth Government's funding of hospitals

Total Commonwealth funding under the 1998-2003 Australian Health Care Agreements is currently estimated as $31.6b over the five years to 30 June 2003.

In 2000-01 total Commonwealth funding under the Australian Health Care Agreements was around $6.3b. Of this amount, over 98% was paid to the states and territories as Health Care Grants, while the balance was either allocated to national initiatives in areas of mental health, palliative care and casemix development or paid to those states and territories which were eligible to receive financial assistance from the National Health Development Fund.

Total health expenditure

For 2000-01, the preliminary estimate of total expenditure on health (including both public and private sectors) was $60.8b, compared with expenditure of $55.7b in the previous year (table 9.26). This represented an average rate of health expenditure in 2000-01 of $3,153 per person. In 2000-01, governments provided more than two-thirds (70%) of the funding for health expenditure, while the remaining 30% was provided by the private sector. Health expenditure in volume terms grew at an average annual rate of 4.4% between 1990-91 and 2000-01. In 2000-01, health expenditure as a proportion of gross domestic product was 9.0%. This ratio was 8.8% in 1999-2000, up from 8.7% in 1998-99.


9.26 TOTAL HEALTH EXPENDITURE(a) AND RATE OF GROWTH

Expenditure
Rate of growth


Current prices
Chain volume measures(a)
Current prices
Chain volume measures(a)
$m
$m
%
%

1990-91
31,267
38,004
n.a.
n.a.
1991-92
33,123
38,469
5.9
1.2
1992-93
35,098
39,893
6.0
3.7
1993-94
36,990
41,714
5.4
4.6
1994-95
39,216
43,758
6.0
4.9
1995-96
42,082
45,905
7.3
4.9
1996-97
45,195
48,224
7.4
5.1
1997-98
48,360
50,642
7.0
5.0
1998-99
51,680
53,026
6.9
4.7
1999-2000
55,668
55,668
7.7
5.0
2000-01(b)
60,779
58,490
9.2
5.1

(a) Reference year 1999-2000. Chain volume measures are discussed in detail in the section 'Chain volume or ‘real’ GDP' of 'Chapter 29, National accounts'.
(b) Based on preliminary AIHW and ABS estimates.

Source: Australian Institute of Health and Welfare, Health Expenditure Data Base.


Hospitals

Public hospitals

In 2000-01 there were 749 public hospitals nationally, including 23 psychiatric hospitals, compared with 729 in 1996-97. There were an average of 52,591 beds in public hospitals during 2000-01 (table 9.27), representing 68% of all beds in the hospital sector (public and private hospitals combined). Public hospital beds have declined from 3.1 beds per 1,000 population in 1996-97 to 2.7 beds in 2000-01.

The number of patient separations (discharges, deaths, and transfers) from public hospitals during 2000-01 was 3.9 million, compared with 3.6 million in 1996-97. Same-day separations accounted for 46% of total separations in 2000-01 compared with 42% in 1996-97.

Total days of hospitalisation for public health patients during 2000-01 amounted to 15.7 million, a decrease of 5% since 1996-97. The average length of hospital stay per patient in 2000-01 was 4.1 days. For 1996-97 the corresponding figure was 4.5, reflecting the lower numbers of same-day patients compared with 2000-01. If same-day patients are excluded, the 2000-01 average length of stay was 6.7 days, compared with 7.1 days in 1996-97.

An average of 182,995 staff (full-time equivalent) were employed at public hospitals in 2000-01, of whom 45% were nursing staff and 9% were salaried medical officers. Revenue amounted to $1,579m. Most of this revenue (50%) was from patients' fees and charges. Recurrent expenditure amounted to $15,545m, of which 63% was for salaries and wages. The difference between revenue and expenditure is made up by payments from state/territory consolidated revenue and specific payments from the Commonwealth for public hospitals, in roughly equal proportions.

Private hospitals

There were 516 private hospitals in operation in 2000-01, comprising 275 acute hospitals, 24 psychiatric hospitals and 217 free-standing day hospital facilities. The number of acute and psychiatric hospitals has continued to decline since 1996-97 when 319 of these hospitals were in operation. In contrast, day hospital facilities have shown strong growth for several years, with only 153 in operation in 1996-97.

The average number of beds available at private acute and psychiatric hospitals for admitted patients increased by 800 (3.4%) on the previous financial year. Between 1996-97 and 2000-01, the average number of beds available increased by 7% to 24,465. There were 1.3 private hospital beds available per 1,000 population in 2000-01. The average number of beds or chairs at free-standing day hospital facilities (used mainly for short post-operative recovery periods) increased over the same five-year period by 45% to 1,688; this increase reflects the continued growth in the numbers of free-standing day hospitals.

Private hospital separations in 2000-01 totalled 2.4 million, of which 83% were from private acute and psychiatric hospitals and 17% from free-standing day hospital facilities. Same day separations accounted for 57% of all private hospital separations (compared with 46% of public hospital separations). This higher proportion of same day separations contributed to the lower average length of stay in private hospitals (2.9 days) compared to public hospitals (4.1 days) (table 9.27).

The average number of full-time equivalent staff employed at all private hospitals was 46,307, of whom 63% were nursing staff. Total operating expenditure for private acute and psychiatric hospitals during 2000-01 amounted to $4,284m. Some 56% of this amount was spent on salaries and wages (including on-costs). Revenue received during the year was $4,518m, of which 92.7% was received as payments from or in respect of patients. Total recurrent expenditure for free-standing day hospital facilities during 2000-01 amounted to $183m, and revenue received during the year was $224m.


9.27 PUBLIC AND PRIVATE HOSPITALS - 2000-01

Units
Public(a)
Private(b)
Total

Bed supply
Facilities
no.
749
516
1,265
Beds/chairs(c)
no.
52,591
(d)26,153
(d)78,744
Activity
Total separations
’000
3,868
2,353
6,221
Same day separations
’000
1,789
1,350
3,139
Total patient days
’000
15,732
6,919
22,651
Average length of stay
days
4.1
2.9
3.6
Average length of stay excluding all same-day separations
days
6.7
5.6
6.3
Average occupancy rate
%
82.0
(e)73.0
(e)79.1
Non-admitted patient occasions of service
’000
40,465
(e)1,814
(e)42,279
Staff (full-time equivalent)(c)
’000
183
46
229
Revenue
$m
1,579
4,742
6,321
Recurrent expenditure
$m
(f)15,545
4,467
20,012

(a) Acute and psychiatric hospitals.
(b) Acute and psychiatric hospitals and free-standing day hospital facilities.
(c) Annual average.
(d) Including beds, chairs, recliners at free-standing day hospital facilities.
(e) Excluding free-standing day hospital facilities.
(f) Excluding depreciation.

Source: Private Hospitals, Australia, 1999-2000 (4390.0); Australian Institute of Health and Welfare, 'Australian Hospital Statistics, 2000-01'.


Hospital care under Medicare

Under the Australian Health Care Agreements between the Commonwealth Government and the state/territory governments, all eligible people are entitled to free accommodation, medical, nursing and other care as public patients in public hospitals.

Alternatively, patients may choose to be private patients in public hospitals, enabling them to elect their doctors. Medicare-eligible patients who elect to be private patients in public hospitals are charged separate fees for medical and hospital care. If patients have private insurance, this will usually cover all or part of the charges by a public hospital. Medicare pays benefits subsidising part of the cost of doctors' charges, while private insurance pays an additional amount towards these charges and other costs (e.g. surgically implanted prostheses) incurred as part of the hospital stay.

Private patients in private hospitals are charged doctors' fees and are billed by the hospital for accommodation, nursing care and other hospital services. If the patient holds private health insurance, it will contribute to the payment of these costs. Eligible Medicare patients in private hospitals generally attract Medicare benefits for doctors' fees. There are no other Commonwealth funding and pharmaceutical benefits for prescriptions provided to private hospitals.

The rate of Medicare benefit for doctors' services provided to a private patient in hospital, or an approved day surgery, is 75% of the Medicare Benefits Schedule (MBS) fee. The MBS lists a wide range of medical service items with a scheduled fee for each item. Registered private health insurers offer insurance to Medicare-eligible patients for the difference between 75% and 100% of the Schedule fee, and in some cases an additional amount agreed with the hospital and doctor to ensure that the patient has no out-of-pocket medical cost.

Medicare benefits for private doctors' and optometrists' services

Costs incurred by patients receiving private doctors' services, and some optometrists' services, are generally reimbursed, either fully or in part, through Medicare benefits. These benefits are administered by the Health Insurance Commission through its Medicare offices.

MBS fees are used to calculate Medicare benefit entitlements, but doctors are able to determine their own fees, provided the service is not 'bulk-billed'. If the service is bulk-billed by agreement between the doctor and patient, the doctor must accept the Medicare benefit, paid directly to the doctor, as payment in full. Of Medicare fees which are not bulk-billed, 22% were charged at a rate above the Medicare Schedule fee during 2001-02.

The rate of benefit for non-hospital medical services, such as visits to doctors in their rooms, is 85% of the MBS fee. Once the difference between the Schedule fee and benefit is more than $55.60 (indexed annually) the benefit is the Schedule fee less $55.60.

Under the Medicare safety-net arrangements, if in any year the sum of the 'gap' payments (being payments above the benefit level and up to the level of the Schedule fee) for non-hospital services for an individual or registered family exceeds a specified amount ($309.80 for 2002), all further benefits for the remainder of that year are paid at 100% of the Schedule fee.

For private medical services provided in hospital, Medicare benefits are payable at a different rate, as described in the preceding section.

Private insurers are prohibited from insuring all or part of non-hospital services which attract Medicare benefits. They may insure part of the fee for in-hospital medical services, as described in the preceding section.

Pharmaceutical Benefits Scheme (PBS)

The Commonwealth Government provides Medicare-eligible persons with affordable access to a wide range of necessary and cost effective prescription medicines through the PBS. The following details relate to charges and safety net levels applying at 1 January 2002.

Medicare-eligible patients who do not hold a Health Care Card, Pensioner Concession Card or Commonwealth Seniors Health Card, are required to pay the first $21.90 for each prescription item for medicines listed on the PBS. Concessional patients who hold a concession card must pay $3.50 per prescription item.

Individuals and families are protected from large overall expenses for PBS listed medicines by safety nets. For general patients (non-cardholders), once the eligible expenditure of a person and/or their immediate family exceeds $669.70 within a calendar year, the additional payment the patient has to make per item (co-payment) decreases from $21.90 to the concessional co-payment rate of $3.50.

For concessional and pensioner patients (cardholders), once their total eligible expenditure exceeds $182.00 within a calendar year, any further prescriptions are free for the remainder of that year. All pensioners continue to have their pensions supplemented by a pharmaceutical allowance of $2.90 per week payable fortnightly, or $150.80 per year, to help defray their out-of-pocket pharmaceutical expenses. The allowance is not paid to other concessional beneficiaries.

Patients may pay more than the relevant co-payment where there is more than one brand of the same drug or alternative product that produces similar results. The Government subsidises on the basis of the lowest priced drug, and any difference in price due to brand or product preferences must be met by the patient. The premium cannot be counted towards the patient's safety net.

In 2001-02 the PBS had over 150 million benefit prescriptions, representing a cost to the Government of $4,197m and a total cost, including co-payments, of $5,003m (table 9.28).

The number of PBS prescriptions per capita in 2001-02 was 7.9, compared with 7.6 in 2000-01. The number of benefit prescriptions increased by 4.7% over the previous year, and the cost to Government of these prescriptions grew by 9.9% (in current dollars).

The rate of growth in prescription numbers and their cost reflects the ongoing trend towards newer and more costly medicines. Over the 10 years from 1991-92 to 2000-01, the average PBS dispensed price doubled, from $15.32 to $30.83 (a 101.2% increase, in current dollars).


9.28 PBS(a), Prescription volume and cost (current dollars)

Prescription volume
Government cost
Total cost(b)
Prescriptions
per capita
Average dispensed price
in current prices
millions
$m
$m
no.
$

1990-91
96.3
1,171.5
1,330.5
5.6
13.82
1991-92
94.1
1,134.0
1,442.2
5.4
15.32
1992-93
106.2
1,419.5
1,779.4
6.0
16.76
1993-94
115.0
1,701.3
2,097.0
6.5
18.23
1994-95
118.7
1,897.4
2,341.9
6.6
19.73
1995-96
124.9
2,207.4
2,685.5
6.9
21.50
1996-97
124.1
2,348.3
2,878.5
6.7
23.20
1997-98
125.1
2,541.5
3,112.3
6.7
24.88
1998-99
128.9
2,795.6
3,397.0
6.8
26.35
1999-2000
138.1
3,187.2
3,839.0
7.2
27.80
2000-01
148.0
3,820.6
4,564.7
7.6
30.83
2001-02
155.0
4,197.3
5,003.3
7.9
32.29

(a) Includes PBS categories of Concessional, General, Safety Net and Emergency (Doctor's Bag) Drugs prescriptions. Excludes: (i) payments through miscellaneous services (Highly Specialised Drugs, IVF Centre Hormones, Human Growth Hormones, Safety Net Card issue costs, Aboriginal Health Services, etc.). In 2000-01 this expenditure was $347.9m;
(ii) prescription medicines subsidised by the Commonwealth under the Repatriation Pharmaceutical Benefits Scheme (RPBS) administered by the Department of Veterans' Affairs. In 2000-01, there were 14.2 million RPBS prescriptions at a cost to Government of $371.0m.
(b) Total cost consists of Government cost and patient co-payments.

Source: Commonwealth Department of Health and Ageing, Pharmaceutical Benefits Branch.


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