November 25, 2016 Print

Competition fosters innovation, but government restrictions, regulations, and other barriers to entry within the health care and medical insurance industries cripple that competitive dynamic. Although the Centre for Independent Studies (CIS), an Atlas Network partner based in Australia, operates in a country with a universal health care system, it has proposed a way to foster innovation within this de facto monopoly. Its recent study, titled “MEDI-VATION: ‘Health Innovation Communities’ for Medicare Payment and Service Reform,” explains that Health Innovation Communities (HICs) within Australia’s universal system could serve as centers for research and development. Each HIC would encourage innovation by hosting a number of separate health care providers that would have freedom to develop new health care products and solutions, each functioning as a sort of “Silicon Valley” for the health sector.

“HICs are based on the concept of free trade zones, which throughout history have been established to relax existing cultural norms and laws and thereby remove disincentives that impede commerce and prevent the development of new modes of doing business,” CIS explains. “In essence, HICs would make it legal for organisations, both public and private, to develop more efficient and sustainable models of care that would improve health outcomes. They would also make it legal for consumers to choose a publicly-funded alternative to the current structure of the Medicare scheme (the existing Medicare Benefits Schedule (MBS) benefits for GP and other medical and primary care services and right of access to free public hospital care) on an opt-in basis.”

CIS recognizes that whole-scale reforms are politically unfeasible in Australia because the Medicare system is so ingrained, both institutionally and culturally. In the face of such an entrenched public benefits system, the organization hopes to demonstrate the system’s shortcomings and contrast those with the potential alternatives available in the realm of public health through implementation of HICs.

“The biggest obstacle is that government’s health spending accounts for around 7% of GDP, and is growing faster than national income,” explains Dr. Jeremy Sammut, one of the authors of the report and the director of the CIS Health Innovations Program. “Moreover, significant amounts of public health spending is inefficient. Australia’s national taxpayer-funded universal health scheme, Medicare, is basically a provider-captured payment mechanism that guarantees doctor’s income, and rewards the medical profession for doing the same things regardless of cost-effectiveness, and prevents innovations that could lower costs and improve outcomes. The additional political obstacles to health reform is the popularity of a scheme that promises ‘free’ healthcare.”

The CIS proposal would establish HICs within certain geographic areas, where “healthcare providers would apply for exemptions from existing health legislation and regulations to permit creation and use of alternative payment and service delivery models that are currently banned under Medicare and the Health Insurance Act.” Successful innovations would serve as a proof of concept that could be propagated and inspire solutions to other problems associated with Australia’s universal health care system.

“Companies, start-up entrepreneurs, charities, private health funds, and federal and state government health agencies would all be eligible to apply for registration as HIC-exempt providers by a joint government and industry-led HIC Commission,” CIS continues. “Exempt providers will accept and recruit individuals who want an alternative to the existing public and private health systems and who voluntarily choose to opt-in to an Integrated Care Plan (ICP). To prevent cream-skimming and a two-tiered system, a condition of the grant of exempt-provider status will be that ICPs must cater to both public and private patients; successful models will hereby be built fit for purpose, and be suitable for potential national, system-wide roll out under Medicare.”

The ICPs would be jointly funded by both public and private entities, and these combined resources would allow providers to integrate the care provided and develop more cost-effective care provision. Additionally, customers who choose to try an ICP and later leave it, for whatever reason, would be returned to the routine coverage provided under Medicare.

“HICs will be established in three to five areas to provide critical mass, benchmarking and competitive tension, and be allocated between the capital cities and also regional areas to ensure sufficient differentiation,” CIS details. “Preferred locations will have proximity between a major hospital, university or medical school to support research, collaboration, training, measurement and control in partnership with Australia’s renowned and world-leading publicly-funded medical research industry.”

The unique concept of the HIC allows for experimentation in providing market-based solutions to health care problems without first needing to disrupt the full system of publicly provided care, so government would have little to lose and much to gain. A successful implementation of the HIC program, hopefully resulting in lower costs and better outcomes for patients, also opens the door to further Medicare reforms.

“Our plan to establish Health Innovation Communities to make a start on developing alternative payment and service models ticks what we think is the most important box,” Sammut concludes. “It is a politically-feasible way to kick-start health innovation because the changes proposed will be limited to particular regions, will not be compulsory for all providers, and will apply only to those patients who agree to opt-in to an alternative to the current structure of Medicare.”