The Abbott government has announced a A$20 billion medical research “future fund”, to help discover what Treasurer Joe Hockey calls the “cures of the future”, paid for with money generated as a result of major changes to health policy.

The fund, expected to be “biggest medical research endowment fund in the world” within six years, will be capital protected, with net interest earnings used to fund medical research. Distributions to medical research are expected to be around $1 billion by 2022-23, effectively doubling the government’s direct medical research funding. Distributions of $20 million are expected in 2015-16.

It comes as the government warns of unsustainable health-care spending, which currently costs 4.1% of GDP, expected to rise to 7% if no changes are made.

From July 2015, the government will introduce a $7 co-contribution payment for GP consultations and out-of-hospital pathology. Concession card holders and children will also pay the fee, capped to the first ten services. Of this, $5 of every $7 will go to the medical research fund.

Australians will also pay an extra $5 towards the cost of each Pharmaceutical Benefits Scheme (PBS) prescription from July next year. Concession card holders will pay an extra 80 cents.

In a major blow to the states, the government will pull back from its commitment to increase public hospital funding, indexing funding to a combination of growth in the consumer price index and population, from 2017-18.

From 2016, a new Medicare Safety Net will be introduced with lower thresholds for most people. Indexing on all Medicare rebates, excluding GP services, will remain frozen until July 2016, and the Medicare Levy Surcharge and Private Health Insurance Rebate income thresholds will not be indexed.

“Primary Health Networks” will replace the Medicare Locals established by the former Labor government. The networks are expected to align more closely with state and territory health network arrangements to “reduce duplication of effort,” and align with recommendations made by former chief medical officer John Horvath following his review of Medicare Locals.

The Abbott government will honour its commitment of $200 million for dementia research, and contribute $95.9 million in 2014-15 to expand the National Bowel Screening Programme. It will also provide an additional $14.9 million over four years to establish ten new headspace sites and conduct an evaluation of the program.

The government will also provide $22.8 million to replenish the National Medical Stockpile, renegotiating responsibilities for the stockpile with the states, and commit more than $100 million to encourage school children to take part in sport activities.

The government will abolish Health Workforce Australia, which is tasked with ensuring the health workforce has appropriate skills and training, and consolidate its functions into the Department of Health, saving $142 million over five years.

The National Preventative Health Agency will be abolished, saving $6.4 million over five years.

The government will also provide funding to defend international legal proceedings initiated by tobacco companies as a result of the Plain Packaging Act, however has not disclosed the funding amount.

Overview

Stephen Duckett, Professor of Health Policy at La Trobe University and Director of the Health Program at Grattan Institute

Pre-budget softening up does not obscure the harsh reality of the 2014-15 budget decisions. Bulk billing is gone, health reform agreed by all states and territories is demolished, funding to the states is slashed and promises are broken.

The big decision is about a $7 co-payment for GP visits. Floated five months ago, ramped up by the Commission of Audit, universally condemned by health experts, the budget introduces a co-payment of $7 for each general practitioner visit and any out-of-hospital pathology and X-rays.

The existing rebate for these services is reduced by $5 but doctors will be allowed to recoup $7 by levying a patient charge. A “safety net” is introduced after the first ten services for pensioners and card holders.

The effects are known: budget savings will be made – over $1b a year – off the backs of the poorest and most vulnerable. People who miss out on the safety net will now miss out on care as well.

States will be allowed to charge $7 for hospital emergency department visits, but probably won’t. Despite the pre-budget airing, abolition of bulk-billing was not disclosed pre-election and surely counts as a surprise from a government that promised no surprises. Co-payments are increased for pharmaceuticals, more rapidly than inflation, further increasing patient hardship.

The Rudd-Gillard national health reforms were a mixed bag, slowly being implemented and agreed by the states and territories. The big change, making the Commonwealth share in the cost of increases in hospital admissions and other activity, comes into effect in six weeks time.

This meant the Commonwealth would meet 45% of the cost of increased admissions, but would only pay what was the “efficient” cost of that growth. This was to rise to 50:50 sharing in 2017, but the budget tears up that signed commitment and goes back to funding population growth only. Hundreds of millions of grants to the states are also for the chop.

But while the ink is barely dry on those agreements and the legislation, more changes are foreshadowed. The alphabet soup of agencies created by the reforms are to be rationalised. It is unclear whether the savings will come from back-room bureaucrats or from programs. If the former, it can be supported. If it is the latter and we lose an emphasis on prevention, better transparency of funding flows and better measurement of hospital activity, we’ll all be the poorer.

Another big surprise in the budget is to hypothecate much of the savings to a $20 billion dollar endowment for medical research. How the endowment will work (and whether the interest from the endowment will be truly additional research funding) is unclear. This is certainly a positive move for research, but there will be few researchers who will like where the money is coming from.

Medicare co-payment

Anne-marie Boxall, Director of the Deeble Institute for Health Policy Research, Adjunct Lecturer at University of Sydney

The government has announced a co-payment for general practice (GP) services of $7 for all patients, starting 1 July 2015. GPs can choose to waive the co-payment, and they will be paid an incentive payment if they do not charge concession card holders or children under 16 more than the $7 co-payment.

To discourage people who should be going to a GP from going to emergency departments, the government is removing the restriction that prevents state and territory governments from charging co-payments for GP-like visits to hospital emergency departments.

The GP co-payment is expected to deliver savings of $3.5 billion over five years. These savings will be achieved in two ways.

First, the government will reduce the Medical Benefits Scheme (MBS) rebate for standard GP consultations by $5; currently, the rebate for Level B consultations (less than 20 minutes duration) is $36.30. The MBS rebate will only be reduced for concession card holders and children under 16 for the first ten visits in a year. After that, it will be increased to current levels. The reduction in MBS rebates is a direct saving for the government.

The co-payment will also generate savings by acting as a deterrent for GP use. The rationale is that if people have to pay, they will only go to the GP if they really need to. Fewer visits to GPs mean less expenditure on the MBS.

The co-payment proposal has been widely criticised by many in the health sector because out-of-pocket costs in Australia are already relatively high by world standards, and there are concerns that increasing them further will:

reduce necessary use of GP visits (for preventive services such as immunisations, for instance, or cancer screening), and

be an unfair burden on people with lower incomes, who also tend to be in poorer health and are most likely to defer visits to the GP because of cost.

These concerns are justified based on international evidence where co-payments for health care have already been trialled (see for example here and here).

International bodies, such as the World Health Organization and OECD, are also critical of the over-reliance on co-payments as a means of financing health care because they are a relatively blunt instrument for controlling costs, and exacerbate inequalities.

There is little reason to believe that the impact of co-payments will be any different here, which means that the most vulnerable in our society will bear the brunt of this short-term savings initiative.

Co-payments for Pharmaceutical Benefits Scheme (PBS) medicines

Philip Clarke, Professor of Public Health at Melbourne University

In regard to pharmaceuticals, the main change has been the adoption of the recommendation of the Commission of Audit to raise the patient contribution for general patients by $5 (from $37.70 to $42.70) and for concessional patients by $0.80 (from $6.10 to $6.90) in 2015.

They will also raise the level of the safety net at which these contributions are reduced. All these changes will deliver savings of $1.3 billion over four years.

As I argued in my recent article for The Conversation, general co-payments are already quite high by world standards and these are at a level that may discourage use of beneficial medications. They also have the potential to increase downstream costs, for instance, through increased hospitalisations.

What the budget has not taken up is the Commission of Audit report recommendations on reducing the cost of generic drugs and other pricing anomalies. For example, we are current paying more than $1 extra per tablet to add aspirin to the drug clopidogrel.

Forgoing these savings here will be costly as more than $1 billion each year is being spent relative to other countries, such as England and New Zealand, which have more efficient health-care systems. In these circumstances, it’s hard to understand why the government has not tried to tackle this waste, particularly as they have budgeted for an additional $380 million over four years to fund the listing of a range of new drugs.

Clearly, it is consumers, particularly those with chronic diseases, rather than the pharmaceutical industry or pharmacists that will feel the pain from these budget measures.

Preventative health

Mike Daube, Professor of Public Health Policy at Curtin University

This is a distressing budget for anyone concerned for the community’s health. Among massive health system cuts and increased personal health costs, the once-modest funding for prevention has become almost invisible.

The loss of the National Partnership Agreement for public health will mean cuts to important programs around the country dealing with obesity, cancer prevention, diabetes and other conditions that result in massive costs to the health system.

The Australian National Preventive Health Agency and Australian Institute of Health and Welfare are gone.

It looks as though even new funding for medical research (and note – “medical research”, not “health and medical research”) seems to have been taken from prevention funding.

Increased health-care costs for individuals will discourage people from seeking medical help - resulting in more preventable and expensive health problems.

There are two positives: it is a huge relief that tobacco media campaigns will continue – we desperately need those to complement tobacco tax increases and plain packaging.

And the commitment to an expanded bowel cancer-screening program is also welcome.

But those apart, it’s a dark day for Australia’s health and health services, and especially for prevention. Nobody can doubt our health services and future health are the big losers. The crazy part of all this is that it’s preventive programs that ultimately save the system money.

Medicare Locals

Fran Baum and Sara Javanparast, Southgate Institute for Health, Society & Equity at Flinders University

The cuts to the Medicare Local program proposed the Hovarth Review released yesterday have been confirmed in tonight’s budget. Medicare Locals will be replaced by Primary Health Networks, which will be set up through open tender and encouraged to partner with private health insurers – a major policy change.

This is a retrograde step for the Australian health system.

Sixty-one Medicare Locals were introduced by the Gillard Labor government and progressively established by mid-2012. Since then, they have been conducting needs assessments and devising plans designed to improve locally provided primary health care services. These services include GPs, mental health, physiotherapy, speech pathology, podiatry and community nursing.

Most Medicare Locals have been planning and implementing after-hours care plans, mental health, Aboriginal health, e-health, and aged care programs. Some have also addressed social determinants of health and community capacity-building strategies.

Medicare Locals were established to deal with the symptoms of a fragmented system that offers an uncoordinated patchwork of service plagued by cost-shifting battles between federal and state governments. It’s too early to have made a definitive judgement about their success.

The new Primary Health Networks will be much larger, clinically focused, and there will be a significant period of inactivity while they’re being set up. They seem to have no mandate for health promotion or disease prevention even though these are very important.

This structural change risks losing the investment and work that has been conducted and reduces the chance that we will have a more efficient and effective disease prevention primary health care sector that can help stem the tsunami of demand for expensive hospital services.