Fact check: Is the Government spending record amounts on health and hospitals?

Updated

The claim

With five by-elections slated for July 28, the Coalition has been spruiking its achievements and vision for the country, including freshly legislated personal income tax cuts.

Replying to a suggestion that voters may prefer higher hospital and education funding over tax cuts, Prime Minister Malcolm Turnbull told ABC listeners:

"We are spending record amounts on hospitals, we are spending record amounts on health."

Is he correct?

RMIT ABC Fact Check investigates.

The verdict

Mr Turnbull's claim is a fair call.

Spending on health was higher in 2016-17 than in any other year since at least 1985-86.

The final budget outcome is not yet available for 2017-18, but on the most recent estimate spending on health was higher again.

However, that year's health funding was boosted by a number of one-off items in the budget, including nearly $1 billion in retrospective adjustments or top-ups for underspending on public hospitals in previous years, chiefly in 2015-16.

Then, in 2018-19, the financial year now underway, the most recent estimate shows health spending will decrease slightly from the previous year — though it will drop by less than the 2017-18 top-up amount.

Looking at this term of office overall, spending in each of the three years on health is or is estimated to be higher than the previous record set in 2015-16. This is also the case when measured in spending per person.

The picture is similar for public hospitals: higher spending in both 2016-17 and 2017-18 — including the retrospective adjustment — and then a dip forecast for 2018-19. Again, this is also the case when measured in spending per person.

However, the later numbers are only estimates and, as the adjustment in 2017-18 shows, they are open to change.

One expert told Fact Check that the budget figures might be underestimates, and noted that spending on Medicare and the Pharmaceutical Benefits Scheme is not under the Government's control, but depends on patient demand.

Taking into account differences in how the various data sources report spending, Mr Turnbull can justifiably say federal spending on both health and hospitals was expected to reach a fresh peak around the time he made the claim.

But while that sounds impressive, "record spending" is a claim most governments could make. That's because funding almost always increases from the previous year.

In fact, between 1985-86 and 2015-16, total health funding went backwards only once — or, in per capita terms, just four times.

Between 1989-90 and 2015-16, total spending on hospitals by the Commonwealth decreased six times, or eight times on a per capita basis.

Of these, the two largest decreases (2009-10 and 2012-13) came immediately after the largest relative increases.

Federal spending on health

The Federal Government contributes to national health spending in a variety of ways.

The 2018 federal budget said health spending includes "medical services that are funded through Medicare; payments to the states and territories to deliver essential health services, including public hospitals; the Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes; the private health insurance rebate; Aboriginal and Torres Strait Islander health programs; mental health services; and health workforce initiatives".

Experts told Fact Check that reliable and consistent historical data on national health spending is produced by the Australian Institute of Health and Welfare, whose latest time series covers three decades to 2015-16.

For the years since, they recommended figures from the federal budget.

The budget's figures differ slightly from the health institute's in how certain federal expenses, such as pharmaceuticals, are recorded.

However, a spokesman for the institute told Fact Check it considered the two sets of numbers to be reasonably close.

Spending on hospitals

Producing a consistent time series for federal spending on hospitals is less straightforward.

Funding for public hospitals is shared by the Commonwealth, state and territory governments. Some hospital services for non-admitted patients are also covered by Medicare, which the Commonwealth funds.

The Federal Government also pays for a portion of some private hospital services through Medicare and the private health insurance rebate.

Dr Stephen Duckett, the Grattan Institute's health director and former Secretary for the Department of Health, explained that the budget papers do not directly identify how much is spent on private hospitals.

For this reason, Fact Check has assessed Mr Turnbull's claim about hospital spending on the basis of funding for public hospitals.

The budget papers outline two categories for this — "assistance to the states for public hospitals" and "hospital services", which mostly reflects payments for veterans' hospital services.

Budget portfolio statements for the Department of Veterans' Affairs show what portion of "hospital services" is allocated to public hospitals.

The health institute's data also isolates federal spending on public hospitals, paid through grants to the states or by the Department of Veterans Affairs.

Unlike the budget's "assistance to the states for public hospitals", the institute's "grants to the states" category includes funding for short-term projects, so the two sets of figures are not directly comparable.

However, Fact Check considers the two sets of figures to be a reasonable basis for producing a time series to assess Mr Turnbull's claim.

When did records begin?

Mr Turnbull spoke of "record" spending.

Fact Check has assessed his claim on the basis of the health institute's latest time series, which stretches back to 1985-86.

Dr Duckett said it was "completely inconceivable" that federal spending on health would have been higher before this period.

For hospitals, Fact Check has relied on the institute's data back to 1989-90. Earlier years have been excluded because the data is not comparable with the categories for hospital spending in the budget.

What period does 'we are spending' relate to?

Mr Turnbull also used the expression "we are spending".

Fact Check takes this to mean spending during this term of office, beginning with the re-election of the Turnbull Government on July 2, 2016 and running to the last possible date for the next election, May 18, 2019.

Figures for actual spending in 2016-17 are available in the final budget outcome. Outcomes for the 2017-18 financial year are likely to be published in September 2018.

The May 2018 budget contains estimates for 2017-18 and proposed spending for the current financial year

Adjusting for inflation and population

Both Dr Duckett and health economist Peter Sivey, an associate professor with RMIT University, said that, in assessing Mr Turnbull's claim, it would be sensible take into account inflation and population growth.

The health institute adjusts its spending figures for the effects of inflation using its own "total health price index", which is specific to prices in the health sector, rather than the consumer price index commonly used for general inflation across the economy.

For hospital figures, it uses an index for government spending on hospitals and nursing homes produced by the Australian Bureau of Statistics.

When it comes to the budget figures, Fact Check has applied these same indexes, using five-year and 10-year historical averages.

In the case of health spending, this is a simplified calculation using the headline inflation rate rather than the component rates used by the institute.

The hospital rates for 2016-17 were provided to Fact Check by the ABS.

Fact Check has also calculated the average spending per person using the ABS's December population estimates for the years 1985-86 to 2017-18 and the budget's own population forecasts for 2018-19.

Finally, Fact Check has excluded capital expenditure from the health institute's figures. The institute defines this as expenditure on large-scale fixed assets (for example, new buildings and equipment with a useful life extending over a number of years).

This category is not included in the budget's "expenses by function" tables, which contain the clearest numbers relevant to Mr Turnbull's claim.

ANU's Professor Andrew Podger, also a former secretary of the Department of Health, said that capital expenditure "tends to jump about a little bit more" than other expenditure.

And Dr Duckett said excluding it would make no material difference to rates of overall spending.

The historical picture

The institute's inflation-adjusted figures show that total health spending rose fairly steadily to 2015-16, though there was a noticeable drop in 2012-13.

In per capita terms, it also peaked in 2015-16, but spending for that year was only $21 higher per person than it was in 2011-12.

The second chart shows that hospital spending, as defined earlier, has been more volatile than health but was also higher in 2015-16 than in any previous year.

That remains the case when the figures are converted to per person spending.

So for Mr Turnbull to claim his record, he only needs spending to have increased since 2015-16.

The latest health data

For the years since 2015-16, Fact Check has used budget figures and applied the total health price index to remove the effects of inflation, using five-year and 10-year average rates.

The results show that total federal spending on health peaks in 2017-18 before dropping slightly in 2018-19.

Depending on the rate used, this drop is either $240 million or $420 million (in 2015-16 dollars) — a decrease of roughly 0.3 or 0.6 per cent.

In per capita terms, spending also peaks in 2017-18 at $3,017 per person before dropping back to $2,959 the next year, assuming the lower rate inflation rate.

The drop, however, can be partly attributed to a $774.6 million "adjustment" paid to the states in 2017-18, which the budget says related to hospital services "provided in previous years".

An announcement in April 2018 by Health Minister Greg Hunt indicated that the majority of this could be attributed to 2015-16.

The 2018 budget also included a $189 million GST top-up payment for WA hospital infrastructure in 2017-18.

According to the budget, health expenditure growth has also been partially reduced in 2018-19 due to "improved payment administration" for high-cost medicines in the Pharmaceutical Benefits Scheme (PBS).

It says the change has also reduced the revenue the Government reaps from the scheme, so the net "government investment" in the PBS is unchanged.

It also estimates that — adjusted for inflation using the economy-wide consumer price index — health spending would increase by an estimated 0.4 per cent from 2018-19 to 2021-22.

And if the impact of the PBS change were removed, the budget says, "expenses for the health function are estimated to increase by 2.4 per cent in real terms from 2018-19 to 2021-22".

Dr Sivey cautioned that the "dip" over the last two years is based on budget figures "that may be underestimates".



The latest hospital data

Fact Check has also used the 2018-19 budget for recent estimates of public hospital funding.

Inflation-adjusted, the data shows total public hospital funding increases year-on-year to 2017-18.

Depending on the inflation rate used, it then drops by $2 million (0.01 per cent) or rises by $33 million (0.16 per cent), in 2015-16 dollars.

Either way, in per capita terms it amounts to a decrease — dropping from $827 per person in 2017-18 to $815 per person the next year, assuming the lower inflation rate.

However, the 2017-18 figures include the $774.6 million back-payment for services in previous years.

No surprises

Dr Sivey told Fact Check that governments will often claim record funding "because it's almost always true" that spending is higher than in the past.

So although he said Mr Turnbull's claim was most likely correct, the question is "whether that claim is a very meaningful thing to say".

Dr Sivey also pointed out that Medicare and PBS expenditure is not under the Government's control: "It depends how many times people go to the doctor."

Dr Duckett said health funding "will inevitably be record spending if it's keeping pace with need".

Data from the Grattan Institute shows that demand for hospital services is outrunning population growth — by an average of roughly 0.5 per cent per year, or 5.8 per cent over the decade to 2017 — as Australia's population ages.

Dr Duckett pointed out that people aged over 85, a growing population, "have substantially more health service use" than younger populations.

And Professor Podger told Fact Check he would "be very surprised" if health funding wasn't at record levels.

Indeed, the charts below reveal that governments over the three decades to 2015-16 could have claimed "record" health funding in every year bar 2012-13.

Hospital spending has hit a record in all but six years of the series (1995-96, 1996-97, 2003-04, 2005-06, 2009-10 and 2012-13).

The two largest decreases (2009-10 and 2012-13) came immediately after the largest relative increases.

Principal researcher: David Campbell

factcheck@rmit.edu.au

Sources







Topics: health-policy, health-administration, turnbull-malcolm, liberals, australia

First posted