Cut waste before cuttings access or quality. Phalinn Ooi/Flickr, CC BY

Health policy debate over the past few months has been held to a $7 ransom. It’s as if the Medicare co-payment has been deified as the solution to all the health system’s ills.

Of course, the $7 co-payment was not the only policy initiative in the budget: there were also proposals to shift other costs to consumers – by increasing the pharmaceutical benefits scheme co-payment – or onto states, by reducing Commonwealth grants. Shifting costs to consumers has got a bad press, and the proposals to do so may not pass the Senate.

But there are other options. Here are seven tips policymakers can follow for better health reform.

1. Don’t panic

Health systems change slowly. Even the bogeyman of an ageing population is occurring slowly. People age by a day every day, so the so-called ageing effect is more like a grey glacier than a silver tsunami.

Sustainability panic will almost inevitably lead to wrong solutions – quick fixes that aren’t fixes at all. Shifting costs is easier than fixing system fundamentals and so it is, unfortunately, what is often advocated and pursued.

2. Change behaviour through incentives

Financial incentives are a powerful way to change health provider behaviour. The introduction of activity-based funding is the stand-out success in making the public hospital system more efficient. Instead of paying hospitals on what they say they do, or on their historic budget, they are now paid on what they actually do: their activity.

Activity-based funding gave hospitals incentives to improve their efficiency. One result was that they started to own the problems of their performance, rather than shifting responsibility back to governments and taxpayers.

But more needs to be done in other areas. For example, fee-for-service payments to medical practitioners may no longer be the best way to reward them to look after someone with a chronic condition. They, too, should be rewarded on their results.

3. Don’t reduce equity

Financial disincentives for consumers may have perverse effects and can reduce equity. This has been the focus of much of the recent debate about the $7 co-payment. We know the co-payment will impact more on the poor, who already pay a larger share of their income on health care.

The introduction of a co-payment may also increase total health system costs, if consumers delay seeing doctors for health conditions that are more expensive to treat later.

4. Use a range of policy instruments

Public policy is about using policy instruments to change the behaviour of individuals, professionals, communities and organisations.

Top-down instruments include provision of new services; financial levers (taxes, incentives, setting up markets); rules, laws, organisational changes and system targets; information provision; rhetoric; and changing values and culture (usually by a combination of the previous five and through education).

Bottom-up approaches focus on consumer empowerment, engagement and choice.

The previous federal government played with organisational changes, creating an alphabet soup of agencies in the health portfolio. The budget has begun a welcome rationalisation of those.

Australia’s system is one of the world’s best on objective criteria. Flickr/Ted Eytan, CC BY-SA

On the other hand, the Rudd-Gillard improved financial incentives when it introduced activity-based funding of hospitals nationally in order to drive efficiency. Because the Commonwealth was to share in the costs as hospital spending grew, this aligned the incentives of the Commonwealth and states to be efficient.

But the budget abolishes that change from 2017 and returns to a formula based on state population and CPI changes, not hospital activity.

Change is more effective if the full range of policy instruments are used, provided they all work in the same direction. New structures and performance indicators should, for example, be reinforced by financial incentives.

5. Cut waste before cutting access or quality

Bob Brook, a doyen of American health policy, and Kathy Lohr famously questioned 30 years ago whether it will be necessary to ration effective care, and the rationing question is still being used as a scare tactic in the policy debate.

Not all care is based on evidence. There is also substantial waste in the health system. Previous Grattan Institute work has showed that a billion dollars could be saved by extracting efficiency savings from hospitals. Further savings could be made by improving workforce utilisation and reducing the excessive prices we pay for pharmaceuticals.

While there is waste in the system, it is surely unethical and unfair to reduce people’s access to necessary services. Waste should be the first target.

6. Use data, not anecdotes

The health system is awash with data, even if much of it is unnecessarily locked up in government computers. Data should be used to inform policy development, and model the effects of new policies. Organisations need to invest in the mindset and skills to use data in policy, and have the mandate to do so.

Although anecdotes help to sell policies, they shouldn’t be the basis of policy development. If they are, they will almost certainly distort policymakers’ perceptions and start them down the wrong paths.

7. Get real

Policymakers need to be realistic about what needs to be done and how long change takes. Sustainability panic leads to a focus on short-term solutions. Health care accounts for almost 10% of GDP – it is a big system. Policy makers should take a long-term strategic approach, planning for the long haul.

This may mean experimenting with changes, piloting them to check that they work as intended. It certainly requires openness to new ways of doing things.

In planning and evaluating changes, though, we must build on what works in the health system. Australia’s system is one of the world’s best on objective criteria. It costs less than the OECD average and the outcomes, in terms of life expectancy, are better than the OECD average.

That doesn’t mean it can’t be improved (see tip six above). But it does mean we shouldn’t throw the baby out with the bath water as we change the system.

This article is based on a talk today to the Consumers Health Forum symposium: Health in a Time of Change.

Stephen Duckett is a consultant to the Independent Hospital Pricing Authority and sits on a number of its committees.