The health status of many Australians is among the best in the world, however there is ample evidence of gross inequity and inefficiency in our health system, as well as very limited citizen and consumer input into how our health system works.
Substantial inequities in health status exist across different population groups ⎯ most powerfully illustrated by the 17 year life expectancy gap between Indigenous and non Indigenous Australians ⎯ but are also quite apparent on geographical and socio-economic measures. These gaps are due to inequitable access to health services and also to the effects of the social determinants of health – such as poverty, homelessness, violence and illiteracy – often summed up as lack of control over one’s life.
Access to health care services too often reflects what is known as the inverse care law: "those who need the most health services receive the least, and those who need the least receive the most." 
This can be demonstrated by the fact that the combined Medicare and Pharmaceutical Benefits Scheme funding for individuals in large capital cities is 23 per cent more than for those in rural or remote locations. This is despite the evidence that mortality rates for all causes are consistently higher in rural and remote locations. Mortality rates also increase as socio-economic status decreases, but despite this our health system has multiple financial barriers limiting access to services for those of lower socio-economic status.
Our health system is plagued by innefficiency, particularly in regard to the state/federal divide, but also due to the siloed nature of health professionals’ practice and the current funding mechanisms which channel funds through individual providers or specific programs. This leads to duplication and a lack of integration of services, with estimates of the cost of these inefficiencies ranging from $2 to $8 billion yearly. In addition to spending the most money on the least needy, the emphasis on hospital care, rather than primary and preventive care, is increasingly recognised as inefficient.
To redress these inequities access to services will need to be improved, as will the quality and effectiveness of care. Improved clinical co-ordination is needed so people can access the most appropriate service provider for their needs. Integrated planning is necessary so that health service sectors can operate in coordinated and complementary ways that reflect local needs. The accountability of health care providers to local communities must be improved, as must the efficiency of health resource allocation and use. All this must take into account and address the social determinants of health.
The authors propose shifting the focus of the health system to a regional level, where locally determined health data and the input of local communities are used to drive change. It is a proposal for significant structural change which also allows for gradual introduction to allow capacity building, and the retention of the many excellent elements of the current health system. It uses the equitable and evidence based distribution of funds to locally governed entities to address both inequity and inefficiency.
We propose that state and federal health care funds be pooled to address structural and funding barriers to equity, efficiency, and improved health status in the Australian health system, particularly in relation to primary health care.
Our proposal centres on several specific ideas. All Commonwealth, state, and local government health care spending should be allocated to regions of about 200,000-400,000 people on the basis of measured need. The determination of need would require an ongoing independent audit of health status and health spending in regions. A Regional Healthcare Organisation (RHO) would be developed within each region. National benchmarks for general health status, the health status of specific groups, access to health care, standards of social determinants e.g. housing and education, would be established. Within each region a detailed continuous independent audit of health status would be collected and be publicly available to be used as the driver of change within each region.
Across Australia, this would mean the establishment of 50 to 100 RHOs, depending on population distribution. They would be incorporated bodies with a board of management with representation from government appointees, local primary health care agencies and citizens/consumers. Thus, representatives of local government, local GP divisions, area health services or equivalent and community health centres should all be considered. Importantly, there should be sufficient citizen/consumer input to prevent domination of the board by specific interests, and there should be representatives from Aboriginal Controlled Community Health Services (ACCHS).
The RHOs would work with government and an independent auditing organisation to identify regional and intra-regional health needs, service utilisation patterns, and health spending. This information would require constant reassessment to maintain its relevance and would form the basis for the development of proposals for change. It would be publicly available for the purposes of advocacy. The independent body would assess the success of the proposals measured against national benchmarks to encourage optimal performance. The setting of national benchmarks would be either a Federal or combined Federal/State responsibility, and must specifically address the needs of marginalised groups and prioritise health care targets. The Australian Institute of Health and Welfare could fulfil the role of the auditor.
With comprehensive information available regarding the health needs and health status of the local community, the RHO could then develop and implement proposals to address identified inequities and inefficiencies. Incentives to develop and implement proposals would include the following: proposals would attract funding; public disclosure of health needs data and RHO performance would promote accountability; and accurate knowledge of health needs would enable the development of locally relevant proposals. The incremental development of RHO proposals would gradually lead to increased experience and capacity to implement proposals in a manner which suited the region’s needs.
Over time, there would be a progressive increase in the proportion of government funding through RHOs. This would provide poorer RHOs with additional resources to address health needs by purchasing/commissioning the services required. Whilst this strategy would not initially have any impact on the current inequitable distribution of Medicare and PBS funds, the poorer RHOs would have substantial resources available to attract health professionals. This does not preclude an RHO considering patient enrolment, pooling of Medicare/PBS funds, capitation, or other reform ideas.
Direct federal funding would be required to set up and run the RHOs. The amount of funding available would depend on funding already present in the region, compared to its measured health need. RHOs that were already well funded would receive a nominated percentage increase to allow for innovation. Funding available to all other RHOs would be up to the level of the best funded RHO for equal health need but with a loading for lower health status. Any savings from the implementation of proposals would be returned to the administering central authority ie Federal or State or Federal/ State body, and thus be available for further proposals.
This proposal could be implemented on a state by state basis, wherever the State and Federal Governments can work together. Initially, the role of State Governments as a provider of services would change little, but as the RHOs developed, the role of both State and Federal Governments with respect to planning and co-ordination of care would be reduced. However, State Governments would still be a significant service provider, especially of hospital services. In this model, all current providers would continue to deliver services provided they meet the accountability and service requirements of the RHO.
The possibilities for improvement can be seen through the following examples: Regions which currently struggle with a shortage of doctors (and consequent poorer health) would be eligible for extra funding for both underfunding and greater health need. It would use this funding in a manner which suits its needs and the availability of suitable health professionals.
In another region with a lack of aged care beds, the RHO could use its resources to provide the services needed, eliminating the need for elderly people to move. If there is no spare funding but it is also identified that there is unprecedented spending on dental care through the Private Health Insurance rebate, the proposal might be to look firstly at how to improve the spending on aged care, but also on more appropriate spending on dental health for the privately insured, freeing up more money for aged care.
If inadequate housing was seen as an issue, the RHO’s responsibility could be to submit proposals for funding improvements as well as advocating for change, perhaps in combination with other RHOs.
This is a proposal which addresses the widespread problems of our health system at a regional and sub-regional level, using data and regional funding to empower communities to drive change. Over time, this arrangement will lead to more equitable, coordinated, accountable and effective health care system, responsive to all the factors which influence health status.
This proposal is outlined in further detail in a recent submission to the National Health and Hospitals Reform Commission and will be further developed in a paper for the Centre for Policy Development in 2009.
 Hart, J. T. The Inverse Care Law, The Lancet, 27 February 1971.
 Department of Health and Ageing, Annual Report, 2002-03.
 Drummond M, 2003, Costing Constitutional Change: Estimates of Savings in Health, Presentation to Australian Health Care Summit, August, Canberra; Menadue J., Obstacles to Health Reform (2007).
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