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The Hon Michael Wooldridge
Speech to the Australian Medical Association
May 1996

Introductory Comment: - The Coalition (Liberal and National parties) won power in Australia in early 1996 and set out on a policy of privatising, downsizing, and contracting out the public system to the corporate world. They embraced globalisation as a market concept rather than a human one. Australians once spoke of a global village but this word is no longer part of the globalisation image. We now talk of a global marketplace. In a village the marketplace is where people buy their food and sell the product of their labours. It was never like this!

In this speech Wooldridge, the new minister for health sets out the very plausible sounding way in which the marketplace is to be used to reform health care. Wooldridge is building the infrastructure for a global healthcare marketplace. It is called a level playing field.

Many of Wooldridge's arguments are confronted in the criticism of Graeme Samuel's speech to the world bank. I ask you to note here that the planned "reform" depends on the health of citizens becoming a commodity to be traded for the benefit of others. Some citizens, who have no personal involvement in health care are to profit from the misery of others. It will be acceptable, (soon encouraged) for groups to enter the market with no other purpose than to profit from the misfortune of others.

Wooldridge does not mention corporate involvement but it is clear that this is intended and his subsequent conduct indicates that this is so. For the market system to work the "customer" has to be informed, mentally capable and suspicious. The product must be simple enough to be readily evaluable. Wooldridge is talking about people who are healthy and usually have minor problems.

In practice a large proportion of "customers" do not fit this description readily. The aged and seriously ill are disadvantaged. These are the groups which have suffered most at the hands of the market.

One should also consider the culture which develops in the health care marketplace. There is much about this in these www pages. The USA is the best example but the same patterns of thought are obvious in Australian health care corporations.

David Weedon, president of the AMA introduced the minister. His remarks are strongly critical of the proposed reforms and are also on this www site.

CLICK HERE -- for Dr Weedon's introduction






David Weedon, members of the AMA Federal Council, ladies and gentlemen

Thank you for inviting me to open your national information summit to discuss the ramifications of enhanced competition within the health sector.

It is also something of a nostalgic visit for me to this building, where I commenced my parliamentary career in 1987, and to this dining room, with its lingering aura of Australian political history, and momentous people and events.

Before making some comments of my own, I want to congratulate the AMA for organising today's proceedings.

I particularly want to express my pleasure that we have gathered here representatives of the medical profession the private hospital sector and the private health insurance industry.

I must say that such a convergence bodes well for the future.

It is therefore of great importance that organised exchanges of ideas, like this forum, stimulate fresh dialogue between all those with an interest in the future of effective private health care, regardless of their basic sphere of interest.

I want to say a few things this morning, to stimulate your discussions during the day and hopefully, in a friendly way, to challenge your thinking.

Most of all, I want to suggest that all of us, whether we be medical professionals, administrators, funders or policy-makers, that we are, whether we like it or not, members of an industry. The health care industry.

The health sector is a service industry in which some 8.5 per cent of our Gross Domestic Product - almost 10 per cent of our annual income - is spent each year. The annual combined Commonwealth, State and private investment in health care and health care resources is in the region of $40 billion.

This health care industry has been growing steadily in value in the past twenty years, as the economy as a whole has been going through a major restructuring.

One fundamental of micro-economic reform has been the application of competition principles to industry including those where public sector funding and provision has been significant, as it is in the health sector. These principles are based upon the creation of the 'level playing field', but more importantly on an approach which uses contestability as a key precept.

By this I mean that decisions about the use of resources are made in the light of independent bids for the provision of goods or services made by players who are not in any way in collusion.

This requires strong and consistent application of trade practices and competition law - and the associated policy framework, something to which the Coalition in government is committed strongly. The basis for trade practices law is summed up by a quotation from Adam Smith: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices".

Is health different? Should it be set apart?

I would suggest, quite frankly, that health care cannot be set apart, and I do so by defining competition as being about three basic things: choice, quality and cost.

Choice because the end beneficiary of competition is the consumer, who is able to make a choice between the widest range of products meeting his or her needs.

Quality, because it is in the interest of the individuals or groups competing for the consumer's custom to ensure that the product or service that they offer is of the best possible quality and therefore likely to be most attractive to that consumer.

Cost, because the other crucial determinant of a consumer's decision is the impact of that decision on his or her pocket.

That the consumer in health care is not just the patient directly receiving the service is something of which I am very conscious. As the custodian of the MBS and PBS budgets, and public hospital funding grants provided to the States, I under the Medicare agreements expect value for the taxpayer dollar in health.

Similarly, private financiers, be they health funds or the self-insured, just as rightly expect value for their own investments.

But I want to say also that, since 2 March, there is a new Federal government.

And it is a government which believes that it is overwhelmingly getting a top-quality product in return for its taxpayer-subsidised investment.

I value very highly the commitment of providers, be they practitioners or hospitals, to ensuring that they deliver to their patients - their consumer market - the best possible product.

But, as I have hinted, the market in health care is not a pure one. Government and health fund dollars overwhelmingly drive both the supply of services, and the volume of the demands for those services.

Around the consumer-based outlook I have outlined, and bearing in mind that your time today is very valuable, I mainly want to focus on one area of concern in health care that, in many ways, serves as the defining point of how differently the two sides of Australian politics approach the health care competition points of choice, quality, and cost.

I am, of course, referring to the passage and implementation of certain legislation in the dying days of the Keating government - the Health Legislation (Private Health Insurance Reform) Amendment Act 1995.

The Lawrence legislation

Nothing has done more in recent years to polarise opinions in the health care sector than Carmen Lawrence's 1995 attempt to "reform" the provision of private health insurance.

I use the word "reform" advisedly.

As you know, the Coalition in opposition decided, after genuine attempts to make the legislation more workable through 42 amendments to Labor's Bill, to oppose its passage through the Parliament.

We did so not because of the intent of the legislation to make private health insurance more attractive to consumers. Nobody with an interest in private health care could take issue with this broad intention.

Our fundamental problem was that, in attempting to make private health insurance more attractive by eliminating out of pocket costs, Lawrence created an anti-competitive environment in which the best bargaining position was placed with private health insurers when it came to negotiating "purchaser-provider agreements" with hospitals and medical practitioners.

My fundamental position on the question of purchaser-provider agreements, something which has not endeared me to my former profession, is that there is a place for voluntary agreements between insurers and service providers, as long as these are voluntarily arrived at on a fair basis.

But I am, and have been ever since I became shadow Health Minister in January 1995 and inherited the carriage of this legislation, absolutely convinced that the Lawrence's legislation in its current form does not reflect this Liberal principle.

In my view, it fails utterly to strike a balance between the competing yet complementary interests of health insurers carrying a manageable cost burden on the one hand, and the freedom of choice of treatment for patients, hospitals and doctors on the other.

When the legislation scrambled through the Senate a year ago, with Democrat support, I predicted that it would fall in a heap because doctors would not accept the contracts for their services offered by the health funds.

After I October last year, I was quickly proven correct in my prediction. Depending on who you talk to, the number of doctors who have accepted a contract range from zero to a handful.

And this is in spite of the incentive to concluding contracts provided by the default benefit provisions of the legislation.

Indeed, my understanding is that, while the penetration of hospital purchaser-provider agreements has been widespread, there is considerable dissatisfaction with the nature of the contracting process, the complexity of the agreements and the extent of the associated administrative requirements on hospitals.

What is more, private health insurance premiums have continued to rise to generate the reserves needed to offer the most attractive contracts possible. The very objective, better private health insurance cover at lower cost, that Lawrence advocated in 1994 and 1995, has thus, not come to pass since last October.

This has only been reinforced by the continuing decline in the proportion of Australian's covered by private health insurance - which the Government estimates will be as low as 32 per cent when our targeted membership incentives commence one year from now.

But in one respect Lawrence did succeed, and that success was political.

She succeeded in driving a wedge between who should be natural allies - private health insurers and private health providers.

Only Lawrence's departure from her ministerial office, and the coming into office of the new Howard government has, I think, allowed the feelers of dialogue between these parties to be extended again.

The review of the legislation

The change of government has, of course, focused fresh attention on Lawrence's legislation, and what the new Government's position is in relation to that legislation.

I want to say something of that here.

First of all, and as I have just outlined, the legislation has not been successful. It cannot continue in its current form.

I now have the opportunity to address our concerns of Opposition days, and I intend to take that opportunity of reshaping the legislation into a framework which truly recognises freedom of choice for all parties - doctors, hospitals, consumers and health funds.

But first, given the political reality that the Senate will, with its present composition, not allow the Lawrence legislation to be repealed entirely, I have to recommend to my Cabinet colleagues how we can genuinely reform it to reflect this objective.

To do this, the Government's position can be reinforced by strong independent evidence and analysis of how hen legislation has been working in practice.

No doubt most of you are aware that, when passing the legislation last May, the Senate resolved to review its operation after twelve months. That review is now due, and I intend to ask, on behalf of the Government, that it proceed.

The review will be undertaken by the Senate Community Affairs Legislation Committee, which conducted extensive hearings into the legislation during its passage.

I will be consulting with the Opposition and, especially, the minor parties in the Senate on the terms of reference for the review, and I hope to announce these very soon. It could be expected, however, that the Government will invite that the Senate Committee:

Once the terms of reference have been finalised, I would hope that the Committee can consider its reference to report to the Parliament in time for the Budget sitting of the Parliament.

The calling of this review will give all parties with an interest in the future of the Lawrence legislation to have their concerns heard, and to put forward evidence supporting those concerns.

I urge you, and your colleagues in the various sectors of private sector health care, to prepare submissions to the Committee.

After all, it's your collective future we are examining, whether you be a consumer, a provider, or an insurer, as well as the health care future for all Australians.

If, as I expect, the recommendations of the Committee are for legislative change, I would like to be in a position to take concrete proposals to Cabinet for introduction into the Parliament as soon as possible after that.

in so doing, I will consult further with the range of interests concerned to ensure that the Government acts with the best interests of the Australian people at heart.

Freedom of clinical choice

The other aspect of the Lawrence legislation, which has generated often heated comment and debate, is the issue of the extent to which it allows matters other than best patient care to influence care decisions.

Or, putting it another way, does the legislation open the door to what is known in the United States as "managed care" the determination by a non-medical care manage, or Health Maintenance Organisation, to control the treatment given to a patient on the basis of price and/or contracted supplier of that service?

Clearly, under the American managed care model, the operation of financial management structures can force a lowest common denominator on patients and care providers, so that the chief determinant of the care a patient receives is its cost to the funder, and not the clinical needs of the patient.

I want to state here and now that I reject this model of "managed care".

But I am also prepared, in all fairness, to question the contention that Australian private health funds are trying to impose "managed care" on Australian practitioners.

Let me say very clearly that I am the strongest defender of the fundamental notion that the best medicine is done when the individual practitioner makes clinical decisions about care with his or her patients, and that the privity of this doctor-patient treatment relationship is of the highest importance.

The determination of what is appropriate is, and always should be, what the patient needs - within the bounds of accepted and demonstrated good clinical practice.

But I also believe that this right of clinical freedom is a privilege extended by society to its healers of the sick, to be exercised with prudence by the doctors and hospitals who are its custodians.

Practitioners thus should - and do - bear in mind that the financial cost of their decisions and actions can be high and, in these days of high-tech medicine very high indeed. At the end of that day someone has to pay the bills. As a society, we therefore need always to be striving to strike a balance between clinical needs and the associated usage of high-cost technology and what the system - ultimately the consumers and patients - can afford. Unbridled demands on the health dollar by patients or doctors cannot be sustained.

But I do believe that the overwhelming majority of care providers well and truly understand this.

They understand this because they realise that they are providers of services to consumers, and that they practise their profession with the special trust of the community in their professional and clinical judgments.

Having said this, however, providers, funders and planners will not serve the Australian people well if competition in the health field is only about competition for the lowest price. In this area, almost above all others, we can use competition as a means of maintaining and improving quality health care.

Yet we are not as good as we should be at defining and measuring what constitutes good quality health care. It is something that we all think we know when we see it, but there needs to be a good deal of effort go in over the next little while to establish reliable and valid indicators of quality. As this is done, I think we can all feel more comfortable about the ideas of contracting on a contestable basis - that is, applying competition policy to the health sector.

Workforce issues

Before I finish, I would also like to say something about the supply side of health care competition, in particular workforce issues.

In relation to the impact anti-competition policy may have on the medical workforce, I wish to reiterate today what I said in my address to the AMA's Workforce 2000 Summit last year.

Briefly, the profession must respond to issues such as problems with the supply and distribution of the workforce as well as emerging issues such as consumer-focussed health care and anti-competition reform. If it does not, someone or something else will make the hard decisions for the profession - and possibly in ways which will probably not be to the profession's liking.

Little has changed, however, since I addressed the AMA workforce summit.

We have recently had, though, a new report from the Australian Medical Workforce Advisory Committee (AMWAC)- "Australian Medical Workforce Benchmarks". This report found that even if medical school intakes are reduced to around 1000 per annum and overseas doctor entrants from all sources are kept at 200 per annum we will still have a general oversupply of doctors in this country beyond the year 2015 .

And that estimate even factors in a reduction in the number of average hours worked by doctors each week.

These findings clearly substantiate the view that there is major oversupply of medical workforce now and that it is not to be quickly remedied.

This has clear implications for the costs of health care - particular in terms of continued growth in demands for MBS-subsidised services.

Then there is the compounding problem of the distribution of that workforce.

On this point, the AMWAC benchmarking report concluded that the general practice workforce is in "considerable oversupply" in urban areas and undersupplied in rural areas.

It has estimated the GP over-supply as 4,400 and the rural undersupply as approximately 500. These estimates are of even more concern when one takes into account that they are based on lower growth parameters than currently apply.

Any discussion about the medical workforce would, however, not be complete without touching on specialist numbers.

Those present at the AMA workforce summit might recall my comments on this point.

I am pleased, therefore, to see that there has since been recognition by the profession of the need for more trainees in areas such as orthopaedics and anaesthesia and that a plan has been accepted to increase the number of trainees. That is a welcome start.

But much more work will be needed before the community can be assured that not only do we have one of the highest standards of specialist training in the world but also we have enough of the right sort of places to meet adequately the treatment needs of the Australian people.

I am sure that Australians would expect, for example, that their needs for surgical care are not frustrated by artificial constraints on the number of surgeons who can be trained.

There are two points here.

First, governments must be prepared to provide an adequate number of training positions. Second, it means that the profession must be prepared to select adequate numbers of people for specialist training and give them sufficient training to ensure that they have a reasonable chance of passing their specialist exams.

I am not saying that standards should drop - far from it - but I do not believe that in a country of Australia's standing we cannot manage to train as many surgeons, or anaesthetists, or dermatologists, as we need .

Professor Fels may have more to say later today on the issue of specialist colleges and possible anti-competitive practices.

I understand that the Australian Consumer and Competition Commission has already communicated with many of the specialist colleges and associations in an attempt to ascertain what their training and entry procedures are. Given this, and given my past comments on the problems and challenges facing the profession, I cannot emphasise enough that it is in the Colleges' best interests to review their procedures regarding training and entry requirements to ensure they comply with the Trade Practices Act.

As I said at the Workforce 2000 Summit, I strongly believe that it is preferable if the medical profession itself responds to issues of workforce planning and training and entry procedures, with the Government's assistance if required. But if such a response does not take place, or if it does not occur quickly enough, someone or something else will make the hard decisions for you - and it will be hard for the profession, or affected specialties within the profession, to complain about how they are treated.

The Government wants to work with the profession in finding solutions. In return, the profession must

understand that reform and change cannot be ignored - it is here - there will be more of it - and that it must act to ensure it remains relevant and responsive to the changing health needs and expectations of the Australian people.

This is vastly more preferable to outside intervention.

I therefore want, as Minister for Health, to discuss these issues with the Colleges in the next little while.


Competition in health care is a fact of life for all of us.

The issues I have discussed go back to the basic point I made at the outset - consumers want choice, quality and cost-effective care from their health system, both public and private.

This, and the realisation that there is not a bottomless bucket of resources at hand to underwrite growth in both supply and demand, means that we all - providers, funders and planners - must become more sophisticated and responsive to change and consumer need than ever before.

We need to welcome the opportunities of competition, not retreat from them. In other words, we need to bring out the best of the public and private sectors - cherishing that mix or provision which is the unique strength of the Australian health care system, supported by the outstanding qualities of the people and institutions which underpin it.

In conclusion, the health sector is subject to the Chinese curse of living in interesting times. I hope that, in your discussions today, you are able to focus on the future and how competition may help us all to control it.

I wish you well in your deliberations, and I am pleased to declare today's proceedings open.

CLICK HERE -- for Dr Weedon, the AMA president's introduction to this speech


AMA Summit Proceedings :::: Competition in Health: "A Brave New World"
A 1 Day National Information Briefing on The Trade Practices Act & Competition in Health Friday 10 May 1996

Addendum Nov 20001

I remind you of Dr. Wooldridge's commitment to a "level playing field", to contestability, and health services "competing for the consumer's custom". He claimed we would not get US style managed care where the consumer is powerless. In 2000 Wooldridge's vision is shown for what it really is - care managed for corporate interests. The following extracts are from articles describing the business prospects for Mayne Nicklesss Australia's largest hospital corporation in 2000 are revealing.

The patients and their doctors no longer "count". Their health care will be decided by the big business groups based on the profits which can be squeezed from the system for shareholders by treating or not treating them. Mayne Nickless new MD Peter Smedley has also based his past business practices on the principle that someone owns the customers and the owners are the key to profits - a very different market theory. Smedley sees doctors as controlling customers and he wants them.

The solution the market wants is for the provider of services to buy the health insurer so that the company will take the money from the government and citizens and then pay itself. The government, the ACCC and Dr. Wooldridge have all been silent about these plans. This makes a mockery of competition policy - but then "rationalisation" is a suitably meaningless word to make it all sound legitimate.

Standards of care and humanitarianism are not commercial considerations. This is the problem with the US system, the problem which alarmed Ron Williams in 1992 and the problem, which so many of us have been warning about.

But a typical private hospital has just five or six customers that count -State and federal government instrumentalities, and the big five health insurance funds - who are committed to paying less for more.

And due to an excess of private hospital beds, those big and powerful customers can switch between suppliers on a whim. Unlike funds management, where a strong brand name and customer loyalty can produce fat margins, private hospitals are a commodity business, with margins to match.
New Surgeon's Mayne Task, Australian Financial Review 8 July 2000

Their problem is that the funds own the customers.
Health funds own the customers and the hospital owners are commodity suppliers who are forced to increase spending to keep their doctor base but are reliant on the funds to pay for their services.

This structural imbalance explains why many tip Mayne Nickless to buy its favourite health fund, Axa Health, or even Medibank Private to move the rationalisation process forward.
Battle For Medi-money Hots Up, Australian Financial Review 8 August 2000

This remains the key for Smedley, turning his increased market power into winning a better share of the Government-subsidised health-fund loot and no-one has yet found the winning formula.

The key is to control patients through their general practitioners.
Mayne Poised To Boost Margins, Australian Financial Review 11/21/2000

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This page created October 2000 by Michael Wynne
Last modified Nov 2001