8. Juggling the players: working with external stakeholders

Table 8.1 The 1998–2003 Australian Health Care Agreements

During 1997, health ministers supported by AHMAC met on several occasions to consider the content of the next five-year agreements, particularly the opportunity to progress reform in service delivery (such as coordinated care) as well as the need to address the weaknesses of the then agreements such as the scope for cost shifting, the failure to address declining private health insurance membership and poor reporting arrangements on outputs. The ministers consciously deferred consideration of the money for some time, knowing that as soon as this was on the table the discussion would be quickly taken over by the central ministers and their departments and moved away from health service delivery issues.

The approach developed during 1997 was to move to outputs-based agreements setting firm targets for increasing acute-care episodes in public hospitals. The proposed agreements were also to provide opportunities to review boundary problems such as support for patients being discharged, GP-type services in hospital emergency departments and care of nursing home-type patients, in part to limit cost shifting. This reform agenda was developed through the Australian Health Ministers’ Council, with secretaries playing the lead role. Late in 1997, however, it was clear that these constructive discussions could not continue further as it was time to address the money.

Minister Wooldridge put his proposal for the new agreements to cabinet in late 1997. The department, with my close involvement, developed the proposal. We had just had two of the toughest budgets ever in the portfolio and knew we could not expect generous treatment, but it was also evident to the minister and the department that the Commonwealth had to put forward a financial proposal that would encourage the states to pursue the reform agenda we had been developing. The proposal involved an outputs-based agreement with increasing numbers of outputs reflecting not only population and ageing but increasing demand and improving health technology. A hospitals outputs price index was also proposed. Cabinet agreed to Wooldridge’s proposed offer after considerable debate and opposition from key central agencies. Looking back now, I am pleased to say that the offer was more generous, and more consistent with a genuine health reform agenda, than either the 1993 or the 2003 agreements. Given the context of the tough budgets we had, we were pleasantly surprised by the minister’s success.

The states’ reaction did not reflect our optimism, even though privately several of the most senior state directors-general told me they were surprised by the generosity of the offer. The Premier of Victoria, Jeff Kennett, led the charge, claiming a $1.5 billion shortfall a year—a figure that no-one could explain. Wooldridge attempted to split the states by offering any state or territory that signed up by a particular date extra one-off funding plus access to their fair share of any additional money should the Commonwealth later vary its offer. The Liberal Government of the Australian Capital Territory (under Kate Carnell, the former Health Minister) quickly took this up, to the great advantage of the territory, followed much later by Queensland. I handled some of these negotiations personally, but the Queensland one was effectively signed off by the head of the Premier’s department and the head of the Department of PM&C, the two health secretaries sitting in to ensure the details were correct and understood.

In the first half of 1998 there were several premiers’ conferences at which the healthcare agreements were top of the agenda. Kennett led walkouts on two occasions. In this period, I had many conversations with my state and territory counterparts to gauge the real gap between the offer and what might be acceptable to their governments. My assessment from these was that the gap was less than $300 million a year and probably about $200 million a year, though no specific suggestion was put to me. After telling the minister, I spoke to Ted Evans, Secretary to the Treasury, before one of the premiers’ conferences and he indicated that, in the general context of the revenue-sharing agreements, such an extra amount should be within the bounds of acceptability, and he undertook to raise the possibility. There was another walkout when the Treasurer refused to vary the Commonwealth offer.

I was then contacted again by my Victorian counterpart, Warren McCann, who told me he was acting with the Premier’s knowledge: could we meet to test a compromise option. We met over lunch at a restaurant in Manuka and hammered out a position each of us would take back to our principals. We narrowed the difference to between $100 and $200 million a year, after taking into account the generosity of the Commonwealth’s Gold Card initiative for veterans. I passed this on to Wooldridge, who was liaising with the Prime Minister and his office, and to the Treasury. The reaction was positive. McCann rang to say the Premier was on side.

Nothing happened for two months other than continued public haranguing. Then the Prime Minister announced an enhanced offer that Kennett and the other premiers accepted. Perhaps it was mere coincidence, as no doubt there had been parallel private political discussions, but the final agreement was in line with the deal brokered by myself and my Victorian counterpart.

I then arranged an urgent meeting of AHMAC at Melbourne Airport to finalise the agreements, pulling together the content developed in 1997 and the financial aspects now settled. I rang Wooldridge before the meeting to say that aspects of the output agreements and reform measures were not yet tied down and asked how tough an approach I should take. He made it clear that no-one would welcome another public spat: politically, the deal was now done. I led the discussion, proposing to the surprise of my colleagues agreements that reflected the basic structure and wording the states had suggested previously, which emphasised cooperation and shared aspirations, but then worked into it all our requirements for output targets and reporting, and an agenda for examining boundary issues that were disrupting good patient care (we called this ‘measure and share’). The wording was agreed and the agreements were subsequently signed.

Table 8.2 AHCA indexation: intellectual logic versus the immediate bottom line

The AHCAs provided for a review process in the event a new hospital outputs price index was not developed in time and the states did not accept the Commonwealth’s default position. This situation emerged by 2000.

I suggested some names for the independent reviewer, two of them being put to the states by the Commonwealth: the states agreed to Ian Castles, the former Statistician and previously Secretary of Finance. Castles conducted a typically intellectually robust study, noting in the absence of a hospitals output price index that there was nonetheless an economy-wide output index, the consumer price index (CPI). The CPI is in essence an average output price index and, because hospitals like other service industries are likely to have lower productivity than capital-intensive industries, a suitable output price index for hospitals might be CPI plus a small factor, say 0.5 per cent.

This was way higher than the Commonwealth’s default figure built into the forward estimates at the time (the case for a lower figure was the evident variation in productivity across jurisdictions and the room for a concerted improvement in efficiency). I was in strife, particularly with the PMO: I had put the review mechanism in the agreements (albeit consistently with the cabinet decision taken in late 1997) and I had advised the appointment of Castles, and he had come up with a figure that would cost the Commonwealth hundreds of millions of dollars.

Frankly, I thought Castles’ basic analysis was impeccable even if he had ignored the opportunity for a one-off efficiency gain.

I spoke to the Treasury and the Finance department, Treasury agreeing on the intrinsic merit of Castles’ argument though questioning the case for the extra 0.5 per cent (the Finance department then, and even now, seems willing to ignore such analysis if it does not suit). I suggested to the minister and the central agencies a way of offsetting the costs by reducing the output targets in recognition of the huge increase in private health insurance membership during the previous year. Apparently, that was not politically acceptable despite the logic and the fact that it would still have the desired financial impact.

Cabinet decided to reject Castles’ recommendation and to keep the existing default index, an index that had no logic and was demonstrably inadequate; this decision caused a much bigger problem for the states and the whole health system eight years later. The PMO held me to blame for the dispute for the rest of my time in health, while I forever struggled to gain full cooperation among CEOs.

I remain firmly of the view that, for Commonwealth–state relations to work well, there must be clear policy coherence in any financial agreement so as to foster trust and cooperation. Heavy-handedness leaves a legacy of mistrust and blame that CEOs can never overcome.

Table 8.3 Looking over my shoulder: the role of ministerial staff in CEO meetings

In 1994, the minister, Brian Howe, insisted for some time that his senior adviser on housing accompany me to the meetings of CEOs as we developed options for the next Commonwealth–state housing agreement and considered more radical reform of housing assistance for low-income Australians (see Chapter 4). It was a mistake. The other CEOs all felt uneasy, wondering if they too should invite their ministers’ advisers. They felt inhibited, as the discussions were not removed from direct political involvement.

As I explained to the minister after the arrangement had operated for several months, the inclusion of his adviser raised questions of his trust in me (‘looking over my shoulder’) and, more importantly, constrained discussions to the potential disadvantage of himself as well as the other ministers.

He finally accepted my advice, perhaps in part because his adviser had witnessed that I was indeed developing a reform agenda that he might value and ensuring officials across jurisdictions undertook the analysis necessary to allow ministers to take informed decisions.

Table 8.4 Indigenous consultations

The first two-day meeting of the Aboriginal and Torres Trait Islander Health Advisory Committee was a struggle. We spent the first day in a frustrating (for me) discussion of protocols and processes. At about five o’clock, I said that we had now got to know each other and settled our processes, but perhaps we could be more ‘businesslike’ and return to the substantial agenda on the second day.

My comment caused a furore. I was accused of racism and of ignoring ‘blackfellas’’ way of doing business. Debate on my comment continued for more than an hour the next morning, before we turned to matters directly relevant to health services for Indigenous people.

I accepted I might have spoken presumptuously, but I also knew this was a try-on, a game to test my nerve and patience. It was by no means the last time discussions with the National Aboriginal Community Controlled Health Organisation (NACCHO) and other Indigenous organisations got testy (leading to occasional cessation of grants and withdrawal of agreements), but over subsequent years, I and the department gained considerable respect from most Indigenous organisations for the mix of empathy, patience, toughness and professionalism we tried hard to demonstrate.

There was no doubt in my mind that my direct and continuing involvement was essential and I followed up formal meetings with many visits and informal discussions with community leaders. It was hard work, but inherently satisfying because it was the most important responsibility we had. We made some progress, aware of the evidence that community involvement was critical to improved health, but were frequently overwhelmed by the complexity of the problems and despairing about how to engage and to understand the cultural diversity involved.

Table 8.5 Learning the limits: negotiating the GPs’ memorandum of understanding in 1999

The first memorandum of understanding (MOU) with GPs (the Royal College, the Divisions of General Practice and the AMA) was negotiated in 1996, with increases in MBS fees agreed in exchange for restrictions on the growth in numbers of GPs through vocational registration. The agreement came up for renegotiation in 1999.

The department and I advised the minister that he should press hard for firmer conditions on MBS fee increases, including a greater shift towards blended payments (some funds based on patient numbers—‘capitation’—rather than just fee-for-service) by introducing more payments for particular purposes such as immunisation, cancer screening, practice support and chronic illness care planning, providing greater incentives for group practices and reducing rewards simply for throughput. I also canvassed the possibility of placing conditions relating to the co-payments charged. The minister was keen to make some progress particularly on improving public health outcomes and chronic illness care, agreeing that this might allow some shift to blended payments and more sensible incentives (rewarding quality and effort) for GPs, but he cautioned that my preferred approach was a bridge too far. I did not agree and told him so. I was wrong.

After cabinet agreement, the minister successfully negotiated his deal with the then AMA President, David Brand, the Royal Australian College of General Practitioners and the Divisions of General Practice. Then there was an election for the AMA Presidency at which Dr Brand was defeated by Dr Kerryn Phelps in a major medico-political brawl over the GPs’ MOU. The MOU, which I felt was too soft, was in fact too hard (at least for the AMA at the time).

Relations with the AMA entered a very rocky period, Wooldridge finally and famously making concessions to Phelps at a Sydney restaurant in front of television cameras. I strongly suspect that GPs in fact lost financially out of the compromise, but progress on reform was also slowed.

Table 8.6 Consulting with the private health insurance industry

I met the private health insurers in 1997 to discuss possible directions for reform and put on the table the possibility of changing community rating to an unfunded lifetime approach, as suggested in the recent report by the Productivity Commission (on our advice).

They did not reject this suggestion out of hand, but were keener on increasing the direct support they received from government, arguing that this was justified in recognition of the savings to government as their members relied less on public hospitals. My preferred approach was set aside until after the 1998 election (the minister wisely deciding it could be derailed in the heat of an election given the complexities involved). We met again subsequently to discuss specific possibilities. The details were developed during the next year in close consultation with the industry; the funds were also engaged in the communications strategy in 2000 that was essential to explain what was a highly complex policy initiative.

As it turned out, this initiative was far more effective in reversing the downward spiral in private health insurance membership than any of the previous initiatives involving direct subsidies.

Table 8.7 The Four Nations network

This network, led by a small group of individuals with high standing in the fields of health and political science, focused on the health systems of the Netherlands, Germany, Canada and the United States. Participants included academics and practitioners (public servants, politicians, service providers) from each of the four nations and other international experts, including from the OECD, the World Bank and WHO and from the United Kingdom and Ireland.

Three of the countries have universal health systems, three are federations and three have significant private financing: for these reasons, they are relevant to Australia. More importantly, the participants were a veritable who’s who of international experts in health systems and public administration.

The format was informal, but supported by documents from the four nations on a particular issue (for example, primary care, hospitals, aged care) and a commissioned commentary from an international expert observer. Because most participants attended regularly, there were opportunities for much deeper learning than through other forums I attended and I liked their philosophy of ‘learning about before learning from’.

While I sometimes took another departmental officer with me, I used this network personally to reflect on our health system, to consider whether and how to adapt useful developments elsewhere and to test some of our own ideas. We hosted one meeting of the group in Sydney in 2000. In 2005, well after leaving the Health department, when I was chairing the review of the delivery of health services for the Prime Minister, I renewed my contacts with this network and received some helpful advice—not on what we should do in Australia but more on what questions I should pursue in the review.

Table 8.8 Overseas visits have their moments

My trip in 1994 to China, Japan and Indonesia with Brian Howe was memorable for many reasons.

At my instigation, the minister agreed that a prominent businessman, Brian Martin, would accompany us. We were all impressed with the huge housing and urban development under way in China, but the minister seemed surprised when I said I was decidedly unenthusiastic about the prospects for much trade in this area. Martin reinforced my views, noting the huge risks to any private investment in the absence of international contract law and political certainty. There were certainly potential benefits in government-to-government cooperation and helping China learn about such matters as urban planning in a market economy, renewal of historic buildings and precincts and asset management, but Australian private sector involvement in the industry in China was unlikely to go much beyond simple fee-for-service consultancies for some time.

In Beijing, we met with Zhu Rhonggi, one of China’s most remarkable leaders at the time and formerly the very progressive Mayor of Shanghai. He discussed frankly the challenges facing China socially and economically, including the expected shift of population from having 80 per cent in rural areas to 60 per cent in the cities within 20 years—that is, a movement of about 500 million people. He spoke about opening up markets, reforming collectives, addressing growing inequity by transferring taxation powers from the provinces to the centre to allow redistribution to poorer provinces and privatisation of roads and utilities. His agenda was like a concertina of our past reforms over 50 years or more and our current reforms.

We also met the Mayor of Beijing, who greeted us wearing a Sydney Olympics tie. When we asked why he thought Beijing had lost to Sydney in the very recent competition, he answered frankly, ‘Blue skies, blue sea’.

Among the most memorable of many fascinating experiences was our visit to Tianjin on a Sunday. We met with the Australian Studies Centre at the university before having lunch with city officials at the Buckingham Palace Restaurant in the Astor Hotel in the old ‘treaty port’ with its colonial architecture. It was an amazing event.

We were welcomed by a small chamber group dressed up in Mozart costumes complete with wigs and powdered faces. For our banquet, we sat at a long table with high-backed chairs and golden goblets. Our host, the deputy mayor, a female engineer, quickly became decidedly drunk. The minister, sitting in an even higher-backed chair than the rest of us (almost a throne), turned to me to ask what he might say. I suggested he take this once-in-a-lifetime opportunity to raise a toast to the Australian republic in Buckingham Palace. He did so with great enthusiasm, and much mirth among the Australian contingent.

Table 8.9 Overseas visits also have their downsides

My first trip overseas with Michael Wooldridge was just after the 1996 budget. It was a tough budget with cuts everywhere. The only new spending was an increase in the subsidy for private health insurance premiums. We went to the United Kingdom and North America, having agreed clear lines for those staying behind to respond to all the criticism we anticipated over the cuts.

To limit jetlag, I stayed up for as long as I could on the day we arrived and we then had a full day of meetings and a dinner the next evening. At one o’clock the next morning, I received my first call from Canberra: private health insurance premiums were increasing and the media and opposition were highlighting that this premium increase would fully offset the subsidy increase. What should we say? The government’s only good news in the budget had gone sour.

I did my best to discourage the knee-jerk reaction to involve politicians in the setting of premiums, noting the department’s statutory role (which I did not much like either) and the benefits of an arm’s-length process.

An hour or so later, there was another call. There was now a suggestion of a public inquiry. I advised firmly against that, warning that inquiries should not be established without some clear strategy in mind and the new government could come under attack if there was any public uncertainty about its support for Medicare.

A few hours and several calls later, I decided I had better wake up the minister’s adviser, Ken Smith. We went through the issues and he agreed with my advice, and that we should not wake the minister until the morning.

By this time, however, it was evening in Canberra and the press needed answers. The Prime Minister and Treasurer were involved and wanted to speak to Wooldridge. We set a time (about 8am, I think) and woke the minister just after 6am. He agreed with the position we proposed: do not have ministers buy into the premium setting and do not have an inquiry. The telephone call was made and the minister presented his views.

Decisions were then taken in Australia: premiums were to be subject to agreement by a committee of the Prime Minister, the Treasurer and the Health Minister and the Productivity Commission was to conduct an inquiry into private health insurance.

The lesson? Advice from overseas has no authority or influence.