Competition in healthcare-myth mantra or mandate?

Yesterday, Paul Smyth provided a reflection on the Government's response to the Harper Review from a community sector perspective. In today's piece, Dr Lesley Russell from the Menzies Centre for Health Policy reflects on the Review from a healthcare perspective. Lesley worked in Washington DC  on a range of issues around the enactment and implementation of health care reform, initially as a Visiting Fellow at the Center for American Progress (known as the 'Obama think tank') and later as a Senior Advisor to the U.S. Surgeon General in the Department of Health and Human Services.

The Australian Government has released its response to the Harper Competition Policy Review (CPR) which was commissioned in 2013. Surprisingly, given the Government’s focus on healthcare costs, the only health issue which is specifically addressed in the response is the recommendation that the long-standing pharmacy ownership and location rules should be reconsidered.

However recommendations from the CPR are reflected in areas of federal government responsibility such as the continued roll-out of the National Disability Insurance Scheme, proposed changes in the delivery of aged care and mental health services, and the new commissioning responsibilities for Primary Health Networks (PHNs). Moreover, although it has been couched as an enquiry to deliver value to consumers, there is every reason to believe that the current review of private health insurance (PHI) is also a response to the recommendations from both the CPR and the National Commission of Audit for a “lighter touch” in the regulation of this sector. We should also read between the lines and recognise the current government’s political ideologies to see where else the stated enthusiasm of the Prime Minister and the Treasurer for Ian Harper’s review could possibly go.

In September 2014 I wrote at some length about what the draft recommendations of the competition policy review could mean for healthcare policy and services. I concluded by saying it was important that the benefits of reforms proposed in the final report were thoroughly argued and modelled and included proposals for how the impacts of these reforms could be measured and evaluated.

There was nothing in the final report to cause me to modify my commentary. This report did not take a very prescriptive approach to the reforms it recommended. There was little evidence to support what was proposed. For example, the report gives examples of public-private partnerships in the provision of hospital infrastructure and services but fails to mention the fact that these have had a chequered history in Australia and are far from risk-free for governments. Similarly there is a description of how commissioning has been used in social and health service in the United Kingdom, but again without any reference to how difficult it has been for the National Health Service (NHS) to do this effectively and efficiently. The report did recommend economic modelling in order to inform governments’ discussions of the policy proposals they would pursue. There is no public evidence this has been done.

Review of pharmacy location rules

The Australian Government and the Pharmacy Guild agreed to an independent public review of pharmacy remuneration and regulation as part of the Sixth Community Pharmacy Agreement which was announced in May 2015. The review is to examine whether the location rules should remain in their current form or be updated in the future, with a final report by 1 March 2017, but no changes can be made to current rules within the lifetime of this Agreement.


Just this month the Joint Parliamentary Committee of Public Accounts and Audit required that the Department of Health report back within six months on progress with this review. Presumably in response, the Health Minister announced the membership of the Expert Panel for the review and the terms of reference on November 24, 2015.

This review is certain to be contentious and the Pharmacy Guild is already campaigning against the review. The power of the pharmacy lobby is well recognised, so it is unlikely that any recommendation seen as adverse to the Guild will be implemented.

Review of Private Health Insurance

The Health Minister says that Department of Health discussions with industry and consumer groups on PHI, led by former competition regulator Graeme Samuel, will “explore opportunities to amend unnecessary and inefficient regulation which adds cost for consumers”. She has spoken about “better value” but has left open the question of whether this applies to people’s perceptions (and use) of their health insurance policies or to the growing expenditure on the PHI rebate. Adding to the confusion, she has promised to reform the insurance industry but has also dismissed claims that the government has plans to allow insurers into primary care or to charge obese people and smokers more.

What the insurance funds want is not more competition but rather more profits. At the same time consumers are seeking not more choices but clearer choices and greater value for money, including reduced out-of-pocket costs. I have previously written that the PHI review seems to be operating on several different tracks, with a number of conflicting goals and without publicly available terms of reference. It is unclear how the inevitable disconnect between the needs and budgets of government, insurers, healthcare providers and Australian families will be resolved, especially if this is done in the context of increased competition.

Competition, commissioning and contestability

The CPR reinforces the new buzz words in the social and healthcare services sectors: competition, commissioning and contestabiity. However development, implementation and evaluation of commissioning in Australia must recognise that healthcare services are not simply commodities but needed social goods and the failure to deliver them to all who need them has consequences for individuals, for communities and for the nation.


This drives key upfront questions. Are issues like quality, innovation, efficiency, prevention and better integration of care all best tackled and delivered through a market-based approach? Will commissioning ensure the right services in the right place at the right time for all patients and if not, what and who will be sacrificed? The troubled NHS experience in this space does not mean that the proposed commissioning role for PNHs will not work, but rather provides the evidentiary foundation for the issues which must be addressed if this role is to be successful and if the needs of all stakeholders are to be addressed.

The role of the informed consumer

The CPR makes passing reference to the important role informed consumers play in ensuring a competitive marketplace but this is not picked up by the government’s response. A greater availability of data can help drive informed decision-making and enhance competition. Efforts in this regard are more advanced in aged care and disability services, but much more needs to be done in healthcare.


In a recent post on John Menadue’s blog I outlined how greater transparency around specialist fees could help drive down extortionate fees and help patients and referring GPs make decision that would limit out-of-pocket costs. Such uses of competition should not be ignored.


It’s important to recognise that competition and choice in healthcare is not always appropriate. Increasing the number of providers does not always result in decreased costs, and can lead to increased administrative inefficiencies and complexities. The consequences of consumers making the wrong choice – as a result of confusion, lack of resources or timing – can be significant and long-term. And who looks after those that the markets ignore or don’t want to serve?

The always insightful economics writer Ross Gittins sums this up best in a column entitled “Let's not repeat our many competition stuff-ups post the Harper review”. He specifically cautions against framing healthcare services as part of competition policy and rightly notes that introducing competition and choice will not fix inefficiencies and waste but will more likely lead to disaster. I agree.


Dr Lesley Russell is an Adjunct Associate Professor at the Menzies Centre for Health Policy at the University of Sydney.