of health funding was 67.8%, with the nongovernment sector (insurance funds, individuals, and other) accounting for 32.2% of funding.16

FIGURE 26-4 shows that the greatest proportion of health funding in 2011–2012 was spent on hospitals, followed by primary health care and other recurrent costs. Component costs, public hospitals, medications, and medical services were the single largest contributors to health expenditure.16

FIGURE 26-4 Proportion of Health Funding in Australia, 2013–2014

Reproduced from Australian Institute of Health and Welfare. Australia’s Health 2014. Canberra; 2014. health/2014/health-system/#t2. Creative Commons license available at

Under Medicare, patients are entitled to access public hospital care at no charge. This includes free medical and surgical care from physicians and surgeons, accommodation, meals, and other health services while in the hospital if they are admitted as public patients.
In addition to having a publicly funded social health insurance scheme (Medicare), Australians can also subscribe to private health insurance. If privately insured patients choose to be admitted as private patients, then additional fees and charges are likely. In these instances, the patient can choose their own physician/surgeon. When in private hospitals, patients are charged fees for accommodation, nursing care, and other hospital care. They are also charged separately for any medical and surgical treatment. Private health insurance is available to cover such expenses (and ancillaries, such as optical, dental and allied health) if people wish to subscribe. Any premiums are additional to the Medicare levy (2.0% of income, with some reductions and exclusions), which all Australian taxpayers are obliged to pay.17 In recent years, the government has introduced a number of policies to reduce the pressure on the public health system penalizing higher earning taxpayers with an additional Medicare surcharge if they do not take out private insurance.

Under Medicare, the government pays a flat rate per physician consultation. A physician can choose to charge the patient either that amount or more. A patient pays any difference. Other services funded through Medicare include services from participating optometrists and services delivered by a practice nurse on behalf of a general practitioner and for certain services from eligible dentists and allied health practitioners. Claims can be made by post or over the counter at Medicare offices, or the physician can “bulk bill” patients. In this case, physicians send accounts directly to Medicare and accept the Medicare rebate as full payment for the service. There is no cost to the patient. Just over 8 of 10 physicians “bulk billed” the government for their patient consultations in 2013–2014.18

In 2015, there were 373.4 million Medicare services, an average of 15.4 services per person, at a total cost of A$20.5 billion (US $15.7 billion).19 The main services were general practitioner consultations, followed by pathology tests, diagnostic imaging, and specialist physician attendances.

As with Medicare, the PBS is also a central and unique feature of Australia’s health system. Since its inception in 1948, the PBS has consistently provided reliable, timely, and affordable access to important medicines for all Australians. In so doing, the PBS has proven itself to be one of the best systems in the world. Medicines on the Australian market are not only of high quality but also are less costly than in most other countries. Under the scheme, consumers can access more than 2,300 brands of prescription medicines that they are assured have been rigorously tested and found to be cost-effective. These medicines are available from a network of 5,000 independently owned community pharmacies spread across all parts of Australia.

Currently, most of the population (general consumers) pay a maximum of A$38.30 (US $28.97) for any one prescription item. Concessional patients and pensioners pay only A$6.20 (US $4.70) per item. There are two safety net thresholds—one for general patients and the other for concessional patients. From January 1, 2016, the general patient safety net threshold was A$1,475.00 (US $1,126.00). When patients and/or their families reach this amount, they can apply for a Safety Net Concession Card and pay only A$6.00 (US $4.52) per prescription for the rest of the calendar year. The concessional safety net threshold is A$372.00 (US $284.00). Once patients and/or their families reach this amount, they can apply for a Safety Net Entitlement Card and receive items free of charge for the rest of the calendar year.20

The cost of the scheme has risen significantly over the years. In 2005, its first year of operation, around 300,000 prescriptions for PBS medicines were dispensed, at a cost to the Commonwealth Government of A$150,000 Australian dollars (US $113,000). By 1960, this had grown to 24 million prescriptions at a cost of A$44.00 million (US $33.10 million). In 2006–2007, the PBS covered 170.00 million prescriptions at a total cost (government and private) of A$6.70 billion (US $5.04 billion). By 2014, this had risen to A$9.10 billion (US $6.85 billion). The total PBS prescription volumes increased by 6.3% from 2013 to a total of 209.80 million in 2014. Government expenditure amounted to 82.5% of the total cost of PBS prescriptions. The remainder was patient contributions that amounted to A$1.50 billion (US $1.13 billion). The average dispensed price per prescription of PBS medicines decreased to A$42.20 (US $31.80) for the year ending June 2014. The average government cost of these scripts was A$34.83 (US $26.23) for

the same period.19

There are several reasons for this increasing cost. First, the number of available medicines continues to grow. As new drugs come onto the market and get approved, they are added to the list of subsidized medications. Second, the new generation drugs listed on the PBS are more costly and doctors tend to prescribe the newer, more potent, and more effective products. Thus, the mix of drugs being prescribed by doctors is increasing in cost. Third, Australia’s aging population and chronic disease profile is driving the use of more medications. The number of prescriptions dispensed per person increases with age as medicines play an important role in improving the quality and longevity of people’s lives. Fourth, the number of people eligible for concessional and pensioner pharmaceutical benefits is increasing, which in turn adds to the cost for the PBS.

Quality Quality of care is but one of a number of factors, in addition to socioeconomic, environmental, behavioral, biomedical, and genetic factors, that help to determine the health and well-being of the population. Quality is difficult to define and even more difficult to measure. It can be subjective, such as an individual patient’s view of the quality of a particular encounter with the health system or the wider public’s view of the performance of their local hospital or ambulance service.

A key biennial government publication, Australia’s Health, outlines the health improvement of the nation over time. Since Australia’s Health was first published over 25 years ago, Australia’s ranking among comparable countries has improved on most measures: (1) Australia’s life expectancy at birth (84.8 years for females and 79.8 years for males in 2016) placed Australia among the top 6 nations in the world. (2) Marked improvements in ranking are evident for mortality rates from coronary heart disease, stroke, lung cancer, and transport accidents. (3) Rates of smoking continue to fall, moving Australia into the “best third” of OECD countries on this measure. (4) Australia also scores well and has improved rankings on self-rated health, dental health, various mortality measures, and lower alcohol consumption.

On the downside, Australia’s ranking has fallen on measures of mortality from suicide, diabetes, respiratory diseases, and infant mortality. The ranking for obesity has not changed, with 63% of Australians classified as overweight or obese.11 Australia is among the “worst third” group of OECD countries on this measure.

Australia’s health system has also been compared to other developed health systems worldwide. Australia had mixed results when compared internationally, including:

Ranked 4th out of 11 for access to care on the same or next day appointment with a doctor when sick (behind Germany, New Zealand, and the Netherlands), Ranked 4th worst when waiting four or more months for surgery (behind Norway, Canada, and New Zealand), Ranked 5th out of 11 for experiencing a medical/medication or lab error in the last two years (19%), Ranked 5th out of 11 for experiencing a gap in discharge planning in the last two years (55%), and Ranked 4th out of 11 for a health system that works well with only minor changes required (behind the United Kingdom, Switzerland, and the Netherlands).22

Access Equity of access to health services is one of the main objectives of Australia’s health system. In particular is one of the underpinning principles of the universal taxpayer funded Medicare and Pharmaceutical Benefits (PBS) systems. Both are funded through general taxation as well as by a 2% Medicare levy on income. Patients also contribute through a system of structured co-payments for prescription medicines. For physician services, patients pay any gap between the amount that the physician charges and the Medicare rebate for the service.

Access to public hospital services is available for Australian citizens who can elect to have free accommodation, medical and nursing care, as well as necessary medicines as public patients. Patients can also choose, if they wish, to be treated in a private hospital, or as a private patient in a public hospital. They are then required to meet the associated medical, surgical, and accommodation costs with the assistance of private health insurance and some assistance from Medicare.

Access to a wide range of prescription medicines is made possible through the PBS. As described earlier, patients are required to contribute to the cost of their medicines through a system of co-payments. In addition, a safety net is in place that provides further protection for individuals and families against the financial burden associated with high use of medicines. Access to pharmaceutical services is also facilitated through a set of regulations that govern where Australia’s nearly 5,000 community pharmacies are located. This is particularly important in rural and remote parts of Australia where population density is low and communities are few and far between.

In 2013, the federal government commenced the centrally funded National Disability Insurance Scheme. Currently under trial in multiple sites across Australia, this scheme will provide all Australians under the age of 65 (who have a permanent, significant disability) with reasonable and necessary supports to be as active as possible in the community. Over 460,000 Australians with disabilities, families, and caregivers will have access to the scheme.

▶ Current and Emerging Issues and Challenges Australia is fortunate to have a health system that features a sophisticated infrastructure, advanced medical technologies, and highly trained health professionals, all of which have helped to deliver high levels of health across most sectors of the population. Several challenges and emerging issues are apparent in the early years of the 21st century. The final section of this chapter focuses on four of these: (1) the challenges of an aging population, (2) the inequality of Aboriginal and Torres Strait Islander health, (3) the twin health challenges of increasing levels of obesity and diabetes, and (4) the organizational and structural challenges that the government faces with a publicly funded healthcare system.

An Aging Population “Demography shapes destiny” was one of the catchcries of former Australian treasurer, Peter Costello, referring to the inevitability of the aging of the population in the country, described elsewhere as “a quiet transformation, because it is gradual, but also unremitting and ultimately pervasive.”23 Falling fertility, the aging of the baby-boomer generation, declining mortality, and increased life expectancy are combining to increase the number and proportion of the population that is older, that is, those aged 65 years or more. Over recent decades population growth has been stronger among older age groups compared with younger age groups. Between 1973 and 2013, the number of people aged 65 and over tripled, from 1.1 million to 3.3 million. There was a six-fold increase in the number of people aged 85 and over, from 73,100 to 439,600. Over the same period, the number of children and young people (aged under 25) rose by just 22% from 6.1 million to 7.5 million people. To highlight this point, in 2013, people aged 65 and over comprised 14% of the population compared with 9% in 1973. People aged under 25 comprised one- third (32%) of the population in 2013 compared with almost half (45%) 40 years earlier.11(p11)

The implications of an aging population for healthcare costs have been the focus of much analysis and commentary in the past two decades. The upward pressure on health costs applied by an aging population results both from the fact that older people tend to have a greater need for health services and that they use those services more often than other age groups. The other major drivers of rising health costs are the increasing cost and availability of new health technology, as well as burgeoning consumer demands and expectations. Consumers increasingly expect and demand the latest and best, whether it is

the latest medical/surgical advance or the latest “miracle” drug.

Growing older is accompanied by an increasing incidence of nonfatal diseases of aging and chronic degenerative diseases. These include arthritis, diabetes, heart disease, cancer, and dementia. Such diseases can severely impact the quality of life and independence of older people. They also bring with them markedly increased utilization of health services, such as medications, doctor consultations, and hospital admissions.

Although there are many who believe an aging population is a crisis in the making, the prevailing view is not so pessimistic. Population aging is gradual. Governments, health planners, and administrators have plenty of time to develop new policy approaches to address the challenges ahead. The Productivity Commission, for example, points out23 that future productivity growth will ensure that Australians are much richer and are better able to afford the costs associated with aging. Moreover, although people are living longer, they are generally healthier than previous generations. In the last few years more discussion has focused on healthy aging and contributing to the workforce in later life.

The government’s Intergenerational Report24 concluded that Australians will live longer and continue to have one of the longest life expectancies in the world. For 2054–2055, life expectancy at birth is projected to be 95.1 years for men and 96.6 years for women. “Not only will Australians live longer, but improvements in health mean they are more likely to remain active for longer. ‘Active ageing’ presents great opportunities for older Australians to keep participating in the workforce and community for longer, and to look forward to more active and engaged retirement years. There will be fewer people of traditional working age compared with the very young and the elderly. This trend is already visible, with the number of people aged between 15 and 64 for every person aged 65 and over having fallen from 7.3 people in 1974–1975 to an estimated 4.5 people today. By 2054–2055, this is projected to nearly halve again to 2.7 people.”24(pviii)

Aboriginal and Torres Strait Islander Health One of the major challenges for all levels of government, but particularly the federal government, is the state of health of Australia’s Aboriginal and Torres Strait Islanders.

This population (there were approximately 73,600 in Australia in 2014) dies on average 10 years earlier (10.6 years for males and 9.5 years for females) than other Australians.25 While the life expectancy gap has decreased over the last decade, by any measure it is still unacceptable. On almost every measure of health, the gap between indigenous and nonindigenous people in Australia is significant. In terms of health disparity, Aboriginal and Torres Strait Islanders have:

Twice the rate of hospitalization for injury or poisoning,25 Ten times the rate for dialysis,25 Five times the likelihood of dying from endocrine, nutritional, and metabolic conditions (including diabetes) Three times the likelihood of dying from digestive conditions,11 Age-standardized death rates that are five times as high for the 35–44 age group,11 1.5 times the rate of death from cardiovascular disease,25 Twice the death rate for children aged 0–4,11 and 1.5 times the likelihood of becoming obese, twice the likelihood of smoking, of being physically inactive, and of having poor nutrition (10% higher).11

Much of this disparity in health status is due to a range of social conditions that affect health, including the inadequate and overcrowded living conditions of many Aboriginal and Torres Strait Islander peoples that do not satisfy the basic requirements of shelter, safe drinking water, and adequate waste disposal.

Around A$4.6 billion (US $3.5 billion) was spent on health services for this population in 2010–2011,

about 3.7% of all health spending.25 This equates to approximately A$7,995 (US $6,093) per Aboriginal and Torres Strait Islander, compared with A$5,437 (US $4,114) for each nonindigenous person. Between 2008–2009 and 2010–2011, government health expenditure for indigenous peoples increased by A$847 per person (US $646, adjusted for inflation)—an average annual growth rate of 6.1%. The corresponding growth rate for nonindigenous people was 2.6%.25(p150)

In many regards, health services for Aboriginal and Torres Strait Islanders are often more costly to deliver, both because of the remoteness of many communities and because many of the health services are provided in different ways. A much higher proportion of health dollars for indigenous peoples is spent on hospital services, and proportionately much less on primary health care, particularly Medicare and the PBS. Average Medicare and PBS spending for each indigenous Australian in 2011 was around 20%–30% less than for other Australians.25 Average spending per indigenous person on dental, private hospital, and other professional health services was also much lower than for other Australians.

Obesity and Diabetes Two significant and related health challenges for Australia in the early years of the 21st century have been obesity and diabetes. In common with many other developed nations, Australia has been experiencing an increasing prevalence of obesity in recent years. Described by the World Health Organization as a global epidemic, obesity (or excess body fat) is associated with an increased risk of type 2 diabetes, cardiovascular disease, high blood pressure, certain cancers, sleep apnea, osteoarthritis, psychological disorders, and social problems.256

The latest statistics27 on the prevalence of overweight and obesity in Australia shows that (1) nearly two- thirds (63%) of all adults (or 7.4 million people aged 18 years and over) are either overweight or obese, up from 44% in 1995; (2) the rate of overweight adults increased from 32% in 1995 to 35% in 2012; and (3) the rate of obesity in adults increased from 12% to 28% over the same period.

These rates of adult obesity in Australia are well above OECD averages, ranking 4th out of 16 countries. Australia sits behind the United States, Mexico, and Hungary for obesity rates, well ahead of New Zealand, Canada, and the United Kingdom. Apart from the well-documented health and social consequences of obesity, the associated costs are significant and growing. A recent study by Obesity Australia found that if left unchecked, the direct and indirect economic impact of obesity would reach A$88.0 billion (US $67.1 billion) and affect one-third of Australians by 2025.28

Policy options abound, but successful outcomes are few and far between. Imposing a tax on food products considered likely to contribute to obesity is not widely favored, as it targets food products consumed by obese and nonobese alike. While a sugar tax on soft drinks has been adopted overseas, this is yet to gain traction among Australian law makers. It also cannot be assumed that higher tax on certain foods will necessarily shift consumption away from them toward healthier alternatives. Pressure on the government to impose advertising restrictions, such as bans on food advertisements for children, has also been rejected to date. Instead, there is a voluntary code of practice in place for advertising to children that aims to not encourage or promote an inactive lifestyle combined with unhealthy eating or drinking habits.29

While there has been much made of self-control or government regulation of the food industry, the government’s preferred approach in recent times has been to fund awareness, health promotion, and prevention campaigns.

Diabetes is a significant and growing chronic disease in Australia. The latest statistics show that:

About 1 in 20 (approximately 917,000) have been diagnosed with diabetes. In 2014, nearly 30,000 people started using insulin to treat their diabetes.

Around 9% of all hospital admission in 2013–2014 were attributable to diabetes. Approximately 1 in 10 deaths in 2012 were attributable to diabetes. Diabetes death rates among the Aboriginal and Torres Strait Islander population due to diabetes are three times higher than the nonindigenous population.30

Diabetes can cause diseases of the eyes, kidneys, nerves, and cardiovascular system, which can lead to a reduced quality of life and premature death. Type 2 diabetes, the most common form, has increased in prevalence in Australia since the 1980s, and further increases in obesity and physically inactive lifestyles and increases in the aging of the population have the potential to continue this increase. Diabetes has been among conditions of concern to Australia’s health ministers (federal, state, and territory) for some time and continues to be a focus of the Council of Australian Governments’ broader commitment to reducing the prevalence of avoidable chronic diseases and their risk factors.

There is also much concern about the financial burden of diabetes. Recent assessments suggest health care that is directly attributable to diabetes costs approximately A$1.7 billion (US $1.3 billion) per year, while the total cost of diabetes annually has been estimated to be as high as A$14.0 billion (US $10.7 billion). Annual direct costs for people with diabetes complications are more than twice as much as for people without complications; A$9,600 (US $7,328) compared with $3,500 (US $2,672).31

Structural and Organizational Issues International comparisons suggest that Australia has a health system that produces high levels of health at reasonable cost (close to the OECD average). The predominantly publicly funded system provides universal access to high-quality health and hospital services, ensuring that Australians are ahead of most other comparable countries on most measures of health. Despite these successes, Australia’s historical, political, and societal characteristics, in particular the complexities associated with its federal/state structure, have given rise to some fundamental and somewhat intractable fiscal and organizational problems. Five-year Health Care Agreements between the Commonwealth and state/territory governments determine the amount of federal funding to be allocated to the states and territories to help cover the costs of running public hospitals. Funding for the current agreement (from 2016–2017 to 2019– 2020) is likely to exceed A$95.0 billion (US $72.4 billion).32 Tensions inevitably arise between federal and state governments concerning the adequacy and distribution of this funding. Accusations of cost shifting among different levels of government, of inefficiencies, systems growth and of overlap and duplication of services are commonplace and make for ongoing public controversy and debate.

In 2008, Australia’s Labor Party government was determined to address these problems, to improve the way health care was delivered, and to make it sustainable for the future. To this end, the National Health and Hospitals Reform Commission was established and charged with developing “a blueprint for tackling future challenges in Australia’s health system, including: (1) the rapidly increasing burden of chronic disease; (2) the aging of the population; (3) rising health costs; and (4) inefficiencies exacerbated by cost shifting and the blame game.”33 Following the release of the National Health and Hospitals Reform Commission Report in 2009, the Commission was disbanded. Since this time, successive governments have implemented and later disbanded bodies charged with reviewing, advising, and monitoring current health performance. This role has now been largely taken up by the Australian Institute of Health and Welfare and the Australian Commission on Safety and Quality in Health Care.

Similarly, successive governments in recent years have taken approaches to addressing primary healthcare needs across Australia. With an emphasis on regional general practice, chronic disease management, community mental health services, nurse primary care, and after hours medical services, Rudd’s Labor Party government established Medicare Locals in 2010. These were disbanded by Abbott’s Liberal-National Coalition government in 2015 to be replaced by Primary Health Networks (PHNs). The primary distinction between the Medicare Local approach and PHNs is that the role of the general practitioner was strengthened and there was an emphasis on coordinating and purchasing services rather than being a healthcare provider that competes with other local healthcare services. It is currently too early to assess the success in the change in approach in terms of patient outcomes, particularly in

regional and rural area.

The Australian healthcare system is large and complex, approaching A$155 billion (US $117 billion) in cost and close to 10% of GDP. Despite the relatively favorable health outcomes and life expectancies of Australians, there will be much political and philosophical debate about the sustainability, efficiency, and equity of the system going forward. With pressures on the national budget due to a changing economy and an aging population, the future funding and subsidization of the health system will continue to be a source of discussion. Future governments will need to carefully consider the funding of healthcare as it takes up an increasing larger proportion of the overall national budget.

References 1. Smith L. The Aboriginal Population of Australia. Canberra, Australia: Australian National University Press; 1980.

2. Healy J, Sharman E, Lokuge B. Australia: health system review. Health Systems in Transition. 2006;8:9. 3. Parliament of Australia. About the Senate. Canberra, Australia. Accessed July 2016.

4. Reserve Bank of Australia. Australian economic snapshot. Published November 2, 2016. Accessed July 2016.

5. Australian Bureau of Statistics. 3101.0—Australian demographic statistics. Published Dec. 2015. Accessed July 2016. 6. Australian Bureau of Statistics. 2001 Census of population and housing—00 1901 Australian snapshot.!OpenDocument Accessed July 2016.

7. Australian Bureau of Statistics. 3235.0—population by age and sex, Australia, 2006. opendocument&tabname=Summary&prodno=3235.0&issue=2006&num=&view=. Published July 24, 2007. Accessed July 2016.

8. Australian Bureau of Statistics. 3238.0—Estimates and projections, Aboriginal and Torres Strait Islander Australians, 2001 to 2026. Published April 30, 2014. Accessed July 2016,

9. Australian Bureau of Statistics. 2071.0—reflecting a nation: stories from the 2011 Census, 2012–2013. Canberra, Australia.±features902012-2013. Published June 21, 2012. Accessed in July 2016.

10. Sax S. A Strife of Interests. Sydney, Australia: Allen & Unwin; 1984. 11. Australian Institute of Health and Welfare. Australia’s Health 2014. Canberra, Australia: AIHW; 2014.

12. Australian Institute of Health and Welfare. Workforce. Health workforce. 2016. Accessed July 2016.

13. Medical Technology in Australia: Key Facts and Figures 2013. Occasional Paper Series. Sydney, Australia: Medical Technology Association of Australia; 2013. sfvrsn=0. Accessed July 2016.

14. Australian Government. Productivity Commission. Impacts of Advances in Medical Technology in Australia. Research report. Melbourne, Australia: Productivity Commission; 2005.

15. National Health Performance Authority. Published April 2016. Accessed in July 2016.

16. Australian Institute of Health and Welfare. Health Expenditure Australia 2013–14. Health and welfare expenditure series. Canberra, Australia: AIHW. 54(Cat. HWE 63); 2015.

17. Australian Taxation Office. Medicare levy. Accessed in July 2016. 18. Australian Government. Department of Health. Annual Medicare statistics. Updated August 28, 2014. Accessed July 2016.

19. Australian Government. Department for Human Services. Annual Report 2014–15. Published June 25, 2015. Accessed July 2016.

20. Pharmaceuticals Benefits Scheme. About the PBS. Updated July 2016. Accessed July 2016.

21. Australian Government. Department of Health. PBS Information Management Section Pharmaceutical Policy Branch. Expenditure and prescriptions twelve months to 30 June 2014.!OpenDocument�features902012-2013

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