5 questions that will make or break Australian Healthcare

I’ve been working in the Australian healthcare industry for a few years now, and in all honesty, it’s slow progress. When it comes to tackling the critical long term challenges to fix some major holes in the healthcare system, it starts from the ground up.

During Australian Healthcare Week 2014, we thought it was time to get some of the Australian healthcare leaders in a room to discuss some of the key burning questions on everyone’s lips.

Several clear areas stood out, so here they are – the five questions that everyone in healthcare should be thinking about to revolutionise our system and drive real positive change.

So who was involved?

  • Leonie Hobbs, Senior Consultant, Carramar Consulting
  • Kathy Campbell, ICT Manager, VCCC
  • Rob Clarke, WSP Independent
  • David Johnston , eHealth Consultant,
  • Claire GrooMbridge, Facility Planner, Hunter New England Local Health District
  • Sandra Roggeveen, CEO, Dzhon
  • Stanton Kroenert, Manager, Woods Bagot
  • Damien Crough, Business Development Manager, Hickory Group
  • Ian Mitchell, Principal, Conrad Gargett Riddel
  • Don Garner, Group Leader – Health, Sinclair Knight Merz
  • John Goodchap, National Manager – Health, Hansen Yuncken
  • Steve Trevenar, Head of Business & Strategy Healthcare & Scientific Research, Lend Lease
  • Debra Barbas, Clinical Services Manager, St John of God Murdoch Hospital
  • Rohan Wilson, Architectural Director, DesignInc
  • Mark Halpin, Director – Infrastructure Management, The Townsville Hospital

Where should the money be going?

  • It doesn’t grow on trees

The Australian dollar is limited; nationally we spend $130 billion dollars a year on healthcare, which is 10 per cent of GDP. With substantial cuts announced in the Budget, it’s clear the pot isn’t getting any bigger. So where should we be spending the money? And perhaps more importantly – where are we going to get it from?

One of the biggest challenges is making sure the funds go where they will have the most benefit; it’s not necessarily the specialist treatments and big exciting stuff. There are two sides to this coin. Firstly, who should get treatment and who shouldn’t; secondly, we need to stop focusing on sickness and focus on health.

The table discussion centred primarily on the last 10 per cent of people’s lives and those that lead an unhealthy lifestyle, leaving the two intrinsically linked.

We’re currently spending 90 per cent of funding on that last 10 per cent. We’re also focusing on funding facilities, with not enough action being taken to manage demand.

The simple truth is, the growth rate is unsustainable and people’s lifestyle choices are smashing acute health services.

Some major reform is needed to incentivise people to stay healthy. Our current spend needs to be shifted; all agree that it’s currently imbalanced. Chronic Disease management was also thrown into the mix as a better way to spend money, with more of a focus on long term quality life.

Whether this starts with taxes on unhealthy foods, in a similar manner to cigarettes and alcohol, or wider initiatives around the planning and development stages of community – building in the opportunity for healthy lifestyles.

  • Shifting public perception

The general consensus is that people have the wrong perception of healthcare.

We all enjoy and expect good quality healthcare in Australia, but as we know, it’s not sustainable.

Although the national reform agenda is seeing small amounts of change, it’s nowhere near where we need to be.

One of the potential solutions comes in the form of private health and private insurance. More competition in the area enables it to be available at a reasonable cost. Previously seen as a luxury for the wealthy, few have a realistic concept of the cost.

  • Getting money into the system

As announced in the Budget, the Federal Government could potentially widen the gap to accessible healthcare with confirmation that patients will be charged with a GP tax.

The Government confirmed in its Budget announcement that the much speculated and controversial general practice co-payment model will be implemented.

From July 1, 2015, visits to the doctor will cost everybody $7 with the introduction of a Medicare co-payment. The co-payment will be waived for children and those on concessions only after 10 visits a year. The co-payment will raise $3.4 billion in the first four years, while upfront payments and a tightening of eligibility for the prescription drugs on the Pharmaceutical Benefits Scheme will raise another $1.3 billion.

It’s the continuation of a long debate around co-payment.

Another $1.6 billion will be cut from health by freezing indexation of income thresholds, which determine eligibility for the private health insurance rebate, the Medicare Levy surcharge and other Medicare services.

There are a few problems hindering injections of cash into the health system; inefficiencies from whole-of-regime litigation, excessive tests, limited working hours and supply and demand from private insurers.

The group explored one of the key areas – working hours.

Many facilities are still limited by the 8-5 pool, leaving people with no choice other than to go to hospital. Can we have 24-hour general practices, reducing the demand on hospitals in the same way many health insurers do?

If the health facility functioned on a 7-day-a-week approach with staffing and services, would we be able to provide better care and reap back costs that outweigh operational running fees?

The day public facilities expand the operating hours is the day we can stop building new operating theatres. There’s a trend for more 24/7 facilities – let’s fund the infrastructure but then use it efficiently. A private facility in Brisbane ran its MRI 24/7 – ends up being cheaper to come after-hours.

Public health is getting better with new targets, but it’s some of these efficiency-driving measures that could make the real difference…a little more on that later.

Want to know the other 4? Read the full report here: 5 questions that will make or break Australian Healthcare

5Q

New airport funding revenue set to take off…

There are a lot of issues facing infrastructure funding at a national level. The simple truth is there’s less money in the government pot. As a result, it’s time for economic infrastructure projects to start thinking outside the box about how they’re going to get funding.

Economic infrastructure has a distinguishing characteristic – there is a third party revenue stream generated by people that want to use that piece of infrastructure.

If you want to use a road, or use an airport, then there’s a way in which airport charges are included into the overall financial structure.

Pre-GFC environment, people were ready and willing to take the risk on the third party revenue streams. But as times get tougher, it’s becoming harder to justify taking the risk on the revenue stream.

To get a bit of insight on exactly how we can start to green-light regional airport development projects, I caught up with Martin Locke, Partner at PwC.

Martin and I took a look at the different models government can use to facilitate new investment in infrastructure that is expressly going to have an impact on productivity, and have an impact on growing the economy, generating revenue streams over time:

  1. Government can still decide to build and finance a new piece of infrastructure in its entirety. As revenue streams begin to firm up, government can then choose to sell off that piece of infrastructure. That’s been done in the context of some of the road transactions recently in Queensland. That model is what can be referred to as ‘build now, future sell’ and could apply in relation a completely new piece of infrastructure, or a piece of infrastructure that is an expansion of an existing arrangement.
  2. Another model is to leverage existing assets. This is when the government identifies a particular brownfield asset that’s already generating a revenue stream, and looks at how to expand it. Stakeholders may be asked to step up and take a risk on a revenue stream before it’s been firmed up. Repayment is sometimes provided out of the existing asset, rather than the expansion.  There’s an example of this currently being developed in the roads area with the extension of the F3 to connect up with the M2 motorway. That’s been done as an extension of the original concession – it’s called Missing Link. In return for taking on the risk of constructing and generating this new revenue stream, shareholders ask for compensation in the form of extending the lease term on the existing concession.
  3. Revenue securitisation is another option. When social infrastructure is financed from substantial government investment, it’s because the private sector won’t take the revenue risk. For economic infrastructure projects, the government’s approach is to pay the private financier an availability payment once the infrastructure has been built, generating a return on the initial private capital. Separately, government will also look to generate a charge and revenue stream from that piece of infrastructure. That type of transaction is what’s currently being contemplated for th East West Link project in Victoria. It’s also an example of what was in relation to the subsequent leasing of the Sydney desalination plant.
  4. Contingent support: The fourth area is for government to provide some form of contingent support for a project.  For example, private financier funding might build an expansion, and the government agrees to provide funding support for that expansion. When the private sector financiers step up with their money, they’re told what the projected revenue stream is going to be, as it’s still a projection, and government provides a return guarantee (normally set at a lower level). There’s a cap and collar type arrangement that is adjusted depending on how much is earned. Once the level of the cap is reached, any excess revenue is paid back to government.
  5.  Finally, government can provide subordinated debt. The private sector will provide funding, but will only agree to fund around 50 per cent of the capital costs of the expansion. This will be because they can only see sufficient revenue to amortise 50 per cent of the capital. Government can then offer the remaining balance, in the form of a subordinated loan. Their subordinated loan is only serviced after the prior ranking loan for the banks has actually been repaid. It provides a mechanism where government is providing funding, designed to earn a return and ultimately be repaid.

The above models certainly offer some innovative funding methods, but without a solid business case to begin with, hopes of funding will be slim. Martin shared his key advice for building a successful business case:

Provide clear support for the future ability to generate third party revenue.  If you’re coming up with financial projections around how you’re going to repay your capital, and how are you going to come up with different forms of revenue stream, do your due diligence around that revenue stream to provide strong evidence.

People make a mistake of confusing economic analysis with financial analysis. People will be trying to justify a project by claiming it’s got a really good economic cost benefit ratio. A lot of indirect economic externalities might help generate a really decent economic cost benefit ratio, but unless they are related to financial benefits, the project will not be financially viable.

The government has become increasingly credit constrained. There’s very little money to deploy. They would far sooner see projects being privately funded rather than publicly funded. Ask yourself: How do I make sure that I’ve actually got a business case and a financial structure that is consistent with private funding being made available?

Hear more from Martin during Regional Airport Development 2014 where he’ll facilitate the workshop ‘Exploring Alternative Funding Models for Infrastructure and Commercial Developments’.

 This workshop will assist you with understanding the alternative infrastructure funding models; and aims to guide you through the processes and criteria for securing such funds. Now is the time to comprehensively explore your funding options to ensure you can turn your master plan into master actions.

It’s time to think outside the box for funding.

Monash Health are currently in the process of building new and improved facilities at Dandenong Hospital to ensure continued access to the highest quality of care for the community.

The work will redevelop a number of community and ambulatory care services which are provided in disparate locations and to bring them into one central precinct in central Dandenong.

As with many other projects one of the key challenges has been funding. With funding increasingly becoming a barrier to development, I had a chat with the Capital Planning Manager at Monash Health; Anna Morgan to get an insight on the innovative approaches used to get funding.

Five years ago Monash worked with the Department of Health to develop business cases for funding. However, they were unsuccessful in bids for funding from State and Federal Government. The conditions of the buildings housing the health services that were being provided were becoming critical, another set of business cases and another source of funding solution had to be found.

The solution came from internal funding; Monash acquired long term leasehold of a property and then arranged for the landlord to fit out the building in accordance with their design, over the ten year lease period, Monash will pay back the landlord for those fit out works.

The project is currently well into design, closing off schematic design and into design and documentation with the aim of going out to tender by the end of July, and engaging a key contractor in August.

Anna explained how there’s a need for a new form of thinking in Victoria: “ We are having to get a bit smarter with our funding and make it stretch a lot further, we’re not getting the same sort of funding. We need to think outside the box if we want to keep resourcing our facilities, so not just looking to government for funding. Look to inside your organisation, sponsorship and other support methods, it’s a key way to get funding to renew services and renew facilities. There are some health services in Victoria that are starting to do that, but many that still aren’t looking beyond the main stream.”

We also have to be a lot smarter in the way we’re using the budgets, it’s coming through to a much smaller level. In the past we might have got two or three million for a project, now we’re expected to achieve a small refurb with a million dollars instead. It’s a huge challenge to prioritise the key aspects of a development rather than doing the full project”.

Interested in hearing more expert insights on how to tackle some of Australia’s biggest health challenges, check out http://www.austhealthweek.com.au