Healthcare: We all have to play a major role

Australian Unity Limited chairman, Alan Castleman, delivered the following opening address at Global Access Partners’ National Economic Review 2011: Australia’s Annual Growth Summit on Friday 16 September 2011.

Within Australian Unity, our Managing Director, Rohan Mead and I, together with Neil Batt established the Australian Centre for Health Research a few years ago. It’s one of the partner groups working with GAP today.

We are all active in promoting health issues relating to Australia. Rohan chairs the Business Council of Australia’s health taskforce and has played an important role in helping corporate Australia understand that health is an issue that should be of great concern to industry broadly, as well of course to government, to the community and to health professionals.

We’re all engaged in driving the concept of productivity gain in the health world.  Health is probably the largest industry in Australia. Some would say the most important, but it’s also the least productive. There’s enormous opportunity for us to improve performance in this area.

But first I want to comment on changes in thinking over the last 20 years.  20 years ago I was the Chief Executive of that (unsuccessful) ‘Very Fast Train’ project between Melbourne and Sydney.  Back then, the idea of infrastructure was totally new. I was the only one talking about it. People in government and the community didn’t seem to know what the term ‘infrastructure’ meant. I’d also talk about population growth because it was critical to the assessment of the market for transport in Australia. That was a subject where people knew what it meant but no-one wanted to talk about it. You were almost ostracised if you raised the subject of population and wanting to discuss the implications going forward, and particularly if you wanted to talk about population growth.

So one good thing that’s happened in the last 20 years, is that not only are we now able to engage in sensible discussion about population and its issues, but we also have government ministers talking very positively about the need to get on with infrastructure growth in this country. So I personally note that I think a lot of beneficial things have happened in the last 20 years, even though we might be pessimistic about others.

Now, we can’t have a productive population without being a healthy population. On many measures we’re not getting healthier as a nation. We’re getting sicker. We live longer, but are more likely to be living with a chronic disease. A third of people who retired between the ages of 50 and 65 do so because of ill health or injury.

The effectiveness of our health system, and by system I mean everything from population and health programs through to end-of-life care, ripples through Australia’s economy. Each person who requires care for either a preventable or non-preventable illness absorbs resources from the productive economy. They stop working. In many instances, a family member stops working or reduces work hours to care for them, leaving employers to find alternative labour or absorb the productivity costs. They are the beneficiary hopefully of thousands, if not tens of thousands of dollars’ worth of resources to staff, equip and maintain their care settings. If they recover from their initial condition, they may still not be back to full personal capacity for months or years to come. If they’re one of the growing numbers of people who continue to live with chronic disease, this reduction in mobility and capability could continue for the rest of their lives, requiring intermittent treatment and other interruptions.

I just want to stress that we don’t count all the costs of poor health in respect of all those things I was just talking about. We can’t cost health just in terms of the cost of providing doctors, hospitals, medicines and other treatments. There’s a huge opportunity cost in terms of loss of production and loss of mobility and everything else throughout the economy. It isn’t included in the statistics, but the cost or loss is very real.

Today’s healthcare sector absorbs, in terms of traditional costs, about $107 billion, a figure rising at a compound annual growth rate of almost 10 per cent. It represented about 10 per cent of the Australian economy when we were in boom years last decade. We don’t yet know what proportion it consumes of our now slower growing economy, but probably larger. We do know that the health sector doesn’t do much shrinking, regardless of the state of the economy. Twenty years from now, we expect to absorb some $250 billion in today’s values, (or almost a quarter of GDP), unless of course we achieve dramatic improvements in health productivity.

We believe such improvements are possible and are pressing this point wherever we can. Not only are they possible, but they’re really essential for reasons we’ll come to. We don’t want to see the real outputs in the health world reduced. Indeed, they will inevitably rise to secure better health. But we do need to consider how we can better achieve those outcomes.

Just think for a minute though, what the impact on our financial and tax system will be if we don’t improve productivity, with about a quarter of GDP being in the health sector, largely funded by the government.

To put another perspective on this, let’s take a comparison between health expenditure and expenditure on other key elements in the economy. In 2009, we exported $34 billion in iron ore, the equivalent of 30 per cent of what we spend on health expenditure, economy wide. The growth in health expenditure, from that year to the next year, was more than the entire spending in the 2009 budget on economic infrastructure. So health grew by more than the total spending on health infrastructure and three times the total amount allocated to things like services.

About a year ago health and social systems – an ABS category which includes aged care workers – became larger than retail as the sector with the largest number of employees in Australia. Now, 1.3 million people or 11.4 per cent of the workforce are employed in this sector. In the year to May, jobs growth data shows that the largest jobs growth in Australia were in health and social systems over the previous year, 63 per cent more growth than in the mining sector, which we understand is the boom sector. But health has grown faster and more in absolute terms, substantially more.

There are six times as many health and social systems workers as there are mining workers in Australia. Over the past 10 years, the average increase in the number of people working in this sector was 43,000 per annum. That’s a regional city every year. That’s just business as usual. By way of comparison, the number of new workers in the mining sector, over the past five years, during its period of the greatest boom ever, was around 16,000. So a 43,000 increase in health, 16,000 in mining.

We could assume that that a 43,000 increase per annum in the number of people employed in the health sector remains somewhat constant. But of course it doesn’t. Over each of the past three-year blocks of time, the average jumped by more than 20 per cent. So factoring in this growth, which we think is entirely reasonable, and given the expenditure in chronic disease, we’re looking at needing the best part of a million additional workers into this sector over the next 15 years. That’s not just surgeons and radiologists. They’re the personal care attendants, the physiotherapists, the entry level nurses, the podiatrists and pharmacists. They’re not here, we don’t have them, and unless we do something, they won’t just materialise.

While we need these additional million healthcare workers, we’ll be hitting significant demographic milestones.  The proportion of people aged over 60 will be larger than the proportion of children under 15. We heard from Professor Birrell earlier a range of statistics that are relevant to this. We’re going to need more people to care for the frail and ill at precisely the time when those that are currently caring for themselves will be needing care themselves.

Inevitably, the ideal will be to bring these workers in as pre-skilled workers from overseas. There are interesting ethical questions around the notion that we can buy nurses, for example, from the Philippines or even Ireland, when those countries are just as much in need of a growing workforce. We could of course bring them in unskilled and train them here. We haven’t had a wave of unskilled migration since World War II. It’s been a long time since we talked in sophisticated ways about these issues. But we must. There’s no doubt training of people will be critically important and we can’t necessarily train people in the way we have in the past. We have to have far more productive ways of up-skilling our population to meet these issues.

Throwing money at health isn’t going to solve the problem. We contend that the health system is fundamentally inefficient in Australia. The fact that we’ve got a very good health system is not an excuse for failing to live up to the challenges that we have in front of us, and to improving the system that we’ve got and make it even more the best in the world.

The health sector’s current configuration accompanies a myriad of sources of inefficiency, including management, fragmented funding, uncoordinated primary healthcare, artificial labour constraints, etc. These essential inefficiencies are at a range of socio-economic levels and are a drag on productivity growth.

The Grattan Institute recently showed the healthcare sector performing fifth-worst of about 40 per cent of the mining sector in productivity terms. I don’t know how they got the figure. But I suspect that they’re being conservative.

So we have to address the issues of productivity growth in the healthcare sector. Let me just comment about productivity growth – a critically important issue. Productivity normally refers to the ratio of outputs to inputs or the value of outputs to the value of inputs. However, we don’t measure the value of the outputs in the health system at all. We do measure some of the inputs – the costs of hospitals, cost of Medicare, cost of the pharmaceutical schemes and what we as individuals pay for health. By the way, individuals pay a lot privately for their health. It’s not all government. The private proportion is growing.

So whilst we need to measure the inputs in some ways and we have reasonable cost figures, we have no measures of the value of the output. We do know how many people have heart surgery and how many have their appendix out. We do know how many got cured but what value do we put on that? There’s an enormous difference between giving someone an operation and letting them live a few more weeks or six months in a fairly unhappy state, to curing someone who’s young and who goes on to live a long and happy and productive life.

There are people who don’t want to measure these sorts of things. You get into quite dicey areas, don’t you, when you talk about how you value human life. Some people say you can’t value human life. It’s priceless. But of course we do value human life. We put implicit value on human life every day, by deciding not to spend money that we know would save human lives. We can easily identify a range of ways in which we implicitly value human life. But we don’t attempt to value the outputs of the health system. We need to if we’re going to get sensible productivity measurements into health.

I think if, in Australia, we can achieve major productivity gain, we will have done something very important. The future will involve health delivery being done in quite different ways to the way we do now.

A prominent economist recently commented that we don’t have any real focus on moving the supply curve to the right. If we were to increase the supply of services by freeing up the system enormously, we should be able to reduce the real costs of what we do in health. Just think of what’s happened in the electronic and computer world and the  manufacturing world. We’ve dropped costs enormously while improving quality. We can do that in health and we will do that in health because there really is no alternative. But the sooner we get onto doing it, the better we’ll achieve the outcome.

I think we can look at the health world as an exciting new frontier for us for great improvement in Australia. We can practically lead the world in this area, but we do have to think differently. We have to break down a lot of barriers. We also have to get rid of the idea that government is the solution. It’s going to be a part of the solution, but only a part. We all have to play a major role.

Alan Castleman has been Chairman of Australian Unity Limited since 1993.  Mr Castleman is a professional director with significant experience in the health, aged care and investments sectors, as well as manufacturing, resources, transport and infrastructure, having served as Chairman of 15 companies in a total of some 25 boards over recent years.  He currently also chairs the Australian Centre for Health Research Ltd, an independent industry funded think tank, which collaborates with Global Access Partners (GAP) in certain activities. Since late 2006, Mr Castleman has also been an executive director and principal with the ProNed organisation involved in Board Search and advisory services.  Qualified in engineering and commerce, he had a previous 24 year executive career with BHP.