Do we really need all those medical tests and procedures?
As anyone who has been to a doctor lately, it seems increasingly common for doctors to prescribe a series of blood tests, diagnostic procedures or specialist appointments to discover the cause of our ailment/injury.
But do we really need all those tests?
According to ABC's Four Corners program, Australians may be forking out $30 billion each year on unnecessary or inappropriate treatment and procedures, which don't make us any healthier.
It's certainly not limited to Australia, but the program identified that evidence suggests the extra spending on healthcare is not resulting in a healthier population. Theoretically, the more we spend on healthcare, the healthier we should be – but that's not happening.
If the government pays any attention to the program, a number of healthcare service providers could find Medicare benefits cut for the services they provide, which would likely mean lower revenues and earnings. That includes Sonic Healthcare Limited (ASX: SHC), Capitol Health Ltd (ASX: CAJ) and Primary Health Care Limited (ASX: PRY).
Hospital operators Ramsay Health Care Limited (ASX: RHC), Healthscope Ltd (ASX: HSO) and Pulse Health Limited (ASX: PHG) may also find their revenues crimped.
A healthcare system review?
With new Treasurer Scott Morrison recently suggesting that Australia has a spending problem, not a revenue one, we could expect major government expenses such as healthcare to come under the microscope.
Total expenditure on health in 2013-14 was $154.6 billion, around 10% of Australia's gross domestic product (GDP) and 25% of total taxation revenue, according to a government report. Governments, both state and federal contributed $105 billion, with the Federal government contributing 41% of total healthcare spending.
Private health insurance funds contributed 8.3% in 2013-14 – although many Australians are paying for that through premiums.
If we truly are spending $30 billion too much on healthcare, then there could be significant savings to be made from a review of the healthcare system.
Is the problem really that bad?
However, reviewing the total healthcare expenditure – the average annual growth rate over the decade to 2013-14 was just 5%, and 4.3% over the five years from 2008-09 (excluding the effect of inflation). That suggests that costs appear to be well in hand and not out of control but the concern is that healthcare costs are growing faster than GDP. GDP's average annual rate of growth over the decade to 2013-14 was 2.8%.
How to fix the problem
One suggestion is that Australia needs to take a systematic approach to reducing wasted spending which includes:
- Analysing and feeding back information of spending and patient outcomes – such as how often a particular doctor treats patients for a particular condition relative to their peers.
- Evidence-based clinical practice guidelines and treatment decision tools.
- Shifting from a fee-for-service to an outcomes-based reimbursement model. Unfortunately, I can't see this working – it just appears too difficult to track and implement. How could a doctor receive payment for treating a patient when the patient outcome might not be visible until years down the track?
- Empowering patients with more information on treatment and outcomes for other patients with the same condition. That certainly would be useful to know. As an example, if we know that getting an ultrasound scan or blood test results in a better outcome for a certain medical issue, then both doctors and patients would be better informed.
Foolish takeaway
There's no easy solution to tackling waste in the health care system for the government. Cut back spending too heavily and we could end up with more unhealthy Australians, and at worse, a higher death rate and a lower expected life expectancy.
For Australia's health care companies and in particular, those ASX-listed companies mentioned above, cutbacks to the healthcare system are a sector hazard, and something many of them are likely used to.
