PRODUCTIVITY SPECTATOR: Your money and your life

Spending on healthcare is likely to hit 15 per cent of GDP. But a quarter of that is going down the drain.

Productivity Spectator

Three hundred and six.

That’s the number of people who signed up last week to the government’s new program to slash the cost of our medical spending.

It was a very soft launch for the Personally Controlled E-Health Record but the motivation behind it is right. An easily accessible database that ensures medical professionals have access to all of our medical activities should, if utilised correctly, reduce the enormous amount of waste and duplicate activities that drain federal and state health budgets. It also should help reduce mistakes caused by patients forgetting what previous symptoms they’ve had or drugs they’ve taken.

Why is it so important? Because health spending is forecast to rise to 12.4 per cent of GDP in the next two decades. That’s on top of a 40 per cent rise in healthcare costs per capita since 1997.

A review by the National Health and Hospitals Reform Commission found that in Australia each year, the equivalent of 350 jumbo jets crashing and killing all on board is attributable to highly preventable medical ‘adverse effects’ – things like bad reactions to medication, incidents of infection, and medical device problems. Aside from the terrible human toll, these events can account for up to 15 per cent of a hospital’s costs.

More complete records such as the PEHCR will hopefully reduce such incidents.

But there are many more ways for our tax dollars to be better put to work. One new private hospital – Medica Centre in Sydney’s South – is seeing huge efficiency gains from simple management tools like inventory control and more effective scheduling of surgeries.

Medica Centre uses a highly technologically advanced dispensary called Pyxiss to allocate products for a surgery. Nurses must fingerprint scan to access items, and a computer will only let them take the exact number of products as defined by the surgeon. That means the hospital can track costs by surgeon and by patient, something they say is a first in Australia.

Clinical director Matt McKay says that for the first time he truly knows what a procedure should cost. At his former employers in both public and private hospitals, the best figure he could get for a procedure like a knee arthroscopy was $250 per patient in terms of consumables like bandages, syringes, sutures and the like. That was a figure derived by simple stocktaking. After a year using the Pyxis system, McKay now knows that figure should be closer to $500. The knowledge allows McKay to be far more effective in monitoring which surgeons overuse products, and react accordingly. He’s also using just-in-time ordering to reduce working capital.

If such inventory management existed in a competitive business, the company would have been sent broke long ago. But in the health sector, those costs get shifted onto the patients, the insurers or the taxpayer.

A report by the OECD suggests that as much as 42 per cent of costs could be cut from common hospital procedures. Australia’s Productivity Commission says that figure is about 25 per cent. Matt McKay at Medica Centre says that so far, he has seen an increase in efficiency of 30 to 40 per cent, not only from managing his inventory better but also scheduling his surgeries to minimise theatre turnaround times. One surgeon has become so efficient that he has that number down to two minutes, and can do an arthroscopy in 20 minutes. By comparison, another surgeon takes up to an hour for the same procedure, and 20 minutes between them. That means more nurses, more downtime and higher costs.

As a private hospital, Medica Centre can pick and choose what surgeries it will take, and what doctors will do them. Good doctors like to work there because the quicker they can get patients through, the more money they can make.

The public sector has little choice in either doctor or patient. But that doesn’t mean it can’t use some private sector ideas to save money along the way.