Productivity Commission chair Michael Brennan says private health insurers have made progress on preventing hospitalisations through prevention but "existing risk equalisation arrangements dull the incentive for insurers to perform this role more broadly".
The Commission has released Mr Brennan's comments to a recent roundtable hosted by the Australian Healthcare and Hospitals Association's (AHHA).
He said while "everyone seems to agree" on the importance of patient-centered health progress towards achieving the outcome is slow.
"It’s easy to attribute that to vested interests, but it is most likely more complex than that," said Mr Brennan, adding the case for change is "certainly strong".
He said improving health outcomes would have a significant impact on productivity, highlighting the fact people in poor health work fewer hours than those in excellent health.
"Mental illness has a particularly adverse effect on people’s capacity to participate in work and life as we are discovering in our current Mental Health inquiry," said Mr Brennan. "Since many mentally ill people are young, the lifetime effects are very pronounced."
He said Australia’s health system delivers high life expectancy and very high healthy life expectancy for a comparatively low spend as a share of total Gross Domestic Product.
However, he said there is the "lingering suspicion" the system has a funding incentive to expand the use of the highest cost part of our system, such as some acute hospital episodes, which could have been avoided through prevention or alternative pathways.
"It’s also true that many parts of our system have important in-built safeguards around cost-effectiveness, but still don’t fully guarantee that we get the right outcomes," said Mr Brennan.
"Think of the Pharmaceutical Benefits Scheme (PBS): we have a robust test of clinical efficacy and cost effectiveness at the listing and pricing stage, but much less assurance about whether prescribing decisions are optimal, and whether patients fill their prescriptions and use the drugs correctly (or at all)."
The Productivity Commission boss said the system requires stronger incentives for coordination, including a system that rewards GPs for working to avoid patient hospitalisation, including "fewer boundaries" to cooperation "across primary health (GPs with nurse practitioners, dieticians, pharmacists and the like) and between the primary and acute sectors".
Mr Brennan also said that, while private health insurance has "some challenges, both from demographics and from health price inflation...one of the things our insurers have made some progress on is innovative efforts to reduce hospitalisations through preventative programs."
"Sadly the existing risk equalisation arrangements dull the incentive for insurers to perform this role more broadly," he said. "But this could be overcome with careful policy design."
Mr Brennan said the health system does not encourage interventions that prevent hospitalisations.
"This is not a call for managed competition. The Productivity Commission looked at this in Shifting the Dial and concluded it was too big, disruptive and risky a change, for very unclear benefits.
"But we should think hard about PHI, its policy settings and the private health sector more generally not least because it could play a greater role as part of a more integrated, patient centred system."