HUNG PARLIAMENT, HEALTH & THE PBS

 

At a Glance

The possibility of a hung parliament and a minority Turnbull Government potentially has major implications for the health portfolio, health stakeholders and the PBS.

When you take into account there will be a more fractured Senate it’s safe to draw the conclusion that health care stakeholders will have to play a more nuanced game in their engagement with Canberra.

Labor’s ‘Save Medicare’ campaign has done more than just win seats for the ALP.

The ‘Save Medicare’ campaign has fundamentally reshaped the debate on health and the ability to achieve health reform.  It has ensured health policy will be a key focus in the new parliament.

This has profound consequences for all healthcare stakeholders and the PBS in particular.

The New ‘Mediscare’ Environment

Labor’s Medicare campaign, or ‘Mediscare’ as the Government calls it, has altered the political policy parameters upon which the Government can seek major health policy reform.

The Government was already facing a major fiscal challenge in health and reform has just got a whole lot harder with the new parliament.

Consider this…

Total health spending for 2016/17 is estimated to be $71 billion of which the major expenditure items are:

Medicare $22.0 billion
Assistance to the States $18.0 billion
PBS $11.5 billion
PHI Rebate   $6.5 billion

In addition to this, the Government announced a review of its December 2015 decision in regards to diagnostic and pathology rebates – costed at saving $650 million over the 4-year budget estimates.

After a campaign by pathologists the Government announced they will implement regulatory changes but remain committed to achieving the savings.

The Coalition is also seeking to save $1 billion over the 4 year estimates by introducing a PBS co-payment.  (This measure will continue to be opposed by Labor).

During the campaign the Coalition committed to $400m in new health spending over the 4-year budget estimates.

In addition to this, the Government looked to save $423 million over 4 years through changes to the Medicare safety net arrangements.  (This is also opposed by Labor).

In summary the Government face the following challenges: 

  • A stalled Medicare review, and hence stalled savings
  • $423 million in changes to the Medicare safety net arrangements, opposed by Labor
  • $650 million in pathology and diagnostic imaging rebate changes opposed by Labor
  • $1.0 billion in PBS co-payment savings opposed by Labor
  • $400 million in new Government health portfolio spending

The Governments basic starting position in health is to find $2.4 billion, over the 4-year budget estimates to fill a hole in the health budget.

And think about this… what is the one major program over which the Government can exert some discretionary spending control?  The $11.5 billion spend on the PBS.

The PBS now in Play

With the impending fiscal challenge in health, coupled with the new parliament, the one area where the Government can exercise some spending restraint is the PBS.

At its simplest, the Government can slow down drug approvals for listing on the PBS.  But how would it balance this against loud calls by both the Greens and ALP in particular to make drugs available to the community sooner rather than later?

Alternatively, it could seek to implement further PBS reforms to drive even greater savings over and above the PBS sustainability package from 2015.

Remember this, the pharmaceutical industry does not have a Memorandum of Understanding (MOU) with the Government.

With a likely hung parliament, the Government have even less incentive to implement one, unless of course the industry wants to stump up even more savings that the Government will now be desperately looking for.

It is interesting to note the crossbenchers are already starting to make demands.  These demands are likely to continue in the ensuring weeks. Who knows what these demands may look like and what the collective cost will be?

Imagine this…what would stop a key crossbencher from seeking to have a particular drug listed at the expense of one that may have been in the queue for quite some time?

Expect the unexpected is the new paradigm.  Political expediency could now replace considered process and the PBS could well become a bargaining chip in the new parliament.

‘Mediscare’ – The End of Health Reform?

Labor’s campaign on Medicare has exposed a community that already believes it pays it fair share for healthcare services.

This has profound consequences for any Government seeking to reform the healthcare system. The consequence being, it is far more difficult to introduce either a greater role for the private sector or market based pricing signals.

The consequences are as follows: 

  • The PBS copayment – is dead
  • Changes to the Medicare safety net – is dead
  • Changes to the pathology and diagnostic imaging rebate – are dead
  • The Medicare item review – most likely is dead

Everything a returned Turnbull Government seeks to do in regards to health reform will be calibrated against the fear of another ‘Save Medicare’ campaign.

Labor’s campaign has done to the Turnbull Government (in regards to health reform), what their workchoice campaign did to the Liberals in 2007.  They are now scarred from the experience and will tread very wearily in regards to healthcare reform.

It leaves the Government little room to move and existing programs where the Government can exercise some discretion will come under increased focus to find savings.

The mere mention of the words ‘health reform’ by the Government will leave them open to a potent political attack from Labor.

This has profound consequences for future healthcare policy.

With the PHI review announced in the federal budget, coupled with the Government’s desire to reform the prosthesis list, stakeholders in both industries will need to approach these reviews very carefully in light of the new political environment.

Messaging will become critical and engagement with Canberra will need to be well thought out.

The Senate will become a key focus, as no doubt any number of inquiries into health related policy issues will now be instigated.

Senator Xenophon has already flagged an inquiry into private health insurance and by extension the medical device industry.  More are sure to follow.

Conclusion

There is nothing like a good scare campaign to frighten a Government off major reform and Labor has achieved this in spades.

The electorate has spoken loud and clear, they don’t want to pay more for healthcare services and ‘free’ access to Medicare is seen as a right and not a privilege.

‘Mediscare’ has put a cold shiver down the Governments spine when it comes to healthcare reform.  A number of health reform options the Government were counting on to achieve savings are now dead in the water.

The implication will be major spending programs like the PBS, (one of the few programs the Government can control spending in health) will be under intense focus to find savings.

In the absence of a MOU, the pharmaceutical industry is particularly vulnerable to the horse-trading that will inevitably play out in the new parliament.

Likewise, other healthcare stakeholders in the PHI industry and medical device industry are also similarly vulnerable in this new political environment.

The only certainty now, is uncertainty.  Political risk will be at an all-time high and managing it will become not a choice but a necessity.

Welcome to the new paradigm, may the political games begin!!

For more information in regards to this or any other public affairs issue you may require assistance with, please don’t hesitate to contact me.

Jody Fassina|Managing Director|Insight Strategy

M: (0405) 103 493

E: Jody.Fassina@insightstrategy.com.au

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