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Health Investment Funds

Country: 
Australia
Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
(12) 2008
Author(s): 
Kees van Gool
Health Policy Issues: 
Funding / Pooling
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no no no no

Abstract

Since 1997, the Australian Government has been running budget surpluses. Initially, surpluses were used to pay off public debt, but since 2006 the government has been debt free. Since then, a number of funds in which to invest future surpluses have been established. The aim of these funds is help meet future government liabilities. In the last year, one such fund has been established in the field of health care. This report details the purpose of this fund.

Purpose of health policy or idea

The previous Government promoted the idea of establishing funds as a vehicle to invest future budget surpluses. In August 2007 it announced the first of such funds in the field of health care. The aim of the Health and Medical Investment Fund is to generate ongoing returns each year that can be used to fund new health care facilities and equipment. The Fund was not intended to replace ordinary expenditure on health services by government.

 

Main points

Main objectives

The fund will support future health infrastructure priorities, including investments in:

  • health and hospital facilities and equipment as part of the Government's health reform agenda;
  • medical technology and equipment;
  • major medical research facilities and equipment, including projects and facilities which will support better links between hospital-based clinical research and high quality clinical practice.

Type of incentives

The details of how funds can be accessed are not yet clear, although the establishment of previous investment funds provide some guidance on how such a fund is likely to operate.  For example, a similar higher education fund seeks expressions of interest (EOI) for potential projects.  The EOIs are assessed on the basis of a common set of principles and criteria.  In the past, panels have made recommendations for funding to the Minister at arms length.

What is not clear is how state and territory governments will respond to the establishment of the fund.  It is possible that state and territory governments (who have historically had considerable financing responsibility in this area) will redirect resources away from areas covered by the Fund.

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Characteristics of this policy

Degree of Innovation traditional traditional innovative
Degree of Controversy consensual consensual highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent system-neutral system-neutral

Whilst the Australian Government is in the fairly unique position of having budgetary surpluses, the idea of creating investment funds for specific purposes can be transferred to other health care systems.  Indeed, this is achieved in many other countries through endowment funds and foundations often administered by charitable organisations. 

The politics of this policy has been consensual as demonstrated by its survival following a change in government.  Still, if implemented correctly, it could represent a signficant new way forward in making more rational and coordinated choices about new health care investments.

Political and economic background

Over successive years the previous Australian Government has been able to produce significant budget surpluses.  Initially, budget surpluses were derived from prudent economic management.  Subsequently, the Government  has relied on high tax revenues obtained primarily through strong economic growth and the mining boom.

After paying off public debt in 2005/06, the Government started to look at options for directing future surpluses.  In the first instance, it set up the Future Fund; a government investment fund set up to pay future pension liabilities for Australian public servants.

The previous Government announced the establishment of a Health and Medical Investment Fund in the lead up to the 2007 federal election, with an initial investment of AU$2.5 billion and with a view to add proceeds from the sale of Medibank, a publicly owned private health insurance company.

The Health and Medical Investment Fund is a vehicle to invest future surpluses and direct government financing flows in the years to come.  The policy should be seen as part of an overall macro-economic policy to protect future generations from higher taxation burdens.  In addition, articulating the intended purpose of these funds will make it politically harder for future governments to re-direct  finances.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no no no no

Origins of health policy idea

In 2002 the then Treasurer, the Hon. Peter Costello, released the first Intergenerational Report.  This report made long term forecasts of government expenditures to identify areas that are likely to excert greater pressures on government finances in future years.  The report identified health care as a major growth portfolio. 

A savings account for future generations

Since the release of the report, the Government has initiated a number of policy responses to deal with increasing health care costs.  Some policies have been implemented  to curb expenditures (see for example a previous report on pharmaceutical reforms).  In this instance, the government is attempting to transfer  the current generation's wealth to future generations through the establishment of investment funds.

Initiators of idea/main actors

  • Government
  • Providers
  • Private Sector or Industry

Stakeholder positions

This policy fullfilled the macro-economic objectives of the previous government.  It transfers wealth from the current generation to future generations to help deal with increasing costs of health care.  As such, this policy is as much economic policy as it is health policy. 

The policy also suited a political agenda.  The announcement came in the months prior to the Federal election, and at the time, the Government was coming under considerable pressure over its reported neglect of public hospitals.  In many ways, the Fund was designed to stymie those criticisms.  In addition, it also allowed the government to argue that the proceeds from the intended sale of Medibank (a publicly owned private health insurance fund) would be directed to public hospitals.  The sale of Medibank had been a political negative for the Government.

Debate about spending and investment criteria

The Australian Medical Association was in favour of the fund but argued very early on that the fund should not add red tape.  The AMA further argued that it wanted an independent body with intimate knowledge of hospitals and medical practice to assess all future applications to ensure the money is allocated on the basis of genuine health need and not other considerations.  Presumably, this means that the AMA does not want economic considerations to determine allocations.  Subsequent to the 2008 budget announcement, the AMA also argued that some of the funds should be directed towardscreating new medical training places.

Medicines Australia (an association representing pharmaceutical companies) has been supportive of the initiative as the fund will invest in new research facilities.

Actors and positions

Description of actors and their positions
Government
Treasurervery supportivevery supportive strongly opposed
Minister for Healthvery supportivevery supportive strongly opposed
Providers
Australian Medical Associationvery supportivesupportive strongly opposed
Private Sector or Industry
Pharmaceutical Associationvery supportivevery supportive strongly opposed

Influences in policy making and legislation

Legislation for this policy is pending.  Following a change in government in November 2007, the Health and Medical Investment fund has been renamed the Health and Hospital Fund.

In its first budget, the new government announced that it would invest AU$10billion into the fund and that future contributions would be made if appropriate. 

It also announced that expenditure from the Fund will be subject to consideration through the Budget process each year.  This appears to be a change from the previous Government which had indicated that decisions on annual spending from the Fund will be made on advice from a panel of expert advisers led by the Commonwealth Chief Medical Officer following a competitive application process.

Also, whilst the previous Government announced that the capital in the fund will be protected to ensure that ongoing investment returns will be available, the new Government has not made such an undertaking.

Actors and influence

Description of actors and their influence

Government
Treasurervery strongvery strong none
Minister for Healthvery strongvery strong none
Providers
Australian Medical Associationvery strongweak none
Private Sector or Industry
Pharmaceutical Associationvery strongweak none
Pharmaceutical AssociationTreasurer, Minister for HealthAustralian Medical Association

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Legislation on this proposal is not before parliament at this stage. Thus details on how the fund will operate are not yet clear.  The Government has announced that the funds will be allocated through the federal government's budget cycle, due in May of each year.

Monitoring and evaluation

No plans to monitor or evaluate the impact have been announced. However, it should be possible to monitor the outcomes of the policy as well all aspects of the process.

Expected outcome

Intended outcomes

There is little doubt that numerous public hospitals need urgent updating of key infrastructure.  In this regard, the fund is a welcome inititative.  The Government argues that it is the biggest single investment in the hospital sector.  However, given the nature of the fund, it will not be a single investment (rather a series of projects) spread over a considerable time period.  In terms of overall health care funding, Australia spends approximately AU$94 billion a year on health care, of which approximately AU$5.2 billion is spent on capital.  Importantly, the Federal Government's direct contribution towards capital expenditure is only $132 million (or 2.5%).  Thus, the investment income would, under normal circumstances, represent a signifcant increase in the Federal Government's contribution on capital and infrastucture projects.

Unintended outcomes

There are a number of potential risks associated with the Fund.

  1. Firstly, annual proceeds of the fund will be dependent on the performance of its investment strategy.  This will mean that the fund's proceeds will be driven by market outcomes.  It is perhaps for this reason that the new Government has not committed itself to protecting the capital investment, leaving the way open to dip into the fund itself to smooth out market volatility.
  2. Second, there is a risk that state and territory governments will reduce their capital investments.  The Federal Government needs to put in place agreements and processes with other Governments if it wants to ensure that the Fund contributes new money, rather than substitutes for existing expenditure.
  3. Thirdly, the processes for allocating projects need to be made clear, and decision-making needs to be transparent.  Successive Australian Governments have previously been accused of favouring projects located in politically sensitive areas - rather than based on clearly articulated criteria.  That said, current processes for capital investments under the auspices of state and territory Governments are not always clear and rational either.
  4. Fourthly, new capital injection usually requires new staff and new skills to be able to run and maintain facilities.  This may place an additional burden on already overstretched public hospital budgets.  This will require careful monitoring and evaluation, and if necessary, funding adjustments.  To minimise this risk, the Federal Government should perhaps favour projects that drive efficiency within the hospital sector.

Impact of this policy

Quality of Health Care Services marginal rather marginal fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low neutral very high

It is perhaps too early to tell what the impact of this policy will be.  It will depend on a number of unknown factors mainly to do with how funds will be allocated.  If done properly and projects are funded on the basis of a clear set of criteria that includes economic considerations,  and the risks identified above are minimised, then this initiative could have a positive impact on the Australian health care system.  A coordinated approach to large-scale national health care infrastructure is needed to break down some of the existing fiefdoms.

References

Sources of Information

Costello, P. Intergenerational Report, Australian Treasury, Canberra  2002  www.budget.gov.au/2002-03/bp5/html/index.html.

Costello, P. Intergenerational Report, Australian Treasury, Canberra  2007

Costello, P.  Preliminary 2006-07 Budget Outcome and Surplus Transfers, Australian Treasury, 2007.

Abbott, T.  Media Release (ABB105/07)   "Health and Medical Investment Fund" , 21 August 2007

 Roxon, N. Budget Media Release - "Investing In A Health System For The Future" 13 May 2008

Chalmers, I. Media Release (Medicines Australia). "New Health and Hospitals Fund Welcomed", 15 May 2008

Capolingua, R. Media Release (AMA).  "New Fund Should Buy Medical Equipment and Services, Not Red Tape and Administrators", 21 August 2007.

Author/s and/or contributors to this survey

Kees van Gool

Suggested citation for this online article

Kees van Gool. "Health Investment Funds". Health Policy Monitor, October 2008. Available at http://www.hpm.org/survey/au/a12/2