Thank you to CEDA for the opportunity to present the first in a series of headland speeches on health I will deliver this year.

Australia is well served by CEDA, particularly given your uncompromising approach to a public discourse helping to shape the future of a young nation. A nation which has achieved so much and one which has the maturity to address our challenges and leverage off our democratic beliefs to serve our people well for generations to come.

Today I ask you to help steer our country to a frank, fearless and far reaching discussion on our health system.

Why?

Well, partly the answer lies in the latest statistics on obesity and diabetes in this country.

The number of overweight and obese adults is rising steadily - 63 per cent on the latest 2011-12 figures. That's nearly two in every three adults classified as overweight or obese.

Like overweight and obesity, diabetes rates in adults have also risen over the past decade.

But obesity and diabetes are not just issues for adults. According to latest figures, in our country one quarter of children aged 2-17 years are overweight or obese.

Perhaps more alarming is data released today as part of a working paper by the Australian Institute of Health and Welfare, indicating that in 2012 there were 2200 children and young people diagnosed with type 2 diabetes, and that on average there are around 400 new cases of type 2 diabetes in children and young people each year.

It is unacceptable that 2200 that young people would be diagnosed with a disease that is lifestyle related.

Rising rates of obesity and diabetes may be the seeds of a future crisis - yet they are just two of several that we as a nation and society must confront.

So today I will seek to paint a picture of Australia's health system, highlighting why our 1980s model is tracking on an unsustainable path with no prospect of meeting the needs of the health of our nation in the 21st century.

In subsequent speeches, I will concentrate in more detail on some of the major issues I raise today - issues facing our nation and many nations within our region and across other developed and affluent western democracies.

But today, most importantly, I want to start a national conversation about modernising and strengthening Medicare and helping to heal our health system.

The public know not all is well with our health system.

They see it when they can't book a timely visit to the GP, and Shane touched on some of the reasons that is the case in his presentation. They feel it when they're given the bill for the out-of-pocket costs expenses for so-called elective surgery. They hear it through the stories of hidden waiting lists and inequities which shouldn't be tolerated.

Yet total expenditure on health care in Australia has increased by 122 per cent in the 10 years to 2011-12, when it totalled $140 billion.

That's around $6200 per person per year on average, or almost $120 a week for each man, woman or child. Only a decade earlier, the yearly figure was only $3300.

Our ageing population, medical technologies, genomics, dementia, obesity, mental health, personalised medicines - individually, each is a compelling case for action; collectively, they sound a call to arms - that to date our country hasn't answered.

Today our system is riddled with inefficiency and waste exacerbated by the involvement of two and, in some cases, three levels of government. A split function and funding responsibility has been the bane of every health minister since federation. I am the 45th such Minister, but just the latest!

In the lead up to the 2007 election, Kevin Rudd masterfully exploited the product of this system of dysfunction - which became known as the 'blame game'.

Putting more money into the system was largely successful until the Rudd/Gillard years, where in some areas more money actually produced poorer results and patient outcomes.

But this shouldn't come as any surprise. Bandaid solutions have masked the cancer within our health system as far back as the Hawke years. Clinicians, patients, system designers and managers, have been singing this tune for a long time.

My judgement is Australians demand only a few basics from their governments and then they are happy to get on with their lives.
Firstly, of course they want to feel safe and secure. Safe and secure in their own home, their job, their community and their country.

Next they want an economy in which they can be rewarded for effort. People want to work hard. Work hard for themselves, their families and ultimately for the country.

Ultimately for their country because they want - having provided for their own families' needs - to contribute to a strengthening of our society and to those without a capacity to provide for themselves.

Not surprisingly, they react negatively when they see their personal sacrifice wasted by those to whom they are contributing.

This particularly extends to profligate governments. People will contribute taxes but become frustrated when basic services are denied or are poorly designed in delivery.

This was the case during the 90s and early 2000s, particularly here in QLD and in NSW. Where basic state health services like hip replacements, cataract surgery and obstetrics became beacons of incompetence as they played out across the tabloids and on the nightly news - Dr Patel, mothers giving birth in common areas and toilets of public hospitals, all night waits at the emergency departments and elective surgery waiting times that outlasted patients.

The other jurisdictions didn't have the same poor results, with Victoria being the standout, largely because Premiers' Bracks and Brumby had been smart enough to leave in place the Kennett reforms. These reforms turned out to be the first signs of an activity-based model designed to eliminate waste and inefficiency.

In the end, though, it didn't matter. NSW and Queensland set the mood and perception for the rest of the country and everyone had or knew of somebody with a horror hospital encounter.

In part - this fed into the Coalition losing the 2007 election.

Prime Minister Rudd promised to fix the problem and during the campaign his pledge was to "fix" Australia's 750 public hospitals or to seek a mandate for the Commonwealth to take these hospitals over.

Dozens of hospital visits in white coats lifted expectation among the health professionals and a first class report was produced by the National Health Reform Commission headed by Professor Christine Bennett.

The hospitals weren't fixed and the takeover, of course, never came to fruition and ultimately Prime Minister Gillard signed a deal with the states securing significant funding but unfortunately a business as usual model, save some modest improvements.

In 2009, Christine Bennett described our health system as one which, and I quote, "faces significant challenges, including large increases in demand for and expenditure on health care, unacceptable inequities in health outcomes and access to services, growing concerns about safety and quality, workforce shortages, and inefficiency."
And so we find ourselves in 2014 with a compounding of those issues.

Before you decide whether you agree with me that the time to act to fix our health system should not pass us by again, please consider the following:

One-third of Australia's burden of disease is due to 'lifestyle' health risks such as poor diet, obesity, physical inactivity, smoking and alcohol misuse.

Several types of cancer that cause premature death have increased considerably over the last 20 years. Premature death from bowel cancer is up 18 per cent. Diabetes is up 40 per cent. Alzheimer's disease is up a staggering 170 per cent.

As well, not everyone enjoys the same high quality health care, with generally poorer health outcomes in the most socio-economically disadvantaged groups; for people living in rural and remote areas; and in Aboriginal and Torres Strait Islander communities - which is still this nation's most confronting health challenge.

Whilst compared to other developed countries, we have a system that delivers - the cost of that delivery is coming at an increasingly hefty price tag for taxpayers.

There's been talk about simply increasing the Medicare Levy to solve the sustainability issue, which is not to speak ill of Steven's suggestions. Let me just say here - if we were to increase the Medicare Levy to cover the entire cost of the Commonwealth's health budget, it would have to increase to 9.5 per cent. Which for somebody on an average wage of $77,000 would mean a tax of $7200 a year.

Either way, individuals end up paying for their health care - whether it is directly or indirectly through the tax system. To reap the benefits, there's always a cost - and I think most Australian taxpayers understand this.

As I mentioned at the outset, total expenditure on health care in Australia was $140 billion in 2011-12 - an increase of 122 per cent in 10 years.

Governments contribute the great bulk of this funding - meeting around 70 per cent of costs - while individuals directly contribute around 17 per cent towards the cost of their own health care through out-of-pocket payments.

In the Mid-Year update, released by the Treasurer Joe Hockey, Commonwealth health expenditure is forecast to rise from $62 billion today to $75 billion by 2016-17. That's a year on year increase of around five per cent.

While the expenditure over the forward estimates is staggering, the real concern surrounds the long term sustainability of the health system, that as Australians we all love and deserve.

Doing nothing about sustainability is just not an option.

In its Intergenerational Report, the Treasury projects that, without any policy changes, Commonwealth health expenditure will balloon from its current 4 percent of GDP to seven per cent of GDP by 2050 - that's an estimated $685 billion. The report is effectively putting government on notice - that action is needed - and needed now.

In 2011-12, four areas of expenditure made up nearly three quarters of Commonwealth health expenditure:

• Subsidies to individuals for medical services through the Medicare Benefits Schedule (the MBS);

• Subsidies to individuals for pharmaceuticals through the Pharmaceutical Benefits Scheme (the PBS);

• Subsidies to individuals through the Private Health Insurance Rebate; and

• National Health Reform Payments to states and territories for public hospitals.

These components have been the largest contributors to health expenditure growth over the past decade.

Is this all because of the ageing of our society, as some may claim? No, of course not. But consider that at the start of this ten year block, we had 2.5 million Australians over the age of 65. Ten years later it was 3.2 million. Most telling is this number will be at 4.5 million in ten years time.

So ageing is one consideration. But the debate is not just about health care as we have known it and the ageing of the population as it has taken place over recent decades.

Future health care will increasingly be about personalised medicines for particular strains of cancer; or genomic testing showing a predisposition to breast cancer; or Alzheimer's and the patient's demand having known the outcome of that testing for early medical intervention. All costs which are not always factored into any forward estimate projections, and all in addition to the line items making up the $140 billion we will spend this year.

Let us then look at medical technologies - an incredibly important area. In most of your businesses, the advent of technology has meant efficiency gains, either through productivity or labour costs savings.

And yet in health we see robotic surgery, telemedicine, remote optometry examinations, diagnostic testing, to name but a few. All of which can undoubtedly result in better health outcomes but all of which come at enormous additional cost.

Again, costs not factored into the forward estimates. None of it is mechanised or sees a reduction in labour cost as we might see in other applications of technologies. And the expectation in our country is that we will be early adopters with minimal if any co-payment.

Medicare is an integral part of Australian society and I am determined to modernise and strengthen a 30 year old system - so that it can up to date and to work with evolving technology, including the very important e-health record and ever-increasing health needs.

But if it is to survive, let alone strengthen, then we must understand the pressure it is under. 
Spending on medical services through the MBS is spiralling in our country. We're spending more but actually getting less bang-for-our-buck. In 2002-03, the Commonwealth spent $8.1 billion on MBS services. Ten years later, in 2012-13, we spent $18.6 billion - that's a 124 per cent increase in a decade.

In 2002-03, that $8.1 billion of Commonwealth funding bought 221 million MBS services, but in 2012-13, the same spend would have only bought 150 million MBS services.

Services are becoming more expensive in real terms.

Unsurprisingly, the use of MBS services increases as people get older, with those aged over 65 accessing an average of 33 MBS services in a year, while younger people access around 11 services per year.

In terms of expenditure, the majority of MBS benefits - over half - go to people with concession cards.

Indeed a small group of patients account for a large proportion of MBS expenditure. In 2012-13, ten percent of patients accounted for 46 per cent of MBS expenditure.

It's a similar story with the Pharmaceutical Benefits Scheme.

Expenditure on the PBS is a growing component of Federal Government health spending, costing $9 billion in 2012-13.

Some medicines cost the Government as much as $17,000 per prescription, yet general patients will only pay $36.90 for this medicine and concessional patients pay only $6.

There is also a PBS safety net - where once a family with a concession card has paid $6 for each of 60 scripts in a calendar year then there is no cost beyond that to fill those scripts.

In 2012-13, 80 per cent of PBS expenditure was spent on people with concession cards.

As with the MBS, much of the money spent on the PBS is accessed by a small cohort of people. In 2012-13, 10 per cent of patients accounted for 58 per cent of PBS expenditure.

The focus of the Commonwealth should be on getting our primary care response right, particularly for the chronically diseased and the aged. We need to look at the payment models and the way in which we manage the most frequent users.

Another big ticket component of health spending is what the Government spends on public hospitals. The Commonwealth provides funding through a number of agreements with the States and Territories but the primary mechanism is through National Health Reform Payments, which totals more than $13 billion in 2013-14.

The problem is we have wild variations in hospital outcomes across the States and Territories as highlighted in the most recent AMA Public Hospital Report Card. Clearly central offices who are centric in their approach and control of monies are not getting that money through to frontline services.

It is important to note that the Commonwealth also funds public hospital services through the MBS. Much of the debate about the share of public hospital costs that are met by the Commonwealth fails to take this contribution into account.

With respect to private hospitals, the Commonwealth subsidises these services through the MBS and the private health insurance rebate.

The universal health system means that there will always be value in leveraging people into supporting their own health needs in the private sector. Picking up nearly 100 per cent of the cost in the public setting makes no sense for the taxpayer when the patient is prepared to contribute to their own costs.

This is where the role of private health insurance is so important.

It is estimated that governments across the federation contribute around 35 cents in the dollar for private hospital services. This includes contributions from the Commonwealth through both the MBS and the private health insurance rebate, and contributions from state governments.

By contrast, Commonwealth and state governments contribute 92 cents in the dollar for those treated in the public system.

Therefore one important job of the Abbott Government is to grow the opportunity for those Australians who can afford to do so to contribute to their own health care costs.

The Government also has a role in ensuring that private health insurers can operate in a strong economy with regulatory certainty - because this is the best way to keep costs low and to foster innovation.

So, what does it all mean?

It means that, in the past ten years, we have seen the cost of the MBS increase 124 per cent, the cost of the PBS increase 90 per cent and the cost of public hospitals increase 83 per cent and you saw the graphs presented by Shane Solomon earlier, there is no flattening in the growth over the forward estimates.

If we do not start to build sustainability now - in a planned, cohesive, controlled and measured way - sudden adjustments may well be forced upon us as has recently occurred in many OECD countries in large part because of the Global Financial Crisis.

This is not the way to make good public policy. It resulted in large cuts in government expenditure in some of these countries.

Doing nothing about sustainability is not an option.

The inescapable reality is that we must work with the fiscal environment we have inherited.

We must be constrained in the way we approach new policies. We must be innovative. We must focus on consumer needs in a sustainable and sensible way. And, fundamentally, we must not add cost.

This means we must live within our means - strongly focusing on delivering long term sustainable growth, though improved productivity - a word which has largely been missing from public debate in the health space in recent years.

I believe significant productivity gains can - and must - come through a combination of improved public sector efficiency and bold new ideas from the private sector.

The private sector has a key role to play to ensure the required productivity gains are realised, including through innovation and technology.

The Government wants to encourage innovation - and I am pleased to see it happening.

Why shouldn't we be open to greater involvement of the insurers, who cover 11 million Australians, to keep those people healthy and getting more regular access to primary care?

Private insurers have as much interest as I do in helping people avoid inappropriate admissions to expensive tertiary hospitals.

Why should we see the private sector involving itself in public services as a bad thing?

We should be leveraging the private sector, not just for services, but to meet workforce training challenges.

The private sector has the runs on the board in terms of innovation and efficiency and that is the key reason that I confirm today our $40 million commitment to support additional medical intern places in non-traditional setting such as private hospitals in rural and regional areas.

The Coalition is interested in policies which offer longer-term system reform, making smarter use of funds to provide better care.

We need to look at aligning incentives and systems to make value for money choices, the easiest choices.

And we need to look at increasingly moving from managing supply, as measured by the volume of services provided, to managing demand, as measured by improved health outcomes.

At the same time, we will ensure that those who are least able to look after themselves, will in fact be looked after.

At the moment we are awaiting the findings and recommendations of the Commission of Audit and we will respond accordingly. It will be a tough first budget, and I don't think any Australian is surprised by that and in fact that is part of the reason that the Coalition was elected in September of last year, to make sure that we can get the finances of our country back on track.

But the Australian public need to know the facts and I hope that my presentation today has provided some of those facts. I want to finish with what I think is an eloquent quote from the Commission of Audit that was presented to John Howard when he came to Government in 1996, facing a similar situation that the Coalition faces today.

In their opening remarks, the commissioners declare that: "Efficient governments are not less compassionate. Unless a government uses resources prudently, its ability to achieve social policy goals will eventually suffer as the need to correct financial mismanagement becomes more important.

In such cases, all of the community, including the most vulnerable members, end up paying."

Thank you very much.

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