Rolling Back Socialized Medicine


With the election of Jimmy Carter to the presidency, the prospect of national health insurance or some other form of Federal takeover of medical care looms ever larger. In Australia, however, a lesson in how to fight such programs—and make headway—has been provided by militant libertarian doctors.

Australian newspapers last August headlined a plea by Gough Whitlam, the former Labor prime minister, for members of his party to forego the significant health insurance savings they could achieve with private companies—and to patronize the more expensive government program, Medibank. Whitlam claimed that the private companies would use their financial reserves to price Medibank out of the market. Once Medibank had been destroyed, he said, the private funds would raise their charges and make "monopoly profits."

This was perhaps the strangest charge to come out of the battle for socialized medicine in Australia, revealing both Whitlam's gross economic illiteracy and his ignorance of the extent of the reserves of the private companies, which amounted to only about two months' liabilities. The battle began in 1968, when a group of dissident general practitioners split off from the Australian Medical Association to form the General Practitioners Society in Australia (GPSA). It escalated in 1972, when the socialist Labor Party won control of the federal government after spending 23 years out of power. The past four years have seen the full establishment of socialized medicine in Australia—and for the first time in the Western world, its partial desocialization.

Few would have foreseen such success when the Labor government rode to power under Whitlam in 1972. During the campaign, one of the major Labor Party planks was a demand for universal, almost-free health services. The original plan called for the government to pay 85 percent of a governmentally approved fee for visits to doctors, to be financed by a 1.75 percent levy on all incomes. Conservative opposition, led by the Liberal and Country parties, succeeded in stalling implementation of the measure until July 1, 1975. The version that took effect was financed from general revenues instead of a new levy.

With the advent of the conservative Liberal and Country parties to power late in 1975, labor unions raised cries of protest against proposed changes in the Medibank program. Indeed, they managed to frighten the newly dominant Liberal Party into continuing to let Medibank compete against private funds on all forms of health insurance. Yet the principled stand taken by a relatively small group of general practitioners, the GPSA, had changed the climate of debate. When the clock was "turned backwards" on Medibank last October 1, the GPSA deserved a large share of the credit. Even though Medibank continues to be financed by a 2.5 percent levy on incomes (up to a $300 maximum per family), Australians now have the opportunity to avoid the levy by insuring instead with a private fund.

The savings are dramatic. Much to former prime minister Whitlam's disappointment, the private funds have undercut Medibank by up to $100 a year on the more expensive coverage. Whitlam's call for his supporters to deal with Medibank at such cost has fallen on unreceptive ears; socialists, it seems, are as reluctant as anyone else to fork out needlessly large sums of money, so long as the money is their own.

Australia's health insurance industry has always been government controlled. When Labor came to power, it could rightly point to an ossified industry with every firm offering exactly the same services at exactly the same prices, to say nothing of an obviously inefficient proliferation of health funds. But not only had the lack of competition—due to government licensing and the fact that it effectively dictated charges and services by subsidizing benefits—produced an inefficient uniformity, it also perpetuated what was, and still is, a subsidy rather than insurance operation. Funds would pay out a percentage of all medical bills—even if only $3.50. True insurance, which would have paid only when medical bills for a year totalled more than some agreed figure (say $300), has never developed in Australia. By eliminating the enormous quantity of paperwork entailed in processing every medical bill in the country, such a plan would save consumers hundreds of dollars per year.

This approach has been widely pushed by the GPSA, but has fallen on deaf ears, especially among Liberal Party politicians who proudly tout their devotion to free enterprise and competition. Despite this failure to date, the existence of the GPSA made it possible for the Liberals to make an election issue out of Medibank. The example of the GPs' Society, and the initiatives it developed in order to protect doctors from government control, made it possible for the AMA, the other medical bodies, the health funds and eventually the Liberal and Country parties, to not only oppose Medibank but undertake to dismantle it.

The GPSA was formed in 1968 when a group of young general practitioners met at an AMA conference and decided that a body was needed specifically to represent the needs of general practitioners. One of the founding members, Dr. Peter Arnold (who fled South Africa the day of his graduation to avoid being interned for student activism), recalls that he initially thought any such organization "should be part of the AMA. Bruce Reading, by detailing the constitution of the AMA and its state branches, rapidly reversed my opinion." Reading showed Arnold how the AMA was ruled by a self-perpetuating body of medical politicians drawn mainly from the ranks of specialists. Although elected, AMA officeholders were elected by state committees, which were in turn elected by regional committees, which were then elected by the members. Thus, any group within the AMA would find it all but impossible to influence AMA policy—let alone overthrow the leadership. The result was the formation of the GPSA.

Arnold's and Reading's main grievance with the AMA was that it tended to ignore the interests of GPs, which they saw as radically different from those of specialists. Thus, membership of the GPSA was restricted to general practitioners in private practice, and all issues, including the election of officials, could be voted on by all members—either by attending the annual conference or by referendum. In its eight years of existence, it has developed an extensive and formidable array of tactics which enable doctors to remain free of government controls—regardless of what type of government health scheme exists—and has led the political battle against government interference.

Medibank was not a bolt from the blue. It was, rather, merely the logical extension of the medical system built up under 23 years of Liberal rule. Like the United States, Australia has many doctors who emigrated from Great Britain because of the National Health Service. As Duncan Yuille, former General Secretary of the GPSA and now a Governing Director of the Workers Party (the Australian equivalent of the Libertarian Party) puts it, "I've seen it all before." Hundreds of these doctors form a significant part of the 2,000 members of the GPSA. The fact that so many people had seen it happen abroad—and could see it happening again in Australia—gave the GPSA an initial impetus which still sustains it. Even today, only one of the three leading figures in the society is Australian-born.

The most important step on the road to Medibank, says the society, was the "Gorton Scheme" of 1969. John Gorton, then (Liberal) Prime Minister, promised in that year that no operation would cost more than $5. The government, via the funds, would make up the rest. "This scheme effectively eliminated the joy of being a general practitioner," says Duncan Yuille. "If it's only going to cost you five dollars, no matter whether a GP or a specialist treats you, who are you going to want?" The answer, of course, was the specialist.

To go to a specialist, and get the fund benefits, the patient in Australia must have a note from a General Practitioner. Thus, the GP became a signpost, treating colds and sniffles and sending everyone else off to see the specialist. "Every GP has a speciality," says Yuille, "and it's that that makes the practice of medicine exciting." In his own case, Yuille specialized in obstetrics. As a GP, he charged $60 for a delivery. The specialist charged $120. A quirk of the Gorton scheme—which almost halved the number of doctors practicing as GPs within two years—was that the $5 maximum the patient would have to pay applied only when he went to the specialist. The government and fund payout for delivering a baby when done by the specialist would be $115. When the patient's baby was delivered by the GP, she could only get back $40 of the $60 she was charged. In the space of two years, thousands of GPs called themselves specialists and made double the money they could make before.

Thanks to an oddity of the Australian constitution, doctors cannot be forced—as they were in Britain—into Medibank. A 1946 amendment, which gave the federal government power to legislate for social services, fortunately included the words "but not so as to authorize any form of civil conscription." This means that the federal government is virtually powerless to regulate doctors directly. Prices cannot be fixed, services designated, or standards proscribed or enforced. But through its power of the purse, and the willing compliance of the AMA, the government has gained considerable powers.

Denied the possibility of conscription, Labor attempted to buy doctors into the scheme and then compete them out of business. The Labor government established a number of "Community Health Centers," staffed by salaried doctors who were paid more than the average GP could hope to make, with substantial fringe benefits such as pension rights, cars, 9 to 5 hours—and overtime if forced to work "beyond the call of duty." And as if to blatantly announce its intentions, the first two centers were established in Vaucluse and Toorak, the wealthiest suburbs of Sydney and Melbourne respectively—both areas with the highest per capita supply of doctors in the nation!

The community health centers won some doctors away from other pursuits. The second method by which Labor attempted to win control over doctors was through bulk-billing. Doctors could choose (as they could not be forced) to send all their bills directly to Medibank, and receive payment of the government's "common fee." They would, Labor argued, save on postage, printing, administration, and bad debts by so doing. If they could sell this system to enough doctors, Laborites knew they would be able to set fees and conditions throughout the country.

The GPs' Society had foreseen something like this happening many years before Labor put it into law. One of its first tasks was to discover just what the law said, and how the Society could use the law to protect its members. GPSA leaders realized that the heart of their fight was money—he who paid the doctor would call the tune. By refusing to take money from the government—and by making it impossible for the government to come in by the back door of controlling payments via patients—the Society developed the means whereby any doctor who chooses can remain completely free and independent of any government directives—both now and in the foreseeable future.

The key is the doctor-patient relationship. "The doctor is a trader" is one of the principles of the society, voted to that status by the members at a postal referendum, and this means that the contract between the doctor and the patient is between the doctor and the patient and nobody else. The Society's lawyers drew up a simple contract that doctors could ask their patients to sign, in which this relationship was made explicit, and the patient acknowledged full and sole responsibility for the payment of fees. No third party—and because of the constitution, that "no third party" includes the government—can break into this contract. The government can subsidize the patient, but that subsidy always remains irrelevant to the doctor.

To ensure that the contract would always be fulfilled, many members of the GPSA asked their patients to pay cash. Most patients were, and are, happy to do so. The Society also advised its members to abandon existing health care plans of a Medibank nature—before Medibank itself came into existence, and even before Labor came to power. One such program was the Pensioner Medical Service, in which the government paid the fees of pensioners directly to the doctor. Most GPs who left the PMS today charge pensioners only what they will be refunded by the government or health fund, so that their move will not cause any hardship.

An advantage of this strategy was more price flexibility for the doctor. Prior to the existence of the GPSA, the AMA would negotiate with the government once or twice a year a new scale of fees. Government approval was necessary as the government could refuse to subsidize any fund which paid out benefits different from the agreed scale. In other words, the AMA required government approval of its new fee scale so that patients would be subsidized at that higher rate.

The GPSA advised its members to set their own fees. From time to time, it would publish advice about new fee scales—without, of course, notifying the government. In fact, one weekend, while the press was occupied with the latest AMA approach to the government, GPSA committee members worked at putting out and mailing a new fees list. They did not even let their office staff in on the move for fear that the word might somehow get out. The press did not even notice.

My own doctor tells me that he has "never before now practiced medicine in the way I wanted to." His patients phone at any time, and there is almost always a vacant appointment sometime the next day. Yet, every morning, the doctor has a full day. He has, in other words, priced his services at the rate at which supply and demand are about equal. The result is that patients pay more than they would elsewhere, but they get treated better too. Like most doctors, mine is usually running a bit late, but he can spend a full fifteen minutes with his patient and properly diagnose any troubles. Too many doctors—especially those who charge the AMA-government "common fee"—are run off their feet and have no time for anyone as a result. Mine has the time to treat patients, not just diseases.

The GPSA has been the focal point for the opposition to socialized medicine in Australia. By developing the tactics for personal and political use, it has enabled doctors who choose so to remain in private practice no matter what happens elsewhere. It has gained support from sympathetic people in the AMA, the health funds, drug companies, the general public—and even from a few politicians. By creating a political power base, it has forced politicians to listen, whether or not they want to hear. It has certainly influenced AMA policy; at one time, when Labor was close to putting the finishing touches on Medibank, it seemed that the AMA might adopt the GPSA's tactics holus bolus. The AMA had never really come to grips with the dangers that the government represented, because of its traditional ability to come to cozy agreements with whoever happened to be in power. With Labor, that didn't work. In searching around for another means of opposition, the association found that there was only one available in the time required: the GPSA's. In the end, the AMA opted for its traditional negotiating stance, but not before showing the government its willingness to consider other approaches.

Provided the government sticks to its present course, the private funds will quite probably reduce Medibank to a shadow of its former self. The government estimates that about 50 percent of all Australians will opt out of Medibank for private insurance. (Unfortunately, one cannot opt out of health insurance altogether.) If true insurance—covering only the excess after a certain minimum expenditure each year—is finally offered on the market, more Australians will flee Medibank, leaving only those who are truly poor—and those who wish to spend an extra hundred-odd dollars per year for ideological reasons. Even if this doesn't happen, to be the first Western nation to partially denationalize medicine is a singular achievement—and much of the credit must go to the GPSA.

While the GPSA may have made this possible, what made the GPSA possible was a few committed men with enough perception to see the problems and devise solutions, and with the guts to stand up and be counted. Some, such as Peter Arnold, were heavily influenced by Ayn Rand; some, such as John Whiting, came to a libertarian philosophy independently—and in Whiting's case, wrote two books illustrating the deterioration of medicine (and doctors and patients) in government hospitals and under socialized medicine; some, such as Duncan Yuille, had left England and begun to wonder what was wrong with the world when they saw the same thing happening for the second time; and some, such as David Cunningham, an abrasive Scot and GPSA president, you imagine were born that way.

If you've got the guts, and some support, John Whiting and the others have shown that you can force the government to back down. One final example will make the point. At the end of 1973, South Australian Labor Premier Don Dunstan decided to cash in on medical politics. As the above-mentioned constitutional provision regulates only the federal government, Dunstan could—and did—introduce price controls on doctors' fees in his state.

There was an immediate reaction from John Whiting and South Australian GPSA members. Dr. Whiting announced that he would ignore price controls, continue to charge his own fees, and go to jail if necessary. The South Australian branch of the GPSA announced that if any medical practitioner was prosecuted, they would restrict their working hours to 9 to 5, Mondays to Fridays. If any doctor was fined or jailed, they pledged to restrict their services to emergencies only. The statement, which was circulated among GPSA members for their signature, ended: "Industrial action of this sort is distasteful to our profession, but we would resort to such action rather than be dictated to, at the point of a gun, by a petty tyrant."

Dunstan backed off; the price order was lifted. Initially, no doctor other than John Whiting was willing to make a stand. But once he had, others were willing to take a lesser position, and together they won. That one man is always crucial. When he is there, mountains can be moved. Even governments.

Mark Tier is editor of World Money Analyst, a monthly financial newsletter. A native of Australia, he now makes his home in Hong Kong. He is cofounder of the Libertarian World Society and editor of its newsletter, Commonsense.


Members of the Society believe:

That the highest standard of personal health care is best served by a system of medical practice where the private general practitioner is the doctor of "first contact";

That the principal reason for the existence of the medical profession is the care of people of all ages in health and in sickness in order to preserve as much as possible a state of physical, mental and social well-being;

That the contract for treatment is between the patient and his doctor;

That the scope of a general practitioner's practice is dependent only on his medical knowledge, experience and ethical conscience;

That every patient is entitled to a free choice of medical attendant both in regard to his general practitioner and to any consultant specialist whose opinion or treatment it appears necessary to obtain;

That the general practitioner does not bear the onus of policing the extent of the use by his patient of his services;

That in any circumstances where the payment of the medical practitioner's fee is by a party other than the patient, then any restriction on the extent of the use of the medical practitioner's service by the patient must be imposed on that patient by the party responsible for the fee and not on the medical practitioner concerned;

That there should be no bias against general practitioners working in local public hospitals;

That the treatment offered to pensioner patients should in no way differ from that offered to a private patient;

That they should adopt a policy of
(1) absolute opposition to further encroachment of government control over the medical profession and over its relationship to the public, and consider that a firm stand be taken to prevent the launching of a government-controlled national health service;
(2) formulation of a plan of action to be undertaken in the event of any serious threat of nationalisation;

That with the welfare of the general public in mind they are totally opposed to any form of statutory or other regulation imposed upon the medical profession requiring them to prescribe drugs by generic nomenclature;

That the fee for medical attention must be determined on a "fee-for-service" basis and as a matter solely between the doctor and his patient, save where a third party is by statute responsible for the fee, when the fee shall be decided by mutual agreement, both initially and at periodic reviews, by the general practitioner and the statutory authority concerned;

That they oppose the voluntary health insurance organisations paying a higher rebate for medical or surgical procedures performed by specialists as compared with the rebate paid for the same procedure performed by a general practitioner;

That the General Practitioners' Society in Australia remains a body separate from the Australian Medical Association;

That they should accept the desirability of dialogue with all political parties concerning the future of medical practice in Australia.