University of Wisconsin Center for Cooperatives
Opportunities for Co-operatives in Health Care
Co-operative Federation of Victoria Ltd
Discussion Paper No 3
This paper canvasses five models for existing and new co-operatives in the field of health services: primary care co-operative, community hospital co-operative, health services and products purchasing co-operative, health insurance co-operative, integrated provision and insurance co-operative.
Table of Contents
State and Market Failure in Health Care
A Third Sector in Health: Five Features
Consumer Enterprise in Health: Australia's Historical Experience
What is a Co-operative?
Co-operative Models in Health Care:
The Way Forward
There is a growing international interest in consumer co-operatives in health care. This interest is driven by a recognition of continuing state and market failure in the provision of health services: both the public sector and the private sector have disappointing records in providing consumer-focussed service models with an emphasis on integration and continuity in care.
Consumer co-operatives in health will become an increasingly attractive option in Australia in coming years. Through the aggregation of information and purchasing power, health consumers can shape the provision of health services to meet their needs. Consumer enterprises in health may separately purchase health services and/or insurance products, or they may integrate provision and insurance in the form of pre-paid health care packages. The co-operative model of enterprise - member ownership with democratic governance - lends itself well to the provision of consumer-focussed health care.
The paper identifies five co-operative models in health care:
Existing co-operatives which currently provide various services to their members may consider adding health services to their portfolios. Friendly societies which currently provide health insurance products may wish to explore the provision of additional health services. Community health centres may wish to develop as membership-based enterprises with a greater autonomy in governance and financing structures. New health co-operatives may be formed in particular communities on the basis of special local needs or preferred health care philosophies. In regional areas, new consumer co-operatives may be formed by individuals and organisations to provide health services. Existing co-operatives may establish a co-operative health insurance venture to provide insurance products, to which a variety of additional health services may subsequently be added.
The paper identifies a number of strategic partners that may wish to enter alliances with existing or new co-operatives to provide health services. Voluntary associations, churches, and credit co-operatives may consider forming such alliances to benefit their members. Friendly societies and friendly society dispensaries may form such alliances to introduce the provision of new health services and integrated care arrangements to their members.
The paper draws attention to Australia's rich but often ignored history of consumer enterprise in health, and examines the way forward for consumer enterprise in this rapidly changing field.
Australia's health system faces an uncertain future. Public sector services face growing waiting lists with diminishing resources, while private health insurance continues to decline. Locally-based services, especially in rural areas, are reducing in number. The traditional GP, once the linchpin of the system, is becoming an endangered species, squeezed out by medical entrepreneurs on the one hand, and the proliferation of specialists on the other.
Continuity of care in an increasingly fragmented system remains elusive. Preventative health care is marginal to the work of most practitioners, conflicting with financial interests in the private sector and professional rivalries in the public sector. Consumer choice over preferred practitioners is still alien to the public sector, and still severely limited by doctor-patient information asymmetries in the private sector.
In this context, Australia urgently requires new models for the purchasing and provision of health services. Neither the public sector nor the private sector have good records in providing consumer-focussed, community-based service models with an emphasis on integration and continuity of care.
This paper argues that there is a third option in health care, distinct from the traditional public and private sectors. It is the consumer option, based on the aggregation of health consumers through co-operative structures. These structures may constitute a mechanism for the separate provision of health services and/or purchasing of health insurance products, or they may constitute economic units which integrate provision and insurance in the form of pre-paid health care packages. Through an aggregation of information and purchasing power, health consumers can shape the provision of health care to meet their particular needs.
The paper suggests that the co-operative model of enterprise - member ownership with democratic governance - is one which lends itself well to the provision of health care. Existing co-operatives, which already provide benefits to members through a pooling of resources and enterprise, may facilitate the aggregation of their members' health purchases. Alternatively, new co-operatives may form to undertake this function in a variety of ways.
The paper aims to stimulate interest in the co-operative option in the provision of health care. It is produced by the Co-operative Opportunities Project of the Co-operative Federation of Victoria Ltd, the peak body of Victorian co-operatives comprising enterprises ranging from child-care to health, agriculture, housing, finance and energy.
It is directed to co-operatives, community organisations, health providers, policy makers, and others who are interested in enhancing community ownership and consumer choice in the 1990s environment of devolution, deregulation and marketisation.
The crisis in Australia's health system is the consequence of a stand-off between its public and private sectors. Both sectors have jostled for supremacy throughout the twentieth century: each fights to retain its ground, but neither is capable of winning sufficient political support to dismantle the other. This uneasy co-existence has generated a complex structural and financial crisis. Its main features are the following:
1. The decline of general medical practice The uneasy co-existence
of public and private sectors has produced a decline in the quality of
general medical practice and rendered it increasingly unable to play an
effective coordinating role in the health system. A state-run insurance
system built around fee-for-service private practitioners has resulted
in the bulk-billed fee-for-service payment system which has encouraged
medical entrepreneurs and 'six-minute medicine', and discouraged preventative
health care. It does not reward the giving of disinterested advice about
other components of the health system, or encourage collaboration between
practitioners. It discourages home visits and the care of those with complex
needs. It makes effective community-based care improbable in many cases.
Private sector practitioners are unable to effectively challenge this payment
system while they remain wedded to the fee-for-service concept. For in
remaining tied to fee-for-service, competitive pressures force most private
practitioners to bulk-bill, locking them into the high turnover treadmill,
with its de-skilling and morale-sapping consequences.
A THIRD SECTOR IN HEALTH: FIVE FEATURES
There is a third option in health care, distinct from the traditional public and private sectors. It is the consumer option, based on the aggregation of health consumers through structures of co-operative enterprise.
Consumer co-operatives in health care may take many forms, providing a variety of services and products. They will, however, be characterised by five core features:
1. Consumer-focussed A consumer co-operative in health care is consumer-focussed. Its raison d'etre is to provide benefits to its members who are consumers (not practitioners, nor staff members, nor financial investors, nor governments). This means that its emphasis is upon provision of a particular quality of service, within a designated framework of values or philosophy. The emphasis will be placed upon the provision of information, continuity and integration of care, and the facilitation of self-direction in health maintenance and illness prevention.
The rhetoric of governments and opposition parties has, in recent times, espoused the virtue of consumer-focussed reform. While not depreciating the intention or sentiment, consumer-focussed reform is unattainable in a health system based predominantly on public and private sector providers. Only through consumer co-operatives can we guarantee a consumer focus - because consumers own and control the services.
An analogy drawn from the history of financial institutions may be instructive. Banks were not interested in personal loans to individuals, and individuals were dependent on high interest bearing loans from finance companies - until consumers formed their own credit unions. The banks then followed the credit unions' example. What they have never been able to follow is consumer ownership and control.
2. Consumer-governed To be consumer-focussed, consumer enterprises must be consumer-governed. The co-operative model of enterprise is based on member ownership with democratic governance: it is consumers, as members, who elect a governing Board of Directors who act in accord with the adopted policies and objectives of the co-operative. Good relationships with employed or contracted practitioners, suppliers, financiers, and communities are essential, but at the end of the day, a consumer co-operative is accountable for its decisions only to its members.
3. Financial autonomy For consumer-governance to be effective, a co-operative must be financially autonomous. It may generate its own revenue, or it may receive funding to varying degrees from external bodies, but if it is not free to determine its own organisational direction, according to its members' wishes, it is not a co-operative. A community health centre which is structured as an incorporated association and which is funded by government but which is directed by government to merge with another centre or change its name and identity, is not a
co-operative: it is a semi-government agency.
4. Not-for-profit A consumer co-operative that exists to provide service benefits to its members is a not-for-profit enterprise. It must operate profitably, but its profits are reinvested in the development of service benefits, rather than allocated as returns on share-holding. For-profit enterprises may have a role in health care, but in a consumer-governed health care enterprise, a for-profit status will conflict with the objective of providing cost-effective service benefits.
5. Community-based A consumer co-operative in health care is a community-based enterprise. Since it is founded upon and governed by its members as consumers, it will employ the community resources, infrastructure and networks of those members in the provision of cost-efficient health care.
Only consumer-governed, not-for-profit enterprises can effectively draw upon such resources and infrastructure: for-profit providers will always lack legitimacy in doing so. A consumer co-operative will simultaneously integrate the provision of cost-efficient health care with the strengthening of community supports for the ill, the infirm and the isolated.
CONSUMER ENTERPRISE IN HEALTH: AUSTRALIA'S HISTORICAL EXPERIENCE
Most Australians under the age of 50 know little of the remarkable history of friendly societies in this country. In nineteenth century Australia, a large proportion of doctors were employed by their patients. Pre-paid health care was common. Fee-for-service was not the sole form of primary health care provision. And in many communities, health care provision was associated with other forms of service such as adult education and neighbourhood-based community building.
Between 1860 and 1900, a large proportion of doctors were engaged in contracts by friendly societies, which were not-for-profit co-operative organisations with a community branch structure. Members would pay a subscription (usually quarterly) for medical services which entitled them to medical treatment without further payment, irrespective of their state of health.
The friendly societies also ran dispensaries or pharmacies. Pharmacists were employed on a salary to provide low-cost services. Some doctors were also employed on a salaried basis by friendly society medical institutes.
Between 1900 and the 1940s, the medical and pharmacy professions fought a long battle to free themselves from the controls placed on them by their patients through the friendly society structures. By the late 1940s the battle had been won by the professions, and the friendly societies were severely weakened. Today, those that have survived have changed their role considerably, and have become largely insurance houses divorced from the actual provision of health services. There are some important exceptions to this generalisation, but in the main, the once important connection between community organisation and health care provision which characterised the early friendly societies has been lost.
The crucial blow for the societies was dealt in the late 1940s by the Chifley government with its health insurance scheme. The Labor governments of the 1940s wanted to see the friendly societies broken, because of an ideological conviction that a state-run system of insurance was preferable to a system that was voluntary, community-based and essentially private (private in the sense of being independent of government). To install this system, it was necessary to sever the connections between the provision of services and the funding of services, a severing which simultaneously increased the power of the health professions, and weakened the power of health consumers.
By the 1980s, this process had culminated in the proliferation of entrepreneurial clinics, take-away medicine, where the social bonds between community organisation and health care provision are all but non-existent, and where medicine has become a commodity like any other.
Yet a number of consumer-based enterprises in health care have withstood, at least in part, these historical trends. Their survival serves as a pointer to the possible diversity in health care forms that may develop in the coming years.
The Yallourn Medical and Hospital Society is a friendly society based on the electricity industry workforce in the Latrobe Valley in Victoria. It provides health insurance products, two medical clinics, and has a half share in a private hospital.
The IOOF, Transport, Rechabite, Latvian, Druids, and Australian Unity friendly societies operate hospitals, dental clinics, retirement villages and nursing homes. Victoria has 16 friendly society dispensaries operating 34 pharmacy shops with 60,000 members, providing discounts on member purchases.
The bush nursing movement in Victoria has 25 small hospitals, 20 nursing homes, seven hostels, and 15 bush nursing centres. These are run by local committees elected by members.
South Kingsville Health Services Co-operative provides medical, dental and allied health services in the western suburbs of Melbourne. It is an independent enterprise, receiving no government funding.
In NSW there are four community hospital co-operatives, operating small hospitals in local community settings.
In the 1990s, a number of factors in the health field are leading towards change and restructuring. Whether this restructuring will be more or less favourable to consumer ownership and control will depend on the capacities of communities to rediscover the old principles of mutual aid and self-help through co-operative enterprise.
WHAT IS A CO-OPERATIVE ?
A co-operative is an enterprise that is owned and controlled by its members for the purpose of providing mutual benefits. By forming a co-operative, members aim to derive benefits which they could not achieve by acting individually.
In forming a co-operative, members agree to make use of its services and contribute capital to fund the enterprise, usually by purchasing shares. Funds are contributed not for capital gain but for service or trading benefits. Members may receive dividends on capital contributed, but these are secondary to the benefits derived.
In this sense, a co-operative is a self-help organisation. It is not a charity. It is an enterprise which operates within a market economy with the aim of integrating social and economic objectives through the provision of mutual benefits. Co-operatives are a product of our market economy, often established in response to market failures or imbalances. They are not an alternative to a market economy.
Membership is voluntary, and is usually based upon a specific group of people who have a unifying interest. This may be a common residential community or locality, or a common interest as consumers, suppliers, producers, tenants or workers.
Ownership and democratic control of the enterprise are vested in the membership, which may comprise individuals and/or other legal entities (co-operatives, companies or associations). Democratic control means the affairs of the co-operative are controlled by its members. Every member has one vote only, irrespective of the capital contributed or the volume of the business transacted.
Democratic control is exercised by election by the members of a board of directors charged with management of the co-operative, by approval of the rules by which the co-operative operates, and by the passing of resolutions at general meetings.
A co-operative may raise capital from its membership and from sources external to the membership, offering fair market rate returns to investors. However, control of the co-operative is exercised solely by the membership and is unrelated to the source or level of investment.
As a member-owned enterprise, a co-operative differs from an investor-owned enterprise in four respects.
The prime objective of a co-operative is to provide mutual benefits to its members. An investor-owned enterprise exists to maximise the return on the capital invested in the business.
In a co-operative each member has one vote only. In an investor-owned enterprise voting and control is related to the number of shares held.
The profits of a co-operative are either distributed to members in proportion to use of its services, or retained in the co-operative and not distributed. Profits in an investor-owned enterprise are usually distributed as a return on capital invested.
In a member-owned enterprise ownership is based in a group of people with a unifying interest and tied to long-term objectives. In an investor-owned enterprise ownership can be traded and capital is footloose.
Co-operatives may be for-profit or not-for-profit, though all must operate on a profitable basis. They may be community-based, consumer-based, employee-based, tenant-based or producer-based.
Under the Victorian Co-operatives Act 1996, there are no bounds to the activities and services which may be provided through co-operative enterprise. Co-operatives currently operate in fields as diverse as agriculture, transport, energy, water, retailing, marketing, health, housing, child care, broadcasting, culture and community services.
The diversity of the existing co-operative sector is the product of a flexible form of organisation and is held together by a common sense of tradition and commitment to democratic enterprise, rather than by a rigid set of prescriptive rules or practices.
CO-OPERATIVE MODELS IN HEALTH CARE
1. Primary care co-operative A primary care co-operative is formed by consumers in particular communities to provide integrated medical, dental, allied health, pre-admission and post-discharge services, post acute care, home-based maternity services, community-based aged care and mental health services, health promotion and community rehabilitation. Its emphasis is upon the provision of continuity of care in an integrated multi-service community-based setting.
A co-operative of this type will be formed in communities which are poorly served by existing service models (such as rural areas and disadvantaged urban areas) or in communities which express dissatisfaction with the quality and fragmentation of existing services.
The advantage of the primary care co-operative is that its structure allows for practices in patient health care management that are not possible in existing models. Members of the
co-operative may, for instance, hold a Member Health Record in which practitioners across various disciplines enter records of consultations, treatment and health maintenance strategies, drug prescriptions, and future check-up schedules. Such a Record would not be a substitute for practitioner records: it would be a patient record, retained by the patient for the patient's use, and would remain the property of the co-operative for so long as the patient is a member of the co-operative. It would serve as a de facto membership card of the co-operative.
Such an enterprise may be formed by existing co-operatives in a particular locality and/or individuals and community organisations. To retain its local community identity, it would specify such an identity in its rules governing eligibility for membership.
2. Community hospital co-operative A community hospital co-operative is formed by consumers in particular communities to maintain or introduce a local hospital service. In a number of rural areas, a co-operative of this kind may be formed to retain a local service that would otherwise cease to exist. In 1988, the community of Yeoval in the central west of NSW was faced with the closure of its local hospital. A co-operative was formed to keep it operating: today it functions as an innovative community care centre drawing on a mix of private and public funding.
A community hospital co-operative will usually be formed by an alliance of individuals and organisations in a particular locality, often in association with local government.
3. Health services and products purchasing co-operative A purchasing co-operative is formed by consumers to negotiate and enter contracts with providers for the supply of services and products.
An existing co-operative or alliance of co-operatives may negotiate with a provider of health insurance for the supply of insurance products. An existing co-operative or alliance may negotiate with particular fee-for-service providers (allied health, optical, dental, pharmacy) to secure discounted prices for their members.
In particular localities, an alliance of community organisations and individuals may negotiate with medical, dental, allied health, and pharmacy practitioners for the provision of community-based preventative health care information and advice.
In particular localities, a purchasing co-operative comprising community organisations and individuals may negotiate with the Commonwealth Health Services Commission to establish an alternative Health Care Plan through which communities might exercise an opting out of the public sector health system, using their collective health-devoted portion of tax payments to enter capitation-based contract arrangements with service providers.
4. Health insurance co-operative A co-operative may be formed to provide health insurance services to its members. Membership may be constituted by individuals and/or organisations.
Existing friendly societies providing health insurance services are similar to co-operatives: many such friendly societies were formed and incorporated prior to the development of Australian legislation governing the formation and incorporation of co-operative societies.
5. Integrated provision and insurance co-operative (pre-paid managed care) An integrated provision and insurance co-operative integrates the purchasing and provision of services in the form of pre-paid cost-conscious health care packages, or managed care arrangements.
A consumer co-operative of this kind is both a provider of health insurance and a provider of services. Its advantage in health care terms is that it provides a financing structure which supports, rather than discourages, preventative health care and health maintenance strategies. It provides a financing structure which makes possible, and rewards, continuity and integration of care. It is a health maintenance organisation that is consumer-governed, and this governance structure is the best form of safeguard against practices injurious to consumers.
An integrated provision and insurance co-operative will be formed through a process of alliance-forming between insurance providers and service providers. An existing co-operative structure which provides services may develop a relationship with an insurer. Alternatively, a co-operative insurance provider or friendly society may seek to progressively add service functions to its charter, either independently or in association with co-operatives.
Several possible strategic directions may be identified. The following are not intended to be exhaustive.
1. Existing co-operatives Existing co-operatives which have a focus in a particular locality or community may wish to explore the purchasing of health services on behalf of their members, or the provision of services in alliance with other organisations.
Co-operatives which do not have a locality focus may wish to consider the purchasing of health insurance products on behalf of their members.
Existing co-operatives which provide health services may explore the purchasing of health insurance products on behalf of their members.
2. Existing friendly societies Existing friendly societies may wish to explore the provision of health services (general practitioner, same-day surgery, high technology diagnostic services, pre-admission and post-discharge services, domiciliary care, dental, allied health, home-based aged-care, nursing homes and hostels, mental health services and community rehabilitation services).
Friendly societies which offer a variety of health services in addition to health insurance products may explore the development of innovative delivery and information systems which enhance collaboration between practitioners across disciplines and improve outcome monitoring. Enhanced patient-focusseddelivery and information systems can be tailored to objectives such as improved pre-admission and post-discharge reviews, reduced infection rates, fewer post-surgical complications, and lower readmission rates, around which competitive health value advantages can be developed.
3. Community health centres Community health centres may wish to develop, within the regulatory framework in which they operate, a structure and practice which assigns greater value to membership of such centres.
This may take the form of pricing discounts for members for fee-paying services, enhanced information systems for members such as a Member Health Record, and preferential treatment for members in relation to queuing and waiting lists. Membership fees would be adjusted to match this added value.
A community health centre with a well-developed member-based structure may wish to negotiate an opting out of the public sector to restructure itself as a health co-operative in order to further develop its autonomy. Negotiations of this type would be sought with the Ministry for Health Services: the key point for negotiation would probably be a trading of core public funding for full autonomy in organisational structure and governance.
4. New health co-operatives New health co-operatives may be formed by particular communities on the basis of locality or cultural and lifestyle preferences, or on the basis of particular health philosophies.
Enthusiasts of alternative health care practices and philosophies may develop their interest by forming a consumer health co-operative dedicated to their preferred philosophy.
Aboriginal communities seeking to gain control over health maintenance and illness prevention in particular localities may explore the formation of new co-operatives.
5. Regional consumer co-operatives Regional consumer co-operatives formed in particular localities by alliances of co-operatives and community organisations will become an increasingly attractive option in the coming decade. Such co-operatives may purchase, on behalf of their members, products and services in electricity, gas, water, petrol, telecommunications, and various forms of insurance. Health may be added to this list.
6. Co-operative health insurance An alliance of co-operatives may wish to form an enterprise to provide health insurance to the members of its members. Alternatively, it may purchase health insurance products from an existing provider.
The strategic advantages of forming a new insurance enterprise based on existing co-operatives are twofold. First, an existing constituency can be accessed which is familiar with the co-operative ethos, and second, the transaction facilities of existing co-operatives can be used for administrative and billing purposes, thus restricting capital and operational costs. These advantages could be employed in creating an attractive health insurance provider for the co-operative sector.
A further advantage of a new insurance enterprise based on existing co-operatives is that, once established, further services in the health field could progressively be added to this structure, opening up a wide range of possibilities.
1. Friendly societies Friendly societies may wish to enter alliances with existing or new co-operatives to provide new health services to their members. Co-operatives may wish to enter alliances with friendly societies to provide health insurance and integrated care packages to their members.
2. Voluntary associations and churches Voluntary associations and churches may wish to form alliances with existing or new co-operatives to provide health services to their members.
3. Friendly society dispensaries Co-operatives may form alliances with friendly society dispensaries to extend the provision of membership-based pharmacy services.
4. Credit co-operatives Credit co-operatives (credit unions), individually or collectively, may wish to enter alliances with existing or new health co-operatives to provide health services and/or insurance products.
THE WAY FORWARD
The Co-operative Federation of Victoria, through its Co-operative Opportunities Project, aims to encourage co-operatives and local communities to explore the possibilities of co-operative enterprise in meeting their various needs. It does not favour any particular type of co-operative enterprise.
Specifically, the Federation will:
In preparation of this paper, acknowledgment is made of use of material in Edgar Parnell Reinventing the Co-operative. Plunkett Foundation. 1995; and Co-operative Federation of Victoria Introducing Co-operatives. 1995.
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Canadian Co-operative Association. Facing the Future. A symposium on co-operative alternatives for public sector restructuring. Toronto, 1996.
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