Prime Minister Malcolm Turnbull has publicly torpedoed the longstanding policy push within Coalition ranks to give government payments transactions and processing services to commercial providers, emphatically ruling out any privatisation of Medicare’s moribund legacy systems if re-elected.

The dramatic policy reversal comes as the Coalition tries to neutralise electoral fears of an Abbott-style sell-off of key welfare services after Labor leader Bill Shorten made Medicare’s efforts to outsource transactions the key attack point of the Opposition’s campaign launch on Sunday.

“Medicare will never ever be privatised. Medicare will never ever be sold. Every element of Medicare services that is being delivered by government today will be delivered by government in the future. Full stop. That is the fact,” Mr Turnbull emphatically declared on Sunday.

[quote]“We will continue to improve the way in which Medicare interacts, interfaces with its customers, with citizens and patients – is delivered but it will all be done by government and within government.[/quote]

“Improvements and efficiencies will be undertaken within government. Full stop.”

The strength of Mr Turnbull’s statements amount to an unequivocal repudiation of the Abbott government’s commitment to give the private sector government work when it was believed businesses could perform commoditised transactions more efficiently.

In his speech on Sunday, Mr Shorten directly accused Mr Turnbull, Treasurer Scott Morrison and the Liberal Party of issuing the Productivity Commission “new riding instructions, to investigate privatising human services and Americanising Medicare.”

“This is Mr Turnbull’s second strike on Medicare and we know he won’t stop, he won’t rest,” Mr Shorten said. Piece by piece, brick by brick – the Liberals have never liked Medicare and they want to tear it down again. They want to replace it with a system where profits come before patients,” Mr Shorten said.

According to the referral from the Treasurer to the Productivity Commission, the inquiry into Human Services – including health, education, and community services – is tasked with looking for “innovative ways to improve outcomes through introducing the principles of competition and informed user choice whilst maintaining or improving quality of service.”

Productivity Commission wary

However the parameters of the Productivity Commission’s Inquiry into Human Services bluntly point out that the costs of managing commercial, competitive or privately provided Human Services functions also must to be included in its examination, including whether any loss of economies of scale and potentially increased administrative overheads would make it still worthwhile.

The Abbott government first floated proposals to invite private operators to run Medicare’s claims and transaction processing in 2014 on the back of National Commission of Audit recommendations to increase public service efficiencies by revisiting government outsourcing.

Despite considerable fanfare, the bid by former Health Minister Peter Dutton to bring in banks and other financial services technology providers was greeted with only lukewarm interest and a high degree of scepticism.

A key sticking point was the relatively small payments volume on offer was coupled with the highly controversial and low margin element of Medicare claims processing, an area banks had little commercial interest in.

Since then the push to outsource Medicare transaction processing has repeatedly faltered amid ministerial and public service reshuffles.

Many welfare, policy and financial experts are also known to have privately questioned the awkward structure of a separate Medicare transactions proposal, especially when Centrelink was in the process of upgrading its own legacy payment systems over coming years.

Second time unlucky

The latest Medicare policy shift is the second time an election has forced the Coalition to abandon what would otherwise be a relatively non-controversial transaction capability procurement at Medicare, which remains a technological dinosaur in the way it processes claims and payments.

In 2007 the Howard government abandoned a major upgrade of welfare systems – which would have given Australians a single smartcard for government services known as the Human Services Access Card – after Labor likened the innovation to a revamped Australia Card.

The trigger for the Howard era push to reform Medicare’s archaic transactional system – which remains based on decades old pre-internet IBM mainframe systems – was that its hard-coded technology made it extremely difficult to integrate and automate claims and refund payments with mainstream electronic and online banking systems — now largely the default payments channel used by most Australians.

While banking transactions typically cost just cents to transmit and settle, the cost of manual claims at Medicare has previously been costed at around $10 each. That means the cost to the government of processing a Medicare refund can be as high as almost half the value of the money it is giving back to claimants.

The parlous state of Medicare’s technology has not been lost on other parts of the welfare bureaucracy, with coding difficulties sometimes cascading into cross-agency online services like myGov.

On Monday the chief executive of the Australian Healthcare and Hospitals Association (AHHA), Alison Verhoeven told ABC Radio National that the mechanisms the public used for claiming back money from Medicare were “not particularly efficient.”

[quote]“The online services that are available from Medicare at the moment are really woeful,” Ms Verhoeven said, adding the big issue for AHHA was data governance, security and decision making.[/quote]

On the same program, the Grattan Institute’s Health Program Director, Dr Stephen Duckett described Medicare’s payments systems as “old style technology that needs renovation” which the government had been trying to get private sector interest in.

“The PM hit that on the head, it’s a massive reversal of policy,” Dr Duckett said.

Where to now?

With the prospect of outsourcing Medicare transactions effectively buried for the foreseeable future by both major parties, the burden of reforming both Medicare and Centrelink’s archaic systems now logically appears to rest with agencies themselves.

Although Human Services is known to be tooling up for its massive Welfare Payments Infrastructure Transformation project to replace its own legacy mainframe application – the price tag of which is still to be revealed – what’s less clear is whether Medicare’s long awaited overhaul will now be rolled into that project.

With Centrelink’s customer service and systems already under fire from clients, the Australian National Audit Office and the Opposition, the one certainty is that more pressure than ever will be brought to bear on welfare bureaucrats that have seen three changes of government side-step the high risk overhaul.

With both agency’s systems now close to breaking point and a mandate to get 80 per cent of services and transactions online by 2017, whoever wins the next election will need to hit the ground running.