Category: Health

We start 2016 as we started 2015 – with big challenges for the health system and uncertainty as to how governments will meet them.

The health care headaches in 2016 are, in fact, the same ones we faced a decade ago, albeit different in severity and symptoms. They include population growth, ageing and the rise of chronic disease; inequality in access to care and health outcomes; technological change (the good, the bad and the expensive) and the seemingly inexorable rise in health costs.

Circling for landing are three major reviews on private health insurance, primary care, and low-value care. Their recommendations, and the government’s response to them, are very much up in the air.

Adding to the uncertainty is the broader review of federalism and its consequences for public hospital funding, along with speculation around the 2016 federal election date and what each party’s Santa sack of election promises might contain.

Private health insurance

The number of people with private health insurance continues to creep up but the market is not in good shape.

The rebate is one of the fastest growing areas of government health expenditure and complaints about the product abound. High levels of coverage are being achieved throughcarrots (the rebate) and sticks (penalties for the uninsured) rather than genuine consumer appeal.

One solution being floated is for the whole subsidy framework to be thrown out. Instead of subsidising private insurers, which pay private hospitals, the government could subsidise private hospitals directly.

Government advisers are impressed by the efficiency gains that activity-based funding (paying hospitals per procedure rather than a lump sum) brought to public hospitals and believe similar improvement can be brought to the private sector.

The mechanism to achieve this could be a Hospital Benefits Schedule which, like the Medicare Benefits Schedule, would prescribe a schedule fee for private hospital care, based on existing Commonwealth payments for public hospital services under activity-based funding. The same schedule may later be used for public hospitals, replacing grants to the states.

However, it will only be politically palatable if it is cost neutral for consumers or comes with reduced private health insurance sticks.

The devil is in the detail of a new policy such as this. Will payment be to the hospital or surgeon? Will it cover the surgeon’s fee, as in public hospitals? Will it cover diagnostics? Without this information it is impossible to forecast the impact of the shift.

Public hospitals

This will be a challenging year for public hospitals. Major reductions in Commonwealth funding for hospital admissions – which continue to grow – will kick in from 2017, and states are likely to start the belt-tightening early.

The cuts far exceed the productivity gains that can be made, so a reduction in services is certainly possible. Efficiency may be improved somewhat by the ongoing expansion of activity-based funding to mental health and “sub-acute” care such as rehabilitation and palliative care.

The possible changes to private health insurance and a Hospital Benefits Schedule may be one way to put money from the federal government back into the system, but there is no sign that Treasurer Scott Morrison is keen to loosen the purse strings.

Hospitals will also be under pressure to lift quality. Hospitals face increasingly stringent “quality standards” with tougher monitoring covering a broader scope of issues, including access and timeliness.

Meanwhile, the increasing array of publicly available data is putting variation in hospital performance under the spotlight more and more, with commensurate calls for greater accountability.

Medicare

Two independent reviews of Medicare are expected to land sometime in 2016.

The first examines primary care. It could address any number of challenges, including chronic disease management, “six-minute medicine”, co-payments, frozen rebates, and the growing corporatisation of general practice.

Management of chronic diseases such as diabetes, heart disease and cancer poses the main challenge. The rise of chronic disease is imposing big costs on a system that wasn’t designed to provide the complex, continuous and coordinated care now needed.

The government will have to consider far-reaching reform with only limited and equivocal evidence to draw on. Options on the table include a shift in the balance of payments to practices, with less emphasis on payment for attendances (fee-for-service) and more emphasis on payment for care over the episode of illness or year (capitation payments).

There may be other changes in payment structures. The government’s long-standing desire to reduce perceived incentives for six-minute medicine may see a minimum consultation time imposed on the standard (level B) fee.

If sense prevails we won’t see a resurrection of the GP co-payment policy zombie. We should, however, see an end to the freeze on medical rebates; the only question being when and with what trade-offs.

A further issue to be addressed is the shift toward practices owned by corporate chains that profit from referrals to and provision of diagnostic services, such as blood tests and X-rays. The implications of changed ownership structures for practice are not at the forefront of practice payment redesign but should be.

The second review looks at quality and cost-effectiveness of items on the Medicare schedule. The review got off to a rocky start with wild claims about 30% waste in the system, and release of its first list of items targeted for delisting in the sleepy period between Christmas and New Year.

The work on modernising the schedule will come to fruition in 2016. There will be individual and group losers in this process who undoubtedly will scream loudly with varying levels of effectiveness.

What should you expect?

It isn’t yet clear whether Health Minister Sussan Ley’s appetite for reviews portends massive reform to the sector, or simply a politically judicious preference for treading water in a portfolio still reeling from tumultuous management by her predecessor. However, the auguries are good for the former.

The scene for change has been set, at least with the medical profession. Respectable leaders are engaged and leading some of the review processes. Hopefully this will be the year the health system rises to meet the big challenges of 21st-century health care.

 

Stephen Duckett, Director, Health Program, Grattan Institute.  This article first appeared in The Conversation on February 1, 2016.

 

Sussan Ley, the Commonwealth Health Minister, has hit out at private health insurers’ bid for a six per cent price increase.

In view of the strong support the Coalition has always given private health insurers, such public criticism from a Liberal Party minister may surprise us. As one-time Prime Minister Tony Abbott said “private health insurance is in our DNA”.

It would be reassuring to believe that the Sussan Ley has come to recognise private health insurance (PHI) for what it is – a high-cost financial intermediary that does nothing to take pressure off public hospitals and that has been largely responsible for diverting scarce health care resources away from areas of need.

As John Menadue, Jennifer Doggett and I have pointed out in conference papers, submissions to enquiries and a major study published by the Centre for Policy Development, PHI is an expensive, inequitable and inefficient way to share health costs. It does at high cost what Medicare and the Australian Tax Office (collecting taxes to fund Medicare) can do far better.

Its bureaucratic overheads are high: only 86 cents in the dollar of insurers’ premiums are returned as benefits, compared with 95 cents for Medicare.

It fails in its main avowed purpose to relieve pressure off public hospitals, because in channelling funds to private hospitals it has attracted resources – nurses and specialists – away from public hospitals. All it has done is to shuffle queues for access to limited resources, bringing insured patients to the front of the queue and pushing everyone else back.

It fails to keep providers’ costs and patients’ usage under control. That’s because of what economists know as “moral hazard” – the tendency for people to over-use a service when it is free at the point of delivery. A single funder such as Medicare can control moral hazard through use of well-structured co-payments to impose some pricing discipline and through hospital staff allocating services on the basis of need. By contrast, when there are multiple insurers they necessarily have to be permissive in meeting the demands of service providers, particularly highly-paid medical specialists.

That’s why PHI premiums have been rising at an average of 5.5 per cent a year since 2000, while general inflation has averaged only 2.9 per cent. Insurers claim that they are simply passing on costs incurred in hospitals, without acknowledging their own role in driving price inflation and over-usage in health care.

Insurers may claim that in marshalling private funds for health care they have kept demands on the Commonwealth budget and therefore taxes in check, but even if this is the case, there is no virtue by any economic criterion, “right” or “left”, in substituting what is essentially a privatised tax (PHI) for an official tax. It’s a weird ideology that would find benefit in saving taxpayers $1.00 in official tax at the cost of their having to pay $1.10 or even $1.50 for the same or inferior service, because for most people the incentives for holding PHI come near to compulsion.

Young people are cajoled into PHI through the penalties in “lifetime community rating”, and people with moderate and higher incomes are cajoled into PHI through exemption from the Medicare Levy Surcharge. While official taxes can incorporate progressivity, PHI, in its regulations designed to achieve “community rating”, builds in many injustices. For example, those who rely on PHI for private hospitalisation or dentistry are subsidised by the taxpayer up to 40 per cent, while those who pay from their own resources get no support.

We don’t know the reasons for Susan Ley’s criticism of health insurers. Maybe it’s just clever politics, to distance herself and the government from another round of premium increases. Maybe it’s about her own constrained budget: because of the direct subsidies to PHI every one per cent premium rise means there is $60 million less for other health priorities. (In fact the total fiscal cost of supporting PHI, often reported at $6 billion a year, is more like $11 billion a year once tax expenditures (revenue forgone) are taken into account.)

Or perhaps she realises that there are better ways to support private hospitals than channelling funds through PHI, and that scarce funds for health care are best directed at primary care and prevention, rather than subsidising the lifestyles of medical specialists and the well-off to jump the queue.

(On my website are several papers on PHI. Those wishing to go further into the issues, or to find sources for the points covered in this article, will find a major study John Menadue and I conducted for the Centre for Policy Development in 2012. Late last year Jennifer Doggett and I made a submission, incorporating updated costing and other data, to a Departmental inquiry into health insurance.)

 

I don’t think that I can recall a domestic policy that is so outrageous as the $11 b. annual cost to the taxpayer of the subsidy to private health insurance (PHI) companies. The subsidy is paid to policy holders, but it really means that PHI companies receive the benefit of the subsidy. For further explanation of the $11b figure see link to submission below. Repost from 08/12/2013

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Repost from 06/10/2015.

A recently-aired ABC Four Corners program aptly titled “Wasted” exposed three areas of unnecessary, ineffective and outright dangerous health interventions, in knee, spinal and heart surgery.

The show’s host, Norman Swan, presumably extrapolating from the findings in those three areas, claimed that waste could be as high as 30 percent of all health care expenditure.

Perhaps that’s an overstatement, but the point made by Swan and by most of the ten other clinical experts who appeared on the program is that we just don’t know how much waste there is in health care because we lack the processes for evaluating the effectiveness of various interventions.

We know what we pay for a knee replacement or a cardiac stent, but we do not systematically evaluate the outcomes of these procedures.

Identifying and reducing or eliminating funding for low value services would save our health system billions every year.

However, this would only address one area of waste and inefficiency within our health system. A less obvious but potentially more significant source of waste lies in the way in which health care is funded in Australia, in particular via fee-for-service payment mechanisms and private health insurance.

These funding processes are driving unsustainable growth in health services consumption without meeting the needs of the community for efficient, preventative and coordinated care.

Unless Australia’s health funding system is fundamentally reformed to discourage inefficient and provider-driven health expenditure, efforts to increase the efficiency and targeting of Medicare expenditure will be dwarfed by the growing waste associated with our current funding systems.

The big picture

Every year we spend around $160 billion on health care – two thirds through our taxes, and one third through private sources.

At a macro level we can claim we spend that money well. At around ten per cent of GDP it’s in line with expenditure in similar countries, and by gross indicators such as infant mortality and life expectancy we’re among the high achievers.

But within our health care arrangements – a complex mix of private and public funding and provision – there are areas of poor outcomes, such as indigenous health, youth suicide, and obesity, and there is evidence of resource misallocation, such as long waiting times for elective surgery in public hospitals while there are government subsidies encouraging queue-jumping for those with lesser needs to use private hospitals.

The role of data

It’s not that we fail to collect data in many areas of health care, but as Adam Elshaug, Associate Professor of Health Care Policy at Sydney University points out, all the data is kept in separate silos – some relating to the Pharmaceutical Benefits Scheme, some relating to the Medical Benefits Scheme (MBS), and some in state public hospitals just to name three of the non-interlinked sources.

While we lack a systematic method of data analysis and feedback (which was one of the original purposes of Medicare), there are a some studies of cost effectiveness in specific areas of health care, upon which the experts were able to draw. In these three areas of health care, that make up a large proportion of surgical admissions in private hospitals, all the experts were able to identify evidence of ineffective treatment and over-servicing and where resources could be put to better use. As an example Swan pointed out:

At least half of all back scans and X rays are of no value, and to put that into perspective, that’s at least half a billion dollars over ten years. Now that would buy you a regionally delivered national suicide prevention program that would save 1000 lives a year.

The experts offered a number of explanations for this waste. One strong message was that the vast majority of the 5700 items on the MBS schedule had never been subject to any rigorous cost-effectiveness evaluation. As Elshaug reminded us, the MBS schedule dates back to the 1960s (when it had only 300 items), when the idea of “evidence based policy” as a standard was still some decades off. It has been easy for advocates, mainly in the medical profession, to add new items to the schedule, but it is very hard to have any removed. Professor Rachelle Buchbinder, Director of the Department of Clinical Epidemiology at Monash University, recounted the great difficulty she had experienced in having just one item removed from the MBS. She was confronted by well-funded corporate interests, and was subject to ad hominem vilification. (We wish Minister Ley the best of luck in her taking on the MBS schedule.)

Drivers of growth

Many referred to the availability of imaging technology, referring, for example, to the fact that GPs can now order knee MRIs without going through a specialist. Often discussions about technology in health care degenerate into a romantic and unrealistic call for the clock of technological advancement to be turned back. But Paul Glasziou, Director of the Centre for Research and Evidence Based Practice at Bond University pointed out that imaging and other diagnostic technology is here to stay and is becoming more widely available (have you noticed that “health” app on your smartphone?). As the Productivity Commission pointed out in its 2005 report on medical technology, IT-based technologies in most industries have reduced unit costs, and there is no reason why it should not do so in health care if used properly.

The problem that Glasziou and others pointed out is that diagnostic technology has given us much more capacity to detect what is “abnormal” or supposedly “wrong” in our bodies. We misinterpret the normal changes associated with ageing, and, as a result otherwise healthy people are turned into “patients”. Our expectations and anxieties as consumers have interacted with GPs’ fear of missing a diagnosis and desire to do something tangible, in the form of delivering a “product” to the patient, leading to a detected abnormality and on to surgery, with all the attendant costs and the possibility of infection and other iatrogenic risks. (A similar motivation to provide some tangible product has been found to be a driver of pharmaceutical over-prescribing.) Doctors are generally dedicated professionals motivated by a strong desire to “do something” for those who turn up in their surgeries.

But as Robyn Ward, Chair of the Medical Services Advisory Committee said, “often the best medicine is no medicine at all, often the best intervention is no intervention at all”.

She said that if GPs could explain how certain procedures are ineffective, patients may make better decisions. And if GPs or other health professionals could help people understand that adopting a healthy lifestyle may be more effective (and certainly less costly) than going down the diagnosis-surgery path, there would be better outcomes all around.

The problem with our current funding system

But that’s not where the incentives lie in a fee-for-service system. Swan summarised the problem when he said “the way we pay for health services in Australia does not encourage good practice”. We pay for throughput, not for outcomes.

One perverse consequence of these incentives for over-servicing is that early intervention at the primary care level, which is supposed to result in better health outcomes and financial savings, can actually worsen outcomes and cost money when the incentives are wrong.

Cardiologists Richard Harper (of Monash University) and Andrew Macisaac (of St Vincent’s Hospital) noted that there was excessive use of angiograms (Harper suggested that up to 43 percent of invasive angiograms were unnecessary), and that these were most likely to occur in private hospitals. There is a confirmation of published findings by Monash University researchers that observed “startling variation” in the use of well-known procedures in Victorian hospitals. They found “in the 14 days following a heart attack, men and women admitted to a private hospital were 2.20 and 2.27 times more likely to receive angiography than their counter-parts in public hospitals”. They were 3.43 and 3.86 times more likely, respectively, “‘to undergo revascularisation” (coronary by-pass surgery, angioplasty and stent).

That study was published in 2000, around the same time the Commonwealth was strengthening subsidies for private health insurance, in a set of arrangements that de facto linked funding of private hospitals to private insurance. At no time has the Commonwealth evaluated that policy, but independent research suggests that while it has injected a large amount of new money into private hospitals, and into the incomes of medical specialists, it has done nothing to achieve its avowed objective of “taking pressure off public hospitals”, because where the funds have gone, so too have the specialists. If anything the subsidies have sucked resources out of public hospitals and have put pressure on public hospitals to try to match the incomes specialist can enjoy when they work in private hospitals.

If people who present to private hospitals get more treatment than those with similar conditions who present to public hospitals, then there is certainly some resource misallocation. Either public patients are being under-serviced, or private patients are being over-serviced. The Four Corners program strongly suggests the latter.

The funding honeypot – private health insurance

While there were frequent reference to the problems of fee-for-service medicine, the program only touched on the interaction of private health insurance and fee-for-service remuneration, which is where the root of the problem lies. Private health insurance is a major driver of resource misallocation and waste. But since 1997 the Commonwealth has had a policy of supporting private insurance, almost as an end in its own right.

It is notable that not since 1969 – when the Nimmo Report paved the way for universal public health insurance – have governments subjected private health insurance to policy scrutiny. The principle of evidence-based medicine, and the general bipartisan disdain for industry subsidies, do not seem to apply to private health insurance.

Although unquestioned support for private health insurance is normally associated with Coalition governments (“Private health insurance is in our DNA was Prime Minister Abbott’s justification), it has become bipartisan. When the Rudd Government set up the National Health and Hospitals Reform Commission it specifically ruled out any scrutiny of private health insurance. The Gillard Government strengthened the Medicare Levy Surcharge penalties for those higher income people without private insurance, and removed the 20 per cent tax offset for those who incur expenses not covered by private health insurance. Only the Greens seem to be committed to the original principles of Medicare as a single national insurer.

Thanks to the Medicare Levy Surcharge, people on higher incomes (individuals with an income above $90 000 and families with an income above $180 000) are virtually conscripted into private insurance. Quite apart from the problem of promoting a two-tier health system, with the public system reduced to a residual “charity” system, the surcharge has strong incentives for people to use private insurance, and for opting out of sharing his or her health expenses with other Australians. Someone with an income of $150 000 can either buy top hospital cover for around $1300 or pay an extra $2250 in taxes, for example.

The subsidy to private health insurance comes to more than $8 billion a year according to Commonwealth Budget papers, and is growing strongly. That figure does not include the effect of the Surcharge, which, if it is re-framed as a subsidy for having private insurance (rather than as a penalty for not having it), results in revenue forgone of around $3 billion a year, or a total subsidy of around 11 billion dollars a year. As Jeff Richardson of Monash University once said, not even in the days of high support of manufacturing were the rich actually provided with a taxpayer-funded Holden with change left over.

With governments ready to provide such permissive access to public money to support private insurance, it is hardly surprising that private health insurance premiums have risen so strongly. Since 2000, while general prices (as measured by the CPI) have risen by 54 per cent, private health insurance premiums have risen by 133 percent – a 50 per cent real increase. As a source of ever-growing funds private insurance has been a honeypot for private hospitals and those who work in them (as well as directing public money that taxpayers may have believed were for health expenditure, to flybuy cards and Coles gift vouchers).

So long as we have a highly-subsidised private health insurance industry, fee-for-service medicine, and a private hospital system with its own privileged source of funding, these problems will remain. In time we could head to the US system, where private health insurance has resulted in health costs approaching 20 per cent of GDP, and with only mediocre outcomes by the standards of most prosperous countries. (“Obamacare” will solve some coverage problems, but it will not solve the cost problem.)

The real cost of private health insurance

There are several independent analyses of the costs of private health insurance – Jeff Richardson’s “Private Health Insurance and the PBS: How effective has recent government policy been?”, an analysis by Don Hindle and Ian McAuley “The effects of increased private health insurance: a review of the evidence”, a Centre for Policy Development paper“Private health insurance: High in cost, and low in equity”, an article for The Conversation by Terence Cheung of the University of Adelaide “Why it’s time to remove private health insurance rebates”, and a chapter in the recently-published book Governomics: can we afford small government?

A common theme of these works is that measures such as private health insurance, designed to shift costs off-budget, generally result in the public paying more for the same or worse services, with far less accountability or equity, and with much higher administrative costs as slimmed down public agencies (such as Medicare) are replaced by corporate bureaucracies duplicating competitors’ corporate bureaucracies.

In fact, in the USA, reliance on private health insurance, far from saving public money, has resulted in a blowout in public expenditure. Because health costs are set in an undisciplined market between powerful service providers and comparatively weak health insurers, even the publicly-funded programs (Medicare and Medicaid) are now costing more than the comprehensive single insurer models in place in Canada, the UK and the Scandinavian countries.

Outcomes, not volume

In the Four Corners program Robyn Ward called for a system that pays for value and outcomes rather than activity or volume. It’s a view shared by many others.

It is hard to see how such a system based on outcomes rather than outputs could be developed through any monetary incentive system. One basic problem is that in very few cases is it possible to link any specific health interventions unambiguously to outcomes. There are too many other variables leading to people’s health outcomes, and there is often a very large time lag between interventions and outcomes. When it comes to non-interventions (e,g, the decision not to have a knee reconstruction) the measurement and time lags are even more problematic.

It is even harder to see how any private insurance-based system can deliver satisfactory consumer outcomes or any significant degree of cost control. The economics textbooks claim that businesses seek profit, while the business textbooks, based on empirical studies of organizational behaviour, see growth and expansion as the prime objective of firms (with profit as a constraint to be satisfied). That growth objective would surely dominate in any scheme relying on financial incentives, leading to over-servicing. The Four Corners program is an excellent exposition of the way private sector incentives lead to such poor outcomes. If costs rise because of over-servicing, the insurers can simply jack up their premiums.

The benefit of a single public insurer is that Commonwealth Treasurers will always sustain pressure to keep expenditure in control and to achieve value for money. It’s easier for insurers to raise premiums than for governments to raise taxes.

Public insurance, private and public delivery

That is not to say the private sector should not be involved. It is simply to point out that private insurance should have no role in funding health care.

There is clearly a role for personal out-of-pocket (i.e. uninsured) contributions to health care. In fact, such contributions are a feature even of the most generous single insurer models as operate in the Scandinavian countries, and, in a wealthy country such as Australia they should clearly pay their part. When Medicare was first designed we were much less prosperous, but now, on average, households now have around $300 000 in financial assets, a figure that has grown, in real terms, more than 60 per cent this century.

While we all need to be covered for high health care expenses, we don’t need the “first dollar cover” provided by so many private insurers – the cover that drives us to over-use of health services. Both public and public insurance comes with the same incentive for over-use (“moral hazard” in the quaint language of economics) – there is no difference in the notion “Medicare will pay for it” and “BUPA/Medibank Private/HCF will pay for it”, but, as pointed out above, Medicare comes with the discipline and accountability of public finance, and it is easy for governments to build in compulsory out-of-pocket contributions to lessen moral hazard.

Out-of-pocket payments provide some price signals to consumers, and they can be designed in such a way that most people who make light use of health services in any one year can be independent of any public funding support, so that public funding can be directed to serious acute and chronic conditions. We already spend around $27 billion a year in out-of-pocket contributions, but, as Jennifer Doggett points out, their incidence is haphazard, and do not adhere to good insurance principles: some health care programs are free at the point of service, while for some others the patient is left bearing open-ended risk. Ham-fisted ideas to bring in open-ended MBS co-payments, as proposed by the Abbott Government, understandably meet with community resistance.

In the delivery of services the private sector has always played a central role, and will go on doing so. Alarmists often interpret any criticism of private health insurance as an attack on the “private system”, but that’s bunkum. There is no reason why private hospitals cannot be involved in delivering publicly-funded services.

That model is already operating in Australia through the Department of Veterans’ Affairs, which acts as a single insurer for war veterans, while purchasing most services, including hospitalisation, from the private sector. At a state level there have been initiatives to break this dependence. Victoria, under the leadership of Premier Jeff Kennett first made the offer to private hospitals in the 1990s and the Tasmanian Government has recently offered $25 million of elective surgery cases to private providers. There’s nothing radical about such measures – in fact they are in line with national competition policy that calls for competitive neutrality between private and public sector providers.

Future dangers – Medicare Select

The Four Corners program has been a useful reminder of the problems we face in health care, particularly (but not only) the perverse outcomes when private insurance, fee-for-service payment, and a private hospital system separated from public hospitals interact. No doubt private insurers, who will be well aware of these perverse outcomes, will be presenting to government schemes which they claim will solve these problems. For example, arising out of the Health and Hospital Reform Commission’s work, the insurers put forward an idea called Medicare Select, which made great claims about consumer choice and cost control, but which was simply a way of churning even more public funds through health insurers, adding private sector administrative costs to public sector administrative costs, without demonstrating any value-added, other than offering consumers some “choice” of care plans – as if people are in a position to know their future health care needs.

We could well see the private insurers offer Medicare Select, or some similar proposal, as a “solution” to our problems. Even if such schemes are put forward in good faith, we should heed the lessons from the USA, however, where private health insurers have been quite unable to contain health costs – or perhaps unwilling.

There are too many parties – medical specialists, private hospital companies, appliance manufacturers, pharmaceutical firms – who would see cost containment as quite inimical to their interests. And there is the whole investment community – superannuation funds, banks stockbrokers, financial advisors – looking for a new growth industry, as profits in traditional industries such as airlines, newspapers and retailing are squeezed.

Only a strong government can protect us from the economic and health costs of health care becoming a growth industry.

Jenniffer Doggett is a consultant in the health sector. Ian McAuley is a Adjunct Lecturer, Canberra University. John Menadue chaired Health Enquiries in NSW and SA and was involved with Gough Whitlam in the creation of Medicare.  All three are Fellows of the Centre for Policy Development. 

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John Menadue posted three articles on health reform as part of the Policy Series ‘Fairness, Opportunity and Security’ which he edited with Michael Keating. Links to those three articles follow.

Health Policy Reform: Part 1 – Why reform is needed.

Health Policy Reform Part 2 – Why reform is difficult.Health ministers are in office but not in power.

Health Policy Reform: Part 3 – Principles for reform.

The worst possible outcome from the current review of Private Health Insurance would be changes that resulted in the best-resourced Primary Care being only available to those who have such insurance.

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Despite promising to keep Medicare Locals, the Abbott government abolished the fledgling organisations after it took office.

19 November 2015 

Hon Sussan Ley M.P.,
Minister for Health,
Parliament House,
ACT 2600

Dear Minister

(I have signed this letter on my behalf and also on behalf of the people listed below. I will be posting this ‘open letter’ on my blog early next week.)

We are pleased to see that you are canvassing community and expert views on private health insurance.

In discussing the community survey, recently on the ABC Breakfast Program, you said “We support the public system for those who can’t afford private health”.

That is a long way from the idea of universal mutual support that has underpinned Medicare and public hospital arrangements. It assumes, incorrectly, that private health insurance, and the associated subsidised access to private hospitals, is something Australians see as desirable if only they could afford it.

As you know, about half of Australians do not hold private health insurance. Many are driven to hold it by the Medicare Levy Surcharge – a coercive instrument that has little to do with choice. You would also be aware that 200 000 taxpayers pay the surcharge, rather than holding private insurance, even though almost all of them would be financially better off taking the cheapest hospital cover.

For many, the main attraction of public hospitals is not that they are “free”, but rather that they offer a high standard of care. Most importantly the funding system for public hospitals, unlike the funding for private hospitals, does not carry an incentive for over-servicing. There is growing community awareness of the risks of over-diagnosis and of over-servicing.

Some others, particularly older wealthy people whose income is below the MLS threshold, do the sums and work out that their best bet is to draw on their savings to finance any needed private hospitalisation, secure in the knowledge that if they need acute care they are served by public hospitals. In doing this they miss out on the subsidies, the benefits of which are go to pay for high administrative costs and the cross-subsidies associated with adverse selection. Thanks in part to superannuation, households with people in the 65-74 age range, have on average $500 000 in financial assets.

It is ironic that, in spite of your Party’s commitment to self-reliance, those who pay for their own private hospitalisation, or who pay their own dental bills, receive no support, while those who hand over responsibility to insurance corporations receive a 30 per cent subsidy or a generous tax incentive in the form of exemption from the MLS.

Then there are those community-minded people who value the idea of sharing their health care expenses with other Australians. They are morally repulsed by the idea of being corralled into the “gated community” of private health insurance. Also some people, aware of the way “charity” systems inevitably degenerate, see it as important that people with means who hold political influence have a stake in using and maintaining a high standard public hospital system.

You, and your fellow health ministers in the states and territories, fund and operate an excellent public hospital system. We hope you take pride in a public service that serves all Australians so well, and do not let it degenerate into a charity system.  A way to prevent such degeneration would be to remove private hospitals’ de facto dependence on private insurance, and to bring them into the same funding arrangements as public hospitals, thus allowing them to provide the same high-standard of integrated care as public hospitals, allowing for remuneration models other than individual fee-for-service, and abolishing any suggestion that Australia has two health care systems – one for the affluent and one for those who are less fortunate.

Yours sincerely,

John Menadue

Kerry Goulston, Emeritus Professor, Medicine, USyd
Ian McAuley, Adjunct Lecturer, Canberra University
Jennifer Doggett, Health Consultant,
Stephen Leeder, Emeritus Professor of Public Health and Community Medicine, USyd.
Karen Willis, Associate Dean, Learning & Teaching, Faculty of Health Sciences, ACU
Arthur Chesterfield-Evans, Medical Practitioner and anti-tobacco activist
Sebastian Rosenberg, Senior Lecturer, Brain and Mind Centre, USYD
Jill White, Professor of Nursing and Midwifery, USYD
John Dwyer, Emeritus Professor of Medicine, UNSW
Fiona Armstrong, Executive Director, Climate and Health Alliance
Tony McBride, President, Australian Health Care Reform Alliance
Tim Woodruff, Vice President, Doctors’ Reform Society

In today’s health care debates around the centrality of primary care, moving towards patient-centred medical homes, improving care coordination for people with chronic illnesses and whether private health insurance provides value for money, there is one element that is almost always missing – the role and the costs of specialist services.

In 2014 over 28 million specialist services were billed to Medicare and 21 million of these were for out-of-hospital services. Only 30% of these services were bulk billed, and the average out-of-pocket cost for the remaining 70% of services was $70.89. However gaps of several hundred dollars are not uncommon.

Specialist fees are the main driver of Medicare out-of-pocket costs and the main reason why people access the various Medicare safety nets (Extended Medicare Safety Net, the Original Medicare Safety Net and the Greatest Permissible Gap measure).

The Government has moved to make changes to the Medicare safety nets in the name of ‘simplification’ and the Health Insurance Amendment (Safety Net) Bill 2015 is currently before the Senate where it has been sent to the Community Affairs Committee for review.

Reforms to the Medicare safety nets are long overdue. There is considerable evidence that the current arrangements are inequitable, do not benefit those with the greatest need, and continue to be inflationary, despite legislative tweeks. This has led to increasing economic pressures on patients from their out-of-pocket costs with consequences for their health outcomes and quality of life. There are also pressures on hospital budgets from preventable admissions that can result when patients skip specialist appointments and fail to comply with treatment regimes because of cost.

As federal parliament considers the new safety net legislation, it is crucial to ensure that this does not have the unintended consequences that were inherent in the Extended Medicare Safety Net (EMSN). One such consequence was that the EMSN actually increased the ability of specialists to charge higher fees, particularly in areas such as obstetrics and assisted-reproductive technology services. In 2009 it was estimated that for every dollar the government spent on the safety net, only 57 cents went towards reducing patients’ costs and the remainder went towards increased doctor fees.

Preventing such problems will require an informed study of the impact of specialist fees and how specialists are likely to respond to efforts to limit reimbursements to patients of fees that are in excess of the Medicare Benefits Schedule (MBS). As it stands there is very little publicly available information in this area. Considerable work was done on a relative value study in the 1990s (regrettably with no outcomes) and the specialist medical colleges presumably have data from their members, but the Department of Health has shown no inclination to analyse their data or to make it available to academic centres for such work.

Medicare data for the June quarter 2015 show the following:

• The average bilk billing rate for specialists (for services in and out of hospital) is 30.2% although this varies dramatically by speciality.
• The average fee observance for out of hospital services is slightly higher at 43.4%.
• The average patient contribution for services that are provided out of hospital and are not bulk billed is $70.89. This varies considerably by state and territory – it is lowest in South Australia ($53.94) and highest in the Northern Territory ($89.38).

Over the past decade there have been some interesting changes in these figures that tell a story of policy and community pressures and influences.

Although the average bulk billing rate for specialist services delivered out of hospital has barely changed, the average out-of-pocket cost has more than doubled (from $32.66 to $70.89). For individual specialties there have been some dramatic changes. For example, the bulk billing rate for obstetrics, currently 51.5%, was only 21.8% in the June quarter of 2005. We can assume that the increase in bulk billing is due to the increases in Medicare reimbursements that were made as part of an effort to tackling the inappropriate use of the ESMN. But the bad news is that those obstetricians who don’t bulk bill have continued to increase their fees and the patient’s average contribution has risen from $51.75 in 2005 to $247.79 today. Moreover, my previous work on Medicare obstetric costs highlights that when loophole is closed, obstetricians look to shift their costs around between capped and uncapped and outpatient and inpatient billing items.

Specialists who work in radiotherapy and nuclear medicine have also changed their billing behaviours over the past decade. While bulk billing rates have increased impressively from 13.3% in 2005 to 68.5 % in June 2015, presumably in response to government agreements and legislation, average out-of-pocket costs for patients who are not bulk billed have more than doubled, from $16.33 to $38.74.

It’s important to think what the growing costs to see a specialist mean for patients such as older Australian with multiple chronic illnesses. A recent study shows 27% of older Australian reported having at least three chronic diseases, with high blood pressure, arthritis and cancer as the most prevalent diseases. Such patients may have a very competent bulk-billing GP coordinating their care, but in addition to the cost of specialist consultations there will be costs for diagnostic tests and monitoring, prescription medicines, over-the-counter medicines, and supplies for conditions such as diabetes, colostomies and incontinence.

National Seniors Australia found that older Australians with five or more chronic conditions spend $3528 per year on out-of-pocket health care costs. Small wonder then that approximately 10% of adults referred to a specialist delay or do not keep their appointment because of cost. This proportion rises to over 12% in the most socioeconomically disadvantaged fifth of the population. The current freeze on Medicare rebates to doctors will only aggravate the growth in gap fees. The gap between what Medicare pays and the AMA-recommended fee for MBS item 104 (initial referral to a specialist) is now $97.72; the new safety net will ignore $40 of this.

There are no Medicare incentives to encourage specialists to bulk bill. Because poorer Australians can’t afford to pay the gap fees to reach the safety net thresholds, less than 4% of EMSN benefits go to the most socioeconomically disadvantaged 20% of the population while over 50% of benefits go to the most advantaged 20% of Australians. This exemplifies the inverse care law – and poor public policy – as it is the poor who are most likely to suffer ill health, who have the lowest discretionary income, and who are most in need of protection from out-of-pocket costs.

The government’s “simplification” of safety net arrangements, eliminates the confusion of multiple Medicare safety nets and caps on reimbursement for selected items and ostensibly will make it easier for people to qualify for support if they have high out-of-pocket expenses. But this comes at a cost for patients – the new safety net actually provides patients with less financial protection against high out-of-pocket costs – and a saving for government.

It is estimated that new threshold levels will mean an additional 60,000 people will qualify each year for the Medicare safety net. The big question is whether the reforms will lead to a change in the type of people who qualify for safety net benefits and that is not easily answered. In testimony to the Senate Community Affairs Committee, Dr Kees Van Gool indicated that the answer depends on how many concession card families experience annual costs between $400 and $638 how many general families have out-of-pocket costs between $1,000 and $2,000 because these are the people who stand to benefit under the new arrangements. However he noted that concession card status is a poor proxy for household income. Capping the amount of out-of-pocket costs that contribute to the safety net threshold will have further implications for how many and what type of families qualify for the new benefits.

This reform may invoke a number of behavioural changes by both doctors and patients seeking to derive maximum benefits from the safety net. There are clearly greater incentives for patients to seek out doctors who charge less than 150% of the MBS fee and this, in turn, may invoke price competition amongst doctors. Doctors may act to redistribute their fees across an episode of are, as obstetricians have done, or increase the volume of services they offer. The Minister for Health has indicated that she wants to prevent the inappropriate provision of complicated medical services outside of hospitals, although it is not clear how the safety net legislation will address this.

In an era of budget restraint, what can be done to address the impact of rising specialists’ fees on the federal and individuals’ budgets in ways that do not undermine the business needs of the medical profession? In a paper written earlier this year, Jennifer Doggett and I proposed greater transparency around specialists’ outpatient fees and the out-of-pocket costs to the patient. This approach was also put forward by Dr van Gool in his testimony to the Senate Community Affairs Committee.

Anecdotal evidence indicates a wide range of fees charged, with some specialists charging dramatically more than the Australian Medical Association recommended fee (which is itself higher than the MBS reimbursement). However there is no evidence that specialists charging the highest fees deliver the best outcomes and patients and referring GPs might make different choices about specialist care if they knew the costs involved. At the very least the major outliers should be named and shamed. It is also important that consumers are provided with comprehensive information about their health care choices and are made aware of options, such as public outpatient clinics, where they can receive specialist services at no (or lower) cost.

There has been some support for this approach from the medical profession, perhaps driven to action by the fact that a few greedy colleagues are making life difficult for those doctors who bulk bill or have only a small gap fee. In July 2014, the Royal Australasian College of Surgeons spoke out against excessive fees, saying that the College “is highly concerned at the amount of reported out-of-pocket costs being incurred by patients in the health-care sector“ and further stating that the College “believes that extortionate fees, where they are manifestly excessive and bear little if any relationship to utilisation of skills, time or resources, are exploitative and unethical. As such, they are in breach of the College’s Code of Conduct and will be dealt with by the College”.

An information sheet on the College website strongly supports full disclosure and transparency of fees as early as possible in the patient-doctor relationship, advocates that patients understand all available treatment options, and encourages concerned patients to seek second opinions on recommended treatments and the fees to be charged.

Just recently, the Urological Society of Australia and New Zealand has been prompted by a study showing that out-of-pocket costs for prostate cancer can be in excess of $30,000 (this includes not just specialists fees but private hospital services, medicines and other costs) to talk to its members about the perils of extortionist fees and of not telling men about public health options for treatment.

Most importantly, the issue of out-of-pocket costs for patients and the impact these have on health outcomes and costs elsewhere in the health care system and the federal budget needs to be addressed across a range of issues currently under consideration – not just Medicare safety nets, but the Medicare Benefits Schedule review, the mental health and primary care reforms, and welfare supports. Many people will predictably always have trouble meeting their health care costs, and the solutions will not always lie within the purview of the Health portfolio.

There are branches within the Department of Health that deal with the medical profession, the pharmaceutical industry, and private health insurers; it’s time for a branch with specific responsibilities for consumers’ and patients’ needs. It’s an important part of the effective, efficient and equitable delivery of health care services.

Dr Lesley Russell is an Adjunct Associate Professor at the Menzies Centre for Health Policy, University of Sydney.

 

 

Medibank Pte has been in dispute with the Calvary Hospital Group and now with UnitingCare over performance in their hospitals.

At last our largest private health insurance company, MBP has come to understand that the private providers, hospitals and doctors, are really in control. These private providers determine the quality of care and its cost. The PHI companies like MBP are really powerless to control both the quality and cost of healthcare. They need to lift their game .But they are in a bind.

The problem that the MBP faces is precisely the same problem as the US healthcare system faces. In the US hundreds of competing private health insurers do not have the power to control quality and price setting by providers. If a private insurance company is too tough the provider will take the business to a competitor. The worldwide lesson is that only a single insurer can have a real effect on costs and promote quality.

The CEO of MBP has got into trouble by confronting the powerful providers, in this case Calvary and UnitingCare. He has resigned!  In his exit comments, the CEO of MBP, George Savvides said he was seeking to ‘reposition MBP from being a payer of bills, to a player in the health system’. He could not be more precise and correct. The private health insurance companies meekly accept the prices set by providers, both hospitals and doctors. I read Savvides’ comments to mean that the providers rebuffed him in his attempts to improve the quality and contain the cost of care. And his board did not support him. The providers have won again.

Apparently Savvides was insisting on two things. The first was that MBP would refuse to pay when any of a list of 165 ‘highly preventable adverse events’ occurred, including preventable falls in hospital and presumably hospital-caused infections. Secondly he proposed that MBP would refuse to pay hospitals for unplanned patient readmissions that occur within 28 days of a procedure, compared with seven days previously.

Good luck to PHI companies like MBP who refuse to be passive payers of bills and want to have a say in the cost and quality of care by private providers particularly in private hospitals.

‘Adverse events’ are a major cost in all health systems – mistakes, injury, infections and even death. Many are avoidable and many are not. Avoidable adverse events probably cost well over $ 5b p.a. in the Australian health sector. Good clinicians are caught up in a bad system. See link to my previous post ‘The personal, public and social costs of mistakes in health’.

Other PHI companies like BUPA must similarly be concerned about the difficulty in controlling provider costs. That is the reason why PHI premiums rise significantly each year. Since John Howard introduced the rebate on PHI in 1999 the cost of PHI premiums has increased 150%.Overall prices have increased by less than 50%.Not surprisingly a reader panel in the Sydney Morning Herald has found that 64% of people don’t believe that PHI provides value for money. The Minister for Health describes many PHI policies as ‘junk’

But PHI companies like MBP and Bupa contribute to high costs. Through GAP insurance that they provide they have underwritten an enormous increase in specialist fees in private hospitals. These specialists receive remuneration three to four times what is paid in public hospitals. And not to be out done on specialist fees the major private hospital; Ramsay Healthcare for example paid its CEO $31 m in 2014. No wonder MBP wants to get hospital costs down!

In addition to the inability of PHI companies to put pressure on health costs, there is the problem of waste in the delivery of health care – excessive pathology and radiology tests, over-treatment and over-prescribing. In the recent Four Corners program we were told about a tsunami of over-diagnosis and treatment. We heard about

• Care that is ineffective and sometimes unsafe;
• That perhaps a half of MRIs, are unnecessary;
• At least half arthroscopies are unnecessary;
• At least 20% of knee replacements may be inappropriate;
• The majority of MRI’s and CT’s for back pain are a complete waste;
• The scientific evidence for spinal fusion is just not there;
• As much as a third of money for stenting is potentially being wasted;
• And up to 43% of invasive coronary angiograms are unnecessary.

This waste is common across the health sector, both public and private, but I suggest that the problems are greater in the private sector and private hospitals in particular.

The Four Corners program highlighted the particular problems in private hospitals.

• ‘Stents are more likely to be given in the private sector than in the public’
• ‘Most spinal fusion is done in private hospitals’
• Angiograms are performed ‘more frequently in the private system’
• ‘In the last ten years we have forked out nearly $486 m. for knee MRIs in the private sector alone.’
• ‘It does seem that over-treatment is in the private sector’.

Four Corners did not examine Work Cover and the cost of injuries in the workplace, particularly back injury when it is treated in private hospitals.

Many clinicians and others in the Four Corners program pointed out that there is a great deal of data in all these areas but unfortunately it is invariably in silos and not readily accessible to the public so that we can effectively address the problems of ineffective, wasteful and sometimes harmful medical procedures. There are large variations in medical procedures between public and private hospitals and regions. We have a long way to go in rigorous evidence based care. Accreditation in itself does not tell us much about the quality of care.

There are particular reasons why we should be concerned about what is happening in some private hospitals.

• Fee for service in private hospitals and in the private sector generally provides a perverse incentive. Clinicians are rewarded for volume of work rather than the quality of care and patient outcomes. In the public sector, clinicians are more likely to be remunerated on a salaried or sessional basis without the financial incentives for over treatment.
• In the public hospitals peer review is much more widely practiced with mistakes, adverse events and poor performance more readily corrected.
• Dealing with less complicated cases, many private hospitals do not have the breadth and depth of experience and the skills that are found in public hospitals and particularly teaching hospitals. Some of the larger private hospitals are well run with peer review and strict accreditation. Some have training registrars and medical students. However the quality of care is patchy, particularly in smaller private hospitals.
• I am also advised that private hospitals are much more likely to import minimally qualified nurses on temporary visas. This inevitably leads to more adverse events.
• Private hospitals work much more on a cottage industry basis with visiting medical practitioners coming and going between the hospital and their private rooms. With hundreds of visiting specialists it is very difficult to develop professional collaboration and peer review and professional esprit des corps when they are coming and going on a part time basis.

Australia is spending $10 b. to subsidise private health insurance. In 2014/15 this was made up as follows

• $6.3 b for direct outlays as in Budget Paper 1
• $1.5b tax free income rebate.
• $1.0b benefit for exemption from Medicare levy surcharge.

The total is $8.8 b for 2014/15. This year it would be higher and before we look at the inflation effects of PHI

Most of the direct outlay of over $6b benefits higher income people accessing high cost private hospitals in the name of choice .In the process they jump the hospital queue.

MBP’s attempt to address some of these problems in negotiations with Calvary Hospitals and UnitingCare is the first public sign that I have seen of PHI companies recognizing their serious problems. The ‘canary in the mine’ is warning us about the quality and cost of private hospital care that is   generously subsidised by the Australian taxpayer.

PHI’s are financial intermediaries. They do not deliver healthcare. They are proving unable to effectively manage quality and contain costs in private hospitals. George Savvides has found out the hard way. But the government doesn’t care and diverts attention with nonsense about the unsustainability of our health system. Abolishing the $10b subsidy for PHI would greatly improve the quality of health care, reduce costs and make our health care system much more sustainable.

But the lobbying power of PHI companies and private hospitals like Ramsay Healthcare frightens almost all politicians and particularly Commonwealth health ministers from both sides of politics.

Taxpayer subsidised PHI will destroy our world class health system in the same way that PHI has caused disaster in the US.