A Proposal for Private Health Reform in Australia
Australia’s health system is in need of reform. A recently published article by Country Doctor on KevinMD.com
prompted me to solidify my thoughts on potential solutions which could improve the private health system in Australia. My apologies to our international readers for whom this will have less relevance, although I believe there are key messages that apply to all of our health systems.
In basic terms, the Federal Government in Australia funds General Practice consultations, Specialist Outpatient consultations and private hospital specialist fees via Medicare. The Private Health Insurance (PHI) companies fund hospital visits only, and cover a portion of the specialist fees, the theatre fees, bed fees, prosthesis etc and some radiology and pathology fees. Some PHI policies also cover extras such as dental, optometry and physiotherapy. PHI premiums are paid by the individual (not usually by employers) and for those above a nominal income bracket attract a partial rebate in the Medicare Levy (a tax on income to pay for Medicare).
Here are my suggestions to improve the Private Health System
- Remove Medicare as a funder of private hospital admissions and procedures and standardise PHI payments.
- Make private specialist fees more transparent and accessible to patients
- Increase Medicare funding for health promotion and practices that keep patients out of hospital
- Revise Medicare funding for specialist outpatients to improve access for patients
Remove Medicare as a funder of private hospital admissions and procedures
PHI companies currently negotiate with Private Hospitals to set fees for bed fees, operating theatre fees, procedures etc. These don’t have a Medicare component and so are a fixed fee once agreed upon. However, the fee paid to specialists is subject to different kinds of schemes and models.
For example, let’s say you need a cholecystectomy. Medicare Benefits Scheme (MBS) sets a fee of $740 but only pays 75%, $550. The PHI pays the other 25% of the set fee. Most of the time, the specialist will charge more than the MBS fee. Here’s where it gets interesting.
The specialists can agree on a certain amount of extra fee (the Gap) with the PHI. As long as they keep the gap under this amount the PHI will also pay that Gap (usually less than $500). This is Gap Cover or No Gap and translates to no out-of-pocket fee for the patient.
Or, some PHIs offer a “Known Gap” where the specialist agrees to charge a fixed amount more than what is covered by Medicare and PHI, so the patient has a fixed out-of-pocket expense, usually a few hundred dollars.
The PHIs may attempt to “recruit” No Gap or even Known Gap specialists, which means they have to agree to these conditions for all the procedures they perform.
But, if the specialist wants to charge in excess of the above amounts, the PHI will only cover the 25% Medicare rate. So effectively if the specialist charges more, the PHI pays less and guess who suffers? The patient pays an even larger out-of-pocket fee.
So, going back to the cholecystectomy, if the surgeon charges $1200, the patient’s PHI will probably pay the gap and they will have the procedure without any out-of-pocket expense. But, if the surgeon charges $1400, the patient may actually end up paying more than $600 out-of-pocket, even though the surgeon only made $200 more. Let’s ignore the anaesthetist’s fee for this example but suffice to say their gap can be just as large as the surgeons.
This is probably confusing if it is the first time you’ve read or thought about it. How do you think the patients feel?
Removing the Medicare fee would take away the concept of a “Gap” and ideally mean that the specialists and PHI will have to negotiate a fixed fee for each procedure. Ideally it would roughly equate to an existing Gap Cover fee, so in the case of the cholecystectomy, about $1200. No “if you charge more we pay less” schemes. If the specialist charges more than $1200, then that is paid out of the patient’s pocket. This also removes the financial negotiation from the doctors vs government political battlefield.
This will obviously translate to higher insurance premiums, but these can be offset by greater Medicare Levy rebates. The other step is to minimise the sometimes exorbitant out-of-pocket specialist fees so that using the private health system is cheaper overall, even if the premiums are higher. That brings me to my next point.
Make private specialist fees more transparent and accessible to patients
Patient ‘self-health’ funding stories are becoming increasingly common. Tracy Ryan’s story outlines the difficulties and pain caused to patients by excessive out-of-pocket costs:
To use the example in the article, if you need to buy a new TV or if you need to put in a swimming pool, you can shop around for prices and quotes. You may decide to go with the more expensive quote if you think that you will get better service or quality, but ultimately it is your choice. This is not the case with private specialist fees.
The specialist can basically charge whatever they want for a procedure. There are some guidelines produced by the AMA which state the fee should be reasonable. This description is obviously subjective and open to interpretation. The AMA also produces a set of recommended fees for all procedures which is usually considerably in excess of the MBS fee and above what PHI will cover. Specialists will often use these as a guide – “I charge AMA rates” or “AMA rates + 10%” etc. These rates, it could be argued, are skewed towards certain historically higher fee charging specialties. More importantly, they are not freely available to the public.
Some of the out-of-pocket fees can reach tens of thousands of dollars, and some specialists even offer payment plans for their patients. These do not always correlate with complexity, and many procedures lasting less than an hour will attract out-of-pocket fees of thousands of dollars. And I’m not talking about cosmetic surgery. Is this reasonable? I guess it is open to interpretation. But what is not open to interpretation is that these fees are driving people away from private health insurance. People who can afford the insurance but just can’t pay the out-of-pocket fees are being forced into the already overworked public system.
Most specialists won’t tell you their fees until you have been seen in their rooms. Some freely admit that this is a marketing tool. Seeing the specialist may cost $200 – 300 and you may be expected to consent, etc at the same consult. This makes it difficult for a patient to “shop around”. The specialists defend this practice of keeping their fees secret by saying they need to see the patient before they know which procedure they need. As our AMA President says in the article.
This is true, but most specialists perform 4 or 5 common procedures, so they could easily provide their fee for these. For example, an upper GI general surgeon may have the cost for a cholecystectomy, inguinal hernia, oesophagectomy, gastroscopy and laparoscopic fundoplication on their website.
Other arguments are that the GPs refer the patients, so it is their responsibility to choose one that is value for money for their patient. This may happen occasionally, but most of the time patients don’t feel they can complain about a specialist’s fees to their GP. GPs also often have no idea of the fees a specialist charges – another example of lack of transparency.
Particularly in capital cities where there are many specialists to choose from, market forces will set the “reasonable” price. If the market can see the price in the first place. So, the AMA fees must be freely available to the public with an explanation as to how they have been derived. And, specialists must be compelled to provide their fees to patients and GPs, either over the phone or on their websites. And perhaps each specialist should also provide an explanation as to how they have been derived. An itemised quote, shall we say.
A single website would be best of all, although one could argue this is not a requirement for any other industry. The specialists’ websites would be a good start.
Increase Medicare funding for health promotion
The savings made removing Medicare from the private hospital system needs to be redirected to efforts to keep patients out of hospital. This means a focus on promoting health in the younger population and managing the elderly and sick in their homes or nursing homes wherever possible.
This public health focus needs to remunerate those who are managing patients in nursing homes, educating the ageing population about future choices and advanced health directives, providing palliative care in the home, hospital in the home initiatives etc.
Health promotion needs to be rewarded. This is not my area of expertise, but the obvious public health challenges such as obesity, lack of exercise, alcohol, prescription drugs and illicit drug addiction, promoting mental health etc need funding to keep these people out of the acute health system.
Revise Medicare funding for specialist outpatients to improve access
My focus has mostly been on surgical specialties but I believe there are other areas that can be improved. There are a few specialties that feel the need to “close their books”. These are specialists, trained by the public purse, who basically provide a service for a brief period of time, build up a cohort of patients who require regular review, then stop seeing new patients. I’m not talking about specialists winding down for retirement. Examples where this happens are in dermatology and neurology.
I know of a good dermatologist who sees a patient with a complex or unusual condition, makes the diagnosis and then sets out a detailed plan for treatment for the GP. The patient is only to return if the plan fails. This seems a sensible approach to managing patients with chronic conditions, rather than clogging up a specialist books forever with 3 or 6 monthly reviews for the rest of the patient’s life.
The Medicare fees (which should still apply to outpatient visits in my new model) should be modified so that they are only paid if a specialist has a certain proportion of new patients every month. This will motivate the specialist to continue to provide acute access for patients and avoid the ridiculous waiting times, even to see private specialists. It may even reduce the number of caveats such as “no rashes seen by this dermatologist” (I’m not kidding).
Improving the private health system by making it more transparent, more affordable and more accessible will increase the uptake of PHI in the Australian market. This will ultimately improve the public health system by diverting those who can afford it into the private health system. This would be another step towards a sustainable, quality system.