ANDREW PESCE. Patient Gap payments and Out of Pocket Costs. What needs to be done? Part 2

The first of this two article series quantified and explained out of pocket (OOP) cost in the Australian Health system.

Some areas of OOP costs are acceptable and there is no need to intervene. OOP costs for non PBS pharmaceuticals, for example, largely reflect discretionary spending on products with little proven impact on health outcomes.

Other OOPs may be desirable, in that they impose market discipline on the prices charged by providers and demand for services by consumers. An example of this type of OOP expenditure is OOP charges by GPs. Whilst bulk billing provides equity of access, providers can increase their earnings by increasing the volume of services, (supplier induced demand). OOP payments therefore provide some consumer induced restraint which is financially prudent. However, if a person has a chronic health problem which does require multiple attendances, OOP gap payments can become unaffordable and create a barrier to access to necessary care.

The mechanism used to minimize this problem is the creation of safety nets, so people on low incomes especially receive further Medicare funding to meet the costs of OOP payments for MBS services. However this only applies to out of hospital services, so surgeons’ gap charges for operations or other in hospital treatment are not covered.

Dental Services

The largest single contributor to OOP costs in Australia is dental services, accounting for 20% of all OOP costs. OOP costs amounted to 58% of total expenditure for dental services in 2016-17[1]

Source of Funds Total Expenditure  ($mill /%)
Individual OOP 5856  / 58%
State Government 2351 /23%
Australian Government 1516  /15%
Private Health Insurers 1900 /18%

31% of Australians say they have avoided or delayed visiting a dentist because of costs.[2]

It is clear that OOP costs can be a barrier to access to dental treatment, and these reflect the absence of Medicare funding for dental treatment. The solution to this issue is expanding Medicare MBS payments to include private dental treatment. This could be phased in, with initial funding focused on pensioners and Health Care Card holders, and the scheme expanded later to include Medicare payments for all services covered. Services considered cosmetic in nature would be excluded, in the same way that discretionary cosmetic surgery is excluded from Medicare.

Specialist fees and gap payments.

Gap payments for specialists can be significant, both for consultations in the specialists’ rooms, and for procedures. It is easy to criticise specialist gap charges, but essentially Medicare and PHI rebates cover practice costs, and gap payments provide the specialists’ net income from private practice.

It is also worth noting that PHIs do not currently provide rebates for out of hospital medical services. This means that from a patient’s perspective, PHI membership provides no financial benefit for attending GP or specialist consultations, and PHI essentially is Private Hospital insurance. If it is desirable to limit OOP costs for patients, then PHI insurance should logically contribute to out of hospital costs, in the sense that the member can prepay (on a community rated basis) the costs of consultations, as well as for necessary procedures.

On this basis, the Medicare rebate could remain where it is currently (noting that the recent MBS review has made a number of sensible recommendations to reconfigure MBS rebates to better reflect the relative value of all medical services) and PHIs could be allowed to contribute up to 100% of the MBS fee for consultations (GP and specialist) as well as procedures.  If a specialist charged more than 20% above the combined MBS and PHI schedule, then no benefit is payable for the service, and the patient would be required to pay for the doctor’s entire consultation or procedure fee.

Of course these changes would initially increase overall the amount of rebates paid, but would over time correct the unintended historical skewing of rebates towards expensive specialist procedures and better remunerate doctors (including GPs) who spend more time with patients to avoid in hospital treatment where it is not specifically necessary.

The current safety nets to ensure patients on lower incomes had access to services would still be required. The various Medicare and Family Tax benefit safety nets are reasonably targeted and should stay in place, but what is required in addition to the above measures to ensure equitable access for all patients is a requirement that every Local Health district’s public hospital must provide a full suite of specialist outpatient clinics (whether on site clinics or via financial arrangements with specialists to provide consultations in their private rooms) at no OOP cost to patients.

Hospital Costs (public and private)

These are actually the largest contributor to overall health costs, accounting for 41% of total health expenditure in Australia, compounding at the second highest rate of annual increase.

It has been well recognised that where medical care can be provided out of hospital and in the patient’s community, it can be less expensive and more focused on the needs of the patient. However there has been little rollout of such a model of care beyond demonstrator projects. What is lacking is framework for a structured disinvestment in expensive hospital care where it could be avoided, and a structured investment in community based primary and referred specialist care, including more care provided by multidisciplinary teams comprising of nurses and allied health clinicians as well as doctors.  Such a framework must include funding and governance models allowing for care to pass as clinically necessary and in a coordinated way between primary care and hospital based care, and a model for such a framework will be discussed in a future article.

 [1] Australian Institute of Health and Welfare 2018. Health expenditure Australia 2016–17

[1] AIHW: Chrisopoulos S, Harford JE & Ellershaw A 2016. Oral health and dental care in Australia: key facts and figures 2015. Cat. no. DEN 229. Canberra: AIHW.

Andrew Pesce is an Obstetrician and former National President of the Australian Medical Association.




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3 Responses to ANDREW PESCE. Patient Gap payments and Out of Pocket Costs. What needs to be done? Part 2

  1. Avatar Niall McLaren says:

    “…essentially Medicare and PHI rebates cover practice costs, and gap payments provide the specialists’ net income from private practice.”
    That is simply not true. I run a bulk-billing specialist practice in psychiatry. Practice costs consume about 25% of my gross income. Medicare pays about $225 for a new case, one hour consultation plus review of files, report to GP etc, comprising , say 90mins in all. Continuing treatment works out at about $150/hr.
    There are psychiatrists who charge as much as $735 for the first hour and $450/hr for review. Firstly, they aren’t worth it, I can vouch for that. Second, that is simply naked greed. $500/hr as take-home pay? Far out.
    The college of psychiatrists’ code of ethics has an item about not exploiting patients. Pity so many of them haven’t read it.

  2. This is classic ‘patch it up’ stuff.
    Medicare has been allowed to wither as both major political parties have raised the rebate to doctors at half the inflation rate for 35 years. Medicare is almost a bad joke and is only used by specialists to avoid bad debts on impecunious patients, who they feel need operations. It is almost charity in that it is about half the AMA fee, and presumably busy surgeons do not need the work. The major parties take money from the Private Health Insurers and do not want to fund Medicare, so they subsidise Private Health Insurers (a great return on capital for their lobbying dollars). They still want a ‘gap’ to send a ‘price signal’, as if patients are having lots of visits that they do not need. Many patients I see cannot afford to see a specialist, much less afford the operations, and the Medicare waiting list for many procedures is over a year. A recent patient who was unjustly refused treatment by a NSW CTP insurer waited 7 months to see a neurosurgery clinic, but the consultant was away that day, so he waited a further 3 months to see the specialist and get on the waiting list, which was 13 months, (total of over 23 months to get treatment that he should have had in a couple of weeks).
    Medicare has overheads of about 5%, Private Health Insurers 12% and CTP in NSW is closer to 50%, so money spent subsidising these latter would be far better spent giving an equitable universal health system, which is what Medicare was. The Medicare rebate was 85% of the AMA fee- it is now 46% for GPs, and of that order of magnitude for many specialist procedures.
    The public want Medicare and are willing to pay for it. The politicians are the ones stopping this, and the doctors, having trusted Medicare and being dudded on the rebates want to set their own fees even more than they did pre-Medicare.
    Private Health Insurance is a sick puppy as young people recognise it for the rip-off it is. The major object of Federal, State and Insurance Company health policy is to try to push the costs onto someone else, irrespective of the total cost of health.
    We are moving towards a US-style health system where health and indeed people themselves are a commodity, and little tinkering with the system will not fix this. What is needed is the public to demand that Medicare be fixed. The fee-for service rebates need to go back to 85% of the AMA fee and the government should then save money by better use of salaried staff and transferring some functions to paramedical professionals. Dental should be belatedly added to Medicare. It is not rocket science- it needs political will.

    • Avatar Andrew Pesce says:

      Thanks Nyall
      I knew it would be impossible to cover all types of practice with my comment.
      Perhaps your own practice costs are lower, but your implied practice costs of about $50 per hour aren’t representative of private specialist practice. My secretary is paid $35 per hour, and renting a session of rooms costs about $75/hr. That’s before paying for equipment and consumable costs, PI insurance and professional association fees.
      I stand by my comment that rebates more or less only cover practice costs

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