Private health insurance has been allowed to undermine the universality Australian healthcare to the extent that international experts now downgrade the Australian system in comparison to those of similar countries because it is two-tiered. Growing public concerns about increasing premiums, unexpected out-of-pocket costs and inequalities have led to a focus on whether health insurance provides value for money. The focus should be widened to investigate the extent to which private health insurance supports low-value and low-quality healthcare services.
The level of media noise around private health insurance has grown to a crescendo this year – clearly a response to concerns about cost and value and government delays in delivering on a commitment to address these concerns. Private health insurance is a continual target of criticism from policy holders, patients, doctors, healthcare administrators, and those who work in health, economic and social welfare policy areas. This is not just because of increasing premiums, unexpected out-of-pocket costs and inequities in who has access to the private system. There is evidence that, at least for those specialties like ophthalmology and orthopaedics where the majority of surgeries are now performed in the private system, waiting times for elective procedures in the public system have grown. There is also evidence that privately insured patients are getting priority access to public hospitals that is not based on medical need.
Beginning in 2015, with growing numbers of people dropping or downgrading their private health insurance and increasing levels of complaints to the industry ombudsman, the Abbott / Turnbull government conducted a series of consumer consultations and industry round tables and then, in September 2016, established a Private Health Ministerial Advisory Committee to make recommendations on reform. But beyond the talk, there has been no substantive action.
The terms of reference for the Advisory Committee indicate that it is as much about serving the interests of the private health insurance industry as about ensuring value for money for both the government and purchasers. It is indicative of the government’s mindset that it has been much quicker to act on industry concerns about the costs of prostheses and the use of private health insurance in public hospitals – although it is possible that appropriate action on these issues could deliver reductions in premiums costs.
Meanwhile the Senate Standing Committee on Community Affairs has begun an inquiry into the value and affordability of private health insurance and out-of-pocket medical costs. Its terms of reference are much more focused on consumers’ and patients’ needs. It is due to report by the end of November, leaving little time for the government to consider its recommendations ahead of approving requested premium increases for 2018.
The affordability of health insurance and the out-of-pocket costs that accrue when it is used have dominated the media’s attention and are arguably the main reasons why people are dropping or downgrading coverage. What gets little attention is the extent to which private health insurance impacts doctors’ clinical practices.
For those seeking answers, there is a goldmine of data in the surgical variance reports that are now being regularly produced, in a timely fashion, jointly by the Royal Australian College of Surgeons (RACS) and Medibank, using Medibank data. These reports look at variations in costs (including out-of-pocket costs), hospital stays, hospital-acquired complications and readmissions, by state. It is possible to use these reports to investigate links between numbers of procedures performed by surgeons, costs and adverse outcomes. Medibank is one of Australia’s largest insurers, with 3.6 million members; there is no reason to believe that their data are not representative of the sector as a whole.
The stated purpose of these reports is “to improve and progress understanding by surgeons about variations in surgical practice” and to identify opportunities to provide guidance on best practice. The extent to which these reports are actively used for these purposes among peer groups of surgeons and the relevance of this information to drive the needed behaviour changes is hard to determine.
Orthopaedic surgery is the only surgical specialty area to date where two consecutive reports have been released, so I have focused my commentary around the findings for hip replacement surgery. Some 70 percent of joint replacements are done in the private sector and the average orthopaedic surgeon allocates 70 percent of their time to private patients. Based on information in the Grattan Institute submission to the Senate inquiry, almost all of the hip replacement procedures done in the private sector (94 percent) are elective.
The 2017 orthopaedic report combines data from 2014-15 and 2015-16. In those two financial years Medibank paid for 9947 hip replacements in private hospitals. These surgeries were done by 642 surgeons, of whom 449 (70 percent) billed Medibank for five or more procedures. This is an interesting cut-off point, because there is general agreement that surgeons who perform more procedures generally have fewer complications and better clinical outcomes.
And indeed, that is what these data show: orthopaedic surgeons who do fewer hip replacements are more likely to have their patients transferred to the ICU, and their patients are more likely to have hospital-acquired complications. It’s not surprising then that their patients have longer stays in hospital and are more likely to be readmitted within 30 days. The increase in adverse outcomes is most pronounced for those surgeons who billed five or fewer surgeries.
These surgeons don’t just deliver poorer outcomes, they cost the healthcare system (Medicare, insurers and patients) more. The average number of MBS items billed per procedure was 1.4, but these outlier doctors are more likely to bill up to four MBS items for their services. It’s harder to make definitive links between charges, out-of-pocket costs and outcomes, but it seems that the adage “the most expensive service is not necessarily the best” holds true. I have written previously on the links between private health insurance and the cost of specialist services.
These links between numbers of procedures performed, patient outcomes, and costs hold up for all the other surgical areas that have so far been reported upon. The reports ask the right questions of readers: what is the most effective length of stay for this procedure; what is the expected transfer rate to ICU and to rehabilitation; what are reasons for variation in costs, are you aware of these variations?
Arguably it’s too early to see substantial changes in clinical outcomes, but despite the publicity around costs, and the acknowledgement by the RACS that some surgeons are charging extortionate fees – “rorting the system” ̶ and that this is “clearly a professional issue”, the two orthopaedic reports show only that costs ̶ for prostheses, hospital, medical practitioners and diagnostic services, and inevitably, out-of-pocket costs ̶ continue to rise. Patients are entitled to ask why there has been so little obvious effort to address the outliers who are compromising those in their profession who have fair charging practices.
There are many additional questions to be answered here, not just for orthopaedic surgery but for all the clinical specialties. What explains the huge variation in orthopaedic surgeons’ fees (which are not broken out in the reports but combined in the total cost for an episode of care)? Why do some surgeons have no gap while others charge the patient as much as $5,500 – and why do these out-of-pocket costs vary so much from state to state (the average surgeon patient charge is $2,697 in NSW but only $556 in South Australia)? To what extent do surgeons drive the use of high-priced prostheses? Is there a correlation between prostheses cost and their failure rates? There are great variations in the rates of referral and the type of referral for rehabilitation: what are the consequences? Is there a minimum number of hip replacement procedures a surgeon should perform annually to optimise patient outcomes and how should this minimum number be determined? Should those surgeons with high rates of poor outcomes and infections be required to undertake remedial training? Is there a link between clinical expertise and skill and fees – should there be such a link? Should this type of information be more accessible to patients, and should it be in a form that identifies hospital or surgeon or both?
Attempts to answer to these questions should consider the broader context in which these surgeons work: obviously Medibank is not the only insurer involved, and many of these surgeons work at a number of hospitals, both public and private. The relationship between volume and outcomes for individual surgeons is independent of hospital volume, although hospital volume is also a factor in better patient outcomes. How are hospitals responding to those surgeons whose results are unsatisfactory? Is there some characteristic of those surgeons who are doing very small numbers of (privately-funded) hip replacements in a two-year period – are they less experienced, in smaller and / or more isolated hospitals, more likely to accept difficult or inappropriate cases? Ideally these are issues to be resolved by the RACS and hospital administrators, but there are financial implications for insurance funds and Medicare.
These questions go to variations in practice, quality and safety, and costs. There is another equally important set of questions about the value of these services that are hugely subsidised from the public purse (via Medicare and the Private Health Insurance Rebate). To what extent are the services delivered in the private sector high-value or low-value? The instinctive response to this question is that no one submits to surgery and the costs (financial and other) involved unless this is necessary. But this does happen; it’s one of the reasons why there are such huge variations in practice for procedures like hysterectomies, tonsil removal, arthroscopic knee surgery and stabilisation surgery for osteoporotic spinal fractures, many of which have been determined to be of low value.
The government should not let its conservative ideologies hinder a proper and public investigation of these issues. It is not just about good health policy, it’s about good economic policy.
Dr Lesley Russell is an Adjunct Associate Professor at the Menzies Centre for Health Policy at the University of Sydney.