ANDREW PESCE. Explaining Gap Fees and their impact. What you knew and what you may not know Part 1.

Aug 6, 2019

There has been recent public and media focus on out of pocket (OOP) costs for Australians receiving health care, usually referred to as Gap fees. Minister Hunt recently announced his intention to establish a Website to publish doctors’ fees. This reflects and maintains the public focus on gap fees charged by doctors. This is indeed an important issue, for it may be a significant impediment to equitable access to necessary health care, a principle strongly endorsed by Australians.

This is the first of two articles on Gap fees, and it will outline and summarise the source and trends in OOP costs for Australians. The second will focus on what can be done to minimise patient OOP expenses impacting adversely on the ability to deliver equitable access to affordable care.

The following Table summarises the areas where patients pay OOP costs, and what drives those costs:

Health Expenditure by Individuals 2016-17

Area of expenditure Expenditure $mill     (%OOP) Main Driver of total OOPs
Non PBS pharmaceuticals    9,600                          (32.2%) Volume, discretionary spend
Dental Services    5,850                          (19.6%) Volume, very limited Medicare cover
Hospital (private and public)    3,242                          (10.9%) Self insurance
Specialist fees    3,031                          (10.2%) Rebate levels, practice costs, specialists’ income expectations
Aids and Appliances    2,866                          (9.6%) Limited Medicare and PHI rebates
Allied Health services    2,324                          (7.8%) Limited Medicare and PHI rebates
Pharmaceuticals on PBS    1,408                          (4.7%) Pharmacy costs, drug prices
GP fees        766                          (2.6%) Medicare Rebate levels

Table based on : Australian Institute of Health and Welfare 2018. Health expenditure Australia 2016–17

So in 2016-17, Australians each spent on average $394 on non-PBS pharmaceutical expenditure, half of which is for discretionary purchase of vitamins and dietary supplements which have little evidence of benefit. By comparison they spent $240 of their own money for dental treatment, $156 on gap payments to doctors, and $58 on OOP costs for prescribed PBS listed medications. Such averaging allows an understanding of where OOP payments are being spent overall, but don’t describe the significant burden on individual patients with health problems, especially those resulting in large gap payments for a single procedure (eg prostate cancer surgery), or recurrent and cumulatively significant OOP payments for those suffering chronic health conditions (eg diabetes).

Why do Gap fees exist?

OOP fees are charged when providers of the goods (eg pharmaceuticals) or services (eg Doctors) charge more than the rebates paid by the relevant insurers (Medicare and/or PHIs). Successive governments have tolerated and even encouraged patient OOP contributions because these are seen as contribute towards some price discipline for both providers and consumers.  Governments’ position on OOP contributions towards surgeons’ fees has been politically tolerated because access to public hospital services at no OOP expense acts as a safety net for patients who cannot afford private surgeons’ expenses. Reinforcing governments’ historical reluctance to intervene directly and control doctors’ gap fees is the knowledge that on the rare occasions they have attempted to control doctors’ fees, they have been defeated legally and industrially.

A closer look at gaps.

The public perception of gaps focuses very heavily on specialist fees. There is no doubt that individual patients sometimes are required to pay substantial sums of care if they can’t wait for public hospital treatment. In addition, public hospitals often don’t provide a comprehensive outpatient clinic services or there are significant waiting times for existing clinics. Patients are then required to arrange out of hospital specialist consultations, often requiring substantial gap payments.

The pain of gap fees is felt even more when there is little transparency and little likelihood of a patient to establish what gap costs will result from a particular procedure. Even when surgeons provide details of their gaps, they often aren’t able to provide information for associated services eg anaesthetists’ fees and investigations (X-rays, blood tests) which might be required during the episode of care.

Private Health Insurers often are at the forefront of criticism of doctors’ gap fees. Their frustration is understandable: when they were required by the Federal Government to offer no or known  gap rebates to qualify for  the 30% subsidy of their members’ premiums, they increased their rebates in the expectation that the large majority of procedures would result in lower gaps.  Many surgeons and other procedural specialists however commensurately increased their fees, and in many cases patients’ gaps remained substantially unchanged.

However, overall only 10% of PHI expenditure is for specialists’ fees (about the same proportion of their expenditure as PHI’s administrative costs), compared to 57% for hospital charges and 12% for dental services. PHIs don’t contribute at all to doctors’ fees for out of hospital services, in fact they are currently prevented by legislation for paying for out of hospital medical services.  So their criticism stems more from their view that gap payments above PHI benefits are a significant driver to lower PHI membership. They see that unless gap patients for PHI members are minimised, the drift away from PHI membership, reversed by the introduction in 1999 of the PHI rebate, will once raise the possibility that PHIs will not be viable as a progressively diminishing membership base will be required to fund increasing costs.

Where are our health dollars being spent over time?

Area of expenditure % of total expenditure (rounded to nearest %) Average Growth

(2011/12 to 2016/17)

Hospitals (public/private) 41% (32/9) 2.8% (2.5/3.8)
Pharmaceuticals(PBS/non PBS) 13% (7/6) 3.6% (3.8/3.3)
Private Specialists 11% 4.1
GPs    7% 3.6
Community/Public Health    7% 1.7
Dental    6% 3.3
Research    3% 0.6
Allied Health    3% 0.3
Administration    3% 3.4
Aids and Appliances    3% 3.1
Patient Transport    2% 2.8

The above table shows the four fastest growing areas of expenditure overall are, in order

  1. Specialist medical services
  2. Private hospital services
  3. PBS Pharmaceuticals
  4. General Practitioner services

These are the areas where control of costs will generate the largest cost benefits, and the next article will discuss what can be done to achieve this.

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












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