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

Aug 7, 2019

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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