Curbing health costs starting with pathologists and radiologists. John Menadue

May 9, 2013

In discussing the looming budget deficits there has been focus on the rising costs of healthcare. And so there should be.

But before addressing some of the factors leading to increased costs, we should keep in mind that Australia spends about 9% of GDP in health. That compares with France 12%, Germany 12%, Canada 11%, New Zealand 10% and UK 10%. The OECD median is 9%. The US at 18% of GDP is ‘off the charts largely due to private health insurance.

Thus 9% of GDP spent on healthcare in Australia is not excessive in world terms. Medicare for all its difficulties has laid a solid basis for efficiency and equity in healthcare. We would change it at a great cost to the nation.

I will be writing about some areas in future where cost reduction is necessary and possible e.g. the costs that are incurred because of different commonwealth and state responsibilities (e.g. patients going to an expensive Emergency Department when it would be cheaper and better to go to a GP), antiquated work practices and clinical errors.

A central problem is that we all see our doctor too much and we have too many tests. The following table shows how all medical services per 10,000 of population have increased dramatically in the ten years to 2011/12

These figures are derived from Medicare Australia-Statistics-Medicare Benefit (MBS) Group Statistics.

All Medicare services by category per 10,000 of population 2001/02 to 2011/12

Medicare service




% Increase

Professional attendance





Therapeutic procedures





Diagnostic imaging
















These figures show the dramatic increase in medical services per 10,000 of population over ten years by 34%. The increase in diagnostic imaging services has been 42% and for pathology services, 50% Together with many specialists, including in church hospitals they have been making a motza..

The government has attempted to restrain these increases particularly in imaging and pathology, but there is a long way to go. There are several reasons for the escalating number of services.

  • Advancing technology will result in more and better pathology and imaging services, for example. GP’s will naturally want to use them
  • General practitioners run more possible professional risk in ordering too few tests than too many.
  • With increasing corporate takeovers of general practice, there is more vertical integration between the general practitioner and specialist services such as pathology and imaging. There is a clear conflict of interest when a general practitioner employed by a corporate orders a battery of pathology tests from the same employer.
  • Fee-for-service is particularly inappropriate for services with high fixed costs and low variable costs, such as imaging. If fees are set on an average basis, including fixed costs, then the contribution to overheads and profits is high giving an incentive for high use. This has clearly been happening.

There are actions that the government could take.

It could set budgets for general practitioners when they prescribe drugs, order pathology tests or imaging services. Germany is doing some of this already to curb escalating costs.

Improved means tested co-payments would be another way to place more financial responsibility on the patient to restrain spending

The Government could also offer contracts to General Practises as an alternative to fee for service. It could be surprised at the take up of contracts. Many GP’s are tired of turnstile medicine. They want to work as part of a professional team with opportunities for upgrading of skills and sabbaticals. Fee for service is a driver of over servicing. It is a perverse incentive where quantity rather than quality of service is rewarded. It must change if quality of service is to be improved and costs contained.

As in so much of health services in Australia, vested interests in such areas as imaging and pathology together with their lobbyists are very effective in protecting their interests at the expense of the patient and the taxpayer. So much of the time of the Minister and the Department of Health is taken up in managing the demands of the vested interests rather than addressing structural problems and costs in the health service. The Minister and the Department are no match for the powerful vested interests –the AMA, the Pharmacy Guild and PHI sector. It is because of the failure of existing governance of the health service – the ministerial/departmental model – that I have recommended for many years  a statutory commonwealth health commission composed of independent and professional people (like the Reserve Bank in the financial field) to administer health services in Australia, subject to guidelines determined by the government.

An important role for such a commission would be leading an informed public debate about the changes that are necessary in health care. Without an informed community, governments are not going to have the polical courage to confront the powerful vested interests that in many respects have a veto on reform. We can’t leave it to the “market” to sort it out because there is no open or free market in health services. Outcomes are rigged by very powerful providers. They hold all the cards. It is really about power in the health sector and how that power is exercised

There will not be effective cost containment unless this is addressed

John Menadue

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