John Menadue. The dog’s breakfast in co-payments has got worse.

Dec 11, 2014

The government is trying to dump its co-payment mess on to doctors. If doctors decide not to absorb the reductions in the Medicare rebate, many will pass it on to patients and dramatically reduce bulk billing. What a mess!

In justification for their ill-considered GP co-payment in the budget, the Minister for Health Peter Dutton and Prime Minister Tony Abbott kept parroting that we need some improved price signal in health in order to make our health system sustainable. But this argument is not valid. We have one of the best and most sustainable health services in the world. The Commonwealth Fund ranks Australia fourth in the world for the quality and efficiency of its health service after UK, Switzerland and Sweden. That is due to Medicare.

That does not mean however that we don’t need to address some major problems in our health system.

The main reason for our rising health costs is the ability of powerful health providers to extract monopoly rents from taxpayers and the community. These powerful providers exploit their market position in many ways.

  • The private health insurance industry receives a government subsidy of over $6 billion p.a. and through its actions weakens Medicare’s ability to control costs. Gap insurance has underwritten an enormous increase in specialist fees.Just look also at what has happened to health costs in the US as a result of private health insurance.
  • The AMA insists on fee-for-service for treatment of patients and resists any significant workforce reform, particularly for nurses.
  • The Australian Pharmacy Guild uses its political power to restrict competition.
  • Medicines Australia extracts high wholesale prices for its products.
  • The fragmentation of services between the commonwealth and the states increases costs and misallocates resources in favour of hospitals.

So far all governments have not been prepared to challenge these vested interests. Instead the present government focuses on ill-considered co-payments  which would disadvantage low income people and discourage people from seeing their GP which results in higher specialist and hospital costs.

In Australia co-payments contribute over $A24 billion p.a. to our health sector. These co-payments are the third highest as a source of health funding – after Federal and State funding.

This amount of $24 billion p.a. or 17% of our total health funding is high by world standards. Australians pay a higher proportion of their healthcare costs through co-payments than citizens of most other OECD countries. The Commonwealth Fund has found that when healthcare spending is adjusted for the cost of living in Australia, we pay more in direct co-payments than all other counties surveyed apart from Switzerland and the US. Our annual health co-payments per capita are about $US750 compared with Germany $US600, New Zealand $US330 and the UK $US 310.

The problem with our co-payments is not that they are low. It is that this whole area of co-payments lacks any rhyme or reason. It is a dog’s breakfast.

Consider how the percentage of total funding from consumer co-payments varies.

  • Public hospitals 2.5%
  • Private hospitals 11%
  • Medical services 12%
  • PBS medicines 16%
  • Dental services 56%
  • Aids and appliances 69%
  • Non-PBS medicines 92%

There is a wide variation in the impact of co-payments on people with different illnesses and disabilities. For example  people with conditions that can be largely treated by GPs or within the public hospital system, generally incur lower co-payments than those with conditions that require allied healthcare and over-the-counter medicines. This is the case independently of the length or severity of the illness/disability and its impact on both individuals and society. In fact, people with ongoing chronic conditions often end up receiving lower levels of subsidy for their healthcare than those with one-off or self-limiting conditions. Another result of this ad hoc and uncoordinated approach to co-payments is that some people receive almost all their healthcare free at the point of service, and others, with conditions which may be more serious or longer term, face crippling costs for their treatment. For example, someone receiving emergency surgery for, say, the removal of an appendix in a public hospital, can incur no out-of-pocket costs for their treatment, whereas someone with a long-term genetic condition such as Cystic Fibrosis can incur high ongoing costs. The result is a very inequitable allocation of healthcare resources which has a particularly negative impact on people with chronic conditions.

This chaotic mess in co-payments is not surprising. These co-payments have been introduced without any coherence and therefore inequities and perverse incentives abound. Some services such as public hospital services are free. Some such as pharmaceutical benefits are capped by the government. Some, such as the co-payment for medical services below the safety net thresholds are open-ended; the public subsidy is fixed, leaving the user to bear an open-ended risk. Some such as the medical safety net provisions are proportional to the price of the service. Some safety nets are set on a family basis, others on an individual basis. Some are on a calendar year basis and others on a financial year basis.

I addition to sorting out the dog’s breakfast of co-payments to ensure greater fairness and efficiency, it is important that we move away from the fee-for-service system by which doctors are remunerated. This type of remuneration promotes turnstile medicine or what is sometimes called ‘six minute medicine’.  FFS may be appropriate for occasional and episodic care but it is not appropriate for long-term and chronic care. We need a major review of remuneration practices in primary care with more emphasis on capitation and bulk charges for chronic care, to keep people well at minimum cost. The British single-payer system has many advantages. One advantage is as the Economist of May 31 this year put it ‘Doctors in the UK are paid to keep people well, not for every extra thing they do so they don’t make money performing unnecessary tasks and tests’.

The way we remunerate GP’s is far more important for quality of care and efficiency than fiddling with co-payments.

Even more important is costly specialist care, not the cost of  GP’s in primary care.

The whole structure of co-payments needs to be reformed.

And tackling the power of providers is the most important of all to ensure a sustainable health system. As an example just look at the present ‘debate’ over co-payments. It is dominated by the Government and the health provider, the AMA. The voice of the community is scarcely heard in the land!


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