John Thompson. Surgeon’s report shows the ineffectiveness of private health insurers to control health costs

May 7, 2016

Private health insurer Medibank has worked with the Royal Australasian College of Surgeons to produce a report that shows enormous variation in fees charged by surgeons for similar procedures.

The Surgical Variance Report for General Surgery reviewed thousands of procedures performed on Medibank members in eight common operations – gallbladder removal, gastric band procedures, bowel resection procedures, hernia procedures, gastroscopy and colonoscopy.

The data shows that some surgeons working in private hospitals are charging 15 times the amount charged by their peers for the same procedure. For example, surgeons performing gastric sleeve operations for weight loss charged average private fees (in addition to what the insurer and Medicare covered) ranging from $231 in South Australia to $3593 in Queensland. The average fee in NSW was $3160 and in Victoria it was $1874. For gall bladder removals, fees charged ranged from $369 in Tasmania to $1166 in NSW. In Victoria, the average fee was $387.

It is important to emphasise that fees in the Medibank/College report are those charged privately to patients after Medicare and Medibank have made their contribution to the cost of the patient’s treatment.

The report also provided information on complication rates for these operations. These rates also varied very substantially. For example, complication rates for bowel resection procedures varied from 0 per 1,000 procedures for some surgeons, to 571 per 1,000 for others.

President of the College, Professor David Watters said, “These reports will provide surgeons with information that may help them gain a better understanding of, and learn from, variations, for the benefit of the service they provide to their patients and the community,” he said.

There are two important conclusions that arise from this work. First, it emphasises the lack of financial control on health costs when there is a reliance on private health insurance. In Australia, there are 33 private health insurers registered under the Private Health Insurance (Prudential Supervision) Act 2015. While Medibank’s initiative is to be welcomed, it illustrates the problem of a crowded and fragmented market where the numerous competing insurers are unable to act collectively to influence the suppliers of health services. A single insurer provides the opportunity to develop the necessary financial control on ever increasing costs of health services. As a national insurer, Medicare, is also a far more efficient and equitable operation than the 33 disparate insurers competing with each other, all with their substantial administrative and marketing costs. As Ian McAuley (University of Canberra) wrote in 2014, “Norway and Sweden remind us of a vision we have lost: the economic benefit of a strong, single national health insurer.

The second conclusion from the report is derived from Professor Waters’ comment above. This report, Professor Waters states, is aimed at providing information to the supplier of the service, not the purchaser. For more effective financial control of these important services, the client should have the information on costs and performance of surgeons so that he/she can make a rational consumer’s decision on price and quality. As Medibank’s Chief Medical Officer Dr Linda Swan said at the release of the report: “Information sharing is key to improving the delivery of healthcare, and ultimately to improving patient outcomes.” Agreed, but it is important that the patient also shares the information. A single insurer could also perform this function more efficiently.

John Thompson is an economist with experience in primary health.





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