With reports of GPs struggling to keep up with the costs of running their practices and increased out-of-pocket fees to patients, urgent Medicare reform requires thinking outside the box, writes Professor Francesco Paolucci and Josefa Henriquez.
IN A RECENT article, authors Duckett, McDonald and Campbell argue for a new approach to amend “Medicare’s fabric”, which involves a shift from current practices where all GPs receive the Medicare Benefits Schedule (MBS) rebate subsidy while retaining the freedom to set their own fees on top. Instead, they propose that practices sign up to Medicare and agree to bulk-bill all their patients.
Reforming Medicare will require thinking outside the box. In this article, we propose an alternative approach to address the issues surrounding GP and primary care. Our proposal involves allowing private health insurers (PHI) to cover all GP and primary care costs.
Fundamental issues
Since the MBS fee freeze, there have been increasing reports of GPs struggling to keep up with the costs of running their practices or maintaining growth in profit margins. Medicare quarterly statistics show a reversal of the trend in bulk-billing rates, which peaked at 83.7 per cent in the last quarter of 2019-20. In the past year, this rate has reached a ten-year low of 76.8 per cent.
As a consequence, the burden on patients’ out-of-pocket spending has increased. Currently, the average patient contribution per service has reached $75.30. These higher costs have hampered access to care, which disproportionately affects Aboriginal and Torres Strait Islanders and Australians in rural and remote areas.
Forgoing or delaying visits to primary care due to financial reasons can be dangerous as it might lead to a worsening of patients’ health. As a substitute, this has resulted in increased presentations in emergency departments, which are free of charge. Ultimately, this solution is more costly for the healthcare system, making it inefficient and inequitable.
These issues have motivated the Albanese Government to establish the Strengthening Medicare Taskforce, which made four recommendations in its report:
- to increase access to primary care;
- to encourage multidisciplinary team-based care;
- to modernise primary care; and
- to support change management and cultural change.
Risks of the “participating provider” approach
Although the participating provider approach proposed by Duckett, McDonald and Campbell has good intentions, it suffers from a series of shortcomings. Primarily, it would benefit those who are able to enrol with a participating practitioner who has their books open and little to no waiting lists. These individuals would certainly confront no gap payments.
However, the success of this strategy is conditional upon providers participating and there being an adequate supply of providers. One of the main determinants influencing their participation will be the fairness of the remuneration offered, as pointed out by Duckett et al.
The current shortage of healthcare providers – which, according to the Australian Medical Association (AMA), is expected to reach a "staggering" number of 10,600 by 2031 – coupled with high demand for services, creates a scenario where opting out of Medicare MBS fee rebates and charging clients their own full fee becomes more of a real and appealing option for practitioners. This once again highlights the importance of price signals and, therefore, of attractive remunerations.
A fair remuneration strategy that is not accompanied by a plan to increase competition by adding more doctors to the workforce will eventually lead to inflationary practices, which in turn, may require cost control measures such as budget constraints.
If left unmanaged, this can result in actions such as closing books and longer waiting times — all of which threaten equity and efficiency and can ultimately make the cure worse than the disease.
What would it mean for PHI to cover all GP and primary care costs?
At present, the provision of “broader health cover” allows insurers to offer services that prevent or substitute hospitalisation. Despite this, the existing regulatory framework prohibits PHI from covering GP care or contracting with GPs.
A new coverage model could include all GP and primary care costs in PHI products. There are several benefits to reform like this, which align with the recommendations of the Strengthening Medicare Taskforce.
Firstly, a reform that expands the coverage of PHI products to include all GP and primary care costs would reconfigure the role of private health insurers. Instead of passively “footing parts of the bills”, insurers would become prudent buyers of services on behalf of consumers.
This would enable insurers to actively participate in the entire continuum of care, from GP care to secondary and tertiary care. With greater involvement, insurers could coordinate more effective and efficient interventions, particularly for those with chronic conditions. As part of this strategy, insurers could implement innovative payment models, moving away from the traditional fee-for-service.
Secondly, expanding PHI coverage would likely attract new (low-risk) customers, such as young individuals who are more likely to seek doctor consultations than require acute or intensive care. This would make PHI more sustainable in the long run.
By broadening the insurance pool, insurers would be able to achieve lower and more stable premiums over time. Additionally, increased participation would help achieve the Government’s objectives of reducing the burden on the public healthcare system’s capacity and costs.
Thirdly, as PHI is already an existing and important component in the health system, extending its role, accountabilities and responsibilities would incur low transition and transaction costs.
Lastly, expanding PHI coverage to include GP care would relieve individuals of the increasing financial pressures of out-of-pocket payments and increase access to affordable, preventative and efficient primary care.
Is this possible?
According to recent press reports, private health insurers NIB and BUPA have expressed their interest in expanding operations to cover GP – and also National Disability Insurance Scheme (NDIS) – and primary care markets. However, the AMA, which represents physicians, has expressed its opposition to PHI directly funding GP services.
Technically, expanding PHI coverage would also require changes to the current mechanisms that govern the collection and distribution of resources to the public and private systems.
The payment system in PHI is complex and involves various components such as community-rated premiums (paid by consumers for products), “carrot and stick” policies such as government rebates, the Medicare levy surcharge (MLS) and the Lifetime Health Cover (LHC), as well as the risk equalisation scheme.
In GP and primary care, payments are a mix between the MBS fee rebates and uncapped gap payments occurring due to the difference between physicians’ fees and MBS rates.
Expanding PHI coverage beyond current hospital treatment coverage would benefit from the creation of a single revenue collection pool in which taxpayers' funds are combined and distributed. This would simplify the way funds are distributed, particularly through a risk equalisation system that allocates funds according to health needs for the entire spectrum of services rather than healthcare.
The report on the regulatory framework of PHI commissioned by the Department of Health establishes the basis for an improved hybrid risk equalisation system. This system is identified as key to enhancing the affordability and efficiency of current PHI, and it would also serve as a platform for improvement, including all-around stakeholders’ involvement in a transparent setting.
Professor Francesco Paolucci is Professor of Health Economics & Policy at the Faculty of Business & Law, University of Newcastle and the School of Economics & Management, University of Bologna. You can follow Professor Paolucci on Twitter @dr_paolucci.
Josefa Henriquez is a PhD student at the University of Newcastle. Her research focuses on health economics topics.
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