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Looming changes to Medicare rebates have brought howls of protest and the potential for another ‘Mediscare’ campaign by Labor. But, experts say, the real problem is the rise of private health and the slow drift to a US-style system. By Rick Morton.

Is Medicare under attack?

Prime Minister Scott Morrison with AMA president Dr Omar Khorshid.
Credit: Paul Kane / Getty Images

Medicare is not under attack, but Australia’s health system is in trouble.

That was the diagnosis of the president of the Australian Medical Association (AMA), Dr Omar Khorshid, when he appeared at the National Press Club in Canberra on Wednesday.

His speech came just days after Labor began a push to capitalise on a five-year review of Medicare Benefits Schedule (MBS) items – led by a 16-person taskforce comprising clinicians, academics and consumers – by invoking the spectre of the successful 2016 “Mediscare” campaign.

“I certainly hope we’re not going to see a Mediscare campaign,” Khorshid told reporters at the event.

“The sad reality of Medicare is that successive governments over the entire life of Medicare have failed to index it properly and have therefore effectively cut Medicare for 30 years.”

By July 1, more than 900 items on the MBS relating to orthopaedic and general surgeries, alongside cardiac services, will be updated, merged, introduced or deleted altogether. These changes, recommended as part of the review that began in 2015 and has since assessed nearly 6000 such items, are the latest in a long line of refinements. The government has accepted all 1400 recommendations of the review, with more phases being completed in July 2022 and into 2023.

But these changes have obscured the real sickness in the system that has been building, researchers say, over many decades. The problem has many faces but two stand out: the first, a long-term erosion of bulk-billing sustainability in the public health system, and then a private health insurance model, which was meant to take pressure off the former but is instead in a “death spiral” or, in another view, leeching from the taxpayer.

“Young people are leaving [private health] insurance and being replaced by older people who perceive better value for money from the product but whose claims are increasing the premiums to the point where premiums are becoming unaffordable,” Khorshid said on Wednesday.

“If we do not do something soon, it will move to being critical.”

In August last year, Medibank Private purchased a 49 per cent stake in East Sydney Private Hospital. In January, the insurer paid about $240 million for the medical centre business Myhealth, a group of shopping centre GP practices serving 1.2 million people across 80 clinics in three states.

In December, private health-fund giant nib sought permission from the Australian Competition and Consumer Commission to form a buying block with Honeysuckle Health, a joint venture between nib and the American healthcare and insurance company Cigna Corporation.

The buying block would “collectively negotiate and administer contracts with healthcare providers (including hospitals, medical specialists, general practitioners and allied health professionals) on behalf of participants”.

The ACCC released a draft determination last month that proposed to give the alliance the green light, with some conditions. But the move has spooked almost every medical group in the country.

    The issue, as Khorshid told the Press Club, “is the potential for Honeysuckle, through its collaboration with an American-managed care organisation, to apply those managed care principles to the contracts that it uses to procure services here in Australia.

“Now we hear from nib that they’re not going to do that. But that’s not enough for us.”

Managed care is a term that first emerged in the US, where its technocratic principles allegedly reduce the cost of providing for-profit healthcare while simultaneously improving the quality of that care. In practice though, managed care is a controversial practice that shatters the autonomy between patients and doctors. The Australian Doctors’ Federation director Stephen Milgate says it “places the patient at the mercy of the health fund’s contract with the doctor”.

It has been the dream of private health advocates in Australia since the 1990s, but Khorshid, for his part, says it must never be allowed to take hold here.

“[Private health funds] are moving to reduce their costs by contracting doctors and hospitals [and] using these contracts to change doctors’ behaviours in order to limit costs. This, in our minds, is moving Australia down the path of US-style managed care,” Khorshid said.

“The US health system is the most expensive in the world, and care there is dependent on how good a policy you can afford to buy.”

Associate Professor Ben Harris-Roxas, from the University of NSW Centre for Primary Health Care and Equity, says there is an argument to be made that the MBS changes coming in July have been rushed, although the consultation itself was long and thorough. “Others are claiming that this represents an attack on Medicare, but I genuinely do not believe that’s the case,” he tells The Saturday Paper.

Which is not to say there aren’t major problems with equity in the system.

“When Medicare was first introduced, the system was set up to support and reinforce bulk-billing. Patients liked it, it was easy for the GPs, and generally they made enough money,” Harris-Roxas says.

“Since then, most changes have been to make bulk-billing less attractive to GPs in favour of charging patients more than the rebate. This change hasn’t been uniform and a lot of assumptions have been made by GPs about who can afford to pay, which has led to a lot of variability on whether bulk-billing is available at all in large regions.”

Indexation of Medicare item rates is part of the problem, with the government’s contribution falling behind rises to the cost of living. In July, for example, most MBS items will increase by just 0.9 per cent.

In the past decade, both the Coalition and Labor have instituted MBS indexation freezes, saving the budget more than $1 billion. Despite this, bulk-billing rates have gone up overall – from 74.3 per cent in 2009-10 to 80 per cent in the past financial year. Why, exactly, this has happened is complex: Australia’s population has aged during the past decade, with a growing number of pensioners eligible for bulk-billing. But it also seems doctors have allowed these changes to eat into their margins before passing them on to patients.

“It’s partly an indexation issue,” Harris-Roxas says.

The Commonwealth has introduced new incentive payments over the past decade to coax GPs to see residents in nursing homes, for example. But these carrots are offered at the practice or business level, rather than as a fee for each individual doctor. And they’ve been paid for, Harris-Roxas says, at least partly “by deliberately not keeping up with CPI and other price increases” attached to the rest of the MBS.

The cost of Medicare and private health insurance rebates is currently about $37 billion, rising to $41.7 billion in 2024-25. Private health rebates will fall about 1.4 per cent in real terms over coming years, even as the cost rises to $7.1 billion.

For Harris-Roxas, this is a bad investment.

“Saying private insurance is in a death spiral … underestimates the extent to which insurers, specialists and private hospitals’ interests are aligned,” he says.

“It also underestimates the kind of power they collectively wield. [This power] serves a lot of people’s interests, it’s just that those people aren’t the patients or the people whose taxes prop the system up.

“Private health insurance certainly doesn’t deliver value for the public subsidy and investment in it. We’d be vastly better off reinvesting that money into Medicare.”

The fight, then, is not with the recently announced MBS review changes, but the slow-motion reshaping of the entire health system. It is not true, as some Labor MPs claimed this week, that Scott Morrison has “slashed almost 1000 items from Medicare”. Most of them, in fact, are additions or amendments.

System experts say the MBS changes are almost all administrative.

For example, in the recent batch of changes there are myriad clarifications about updated procedures and caveats about what other services can be charged for in addition to specific MBS items.

In other cases, the new or amended items simply recognise advancements in clinical care or the way procedures are done. Items have been merged or separated, based on the efficacy of surgeries or operations.

For a small number of revisions, the aim is to reduce the amount claimed by surgeons who have, in a minority of cases, been claiming multiple items that are incidental to the main procedure they are performing.

“So, they’re doing things to clean up rorts in the system,” the Grattan Institute’s Dr Stephen Duckett says. “And, of course, if you’re one of the surgeons who used to charge four items when everybody else charged one, then this is going to affect your income.”

It’s the implementation of these changes that drew fury from medical bodies, including the AMA and others in the medical community. The precise wording of the MBS item number changes was only made available to specialists and private health insurers last weekend, leaving little time to update cover arrangements. This is where things get tricky.

What happens next really depends on doctors and private health insurers.

Some doctors, of course, will not change their billing or clinical practice despite the change in MBS descriptors, which would leave a gap for patients. But most, according to Duckett, will simply move with the times and adopt the new system.

Once they get used to it.

So much about the health system is built on the hope that doctors will do the right thing, even where the business case is waning, such as in bulk billing where the fees charged by a GP match exactly the Medicare rebate.

Despite handling the overwhelming majority of health presentations in the nation, GPs account for very little of the overall Medicare cost, about only 8 per cent. AMA modelling suggests governments could save $21.2 billion over the next four years from avoidable hospital admissions, assuming governments invested properly in primary healthcare. It also estimates some $32.4 billion has been “stripped out of the hospital system since 1 July 2016” because the Commonwealth–state funding agreement “doesn’t even index against health inflation”.

If there is a war on health, it is a war of attrition. And it has been running for some time.

This article was first published in the print edition of The Saturday Paper on Jun 12, 2021 as "A sick system".

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Rick Morton is The Saturday Paper’s senior reporter.