THE REVIEW OF THE HEALTH LEGISLATION
(PRIVATE HEALTH INSURANCE REFORM) AMENDMENT ACT 1995
Navigation: Previous Page | Index | Next Page
CHAPTER 3 - CONTRACTS: MEDICAL AND HOSPITAL PURCHASER-PROVIDER AGREEMENTS
3.1 This chapter addresses issues relating to the implementation and
operation of the contractual arrangements provided for in the Reform Act
between doctors, private hospitals and health funds. Contracts are fundamental
to achieving the stated objectives of the Reform Act which, as noted in
Chapter 2, have generally not been achieved. The chapter discusses areas
of concern raised in relation to the contracting arrangements and suggests
areas where the legislation can be improved so that its aims with respect
to contracts can be achieved. The chapter also discusses the issue of
`gap' insurance and the impact of the Reform Act on the public hospital
system.
Medical provider agreements
3.2 The Reform Act establishes two types of medical agreements. One form
of agreement is with funds and is termed a Medical Purchaser-Provider
Agreement (MPPA). The second form of agreement is with hospitals and is
termed a Practitioner Agreement (PA).
3.3 MPPAs are contracts entered into between health funds and medical
practitioners which allow the fund to pay medical benefits in excess of
the Medicare Benefits Schedule (MBS) fees for that practitioner's services.
The agreement must include the fees that will be charged. Such agreements
may eliminate out-of-pocket costs for patients or allow the patient to
meet a predetermined amount (or co-payment). The amendment is the key
element enabling funds to offer 100 per cent insurance for in-hospital
medical expenses and hence improved value for money. Where no MPPA exists,
the fund is restricted to paying medical benefits up to a maximum of the
amount between the Medicare rebate and the MBS fee.
3.4 MPPAs entered into between funds and doctors are subject to a number
of requirements. The principal requirements are that:
- funds agree to accept an assignment of the 75 per cent Medicare benefit
from the Health Insurance Commission;
- any predetermined co-payment to be met by eligible contributors must
be identified in the MPPA;
- apart from any such co-payment, doctors must accept the fund's payment
in full satisfaction for medical services rendered in accordance with
the MPPA during the episode of patient hospital care; and
- wherever possible, doctors are required to inform patients of any
amount that they may reasonably expect to pay before any professional
services are rendered. [1]
3.5 The Reform Act also provides for hospitals and doctors to enter into
Practitioner Agreements (PAs), and for hospitals to receive payment under
Hospital Purchaser-Provider Agreements (HPPAs) for medical services provided
by those doctors. Both PAs and MPPAs involve identical consumer protection
measures, such as requiring the doctor to inform patients in advance of
likely medical charges. They both permit simplification of the medical
benefits process by allowing the fund (for the MPPA) or the hospital (for
the PA) to collate the separate medical bills and collect the Medicare
benefits. [2]
3.6 Few medical agreements have been signed to date. The Australian Medical
Association (AMA) claimed that there were between `zero and 100', with
the Australian Doctors' Fund (ADF) stating that `to our knowledge no doctors
have signed contracts'. [3] The Department
of Health and Family Services (DHFS) stated that it was `unaware of any
MPPAs' and knew of only one Practitioner Agreement. [4]
Medibank Private, however, informed the Committee that the fund has a
small number of medical agreements `less than 100'. These contracts cover
a number of specialties and were not restricted to any particular geographical
areas `we have at least some agreements in all States. We also have one
instance where all of the doctors in a particular hospital have signed
agreements'. [5]
Views on contracts
3.7 Groups representing the medical profession were opposed to contracts
between doctors and health funds. [6]
The AMA in its submission argued that MPPAs `invite the introduction of
US-style managed care concepts into the Australian health system and should
be removed [from the Act]'. [7] The Council
of Procedural Specialists (COPS) argued that contracting provided for
in the Reform Act `was and is and will always be unacceptable to doctors
and in conflict with their fundamental ethical principles. Clinicians
must be contracted to their patients and not to third parties'. [8]
3.8 The health insurance industry generally indicated its support of
the current contractual arrangements. [9]
One fund Medical Benefits Fund of Australia (MBF) indicated, however,
that the current system of contracts with doctors is flawed as it `discourages
the voluntary cooperation of the medical profession, because it is a system
of forced co-operation of gaining de-facto control of the private health
sector'. [10]
3.9 Some medical groups, such as the ADF and the Australian Association
of Surgeons (AAS) indicated a fundamental objection to contracting as
set out in the Reform Act. The ADF stated that no amendments to the contracting
aspects of the legislation would be acceptable to the ADF `it is a moral
issue. It is immoral for any third party to come between a doctor and
patient'. [11] The AAS also argued that
`the requirement for there to be a contract between the doctor and the
health fund...should be removed'. [12]
3.10 The AMA indicated, however, that some compromise on the issue of
contracts may be possible. The Committee questioned the AMA as to their
position regarding allowing doctors to negotiate contracts as a group.
Dr Woollard, Federal President of the AMA noted that:
I think that is a possibilityIf there is a range of options available,
even if sections for medical provider agreements in the Act were repealed,
it does not stop doctors entering into arrangements with funds. If there
were some support from the government for doctors to negotiate in groups,
I think it is much more likely that those things would move ahead because
the doctors would feel that they were equal partners, in a sense, in
that negotiating field where there were groups of doctors on the one
hand and funds on the other. [13]
3.11 The Council of Procedural Specialists (COPS) also indicated that
while the Council is opposed to `specific contractingand always will be',
loose agreements and arrangements could be considered. [14]
3.12 Several peak medical groups have campaigned against the introduction
of contracts with the aim of dissuading doctors from entering into these
agreements. The AMA and AAS have advised their members not to sign contracts.
[15] The ADF stated that while it does
not give advice to its members not to enter into contracts, it has pointed
out `some areas of considerable concern and difficulty' with the proposed
contractual arrangements. [16] One group,
the Association for the Advancement of Private Health (AAPH), was formed
in 1995 in response to the proposed changes to private health insurance
and has argued for the repeal of the legislation. [17]
3.13 As noted above, the aim of MPPAs was to eliminate patients' out-of-pocket
expenses or allow the patient to meet a predetermined amount. To the extent
that few MPPAs have been negotiated and the funds have therefore been
unable to offer 100 per cent insurance for in-hospital medical expenses,
many witnesses suggested that the aim of the legislation in respect of
MPPAs has not been met. [18] The Reform
Act has, however, been given little chance to achieve its aims given the
reluctance of members of the medical profession to sign contracts. The
Australian Health Insurance Association (AHIA) also argued that while
products offering `no gaps' insurance are not available, the absence of
such products does not mean that the legislation has failed `particularly
as we are dealing with voluntary agreements in a market environment'.
The Association also noted that a number of AHIA-affiliated funds are
actively pursuing agreements with specialists, with varying degrees of
success. [19]
Conclusion
3.14 The Committee acknowledges the concerns expressed by the medical
profession in relation to negotiating contracts with third parties that
obligations imposed by such contractual relationships could seriously
compromise the professional independence of doctors or could adversely
affect judgements about patient care. The Committee has difficulty in
properly assessing these concerns in the absence of any significant number
of contracts or conclusive evidence that these concerns are warranted.
The Committee recognises that the Reform Act provides an opportunity to
address a major consumer concern relating to out-of-pocket in-hospital
medical expenses, but has not provided practical mechanisms for meeting
this goal.
3.15 The Committee believes that the medical profession should co-operate
in negotiating contracts, but with the introduction of measures that address
the concerns of the profession in relation to their freedom to contract;
their freedom to treat patients according to their clinical needs; the
right of the profession to collectively negotiate contracts with funds
and private hospitals, subject to the authorisation provisions of the
Trade Practices Act; and the need to guarantee the public scrutiny of
contracts. The Committee accordingly addresses these issues in the following
sections of the chapter.
Recommendation 2:
| The Committee recommends that the provisions relating
to the implementation of medical purchaser-provider agreements
under the Health Legislation (Private Health Insurance Reform)
Amendment Act 1995 proceed, subject to the recognition
of the right of the medical profession to treat patients according
to their clinical needs, the right of the profession to collectively
negotiate contracts, subject to authorisation by the ACCC, and
the right to public scrutiny of contracts as provided for in later
recommendations. |
Contracts areas of concern
3.16 A number of objections to the contractual arrangements proposed
in the Reform Act have been raised by groups representing the medical
profession and others. These include issues related to managed care, the
abrogation of accepted clinical freedoms and the doctor-patient relationship.
Other issues related to the need to collectively negotiate with funds
and the need for public scrutiny of contracts were also raised.
Managed Care
3.17 A major objection by the medical profession to the introduction
of contracts has been the prospect that such a system of contracts would
lead to what is referred to as a `US-style managed care' system in this
country. [20] Managed care has been
described as an arrangement whereby an organisation assumes responsibility
for all necessary health care for an individual in exchange for a fixed
payment. Initially, managed care programs in the USA involved development
of clear protocols for what symptoms should be present before a patient
within a program was admitted to hospital. Protocols have now been developed
for out-of-hospital treatment, including what drugs should be used to
treat certain conditions and when allied staff or specialist counsellors
should be involved in care. [21]
3.18 Managed care is a generic term covering a wide range of financing
systems. One form of managed care in the USA involves companies which
tender to medical insurance companies to provide medical care for those
enrolled. These companies may also tender directly to large employers
or directly to governments (for Medicare and Medicaid). The company then
negotiates with hospitals, doctors and other services to create a network
of individual providers. At the other extreme, a managed care company
may be a Health Maintenance Organisation (HMO) with its own hospitals
and staff that provide medical care for enrollees. [22]
3.19 The literature on managed care points to some advantages of these
type of arrangements. One study noted that the protocols developed by
many US managed care organisations are evidence-based and ensure that
patients receive state-of-the-art, scientifically validated treatment
and, conversely, that out-of-date, ineffective treatments are not imposed
on patients. Adherence to protocols and rigorous screening of the need
for hospital care can lead to significant cost savings managed care plans
in the USA are generally cheaper than fee-for-service plans. [23]
Managed care also has the advantage of offering `one-stop shopping' with
a team of doctors from diverse fields working together on a patient's
medical condition. [24]
3.20 Studies have also pointed to deficiencies of the system including
`underservicing' of patients if doctors have a financial incentive through
their contracts in not providing all the necessary care for patients,
for example, if contracts encourage limitations on hospitalisation or
referral of patients. A further weakness occurs if the managed care protocols
are not state-of-the-art, that is, are designed to minimise costs rather
than achieve the best health care outcomes. [25]
3.21 Studies in the USA that have compared the quality of health care
under managed care vis-a-vis the traditional fee-for-service systems have
found that the quality of care is similar under both systems. A 1994 review
of 16 studies generally found better or equal results for HMOs one form
of managed care in the USA for patients suffering from a wide range of
diseases, including congestive heart failure, colorectal cancer and diabetes.
[26] Consumer-satisfaction surveys showed
that HMO patients, when compared with patients treated under fee-for-service
arrangements, are less likely to be satisfied with the care they receive
but are satisfied with the costs of that care. The surveys indicated that
consumers are willing to trade some quality in service for lower costs.
Critics of managed care argue, however, that the published studies tend
to be based on the best forms of managed care (principally HMOs) composed
of salaried, dedicated staff whereas the fastest growing type of managed
care in the USA today is represented by looser networks of doctors under
contract for fixed or discounted fees. Critics argue that these networks
are more likely to be influenced by financial incentives to compromise
the quality of care. [27]
3.22 The AMA argued that their main objection to US-style managed care
was that `the doctor treating the patient loses control over the clinical
decision-making process...They [the doctors] have to seek prior approval
on some occasions for treatments they wish to offer to the patients from
the funds; the funds then decide whether that is appropriate care. They
are observed in terms of the expense of the care and they are delisted
from the funds if their care is more expensive than the average or the
mean that is acceptable to the funds'. [28]
COPS expressed similar concerns noting that `we do not wish to place ourselves
in the same position as surgeons in America where the way they treat patients
is now largely dictated by the funds that their patients belong to'. [29]
3.23 AHIA argued, in contrast, that the legislation did not represent
an attempt by the funds to introduce US-style managed care in Australia.
AHIA stated that the funds `do not, and do not want, to manage health
care. Doctors manage care, and should continue to do so'. [30]
AHIA argued that the term `managed care' covers a wide range of financing
systems and has been designed to meet the peculiarities of the US health
system which do not pertain in Australia. [31]
For example, the undersupply in the USA of general practitioners has led
to a system of self referral by citizens to specialists, whereas in Australia,
general practitioners have traditionally performed this role. [32]
Conclusion
3.24 The Committee acknowledges the concerns expressed by the medical
profession on the possible implications, as it perceives them, that US-style
managed care arrangements may have in the Australian context. The Committee
believes, however, that because there are major differences between the
health systems in the United States and Australia, these differences would
make the introduction of US-style managed care arrangements in this country
unlikely. The Committee further considers that as few contracts have been
concluded to date, it is difficult to assess the potential effects that
a system of contracts or protocols would have in Australia. The Committee
believes that the medical profession has largely based its opposition
to contracts on inferences drawn from the managed care arrangements operating
in the United States which may not be applicable to Australian circumstances.
3.25 The Committee would wish to avoid the worst features of the US situation
and is strongly of the view that this should be avoided. The Committee
is opposed to any system of health care that compromises the quality of
patient care. However, it accepts that there is a common interest, shared
by practitioners, hospitals and health funds, to ensure that patient care
is both of the highest clinical quality while remaining as cost effective
as possible. Providers especially doctors have to acknowledge that whoever
pays the medical bills (Medicare or the funds) is entitled to seek accountability,
efficiency and value for money.
Abrogation of clinical freedoms
3.26 A concern flowing from the misgivings raised in relation to `managed
care' was that contracts would result in the abrogation of accepted clinical
freedoms to treat patients according to their clinical needs. [33]
The Australian Association of Surgeons (AAS) stated that the legislation
`would undermine safe, orderly and ethical private, in-hospital, care'.
[34] The Council of Procedural Specialists
(COPS) argued that there are `plenty of examples from the United States
where a whole range of restrictions are placed on doctors as to what services
they can provide for their patients and how long the patients can be kept
in hospital'. [35] However, when the
Committee questioned COPS whether they had evidence that funds in Australia
have sought to exercise control over clinical and hospital care decisions,
Dr Sheldon, Chairman of COPS, replied that `I do not think we have any
specific example where this has happened'. [36]
3.27 The Committee also questioned witnesses as to whether the actual
conditions in proposed contracts sought to direct doctors in the clinical
management of their patients. Dr Sheldon responded that `I do not think
it has ever been stated in that blatant fashion. Those are the concerns
we have and that is what many of us would regard as inferences in the
proposals'. [37] The Australian Doctors'
Fund (ADF) stated that the power to direct doctors derives from `the individual
contract, in conjunction with the power of the most powerful bureaucracy
in this country the ACCC which says that you must accept or deny these
particular terms and conditions as an individual, because you are not
allowed to discuss it with your colleagues or to negotiate as a group'.
[38]
3.28 The health insurance industry argued that the operation of the legislation
would not result in the abrogation of accepted clinical freedoms. AHIA
stated that `the clinical needs of a patient must be determined by their
medical practitioner, in consultation with the patientAHIA would oppose
any system which interfered with patients being treated according to their
clinical needs'. [39] AHIA further stated
that the Association was `not aware of any contract which imposes interference
or in any way imposes upon clinician's judgements'. [40]
Another submission noted that the doctor agreements prepared by Medibank
Private and the National Mutual Health Insurance (NMHI) give undertakings
to refrain from interfering in the treatment of patients. [41]
The Health Insurance Restricted Membership Association of Australia (HIRMAA)
indicated that its agreements contained a similar undertaking. [42]
3.29 The proposed contracts sighted by the Committee did not contain
any provisions that interfered or attempted to interfere in a doctor's
right to treat patients according to their clinical needs. For example,
the proposed NMHI medical agreements contain a clause which states that:
NMHI acknowledges that it is for the Medical Provider to exercise
his own clinical judgement at all times in relation to the provision
of Services to Eligible NMHI Members. NHMI further acknowledges that
it will not interfere in the autonomous relationship between the Medical
Provider and patients who are Eligible NMHI Members. [43]
3.30 AHIA proposed that, to allay the concerns of the medical profession
regarding clinical freedoms, a provision be included in the National Health
Act which rendered a contract null and void if a fund used it to `direct
a medical practitioner in the treatment of a patient'. [44]
Conclusion
3.31 The Committee believes that the concerns of the medical profession
in relation to any possible impact of the Reform Act in respect of a doctor's
freedom to treat patients need to be addressed appropriately. The Committee,
therefore, considers that any contracts offered by funds should contain
an unambiguous undertaking to refrain from interfering in the clinical
treatment of patients so that the profession may be assured that the doctor-patient
relationship is respected at all times and the funds will refrain from
interfering or attempting to influence a doctor's treatment of a patient.
Recommendation 3:
| The Committee recommends that contracts entered into
between medical practitioners and health funds or hospitals at
all times clearly uphold the professional duty of practitioners
to treat patients according to their clinical needs. |
Doctor-patient relationship
3.32 Some groups argued that the notion of contracts between doctors
and health funds interferes in the traditional doctor-patient relationship.
[45] ADF stated that a system of direct
contractual relations between doctors and funds `obliterates or limits
the independence of the doctor and creates a conflict of interest, which
ultimately, will not serve the best interests of patients. It destroys
or substantially interferes with the traditional doctor/patient relationship'.
[46] ADF argues that a doctors' professional
independence and the direct relationship between the doctor and the patient
would be compromised by a system of contracts. [47]
3.33 Medibank Private told the Committee that the fund had received no
complaints from doctors with whom they had contracted MPPAs regarding
the doctor-patient relationship. [48]
3.34 The Committee believes that an effective doctor-patient relationship
is one in which the doctor's primary obligation is to the welfare of the
patient. It is therefore essential that the professional independence
of doctors should be preserved. The Committee believes that this independence
will not necessarily be threatened by contracts entered into between doctors
and funds, provided that the agreements respect the primacy of the doctor-patient
relationship, and refrain from interfering in, or attempting to influence,
a doctor's treatment or care of a patient. The Committee considers that
as few contracts have been concluded to date, a proper assessment of whether
contracts pose a threat to the right of doctors to treat consumers according
to their clinical needs cannot be made at this stage of the inquiry.
Negotiations with health funds
3.35 Some evidence to the Committee suggested doctors should be permitted
to negotiate in groups when negotiating contracts with funds. The AMA
argued that this was necessary because the provision of medical care,
particularly in hospitals, involves teams of doctors and requires by its
very nature coordination and discussion among doctors about a whole range
of factors. [49] AHIA also acknowledged
that the current requirement to establish separate contracts with individual
doctors is cumbersome for all parties. AHIA suggested that the funds should
be allowed to contract with an `aggregate billing authority' which would
be an individual, group of individuals or organisation involved in the
direct provision of medical services which accepts responsibility for
the aggregation of medical bills in the services provided by the individual,
group or organisation, but not so as to limit competition. [50]
3.36 Several groups representing the medical profession including the
AMA and ADF highlighted the disparity in the bargaining position of the
medical profession in their negotiating position vis-a-vis the funds over
contracts. [51] Under the Trade Practices
Act 1974 neither the AMA or other associations are permitted to negotiate
on behalf of their members with the various health funds or private hospitals
unless the joint negotiation position is authorised by the Australian
Competition and Consumer Commission (ACCC). Without authorisation, health
professionals who jointly negotiate with health funds or hospitals are
likely to be in breach of section 45A of the Trade Practices Act which
prohibits agreements that have the purpose or effect of fixing, controlling
or maintaining prices. [52]
3.37 The ACCC noted in its submission that individual negotiation with
hospitals or health funds over fee arrangements `is the only way that
will guarantee no breach of the [Trade Practices] Act '. [53]
The ACCC stated that agreements with other doctors to collectively negotiate
with hospitals or health funds are likely to fix fees and breach the Trade
Practices Act. The appointment of a negotiator to act on behalf of doctors
does not remove that risk. If doctors are bound by the fee scales negotiated
by the negotiator this is, in effect, the same as a collective negotiation.
Even if doctors use a collectively appointed negotiator but decide individually
whether to supply services at the negotiated price there remains a risk
of breaching the Trade Practices Act. In the latter case, it may be argued
that the negotiator has set a benchmark level around which the individual's
fee scales will be established. [54]
3.38 The AMA noted that the Trade Practices Act places `severe restrictions'
on the behaviour of medical practitioners with the only arrangement the
ACCC endorses as not breaching the Trade Practices Act is one where individual
doctors negotiate with health funds. [55]
The AMA noted that `no regard is paid to the severe imbalance in this
arrangement. There is an enormous concentration of financial power vested
in the handful of funds that dominate the industry'. [56]
3.39 In most States, two or three health funds dominate the market leading
to charges of oligopolistic domination of the market. In 1994-95, there
were 49 funds operating in Australia of which four funds controlled 91
per cent of the NSW market (with MBF controlling 30 per cent); three funds
controlled 85 per cent of the Victorian market (Medibank Private with
37 per cent); two funds controlled 91 per cent of the Queensland market
(MBF with 62 per cent); two funds controlled 74 per cent of the combined
South Australian and Northern territory markets (Mutual Community with
60 per cent); two funds controlled 94 per cent of the Western Australian
market (Hospital Benefits Fund (HBF) with 79 per cent); and two funds
controlled 79 per cent of the Tasmanian market (MBF with 57 per cent).
[57]
Authorisation
3.40 As noted above, joint negotiation between funds and groups representing
the medical profession must be authorised by the ACCC. The authorisation
provisions in the Trade Practices Act give the ACCC the power to grant
immunity from legal proceedings for conduct that might otherwise breach
the restrictive trade provisions of the Trade Practices Act. For authorisation
to be granted, the applicant must satisfy the ACCC that the conduct in
question will result in a benefit to the public that outweighs any anticompetitive
effect. The benefits must be public, not private benefits. [58]
3.41 The AMA raised some concerns with the authorisation powers of the
ACCC. The Association claimed that the authorisation powers are `untested'
in the health area, are characterised by long delays and are `expensive
and uncertain'. [59]
3.42 The Committee questioned the ACCC concerning aspects of the authorisation
process. Mr O'Brien of the ACCC stated that `you cannot assume that doctors,
if they did apply for joint negotiation, would get an authorisation. There
is that unsureness of itBut any authorisation, if you are asking on a
time scale, would take three months or so to look at and do correctly'.
[60] A lodgement fee of $7 500 is payable
for authorisation applications. The ACCC stated that it had received no
applications to date for joint authorisations. [61]
3.43 The ACCC noted that the authorisation power had `not been tested
enough to know whether or not it works. There is a presumption perhaps
that it is just too difficult'. [62]
The ACCC further noted that the process has been in place for many years
and has worked effectively across other sectors:
It is flexible enough to deal with the issues. If there are genuine
reasons supporting joint negotiations, and the public benefit arguments
can be mounted and sustained, then the Commission, in all the circumstances,
will grant authorisation. [63]
3.44 The Committee believes that criticism of the approach of the ACCC
especially in relation to anti-competitive agreements (s.45 of the Trade
Practices Act) by some organisations representing the medical profession
is unfounded as the Commission is merely interpreting the Trade Practices
Act as it stands at present. [64]
Conclusion
3.45 The Committee considers that those doctors who choose to enter into
contracts and who wish to conduct joint negotiations with health funds
or private hospitals seek authorisation under the Trade Practices Act.
The Committee believes that the authorisation provisions under the Act
provide an appropriate mechanism for conducting joint negotiations. The
Committee believes that the AMA or other associations should be able to
negotiate jointly with the funds and private hospitals to counter the
oligopolistic market position of the funds and, consequently, the unequal
bargaining position they have vis-a-vis individual doctors when negotiating
contracts. The Committee believes that it is essential, and in the interests
of all parties, to ensure that a level playing field be established in
this negotiating environment. These principles conversely apply where
some funds find themselves confronted with a dominance of some specialties,
where limited numbers of specialists may create a reverse oligopoly.
Recommendation 4:
| The Committee recommends that groups of doctors or
organisations representing the medical profession negotiate medical
agreements with health funds or private hospitals by seeking authorisation
for joint negotiations as provided for under the Trade Practices
Act 1974. |
Public scrutiny of contracts
3.46 Concerns were raised by the AAS and the Complaints Commissioner
over the lack of provision for public scrutiny of contracts between doctors
and the funds. The AAS argued that consumers should have public access
to contracts, including the applicable fee schedules. [65]
The Association argued that access to contracts was essential to ensure
that contracts did not contain provisions that compromised the provision
of appropriate care. The AAS suggested that the contracts be available
for inspection at agreed locations throughout the country. [66]
The Complaints Commissioner argued that consumers should have access to
both MPPAs and HPPAs, with the costings deleted, particularly as these
agreements are negotiated on behalf of fund members. [67]
3.47 AHIA conceded that consumers are entitled to information in relation
to any restrictions in contracts which might be alleged to impact on the
quality of their health care delivery. [68]
AHIA, however, argued that contracts should be entitled to commercial
confidentiality insofar as price is concerned, as it would be inappropriate,
for example, for competitors to discover the price arrangements entered
into between consenting parties. The Association suggested that the legislation
be amended to provide that a patient be permitted to view a contract between
their doctor and their health fund should the patient so request. [69]
Purchaser-Provider Panel
3.48 The Complaints Commissioner suggested that the Purchaser-Provider
Panel should have a monitoring and oversight role in relation to contracts.
[70] While the Reform Act provides for
the establishment of the Panel to monitor the legislative provisions relating
to purchaser-provider agreements, no action has been taken to date to
establish the Panel. The Panel is to operate to 30 June 1997 by which
date it will be disbanded. Members of the Panel are appointed by the Minister
and are to comprise the Complaints Commissioner as Chair and representatives
of the medical profession, public and private hospitals and consumers.
[71]
3.49 The Complaints Commissioner suggested that the Panel be established
and that the sunset clause be deleted. This would allow the Panel to monitor
agreements, including the renegotiation of agreements when they expire;
and gauge the effects of agreements on consumers. [72]
The Complaints Commissioner also argued that the National Health Act be
amended so that the Chair of the Purchaser Provider Panel be provided
with copies of any purchaser-provider agreements. It was also suggested
that copies of agreements could be provided to the other Panel members
if the parties to the contracts agreed.
Conclusion
3.50 The Committee believes that the Purchaser-Provider Panel should
be established as provided for in the Reform Act and that it should have
access to purchaser-provider agreements to enhance its role in monitoring
the legislative provisions relating to contracts and provide a consumer
focus to the oversight of contracts.
Recommendation 5:
| The Committee recommends that the National Health
Act 1953 be amended to provide for the public scrutiny of
purchaser-provider agreements by consumers, except for those parts
of contracts dealing with the price arrangements entered into
between the parties. |
Recommendation 6:
| The Committee recommends that the Purchaser-Provider
Panel be convened and that the sunset clause which limits the
life of the Panel to 30 June 1997 be deleted. |
Recommendation 7:
| The Committee recommends that the Purchaser-Provider
Panel be provided with access to purchaser-provider agreements
as part of its monitoring role relating to contractual arrangements
entered into between the relevant parties. |
Hospital provider agreements
3.51 The Reform Act amends the National Health Act to provide for a specific
form of contract between private hospitals and health insurance funds
called a Hospital Purchaser-Provider Agreement (HPPA). [73]
It allows funds to enter contracts with hospitals which specify the level
of accommodation provided and the amounts to be charged. Hospitals must
render a single account for each episode of hospital treatment and must
inform patients covered under the agreement of the amount of their out-of-pocket
expenses. Under the HPPAs hospitals must also provide the funds with the
information specified in the Hospital Casemix Protocol (HCP). [74]
3.52 The main elements of HPPAs are:
- the hospital or day hospital must accept the HPPA price in full payment
covering the episode of care for eligible contributors, apart from any
co-payment which must be specified in an HPPA;
- the HPPA price must specify the level of accommodation and provide
for the hospital or day hospital facility to render a single bill covering
all hospital and related services; and
- the hospital or day hospital must inform eligible contributors of
any amount they will be required to pay from their own pocket in relation
to hospital treatment. [75]
3.53 DHFS advised that as at 26 June 1996 there were 7 459 HPPAs between
funds and hospitals (of which 912 were for day hospital facilities), an
average of 20 HPPAs per private hospital and 7 HPPAs per day hospital
facility. [76] The Australian Private
Hospitals Association (APHA), the peak organisation representing two-thirds
of all private hospitals, indicated that all APHA members have contracted
with health funds, with larger hospitals having 40 to 50 contracts in
place at any one time. [77]
Views on contracts
3.54 Organisations representing private hospitals were not generally
opposed to the concept of contracting with health funds (contracting arrangements
already existed in some States), although many argued that the negotiation
processes needed to be improved and the perceived market imbalance vis-a-vis
the funds needed to be addressed. [78]
3.55 APHA noted in its submission that `our members generally support
the concept of negotiating prices, quality standards and other relevant
aspects of hospital care with health funds. In fact, contracts between
private hospitals and health funds have operated in Victoria and South
Australia for many years. Our major concern, however, is that the current
practice does not involve genuine negotiation on the part of many insurance
funds'. [79] The Australian Catholic
Health Care Association (ACHCA) stated that the notion of contracting
`has some benefits' if out-of-pocket expenses can be reduced and the overall
price of premiums can be lessened. [80]
Health Care of Australia (HCoA), the largest private hospital operator
in Australia, stated that `we do not have any objection to contracting.
It suits us to contract because we can have certainty for our hospitals
as well; we know the rules to work to'. [81]
Ramsay Health Care, the second largest private hospital group in the country,
noted that the private hospital industry is generally supportive of the
`concept of contracting'. [82]
3.56 The stated aims in the legislation with respect to requiring contracts
between funds and hospitals were to generate competition between health
funds and hospitals, resulting in improved efficiency leading to better
value-for-money, quality and access for patients; to link hospital funding
to appropriate quality assurance and accreditation procedures; and to
reduce restrictions on products offered, thereby allowing funds to operate
according to market demand for different products. [83]
3.57 Views expressed to the Committee differed as to whether these aims
have been achieved. Groups representing the private hospital industry
generally argued the aims have not been met. For example, APHA and ACHCA
argued that the goal of improving the value of health insurance has not
been achieved. [84] ACHCA pointed to
the continued out-of-pocket expenses borne by patients and the cost to
consumers of obtaining private health insurance. [85]
3.58 The health insurance industry generally considered that the legislation
has achieved its aims, or at least has the potential to achieve them.
AHIA argued that the legislation:
Represents a micro-reform of the health care sector by offering
consumers the opportunity for wider choices in health care packagesIt
also provides a framework through which the privately insured patient
can obtain the benefits of private sector health care while avoiding
unpleasant financial surprises. It provides a framework for a more competitive
market in the provision of health services. [86]
3.59 Medibank Private, commenting on the aims of the legislation in relation
to HPPAs, argued that the legislation encourages funds and hospitals to
enter into agreements with the aim of generating increasing competition
`industry competition should improve efficiency, leading to better value-for-money,
quality and access for patients'. [87]
MBF, however, argued that the aim of generating competition between health
funds and hospitals was based on `flawed logic'. MBF stated that there
has always been competition between health funds, limited only by the
regulations imposed by the Commonwealth `competition in pricing and packages
is subject to conditions of registration which preclude true marketplace
competition if the regulations are enforced'. [88]
MBF noted that the conditions of registration require that any package
offered to one group of people must be available to all others, and at
the same price for people in the same area. Regarding the issue of value-for-money,
MBF argued that some health insurance packages do provide better value
for money, but these have largely been restricted to the corporate sector
and not the wider community. [89]
Contracts issues
3.60 A number of issues relating to the contractual arrangements were
raised by organisations representing private hospitals. These included
the effect of the market imbalance on the negotiation process, the effect
of default benefits and aspects of the negotiation process.
Market imbalance
3.61 Concerns about the market dominance by a few large funds, referred
to earlier in this Chapter by the medical profession, were also raised
by representatives of the private hospitals similarly concerned about
the market dominance of funds vis-a-vis private hospitals. ACHCA noted
that:
Clearly the larger the health fund the more potent its commercial
negotiating capacity. However, when a health fund has a majority of
the local market, hospitals are placed in an increasingly difficult
situation. [90]
3.62 APHA also noted that funds are in a strong negotiating position
with one fund controlling at least 40 per cent of the market in each State
except in the case of NSW. In contrast, private hospital groups control
a much smaller market share with no one group controlling more than 20
per cent of the market, except in NSW and WA. APHA noted that three-quarters
of private hospitals have less than 100 beds and therefore are unable
individually to benefit from any market-share based negotiating influence.
[91]
3.63 The Private Hospitals Association of Victoria (PHAV) noted in its
submission that the Victorian experience of contract negotiations over
an 8-year period demonstrated the effect of the unequal market power between
health funds and private hospitals:
Private hospitals in Victoria found that they could not compete
in this `negotiation' framework. The market power of individual hospitals
was not enough to enable true negotiations to occur. Funds had a greater
modelling capacity and access to information across state boundaries.
Funds tended to ignore hospital cost increases when negotiating benefit
reviews. [92]
3.64 The health insurance industry rejected the view that private hospitals
are disadvantaged by virtue of market `dominance' by funds in particular
States. [93] AHIA pointed to the considerable
market power of hospitals that operate in certain geographic locations
and in certain market niches. [94] MBF
also argued that it should be recognised that while some health funds
have a degree of market power, some private hospitals also have a degree
of market power. [95]
3.65 The Committee asked witnesses regarding any possible `collusion'
between the funds as regards the terms and conditions offered in contracts
as a consequence of their market power. Dr Adler, a member of APHA, responded
that `while on some aspects [of contracts] there has been great diversity,
on other aspects there have been some interesting coincidencesOf the four
major parties in New South Wales MBF, HCF, Medibank Private and the Alliance
in my contracts, with regard to day only accommodation, which exists in
four different bands, all four have identical rates in every band'. [96]
HIRMAA sought to clarify the situation regarding funds offering the same
rates `there is a price which is available and has been suggested for
public hospitals, and we all offer the same price. We would be stupid
to offer anything higher. We would also be stupid to offer anything lower
because we know the hospitals are not going to accept it'. [97]
3.66 Some concerns were raised during the inquiry with regard to the
possibility of funds `refusing' contracts with particular hospitals because
of their market dominance. ACHCA claimed that a fund's refusal to contract
can lead to the active `defunding' of hospitals and the forced closure
of some services. [98] However, in questioning
by the Committee, the Association could not provide an instance where
a health fund had refused to contract with a hospital. [99]
AHIA also indicated that member funds had not engaged in the practice.
[100] Mr Murray, General Manager of
Medibank Private, indicated that the fund does not discriminate against
certain hospitals:
As a matter of policy, we seek to sign agreements with all hospitals
so that we can give the widest possible access to our members. There
are occasions where the price that we think is appropriate is not accepted
by the hospital and we have not been able to reach agreement. But we
do not go out with a list of hospitals with whom we will sign agreements
and a list of hospitals with whom we will not sign agreements. [101]
Effect of default benefits
3.67 APHA raised the issue of the effect that the level of default benefits
have in `pressuring' hospitals to contract with funds. A default benefit
is payable by the fund if a patient receives care in a hospital with which
a patient's fund does not have a contract.
3.68 APHA argued that as the average default benefit is only approximately
45 per cent of the actual care costs `there is a very powerful incentive
for hospitals to successfully negotiate a contract. It is virtually impossible
under the current environment to continue operating unless you have contracted
with funds that have a wide-ranging coverage of the health insured population
in the geographic catchment area of a hospital'. [102]
AHIA argued, however, that if the default is set too low for some hospitals
to survive on it is of no benefit to the hospitals in question. If, on
the other hand, the default is set high enough for uncontracted hospitals
to survive, there is no incentive for a hospital to enter into an agreement
with a health fund. [103]
3.69 The Committee was advised that DHFS has prepared a discussion paper
examining issues related to the use of case payments for default benefits
which will shortly be released for industry and public discussion. [104]
Recommendation 8:
| The Committee recommends that in the interests of
continuing certainty in the contracting process, and recognising
that contributors should not be totally disadvantaged, if in an
emergency they are treated in a non-contracted hospital, an appropriate
default benefit should continue in place after 1 July 1997. |
Negotiation process
3.70 The Committee received a range of views on aspects of the negotiation
process. APHA reported several problems with the process. The Association
stated that as a result of the power imbalance between the funds and private
hospitals many funds do not `genuinely negotiate HPPAs', with `negotiations'
often involving the fund setting a price prior to discussions and refusing
to consider a contract at any other price. [105]
3.71 ACHCA noted that member hospitals reported `varied satisfaction
with the progress of negotiated agreements. Some hospitals report that
funds have merely formalised existing arrangements. Others, albeit few,
maintain that negotiations have been relatively smooth'. [106]
HCoA indicated, however, that the group had no major difficulties in negotiating
contracts `to date the negotiations have been undertaken quite professionally
and with mutual agreement'. [107]
Country/smaller hospitals
3.72 Some evidence suggested that smaller and/or country hospitals had
problems negotiating with the funds. APHA claimed that in the case of
smaller hospitals (up to 50 beds) many funds do not negotiate in person
at all, rather they routinely make `offers' in writing, without visiting
the private hospitals to assess the scope or quality of services provided.
[108] However, MBF argued that their
fund `would certainly not simply offer terms to a hospital and say `There
it is'We have had, in a number of cases, quite protracted negotiations
until we reach agreement. That would apply to country hospitals as much
as to urban hospitals.' [109]
3.73 ACHCA noted that the difficulty for country private hospitals is
that many operate in a quasi fashion between the public and private sectors
because doctors use them for different purposes `so there are peculiar
issues that need to be addressed in the negotiations and a lot of the
timesit does come down to the capacity of individuals around that table'.
[110] Evidence from HCoA noted that
due to the complexity of the negotiating environment `smaller operators
without the information resources and computer systems would find it very
difficult'. [111]
3.74 APHA suggested that data on hospital closures suggests that smaller
hospitals are `having greater difficulties negotiating appropriate contracts
with health insurance funds than the larger hospitals'. [112]
AHIA, while not addressing the issue of smaller hospital closures specifically,
suggested, however, that there are many reasons for hospital closures
including poor management, sale of a facility to another organisation
etc. AHIA pointed out that while 13 private hospitals have closed nationally
since 1 July 1995 over the same period 12 new private hospitals have opened,
resulting in an increase of 80 beds in the private hospital sector. [113]
3.75 The Committee inquired as to whether there is any differentiation
in the benefits offered by funds to smaller hospitals as opposed to larger
ones. Medibank Private stated that differential benefits were based `more
on our assessment of their patient mix rather than their size' therefore
an acute surgical hospital would have a higher offer than a hospital with
predominantly medical patients. [114]
HCoA also told the Committee that the differentiation in the benefits
offered `is mainly done on the basis of issues such as clinical infrastructure
and the types of services that are provided within those facilities'.
[115]
Conclusion
3.76 The Committee notes the concerns expressed in evidence concerning
the difficulties that many country and/or smaller hospitals may have in
negotiating contracts with funds. The Committee considers that the contracting
arrangements could be improved if smaller hospital groupings were able
to collectively negotiate contracts with the funds (see Recommendation
9).
Administrative costs
3.77 Evidence from organisations representing private hospitals indicated
that there are increased administrative costs for private hospitals since
the introduction of HPPAs. [116] These
relate to the direct costs of undertaking negotiations, information systems
costs in administering the agreed contracts and staff costs associated
with explaining the implications of HPPAs to patients.
3.78 APHA stated that, typically, negotiation of contracts involves 60
per cent of a senior executive's time (or equivalent spread amongst multiple
senior executives) in each private hospital. The Association argued that
while this involves a reasonably small absolute cost for larger hospitals,
for smaller hospitals the actual cost may be a `significant burden'. [117]
APHA also claimed that training of staff to use new information systems
and to understand the variety of payment systems has added approximately
$1000 per annum per employee to each hospital's training costs. In addition,
due to the number and complexity of health fund products and the time
required to explain these arrangements to consumers, additional administrative
staff have been required in some hospitals. [118]
3.79 The Committee considers that the administrative costs involved in
the negotiation process, especially for smaller hospitals, could be rationalised
by permitting hospital groupings to collectively negotiate contracts with
health funds (see Recommendation 9).
Renegotiation of hospital contracts
3.80 APHA and PHAV argued that hospital experience in the renegotiation
of existing contracts has also been unsatisfactory. [119]
APHA claimed that some funds have unreasonably delayed concluding contract
negotiations. These funds have then extended the existing contract until
the delayed negotiations are complete, often months later. [120]
3.81 In addition, APHA argued that many funds enter renegotiation discussions
with a predetermined view on the size of any increased benefits. For example,
funds tend to be unwilling to consider the impact of significant cost
increases, such as wage rises, that have taken place since the previous
contract was negotiated. Other funds have a predetermined idea of the
total benefits to be paid based on the previous year's case profile `this
approach is likely to be inappropriate where a hospital's service profile
is changing due to specialisation or broadening the range of services
offered'. [121] APHA argued that some
private hospitals, especially smaller and independent hospitals, have
been offered renegotiated contracts which pay substantially lower benefits
compared to those previously paid by the fund. [122]
Collective negotiations with health funds
3.82 APHA argued that to achieve a more equitable basis for negotiations
between hospitals and health funds, independent hospitals and small hospital
groups should be permitted to collectively negotiate contracts with the
health funds. [123] AHIA, however,
was opposed to this proposal arguing that it would lead to the creation
of `cartels'. [124] The Association
argued that the existing trade practices legislation provides sufficient
flexibility for hospitals to negotiate without the need for special exemptions.
[125]
3.83 The ACCC in its submission to the Committee stated that under the
Trade Practices Act, private hospital negotiations with health funds for
the provision of hospital services need to be completed on an individual
basis to ensure no breach of the Trade Practices Act. Hospitals that compete
with each other, or are in a position to compete with each other, cannot
collectively negotiate on price with health funds (nor can they appoint
a negotiator) without risking breaching s. 45A of the Trade Practices
Act the price fixing provisions of the Trade Practices Act. [126]
3.84 The ACCC advised the Committee, however, that not all joint negotiations
on prices and rates would breach s.45 of the Trade Practices Act. Private
hospitals that do not compete with each other, either in a geographic
sense or in a product market sense, are able to negotiate jointly, provided
that such conduct does not substantially lessen competition. Secondly,
it is not a breach of s.45 for all hospitals owned by one legal entity,
for example an order of the Catholic Church, to negotiate jointly with
the health funds. [127]
3.85 Currently, the ACCC may authorise collective negotiation by hospitals,
in circumstances where the applicants are able to demonstrate public benefit
which outweighs any reduction in competition. The Commission advised the
Committee that it has examined one joint negotiation proposal involving
major private hospitals in a particular metropolitan area. The ACCC noted
that:
The Commission formed the tentative view that in this particular
instance the effect on competition would be significant. The public
benefits to outweigh this detriment to competition focused nearly entirely
on the countervailing power argument. That is, the other side to the
bargaining equation had a lot of power and the hospitals did not. While
this can be claimed as a public benefitthe Commission's preliminary
view was that it did not feel that this countervailing power argument
was likely to produce sufficient benefits to outweigh the impact on
competition. However, this would not necessarily be the position in
all cases involving a joint negotiation proposal. [128]
3.86 APHA has argued that the public benefit argument necessary for authorisation
for joint negotiation `is difficult to demonstrate to the satisfaction
of the ACCC'. [129] APHA further stated
that the authorisation process inadequately addresses the hospital/insurer
power imbalance and is an expensive (costing some $7 500 per application)
and lengthy process (taking a minimum of four months). [130]
3.87 APHA suggested, that to overcome the difficulties associated with
the authorisation process, legislation should permit the establishment
of hospital alliances for the purposes of negotiating HPPAs. The Association
proposed that the National Health Act be amended to allow private hospitals
to form negotiation alliances which comprise no more than 30 per cent
of the privately owned private beds in a State or 30 per cent of day procedure
centres working in any one speciality. APHA argued that the proposed upper
limit (of 30 per cent of beds in a State) would not create a `new power
imbalance' as both new hospital alliances and existing hospital groups
would have less market power than the funds. [131]
3.88 In additional information provided to the Committee APHA stated
that hospital alliances would result in each alliance representing a significant
proportion of fund members. An alliance which represented 30 per cent
of the private beds in a State would provide services for about 20 per
cent of each fund's members (the remaining 10 per cent attend public hospitals
as private patients). Thus the fund would be required to enter `meaningful
negotiations with the alliance to avoid disenfranchising 20 per cent of
its members'. [132]
3.89 AHIA raised some concerns with the APHA proposal. AHIA argued that
some small independent operators may be disadvantaged as some 90 per cent
of privately owned beds in a State could be tied up in three negotiating
groups `if I had a group that had 30 per cent of the marketI would be
in a stronger competitive position than my competitor who has 10 per cent
or less of the market'. [133] AHIA
also argued that the increased market power of private hospital alliances
may lead to situations where groups containing both high quality and `poorer
quality' hospitals may demand contract conditions on a `take it or leave
it' basis. [134]
Conclusion
3.90 The Committee is satisfied that on the evidence there is a market
dominance of the funds vis-a-vis private hospitals. This dominance creates
a potentially unfair negotiating advantage for the funds. The Committee
is of the view that a level playing field needs to be established to achieve
a more equitable basis for contract negotiations. The Committee therefore
considers that private hospitals should be encouraged to collectively
negotiate contracts with health funds but that this should be pursued
under the authorisation provisions of the Trade Practices Act.
Recommendation 9:
| The Committee recommends that private hospitals negotiate
hospital agreements with health funds by seeking authorisation
for joint negotiations as provided for under the Trade Practices
Act 1974. |
Gap insurance
3.91 The gap between health insurance coverage and what a doctor actually
charges (out-of-pocket expenses) has been identified as a major reason
why many people perceive a `lack of value for money' in health insurance
cover. [135] The Commonwealth Government
sets the amount which can be covered by insurance for a particular procedure
through the MBS. For procedures conducted in hospital on persons with
private health insurance, Medicare will rebate 75 per cent of the schedule
fee and the health insurance fund will make up the remaining 25 per cent.
If a doctor opts to charge above the schedule fee, the patient bears this
cost it is these `out-of-pocket' costs that have caused concern to those
with private health insurance. This problem is addressed in the legislation
which provides, through MPPAs, for funds to offer 100 per cent insurance
cover for in-hospital medical expenses. [136]
3.92 The level of out-of-pocket costs for patients can be substantial.
AHIA stated that the `average' co-payment for a patient treated by a specialist
and anaesthetist is approximately $130. In 1995, one AHIA-affiliated fund
reported more than 850 co-payments to surgeons exceeding $1000. On the
basis of this data, AHIA estimated that one claimant in 90 would face
an uninsurable co-payment of more than $1000. [137]
3.93 The problem of medical `gaps' is complicated by the fact that the
real value of MBS fees has been eroded over time and, as the gap between
that fee and the charges made by the doctors widens, the out-of-pocket
costs have increased. The AMA argued that the problem with the MBS list
is that it does not reflect `current relativities or legitimate variations
in the medical market across Australia'. [138]
The AMA argued that a factor in any solution must be the earliest possible
production of an up-to-date fees schedule with a reasonable and agreed
basis for indexation. The Association argued for the Relative Value Study
(RVS) to be concluded on an accelerated timetable and for discussions
to be held with the Government on future indexation. The AMA suggested
that if this were to be achieved such a schedule would equalise gaps across
the schedule. [139]
3.94 A number of submissions addressed the question of alternative approaches
that could be made to achieve the aim of nil or known out-of-pocket costs
for patients and reasonable stability in the cost of private health insurance.
3.95 AHIA, while favouring the current arrangements, outlined an approach
that involved allowing funds to pay medical benefits above the MBS, up
to an amount determined by the fund. Payment of benefits above the schedule
would be conditional on the fee not exceeding the published fund benefit
or the practitioner entering into an agreement with the fund in relation
to a higher fee which, if it involved a co-payment, would be known to
the contributor prior to consent to treatment. [140]
3.96 Sinclair Wornell and Associates (SWA) argued that unless there was
some form of agreement between health funds and doctors, average doctors'
fees would increase in line with an increase in the MBS fee, leaving most
patients with similar out-of-pocket expenses. Premiums would also rise
without a benefit to patients. [141]
Medibank Private also noted that open-ended gap insurance, while giving
the funds the opportunity to offer products that covered all charges,
would be a `fairly expensive product'. [142]
3.97 The Committee believes that any form of gap insurance needs to be
limited in the sense that funds should not be expected to provide coverage
for whatever sum a doctor may care to charge. AHIA argued that `open-ended
gap insurance where we simply tie benefits to whatever the doctor charges
is a recipe for galloping inflationI would be amazed if the profession
was able to exercise any form of price restraint if benefits simply chased
the charge'. [143] The Committee believes
that doctors should exercise some restraint in the fees they charge, in
return for the guaranteed freedom of clinical action.
3.98 AHIA commented further that for health insurance to meet reasonable
charges above the MBS, there is a need to ensure that funds can establish
predictable premiums; the premiums are affordable for consumers; and consumers
can be guaranteed that, in return for a higher premium, they can access
providers `on the basis of a predictable risk exposure rather than a potentially
open ended financial liability'. [144]
Conclusion
3.99 The Committee believes that the Reform Act, through the implementation
of MPPAs, provides one approach to address the issue of eliminating out-of-pocket
costs. The Committee also considers that the Commonwealth Government should
consider other approaches to address the issue of medical gaps.
Recommendation 10:
| The Committee recommends that the Commonwealth Government
take available options to conclude the Relative Value Study of
the MBS on an accelerated timetable. |
Impact on public hospitals
3.100 Several submissions from State Governments raised issues relating
to the likely impact of the Reform Act on public hospitals. [145]
The Reform Act provides that public hospitals may enter into HPPAs with
health funds from 1 July 1996. In order to encourage the development of
HPPAs, the basic table benefits were abolished from that date and replaced
by a default benefit. This benefit is to be paid by funds to hospitals
with whom they have not negotiated HPPAs, and as such operate similar
to that of the basic table benefit. [146]
Negotiating contracts
3.101 Several submissions from State governments argued that the health
insurance reforms provide little incentive for health funds to enter into
MPPAs with public hospitals. [147]
The Victorian Minister for Health stated that some Victorian health insurance
funds have indicated to public hospitals in that State that they `do not
want to enter purchaser provider agreements that would lead to serious
competition between public and private hospitals'. [148]
3.102 The reasons for the lack of negotiation of agreements are due to
a number of factors, but principally relate to the lack of incentives
that the public sector can offer to privately insured patients. In particular,
the Medicare arrangements do not allow for preferential access to be given
to private patients in public hospitals. Furthermore, in those areas where
services are not available in the private sector, for example, country
areas and some specialities, insurers are under no pressure to enter into
contracts with public hospitals since the legislation limits their costs
to the minimum default benefit. [149]
3.103 Commenting on the lack of incentives for funds to negotiate with
public hospitals, the Western Australian Minister for Health, stated that:
It is questionable whether the funds have much incentive to negotiate
reasonable fees. It is in the funds interest to keep the benefits which
apply to private patients in public hospitals as low as possible and
let the respective State Government incur the odium of charging fees
which are not fully recoverable from the patient's health fund. Also,
the funds are aware that where public hospitals charge fees in excess
of the fund benefit, there is incentive for the patient to elect to
be treated as a public patient and hence make no claim on their private
health insurance. [150]
3.104 Several submissions also noted that some health funds indicated
that a precondition for negotiating HPPAs with public hospitals would
be preferred access for fund contributors to public hospitals. As noted
above, the Medicare Agreement, however, requires that admission to public
hospitals is based solely on clinical need, and that the health status
of a patient is irrelevant. [151] The
Tasmanian Minister for Community and Health Services suggested that in
order to make HPPAs more attractive the Medicare Principles would need
to be relaxed so as to allow preferred access to be provided. [152]
AHIA also indicated that the funds see little, if any, benefit in negotiating
contracts with public hospitals `unless they can provide guarantees of
access and/or accommodation'. [153]
Equivalence
3.105 Several submissions to the inquiry suggested that the policy of
`equivalence' under the new health insurance arrangements needs to be
clarified by the Commonwealth Government. Under the new contracting arrangements,
public hospitals are able to negotiate with funds on the same basis as
private hospitals. This allows for `equivalence' between private hospital
charges and benefit payments for the treatment of private patients. To
offset the potential problem of increasing health insurance premiums as
public hospitals move to full cost recovery pricing for private patients,
it is proposed that the Commonwealth Government `clawback' any extra revenue
from the States and return the revenue to the funds. [154]
3.106 State Governments indicated a number of difficulties with these
arrangements. The Tasmanian Minister for Community and Health Services
argued that the circumstances where clawback may apply are `unclear' and
need to be clarified. [155] The Victorian
Minister for Health argued that there should be no clawback unless there
is `clear evidence' that increased public hospital fees have caused a
substantial increase in health insurance premiums. [156]
Evidence from State governments also indicated that any increase in State
revenue from the treatment of private patients in public hospitals could
also effect the distribution of financial grants from the Commonwealth
to the States. [157]
Other issues
3.107 A number of other issues were raised by the States in submissions
to the inquiry. One issue canvassed was the perceived discrimination by
funds against co-located hospitals with funds currently unwilling to pay
benefits, such as theatre fees when co-located private hospitals lease
operating theatre time in public hospitals. [158]
3.108 Another issue raised was the effect of the current Medicare and
health insurance arrangements which, it was argued, encourage funds to
direct their members to public hospitals for high cost treatments and
where the patients' stay in hospital is likely to be longer. The Western
Australian Minister for Health argued that this results in public hospitals
`having to carry a higher proportion of high cost care than do the private
hospitals'. [159]
3.109 The Victorian Minister for Health also noted a problem concerning
the lack of recognition in the Reform Act for `service innovation' in
the health area. The Minister noted that the Victorian Government's Hospital
in the Home (HITH) pilot program has had to be restricted to public patients
because the focus of the NHA on defining a hospital as a premises at a
particular address has prevented funds paying benefits to private patients
under this program. [160] The Minister
stated that the definitions of `hospital' and a `hospital service' in
the NHA need to be reviewed `to ensure that hospitals and health insurance
organisations can keep up with services innovations that will lead to
lower costs of services and better outcomes for patients'. [161]
Conclusion
3.110 The evidence from State Governments raised a number of important
issues in relation to the impact of the Reform Act on the public hospital
sector, and highlighted a number of problems associated with the new contracting
arrangements between public hospitals and the funds. The Committee believes
that, while the full impact of the new arrangements may not be known for
some time, as the major changes relating to public hospitals only commenced
on 1 July 1996, the possible effects of these changes and any unintended
consequences need to be addressed by the Commonwealth Government, in consultation
with State and Territory Governments.
Navigation: Previous Page | Index | Next Page
FOOTNOTES
[1] DHSH, HBF Circular No.410, PH Circular No.222,
30 June 1995, p.15.
[2] Submission No.25, p.28 (APHA).
[3] Transcript of Evidence, p.9 (AMA);
Transcript of Evidence, p.47 (ADF).
[4] Submission No.45, p.2 (DHFS).
[5] Transcript of Evidence, p.217 (Medibank
Private).
[6] See Submission No.27, p.1 (AMA); Submission
No.24, p.6 (NASOG); Submission No.38, p.3 (RACR); Submission No.42, pp.2-5
(ADA SA Branch).
[7] Submission No.27, p.1 (AMA).
[8] Submission No.23, p.1 (COPS). See also Submission
No.8, p.1 (AAS).
[9] Submission No.2, p.31 (AHIA).
[10] Submission No.11, p.17 (MBF).
[11] Transcript of Evidence, p.54 (ADF).
[12] Transcript of Evidence, p.40 (AAS).
[13] Transcript of Evidence, p.19 (AMA).
[14] Transcript of Evidence, p.28 (COPS).
[15] Transcript of Evidence, p.9 (AMA);
Transcript of Evidence, p.45 (AAS).
[16] Transcript of Evidence, p.48 (ADF).
[17] Submission No.22, pp.3-13 (AAPH).
[18] Transcript of Evidence, pp.229-30
(DHFS); Transcript of Evidence, p.3 (AMA).
[19] Submission No.2, p.30 (AHIA).
[20] See Submission No.47, pp.2-11 (Neurosurgical
Society of Australasia); (Submission No.42, p.8 (ADA SA Branch); (Submission
No.13, p.2 (Australian Society of Otolaryngology Head and Neck Surgery);
Submission No.14, p.2 (ASA).
[21] S. Duckett, `The New Market in Health
Care: Prospects for Managed Care in Australia', Australian Health Review,
vol 19(2), 1996, p.10.
[22] S. Rosenman, `What is Managed Care?',
Healthcover, vol.6(2), April/May 1996, pp.31-32.
[23] Duckett, op.cit., p.10.
[24] `Managed Care', Congressional Quarterly
Researcher, vol.6(14), April 1996 p.319. See also Rosenman, op.cit.,
p.33.
[25] Duckett, op.cit., pp.11-12.
[26] The studies based their conclusions on
clinical results such as how many patients died or how far a patient's
cancer had advanced before it was discovered. HMOs are organisations that
provide health care in return for set monthly payments. Most HMOs provide
care through a network of doctors and hospitals that their members must
use in order to be covered. There are several different forms of managed
care plans. Another example is Preferred Provider Organisations under
these plans, networks of doctors and hospitals provide care at a lower
cost than through traditional insurance. The choice is usually wider than
under HMOs. See CQ Researcher, op.cit., pp.317-20. See also Rosenman,
op.cit., p.33.
[27] CQ Researcher, op.cit., p.317.
[28] Transcript of Evidence, pp.7-8
(AMA). See also supplementary information, AMA, 2 August 1996, pp.3-4.
[29] Transcript of Evidence, p.24 (COPS).
See also Submission No.22, pp.8-9 (AAPH). See also Appendix 7 of the submission.
[30] Submission No.2, p.4 (AHIA).
[31] Submission No.2, p.3 (AHIA). See also
supplementary information, AHIA, 16 August 1996, p.12.
[32] Submission No.2, pp.3-4 (AHIA).
[33] Transcript of Evidence, pp.24,
26 (COPS).
[34] Submission No.8, p.1 (AAS). See also supplementary
information, AAS, 15 August 1996, pp.2-6.
[35] Transcript of Evidence, p.26 (COPS).
[36] Transcript of Evidence, p.28 (COPS).
[37] Transcript of Evidence, p.26 (COPS).
[38] Transcript of Evidence, p.55 (ADF).
[39] Submission No.2, p.32 (AHIA). See also
supplementary information, AHIA, 16 August 1996, p.13.
[40] Submission No.2, p.32 (AHIA).
[41] Submission No.19, p.29 (SWA).
[42] Transcript of Evidence, pp.172-73
(HIRMAA).
[43] NMHI Purchaser-Provider Agreement
in Submission No.2 (AHIA), Appendix C, p.3. See also Submission No.19,
p.29 (SWA).
[44] Submission No.2, p.32 (AHIA).
[45] See Submission No.47, pp.5-7 (Neurosurgical
Society of Australasia).
[46] Submission No.44, p.6 (ADF).
[47] Submission No.44, p.4 (ADF). See also
Submission No.22, pp.3-9 (AAPH).
[48] Transcript of Evidence, p.217 (Medibank
Private).
[49] Submission No.27, p.7 (AMA).
[50] Submission No.2, p.31 (AHIA).
[51] Submission No.27, pp.4-5 (AMA); Submission
No.44, pp.12-13 (ADF).
[52] Submission No.28, p.10 (ACCC).
[53] ACCC, Guide to the Trade Practices
Act for the Health Sector, November 1995, p.13 in Submission No.28
(ACCC).
[54] Guide to the Trade Practices Act,
p.13 in Submission No.28 (ACCC).
[55] Submission No.27, p.4 (AMA).
[56] Submission No.27, p.5 (AMA).
[57] Submission No.27 (AMA), Appendix 1, p.5.
See also PHIAC Annual Report 1994-95, pp.76-81.
[58] Submission No.28, p.12 (ACCC).
[59] Submission No.27, p.5 (AMA).
[60] Transcript of Evidence, p.200 (ACCC).
[61] Transcript of Evidence, p.200 (ACCC).
[62] Transcript of Evidence, p.201 (ACCC).
[63] Transcript of Evidence, p.201 (ACCC).
[64] Submission No.44, p.13 (ADF); Submission
No.22, pp.9-10 (AAPH).
[65] Submission No.8, pp.1-4 (AAS).
[66] Submission No.8, p.3 (AAS).
[67] Supplementary information, PHICC, 13 August
1996 p.13.
[68] Submission No.2, p.33 (AHIA).
[69] Submission No.2, p.33 (AHIA).
[70] Submission No.32,p.11 (PHICC).
[71] Submission No.45, p.3 (DHFS).
[72] Submission No.32, pp.11-12 (PHICC). See
also Chapter 4.
[73] See Chapter 2.
[74] Supplementary information, DHFS, 8 August
1996.
[75] DHSH, HBF Circular No.410, PH Circular
No. 222, 30 June 1995, pp.12-13.
[76] Supplementary information, DHFS, 8 August
1996.
[77] Transcript of Evidence, p.61 (APHA).
[78] Submission No.25, pp.4-12 (APHA); Submission
No.29, pp.8-11 (ACHCA); Submission No.17, pp.2-9 (PHAV).
[79] Submission No.25, p.4 (APHA).
[80] Supplementary information, ACHCA, 16 August
1996, p.5.
[81] Transcript of Evidence, p.108 (HCoA).
[82] Submission No.30, p.1 (Ramsay Health Care).
[83] Health Legislation (Private Health Insurance
Reform) Amendment Bill 1994, Minister's Second Reading Speech, Senate
Hansard, 28 February 1995, p.1069.
[84] Submission No.25, p.3 (APHA); Submission
No.29, p.4 (ACHCA).
[85] Submission No.29, p.4 (ACHCA).
[86] Submission No.2, p.3 (AHIA).
[87] Submission No.51, p.13 (Medibank Private).
[88] Submission No.11, p.12 (MBF).
[89] Submission No.11, p.12 (MBF).
[90] Submission No.29, p.11 (ACHCA).
[91] Submission No.25, pp.6-7 (APHA).
[92] Submission No.17, p.5 (PHAV).
[93] Submission No.2, pp.16-18 (AHIA). See
also supplementary information, AHIA, 16 August 1996, p.11.
[94] Transcript of Evidence, p.141 (AHIA).
[95] Submission No.11, p.15 (MBF).
[96] Transcript of Evidence, p.72 (APHA).
[97] Transcript of Evidence, p.172 (HIRMAA).
[98] Submission No.29, p.8 (ACHCA).
[99] Transcript of Evidence, p.136 (ACHCA).
[100] Transcript of Evidence, p.156
(AHIA). See also Transcript of Evidence, p.178 (HIRMAA).
[101] Transcript of Evidence, p.218
(Medibank Private).
[102] Transcript of Evidence, p.61
(APHA).
[103] Submission No.2, p.28 (AHIA).
[104] Transcript of Evidence, p.235
(DHFS).
[105] Submission No.25, p.7 (APHA).
[106] Submission No.29, p.8 (ACHCA).
[107] Transcript of Evidence, p.106
(HCoA).
[108] Submission No.25, p.7 (APHA).
[109] Transcript of Evidence, p.80
(MBF).
[110] Transcript of Evidence, p.132
(ACHCA).
[111] Transcript of Evidence, p.106
(HCoA).
[112] In terms of size, 85 per cent of closed
private hospitals had 50 beds or less; the remaining 15 per cent had between
51 and 100 beds. See supplementary information, APHA, 9 August 1996, p.2.
[113] Supplementary information, AHIA, 31
July 1996, p.1.
[114] Transcript of Evidence, p.218
(Medibank Private).
[115] Transcript of Evidence, p.106
(HCoA).
[116] Submission No.25, pp.14-18 (APHA); Transcript
of Evidence, pp.69-71 (APHA); Transcript of Evidence, p.110
(HCoA).
[117] Submission No.25, p.15 (APHA).
[118] Submission No.25, p.18 (APHA).
[119] Submission No.25, p.9 (APHA); Submission
No.17, pp.9-10 (PHAV).
[120] Submission No.25, p.9 (APHA).
[121] Submission No.25, p.9 (APHA).
[122] Submission No.25 p.10 (APHA).
[123] Submission No.25, p.11 (APHA).
[124] Submission No.2, p.16 (AHIA).
[125] Submission No.2, p.18 (AHIA).
[126] Submission No.28, p.10 (ACCC).
[127] Transcript of Evidence, p.194
(ACCC).
[128] Transcript of Evidence, pp.194-5
(ACCC).
[129] Submission No.25, p.11 (APHA).
[130] Submission No.25, p.11 (APHA).
[131] Submission No.25, p.12 (APHA).
[132] Supplementary information, APHA, 9 August
1996, p.1.
[133] Transcript of Evidence, p.167
(AHIA).
[134] Transcript of Evidence, p.167
(AHIA).
[135] Transcript of Evidence, p.182
(CHF).
[136] Department of the Parliamentary Library,
Medicare, Private Health Insurance and Proposals for Change, March
1994, p.18.
[137] Submission No.2, p.7 (AHIA).
[138] Submission No.27, p.8 (AMA).
[139] The RVS of the MBS is being undertaken
by the DHFS, in cooperation with the AMA, because of concerns about whether
the existing fee relativities across the Schedule are fair and reasonable,
and perceptions that there are anomalies between specialities. It is anticipated
that the RVS will result in greater confidence in fee relativities in
the Schedule. See DHSH, Annual Report 1994-95, AGPS, Canberra,
1995, p.71.
[140] Submission No.2, pp.34-35 (AHIA).
[141] Submission No.19, pp.30-31 (SWA).
[142] Transcript of Evidence, p.222
(Medibank Private). See also Submission No.51, p.19 (Medibank Private).
[143] Transcript of Evidence, p.164
(AHIA).
[144] Submission No.2, p.9 (AHIA).
[145] See, for example, Submission No.56,
pp.2-5 (Victorian Minister for Health); Submission No.52, pp.1-4 (WA Minister
for Health).
[146] The default benefit is to be determined
by the Commonwealth Minister for Health, but is initially to be equated
to the basic table benefit level. See DHSH, HBF Circular No.410, PH Circular
No.222, 30 June 1995, p.12; Submission No.49, p.1 (Tasmanian Minister
for Community and Health Services).
[147] Submission No.56, p.2 (Victorian Minister
for Health); Submission No.48, p.1 (SA Minister for Health); Submission
No.52, p.4 (WA Minister for Health).
[148] Submission No.56, p.2 (Victorian Minister
for Health).
[149] Submission No.48, p.1 (SA Minister for
Health).
[150] Submission No.52, p.4 (WA Minister for
Health).
[151] Submission No.49, p.2 (Tasmanian Minister
for Community and Health Services); Submission No.56, p.3 (Victorian Minister
for Health). See also Submission No.2, p.28 (AHIA).
[152] Submission No.49, p.2 (Tasmanian Minister
for Community and Health Services).
[153] Submission No.2, p.28 (AHIA).
[154] Submission No.56, pp.2-3 (Victorian
Minister for Health); Submission No.43, pp.2-3 (Queensland Department
of Health).
[155] Submission No.49, p.3 (Tasmanian Minister
for Community and Health Services).See also Submission No.43, p.3 (Queensland
Department of Health).
[156] Submission No.56 p.3 (Victorian Minister
for Health).
[157] Submission No.43, p.3 (Queensland Department
of Health); Submission No.49, p.3 (Tasmanian Minister for Community and
Health Services).
[158] Submission No.56, p.5 (Victorian Minister
for Health).
[159] Submission No.52, p.3 (WA Minister for
Health).
[160] The HITH program provides acute care
services for patients in their own homes. See Submission No.56, p.6 (Victorian
Minister for Health).
[161] Submission No.56, p.6 (Victorian Minister
for Health).