Fake News and $100 Billion in Healthcare Cuts

Fake News and $100 Billion in Healthcare Cuts

In a recent submission entitled Private Health Insurance Consultations 2015-16, the private health insurance lobby group Private Healthcare Australia (PHA) has outlined its agenda to reduce the cost of healthcare by $100 billion over ten years[1]. “We believe there is an opportunity to reduce Australia’s healthcare costs by $100 billion over a ten-year period, while at the same time improving healthcare outcomes”[2].

The PHA claims this can be achieved by, a “re-mapping” of roles in the healthcare system”[3] and actions which “puts decisions about healthcare options, and responsibility for delivering efficient, quality outcomes, squarely on consumers and their healthcare providers” [4]

First on the PHA cost cutting list are the patients that NIB CEO, Mark Fitzgibbon described in his recent address to the UBS Australasia Conference, as the “frequent flyers”.[5]

According to the PHA submission, “As few 5-10% of patients consume as much as 50% of total hospital expenditure” [underlining and bolding added].   The PHA plan is to have this “frequent flyer group” better managed (contained) within a healthcare home to an agreed fee[6] (budget holding) with a contracted GP.

However, the plan has run into immediate problems (reality).  Shortly after its launch as a preliminary trial in November 2016, the then Federal Minister for Health, Sussan Ley was forced into a backflip when it was revealed that one of the conditions, published on a government website, for the Healthcare Home patients was a limit of 5 doctor visits per year for conditions “aside from their chronic illness”.[7]

Realising, albeit late, that Healthcare Homes is in fact a budget holding system with real boundaries, it wasn’t long before the Healthcare Homes cheer squad, in the form of the RACGP, UGPA (United General Practice Australia), and the taxpayer funded Consumers Health Forum (CHF), were running for the exit doors.

What the former Federal Minister for Health Sussan Ley had announced as a “major reform of primary healthcare[8]” has now become a ‘trial’ with the RACGP, once its champion, now its fiercest critic.

“Introducing a capitation not only on funding for treatment of chronic medical conditions, but also on visits for unrelated acute medical presentations that do need attention, is nonsensical and sets up the Health Care Homes trial to fail.”[9]

This hasn’t stopped NIB’s CEO, Mark Fitzgibbon from recently forecasting that by 2025, “Every Australian has a designated healthcare home” and by 2020, “PHI, States and Commonwealth payers together contract with GPs (Health Care Homes) for the purposes of better managing ‘frequent flyers’ and reducing unnecessary volume.  No one pays hospitalsfor ‘never ever’ events and other markers of poor clinical quality, such as readmission within seven days.”[10]

Unfortunately for its advocates, the idea that ‘coordinated care’ (also known as Healthcare Homes / medical homes / bundled payments / budget holding / capitation) is a miracle cure to lower costs has been exposed as fake news by Prof J Michael McWilliams, Head of Healthcare Policy and Medicine at Harvard Medical School.

Nobody likes waste or fragmentation. Evidence that both are hallmarks of the U.S. health care system has fuelled debate over how to redesign payment and delivery systems to root out inefficiencies. In the face of broader imperatives of cost containment and quality improvement, a narrative has emerged from this debate that now dominates policy: care coordination not only improves outcomes but lowers costs, too.  Though attractive, this notion is not evidence-based. Studies of programs or practice models designed to enhance coordination and management of care for patients with multiple conditions and multiple providers have shown minimal, if any, consistent savings.”[11]

These findings are a repeat of the outcome of the Australian coordinated trials completed in 2000 which found that ‘cost per client day for trial clients had not reduced’ and ‘coordination costs as a share of the total pool ranged from 11-22%’ and alarmingly ’some trial sights have recruited the wrong clients, tending to be those who did not need intensive coordinated care’.[12]

Another PHA recommendation for cost cutting is to “remove the requirement to provide minimum benefits for palliative, rehabilitation and psychiatric care”[13] (effectively making them additional benefits of top cover).  This proposal represents a move away from the principle of community rating (everyone pays the same premium regardless of their health condition) to a market based risk-rating system where those who pay for the optional extras of mental health, palliative care and rehabilitation are covered and the rest presumably rely on the public hospital system, pay cash, or go without should these unfortunate events occur.  Whilst this proposal may reduce cost to the health fund, it will undoubtedly increase costs to individual fund members (having to select the add-on options for the cover), and to the extent that those without cover attend public hospitals or community programs for these events, it will amount to a cost shifting to the public purse.

Further “cost saving” proposals by PHA include: increasing the maximum excess cover from $500 per policy holder to a possible $1,300 (based on CPI), albeit they have been cautious enough to suggest “a more comprehensive review of options before deciding on a revised minimum excess.”[14]  Again, the proposal will increase direct costs to health fund members (cost-shift) rather than lower the cost of health care.

Also under attack by the PHA is the current requirement of health funds to pay a benefit (default benefit) to hospital and health facilities that do not have a contract with the health fund: “PHA recommends that the second tier default benefit should be removed from hospitals not located in rural and remote areas”[15]. However, it appears that non-contracted health facilities in rural and remote areas are also in the PHA sights in the long term.  “In the near-term (bolding added), however, it may be necessary to retain some form of default benefit for hospitals in rural and remote areas”.  According to the PHA, the aim of removing the default benefit is to “provide increased incentive for hospitals to enter into serious negotiations with health funds”.

The PHA claims and proposals have been examined by former Access Economics and AMA health economist Roger Kilham.  He described the PHA’s claim that ‘health costs are increasing rapidly’ as “alarmist drivel”, pointing out that total Australian health expenditure is growing slowly as a percentage of GDP and remains around the OECD median.  He also pointed out “over the 10 years (2003-04 to 2013-14) health inflation has averaged 2.59% pa. whereas general inflation has averaged 3.33%pa.  Once upon a time, health prices were growing faster than general inflation but it is not true now.  A very important point.  ‘Excess’ price inflation is not the driver of rising costs.  The comparison between costs and inflation is a very dumb comparison.”

In conclusion, it would appear that the PHA’s claim that given the Federal government’s green light for its proposals, that it will reduce healthcare costs by $100 billion in 10 years, whilst maintaining quality of outcomes, does not stand critical evaluation.  There is simply no evidence to support any claim by the PHA that it has the ability to remove $100 billion from Australian healthcare and maintain quality.

Health funds recycle around 8% of total healthcare expenditure, far less that the 17.7% spent by individuals directly, and the 70% spent by taxpayers through Federal and State government agencies in publicly-subsidised health services.

If the PHA proposals were implemented, health fund members would bear more direct costs in the form of higher excesses and less cover, with no guarantee that health fund premiums will not continue to increase at the same rate they have for the last decade – i.e. around 6.02% per annum[16].

In the boardrooms of our publicly listed health funds, the directors must be scratching their heads as to where they go from here, having returned a combined profit after tax of $1.326 billion in the 12 months to December 2016[17], the sector is hardly cash-strapped.  Nevertheless, this has not stopped the call for the industry to be free to set its own premiums without government approval.

The reality is that the demand for high quality healthcare will continue in all advanced economies.  Australians will continue to demand the right to spend their money on those goods and services which they believe provide value.  Quality healthcare is one of these services.

Health professionals will continue to add value in the form of new and more effective procedures, treatment and care.  Patients will use mechanisms to finance their choices and this may include health funds.

In the end, patients are treated by doctors and health professionals, not health funds.  No one has had their appendix removed or a baby delivered by a health fund.  In the age of apps, Uber and electronic funds transfer, where the buyer and supplier meet in the Cloud, the days of the ‘intermediary’ are no longer assured.

The day of the self-managed health fund, with a 30% rebate / tax incentive paid direct to the consumer, could soon be a reality.  The millennial generation, are not the so-called victims of asymmetrical information that their predecessors were often assumed to be.  They live in the golden age of consumer choice, and empowered with technology and regulatory freedom, are quite capable of purchasing health care packages direct from suppliers that they believe deliver real value.

Instead of unproven claims to achieve $100 billion of spending cuts, the PHA should embrace a future where every health fund member has access to every accredited health facility and the widest-possible choice of treatment without disincentives, penalties, contracts, narrow networks, and other devices designed to maintain the role of financial intermediaries.  This was the original intention of the creation of health funds by our forebears.  It’s time to rediscover the future.

Stephen Milgate
Director & CEO
Australian Doctors’ Fund
8 May 2017


[1] Private Healthcare Australia, Private Health Insurance Consultations 2015-16, 4/12/2015

[2] Private Healthcare Australia, Private Health Insurance Consultations 2015-16, 4/12/2015, p.14

[3] ibid

[4] ibid

[5] Private Health Insurance: Evolution or Revolving Door?, Mark Fitzgibbon, 8 Nov 2016

[6] Quoted as being $591 and $1795 p.a., Government backflips on plans to limit visits to the doctor, Sue Dunlevy, Newscorp Australia Network, 8/11/2016

[7] ibid

[8] Media release, Sussan Ley:  Medical practice can apply for stage 1 of Health Care Homes, 4 November 2016

[9] Media release, RACGP:  Government fails to deliver on Health Care Homes, 6 November 2016

[10] Private Health Insurance: Evolution or Revolving Door?, Mark Fitzgibbon, 8 Nov 2016

[11] J. Michael McWilliams, Cost Containment and the Tale of Care Coordination, N Engl J Med 2016; 375:2218-2220, December 8, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1610821

[12] Prospects for managed healthcare in Australia, David Marcus, Parliamentary Library, 20/6/2000, p/16

[13] Private Healthcare Australia, Private Health Insurance Consultations 2015-16, 4/12/2015

[14] Private Healthcare Australia, Private Health Insurance Consultations 2015-16, 4/12/2015

[15] Private Healthcare Australia, Private Health Insurance Consultations 2015-16, 4/12/2015

[16] Average 2003-2016 (inclusive) source Parliamentary Library

[17] Page 11, AHPRA Private Health Insurance quarterly statistics, December 2016, released February 2017

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