Wednesday, 6 December 2017
Statements by Senators
Private Health Insurance
Next February, the government will announce the next price hike that will apply to health insurance. Premiums have been going up at an average of 5.6 per cent a year since 2010, more than twice of inflation. This makes health insurance increasingly unaffordable for many Australians. A significant contributor to the rising cost has been the unrestrained growth in the cost of medical implants—otherwise known as prostheses—such as replacement knees, pacemakers and heart stints. Private health insurers pay a benefit for these, and that price is not determined by the insurer or even by market forces. It is dictated solely by prices on the Prostheses List. These prices are effectively set by government on advice from the Prostheses List Advisory Committee.
The Prostheses List contains over 10,000 surgically implanted items. It specifies the minimum benefits that health insurers must pay for each prosthetic item. To the ordinary person that might see fair enough until you realise that the way in which the prices are determined is not at all clear cut and that private health insurers pay far, far more for devices than public hospitals do. Of course these higher costs are then passed on to consumers through higher private health insurance premiums.
As a participating member of the Community Affairs References Committee, which looked at price regulation associated with the Prostheses List framework, it had been my hope that the government would take decisive and comprehensive action to arrest the escalating growth in prostheses costs and that 2018 would mark the end of unaffordable private health insurance premium rises. The government has taken some initial steps to bring balance back to prostheses pricing, which it expects will result in a small lowering of premiums from April, but I'm not yet convinced it is enough to make a notable difference.
The government recently signed an agreement with the Medical Technology Association of Australia to start lowering the price of implanted medical devices from February next year. According to the government, its first tranche of price reductions earlier this year, where the price of cardiac devices and intraocular lenses were knocked down by 10 per cent and hip and knee implants were reduced by 7.5 per cent, is projected to save insurers around $86 million this year.
The second tranche takes in more devices and is expected to take the savings for insurers to an estimated $300 million a year. If it delivers as expected, this will be a solid improvement; however, it represents less than half of the $700 million in potential savings the inquiry was told could be achieved if the Prostheses List costs were brought into parity with those paid by the public system. What this means is that private patients are still effectively being ripped off.
To illustrate this further, the Independent Hospital Pricing Authority provided a report to the health minister earlier this year that showed private patients in private hospitals paid a 180 per cent premium for devices compared to public patients in public hospitals for equivalent procedures. To put it another way, the public system pays an average of $1,088 for a prosthesis compared to $3,052 in the private system. That's a variance of almost $2,000 for exactly the same prosthesis and the same procedure. Insurers pay through the nose, and the profit is shared between the manufacturers and the private hospitals. This is an outrageous rort, in anybody's books.
The government's agreement with the Medical Technology Association of Australia will run until 2022, and, incredibly, the government has pledged it will not implement any further changes to benefit levels without the agreement of the MTAA during that time. I would like to note that the MTAA is dominated by the four large multinational companies that account for almost 80 per cent of the total prostheses spend in Australia. So, for the next four years the government will have to ask the fox if it can remove chickens from the henhouse. On top of that, any new devices added to the list will be exempt from the price reductions outlined in the agreement.
Essentially, the MTAA, should it wish to, will be able to sit on this agreement for the next four years and protect its members from any further price cuts. What this says to me is that the government has gone in strong and then lost its nerve. Why did it stop there? What, if any, guarantee do consumers have that there will be further necessary reductions in prostheses prices once this agreement expires or, worse, that prices won't start to edge up again like they did some years ago?
I do acknowledge that unravelling this mess that is the Prostheses List was never going to be an easy job for anyone; but, having started, the government should have been ruthless in its efforts. This was a prime opportunity to return balance to a system that currently benefits manufacturers and, to some extent, private hospitals, through rebates and discounts all at the expense of privately insured Australians and taxpayers who help subsidise the racket through the private health insurance rebate.
The Prostheses List inquiry heard evidence from US manufacturer Applied Medical, which wanted to provide an identical prosthesis to one on the list at almost one-fifth the price—that is, $99 compared to the $450 dictated by the Prostheses List. But, as hard as it is to believe, it was forced to charge the full price by, effectively, a government committee. Insurers and taxpayers were deprived of a substantial saving because the Prostheses List has no mechanism for reducing the price for all devices in a subgroup when a new product is made available at a lower price. There is a complete market failure here.
I note that the government intends to develop and publish key performance indicators for the Prostheses List Advisory Committee, or PLAC, and its advisory committees, though not until February 2019. I also note that a working group will revise the framework for how benefits are set and reviewed and that the PLAC will review devices and benefits on the Prostheses List. However, even the PLAC acknowledges:
… each review could at a minimum, take over a year …
And, as I mentioned earlier, there will be no price reductions without the MTAA's say-so. So, any further improvements to prosthesis pricing, beyond this current agreement, will be a long, long way off, if it happens at all.
For too long, Australian health consumers have put up with the highest prices in the world for prostheses. The time has come to turn off the tap for the multinational prosthesis companies who have enjoyed excess profits at our expense. It is time to give priority to Australian health fund members and taxpayers.