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CHAPTER 3 - CONTRACTS: MEDICAL AND HOSPITAL PURCHASER-PROVIDER AGREEMENTS
THE REVIEW OF THE HEALTH LEGISLATION (PRIVATE HEALTH INSURANCE REFORM) AMENDMENT ACT 1995
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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]
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.
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]
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]
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.
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]
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]
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.
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.
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.
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.
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.
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]
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]
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]
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).
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]
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.
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.
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]
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]
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]
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]
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.
[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).
[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.
[39] Submission No.2, p.32 (AHIA). See also supplementary information, AHIA, 16 August 1996, p.13.
[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).
[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).
[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).
[57] Submission No.27 (AMA), Appendix 1, p.5. See also PHIAC Annual Report 1994-95, pp.76-81.
[60] Transcript of Evidence, p.200 (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.
[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.
[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).
[87] Submission No.51, p.13 (Medibank Private).
[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).
[97] Transcript of Evidence, p.172 (HIRMAA).
[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).
[109] Transcript of Evidence, p.80 (MBF).
[110] Transcript of Evidence, p.132 (ACHCA).
[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.
[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).
[119] Submission No.25, p.9 (APHA); Submission No.17, pp.9-10 (PHAV).
[122] Submission No.25 p.10 (APHA).
[126] Submission No.28, p.10 (ACCC).
[127] Transcript of Evidence, p.194 (ACCC).
[128] Transcript of Evidence, pp.194-5 (ACCC).
[132] Supplementary information, APHA, 9 August 1996, p.1.
[133] 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).
[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).
[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).
[160] The HITH program provides acute care services for patients in their own homes. See Submission No.56, p.6 (Victorian Minister for Health).