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Australian Medical Association’s proposed Private Health System Authority not the key to regulatory reform

As reported in Croakey, the Australian Medical Association’s Private Health Care Summit, held last week at Parliament House in Canberra, brought stakeholders together to discuss options for private health sector reform.

A majority of participants at this event agreed that changes needed to be made to the regulation of private health care and many expressed support for the AMA’s proposed Private Health System Authority.

Below, former senior public servant Charles Maskell-Knight analyses the AMA’s proposal in detail, highlighting some of its problems (such as combining regulatory and policy making functions) and suggesting a role for a more narrowly focussed complaints body, similar to the former Private Health Insurance Ombudsman.


Charles Maskell-Knight writes:

The Australian Medical Association (AMA) has a very simple view of private health insurance. In order to maintain the private practice income of procedural specialists, private health insurance should cover as many people as possible to the maximum extent possible.

There is of course a tension inherent in this view: maximising the number of people with cover requires premium growth to be controlled, while maximising the extent of coverage will lead to higher costs and premiums. Given the AMA’s regular “report cards” on private health insurance focus on the extent of benefits rather than the extent of population coverage, it is reasonable to assume that this is its priority.

In its 2020 “Prescription for private health insurance” the AMA devoted a total of seven pages to measures supporting participation: the premium rebate, lifetime health cover, youth discounts, and the Medicare Levy Surcharge.

It then spent almost 11 pages on the case for better regulation, the need for greater transparency (by insurers) on out-of-pocket costs, and a proposed requirement for insurers to meet a minimum benefit to premium payout ratio.

At the Summit, AMA President Dr Omar Khorshid launched the discussion paper setting out “A whole of system approach to reforming private healthcare” and proposing the establishment of a new Private Health System Authority.

The AMA envisages that the Authority would be an “independent umpire” with:

the capacity, objectivity, and expertise to ensure the system evolves as government policy intends, balancing the interests of patients, day hospitals, private hospitals, private health insurers, medical device manufacturers, and doctors. It would also create a platform for all the players in the sector to come together and agree on the necessary once-in-a-generation reforms which are required to ensure the future viability of private healthcare in Australia”.

Elsewhere the paper states that:

the Authority would ensure a cohesive and holistic regulatory model by relieving the Department of its conflicted role as a regulator and policy maker, and incorporating new functions to fill the gaps in the current regulatory environment, as well as supporting the regulatory and advisory functions currently performed by the ACCC, the Commonwealth Ombudsman, and ACSQHC”.

Regulation and enforcement

It is widely accepted that regulatory best practice involves a split between the entity setting the regulatory framework and the entity responsible for enforcing compliance with it. (In some technical areas the regulator may set the detail of the actual standards, but within a framework set by another body.)

The content of the regulatory framework is a policy issue, and should be decided through the policy process involving a Minister accountable to Parliament. Enforcement of the framework should be carried out by a regulator independent of the political process and free from political influence. As an obvious example, Parliament decides what is a criminal offence, but the police and the courts decide whether somebody has committed it.

However, under the Private Health Insurance Act 2007 the Minister is responsible for setting standards (other than financial standards) and for monitoring and enforcing compliance. A Minister concerned to maintain the reputation of private health insurance may not be as diligent in undertaking enforcement as one who was less committed to the private health sector.

There would be merit in a new regulatory entity at arm’s length from the Minister assuming responsibility for monitoring and enforcement under the Act.

However, the AMA’s proposed authority would not simply (or principally) be a regulator, but would also be responsible for some standard setting and a great deal of policy development. Rather than clarifying responsibilities for oversight, policy making and regulation of the private health sector, it would confuse them.

The scope of the proposed Authority

The AMA proposes that the “immediate priorities” for the new Authority would include [with my comments in parentheses]:

  • Developing a code of conduct or principles for cost-effective community care [policy work]
  • Implementing mandatory minimum payout ratios [setting regulation]
  • Supporting and building on existing reform work currently under way such as reviews of private health insurance policy settings and expansion of mental health and rehabilitation models of care [policy work]
  • Responsibility for and improvement of the Medical Costs Finder website [administration]
  • Monitoring current reform of the Prostheses List [policy work].

(It would also be required to “improve the viability of private obstetrics”.  The most obvious threat to the viability of private obstetrics is the exorbitant “booking fees” or “management fees” charged by obstetricians, but somehow I don’t think the AMA is calling for the Authority to be empowered to control fees.)

The Authority’s “long term enduring functions” would include:

  • Supporting and overseeing whole-of-system reforms to improve the sustainability of the private healthcare sector, including developing the evidence-base for reform [policy work]
  • Prudential regulation of private health insurers [regulation]
  • Supporting the development and implementation of a future medical device and technology funding mechanism [policy work]
  • Performing continuous reviews of private health insurance policy settings and recommend adjustments [policy work]
  • Overseeing the listing of medical devices and their benefits on the Prostheses List [administration]
  • Reviewing and approving increases to private health insurance premiums [regulation]
  • Overseeing the behaviours of all players in the sector, highlighting system issues to government [policy work]
  • Supporting the procedure banding process as a member of the National Procedure Banding Committee, and review inappropriate practices with respect to certification arrangements [administration and regulation]
  • Engaging with the Department of Health’s compliance function regarding compliance activities, including MBS/private patients in public hospitals [policy work].

In summary, most of the functions for the new Authority involve policy oversight and development – which should be a task for the Minister and their Department – rather than regulation. Based on the discussion paper, the task of enforcing compliance with the community rating regime and most other requirements of the Act would remain with the Minister.

However, the paper is completely silent on how the Authority will be constituted. Will it have a board exercising its powers (such as they are) with a CEO and office supporting it? Or will it have an executive head like the Aged Care Quality and Safety Commission?  How will it develop the “the capacity, objectivity, and expertise to ensure the system evolves as government policy intends”?

A generous budget

The proposal envisages a budget for the Authority of an annual $28 million (plus $10 million start-up costs). This is ostensibly based on the estimated costs to APRA of its private health insurance work, scaled up by a factor of eight to reflect the expanded roles of the proposed Authority.  This calculation overlooks the fact that APRA works on a cost recovery basis, and its annual report sets out the cost of its private health insurance work in 2020-21 as $7.7 million.

Assuming that prudential supervision continues to cost what it currently does, this leaves the Authority with a budget of $20 million for other activities. This is enough for about 100 full time staff (on the basis of a generous estimate of salary plus on-costs of $200,000 per ASL), or an increase of three- or four-fold on the staff currently working in the Department on private health insurance (including the prostheses listing process).  What on earth would they all do?

The way forward

The current framework for the oversight of private health insurance largely reflects the decisions in the 2014 Abbott Government Budget to abolish the standalone prudential regulator (PHIAC) and transfer the functions to APRA, and abolish the Private Health Insurance Ombudsman and transfer the functions to the Commonwealth Ombudsman.

While there was some merit in the first decision, there was none in the second. Investigating complaints against private companies has little to do with investigating complaints against government bureaucracies.

There would be many advantages to establishing a new entity to take on the complaints function of the Ombudsman and the enforcement function of the Minister, as complaints are often the source of intelligence about breaches of the Act.  But it is hard to see any benefit to establishing a new authority with 100 staff to carry out the policy development work which should be done by the Department.


See here for Croakey’s archive on private health insurance.

 

 

 

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ACSQHC series 2022
CATSINaM 25 Years
Healthdirect Australia series 2019
Lowitja Indigenous knowledge translation series