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Healthcare’s out-of-pocket crisis

Fast-rising medical expenses are restricting access to healthcare and increasing long-term costs, writes Jennifer Doggett in an article first published at Inside Story.


Jennifer Doggett writes:

If two Australian capital cities were suddenly left without any dental services it would be considered a national crisis. But a problem of this size occurs each year and is ignored by governments and policy-makers.

In 2016–17, more than two million Australians — almost equivalent to the population of Brisbane — delayed or avoided necessary dental care because of its cost. This startling figure is just one of the symptoms of the growing problem of out-of-pocket medical costs, which is undermining the equity, efficiency and universality of the health system.

Out-of-pocket costs are the second-largest source of health funding in Australia after governments, and make up around 18 per cent of health spending, a much larger share than in most other OECD countries. They limit consumers’ access to care in all parts of the health system, including medical, dental, allied health and medicines. In 2016–17, the Australian Institute of Health and Welfare found that 663,000 people did not see or delayed seeing a GP at least once when needed and 974,000 people avoided or delayed filling a prescription because of cost.

Out-of-pocket costs compound existing inequalities by creating an additional barrier for people from lower socioeconomic areas who already experience poorer health. But access problems are not confined to that group: in 2016–17 the Australian Bureau of Statistics found that one in ten of the wealthiest 20 per cent of the population reported delaying or avoiding going to the dentist because of the cost.

This extra barrier distorts the efficiency of our health system by encouraging consumers to avoid cost-effective preventive services, such as basic dental care, which can lead to more serious (and more expensive) problems later on. One indication of this is the number of hospital admissions for conditions that could have been prevented or managed in the community, including the 67,000 potentially preventable hospitalisations for dental conditions identified by the Australian Institute of Health and Welfare in 2015–16.

In fact, the problems created by out-of-pocket costs permeate almost every aspect of the health system. After all, there is little point in putting resources into improving the quality, efficiency and effectiveness of services if the consumers who most need this care can’t afford the door price.

The problem isn’t new: it has been building for more than two decades as a result of the complex interaction of a range of factors, including the under-resourcing of Medicare by successive federal governments and their support for private health insurance (which has failed to control costs and added to existing moral hazard), restrictions on the supply of health professionals (which reduces competition), and the asymmetry of information between consumers and providers.

And, of course, there’s the context within which all these factors operate: a health system that aims to deliver equity but sets no limits on the fees health professionals can charge.

It wasn’t until January this year, when health minister Greg Hunt described out-of-pocket costs as a matter of “considerable community concern,” that the federal government acknowledged the problem. He established a new ministerial advisory committee with the job of reporting on these costs before the end of the year.

But while the minister should be applauded for recognising the problem, he has steered the committee in the wrong direction by requiring the committee to focus on out-of-pocket fees charged by a relatively small proportion of medical practitioners and the transparency of medical costs.”

This focus is at odds with the widespread evidence that problems with out-of-pocket costs pervade all areas of the health system. It also ignores the fact that the cost burden often reflects the cumulative impact of small but frequent payments for healthcare rather than rarer or once-off expenses for high-cost services.

The Australian Federation of AIDS Organisations and the National Association of People with HIV Australia made the point succinctly in their submission to last year’s Senate inquiry into out-of-pocket expenses:

Each time a medication is dispensed, there is a co-payment — currently $38.80 at the general rate, and $6.30 at the concessional rate. In addition to the costs of HIV medication, many people with HIV pay additional co-payments for treatments associated with other HIV-related medical conditions, for example the control of lipids, diabetes and depression. Research shows that these cumulative costs cause financial stress, and result in some people forgoing treatment, leading to lower medication adherence.

Compounding the narrow focus of the new advisory committee is the fact that the majority of committee members (nine out of a total of fourteen) are doctors and that no other healthcare providers are represented. Even dentists were excluded, despite the fact that dental services are one of the biggest contributors to out-of-pocket costs.

Many experts and stakeholders have criticised the committee’s make-up. Among them is lawyer Margaret Faux, founder and CEO of one of the largest medical billing companies in Australia, who is also a registered nurse and a research scholar at the University of Technology Sydney, where she is completing a PhD on Medicare billing and compliance. Faux believes that the problem of out-of-pocket costs is “deeply structural” and goes far beyond a few rogue doctors who overcharge for their services.

“We need to address the problem of out-of-pocket costs at a structural level,” she says, “but part of the problem is that we’ve got the wrong people working on it. It’s illogical to have doctors leading reform efforts when you think about it. Doctors are experts in clinical care but receive little or no training in the complexities of medical billing and Medicare’s legal infrastructure. Most do their best to navigate Medicare correctly but asking them to fix the problem on their own is a bit like asking lawyers to write a neurology textbook.”

Faux is sceptical that the committee will come up with any effective strategies to address out-of-pocket costs, warning, “At best this committee will likely waste time and resources, at worst it could actually result in increased costs and an additional burden on consumers.”

Faux’s predictions certainly seem probable based on the sparse communications issued thus far by the committee. From these, and from the most recent COAG Health Council Communiqué, it appears that the only strategy the committee is considering is a “fee disclosure” website to provide consumers with information about doctors’ charges.

Such a website has previously been suggested by consumer groups to address some of the most basic requirements for informed financial consent within the health system. Nearly three-quarters of participants in the Consumers Health Forum of Australia’s recent survey of out-of-pocket costs agreed that it would be a good idea.

On its own, though, the website would not deal with this complex problem, not only because of the committee’s narrow focus on specialist services but also because informed financial consent does not, in itself, address the affordability of health services, particularly in regions where there is little or no choice of provider. Knowing the cost of care in advance doesn’t mean consumers are better able to afford the care they need. At best, a fee-disclosure website can help consumers plan for the expenses they will face.

Ian McAuley, a public sector management specialist and fellow at the Centre for Policy Development, is also concerned that a fee-disclosure website would put a greater burden on consumers to find affordable care options. This is unrealistic, he says, given that many people with chronic and complex conditions are already overburdened. “We need to make the financial side of things easier and not more difficult,” he adds.

Faux agrees: “It is fundamentally the wrong approach to spend time and resources trying to agree on a fee-disclosure website when the problems with out-of-pocket costs are threatening to overwhelm our health system. It’s like there is a tsunami coming and we’re putting on our bathers.”

Part of the problem is that predicting consumer and provider behaviour in a complex area such as health is extremely difficult. Anthony Scott from the Melbourne Institute for Applied Economic and Social Research is an expert in health funding systems. He recently expressed caution about predicting the impact of fee disclosure on out-of-pocket costs and fee variation. “Whether fee transparency will lead to a reduction in fee variation, including a reduction in some very high fees being charged, is yet to be determined,” he wrote. “This will depend on whether GPs and patients are able to use these data at the point of referral, and how specialists themselves react.”

In fact, fee disclosure could possibly increase demand for higher-priced services. Consumers shift from lower- to higher-priced services on the assumption that higher-cost specialists provide higher-quality care. Another possibility is that doctors who currently charge at the low end of the fee spectrum may increase their fees, either because they hadn’t realised that their fees were relatively low or to avoid perceptions that they provide lower-value care.

It’s also possible that doctors could game the system by reducing their fees for the Medicare Benefits Schedule, or MBS, item numbers disclosed on the website and increasing their fees for other items. Or they could follow the lead of some of their colleagues who are charging a non-medical “administration” or “booking” fee to avoid the scrutiny their Medicare-based income receives.

Previous attempts to deal with the problem, such as Medicare safety nets, have largely failed, says Inside Story contributor Lesley Russell, an adjunct associate professor at the University of Sydney’s Menzies Centre for Health Policy. “Medicare safety nets,” she says, “are inequitable, poorly targeted and inflationary.”

In other words, there are no easy ways of reducing out-of-pocket costs within the health system. Health experts have suggested a wide range of solutions, all of which challenge accepted practices within our health system, such as the right of doctors to charge whatever fee they like for their services.

Peter Sivey, an associate professor of economics at RMIT University, argues that we need to recognise the fact that Australia is an outlier in allowing doctors “unfettered freedom” to set their own fees. In other countries where doctors receive fee-for-service payments, such as France and Canada, they don’t have the freedom to charge as they like. In fact, Australia has been identified as the only country in the OECD that allows doctors complete price freedom.

Sivey suggests introducing “schedule fee incentives” for specialists, similar to existing GP bulkbilling incentives, which pay an extra Medicare rebate if the total fee is within an acceptable range. For example, specialists could be paid an extra $10 if their total fee is no more than 10 per cent higher than the schedule fee.

Anthony Scott’s suggestions include “health insurers, professional bodies and perhaps government directly asking providers to justify their prices where there is wide variation.”

Lesley Russell supports a multifaceted approach, which should include “looking at referral policies, MBS rebate levels including rewards to those specialists who bulk bill, public naming and shaming of those who egregiously overcharge, and a greater focus on workforce policies, numbers and scope of practice.”

She also supports improving the treatment of people with complex healthcare needs. This would involve increasing the numbers of specialists with generalist training (such as geriatricians) who focus on delivering more integrated and comprehensive care to people with multiple health problems. Reducing the number of doctors these people need to see will not only ensure more integrated care, she says, but also reduce the number and amount of out-of-pocket costs they face.

Ian McAuley points to the Pharmaceutical Benefits Scheme as a possible model for the future funding of medical services. “The PBS is one of the most successful and enduring public policies in Australia,” he says. “It has consistently delivered affordable and equitable access to medicines to the community and has bipartisan and strong community support. It demonstrates how governments can use their purchasing power to control costs and, unlike Medicare, it limits consumers’ exposure to costs. It also has an effective safety net to target those with problems affording medicines.”

Margaret Faux also believes that the government needs to change its approach to reducing the burden of out-of-pocket costs on the community. But she also reminds policy-makers that “we will not be able to address problems until we go back to the legal foundations of Medicare and consider whether the current structure and operating framework is adequate to meet the government’s financial accountability obligations to Australian taxpayers.”

Her description of the inadequacy of current policy responses neatly sums up the situation: “At the moment, all efforts amount to little more than changing the orientation of the seats on a runaway train.”

• This article was first published at Inside Story, as part of a series of health columns by Melissa Sweet and Jennifer Doggett.

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