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Increasing Medicare rebates in the bush will not reduce patient out of pocket costs. Here’s why.

Earlier this month, The Australian’s health editor, Sean Parnell, wrote an interesting news article, based on the minutes of a Government-convened workshop that occurred in December.

One item up for discussion by the participants from the Department of Health, and health industry stakeholders, was how to improve the value of private health services for rural and remote consumers.

Parnell pointed out that rural and remote-living Australians are considerably less likely than those who live in cities to have private health insurance, partly because private hospital services in these areas are scarce, and the cost and inconvenience of travel to access them can be prohibitive.

A number if possible incentives were raised at the meeting, including a “radical plan” to increase the Medicare Benefits Schedule fees for in-hospital treatments in rural areas.

On the face of it, the proposal makes sense: a bigger contribution from Medicare should mean a smaller gap for the patient.

But will it?

In the post below, medical billing expert Margaret Faux takes us “under the bonnet” of the beast of that keeps Medicare money moving. It’s a messy place, but one she suggests our new Minister for Health and his team should visit before tinkering with the vehicle.


Margaret Faux writes:

Increasing access to health services in rural communities is critically important and the priority placed on this issue by government is welcome. To understand the unique challenges faced by patients in rural communities one need look no further than this excellent piece in The Guardian, written by a constituent of the former Health Minister’s electorate, about the struggles of accessing health care for a serious chronic illness.

But unfortunately, the recent proposal reported in the minutes of the Private Health Ministerial Advisory Committee, to increase Medicare rebates for some services, is not the solution to out of pocket expenses in the bush. Rather it demonstrates a poor understanding of the mechanisms driving medical service delivery in Australia, and the ways in which doctors are paid.

A recent article in The Australian reported the minutes as follows:

“It was proposed that increasing the MBS benefit for in-­hospital treatment from 75 per cent to 100 per cent was one way of reducing out-of-pocket expenses for rural and remote consumers,” the minutes state. “Insurers would continue to pay the previous gap amount of 25 per cent.”

Seems simple enough, but although there is not much detail at present, there is enough to herald another looming disaster, which may do nothing more than direct increased amounts of tax payer dollars into the pockets of private health insurers. What the proposal almost certainly will not do, is achieve its objective of reducing out of pocket costs for rural patients when they go to hospital.

No single path to billing

Reimbursement arrangements for regional clinicians providing in-hospital services is where Australian medical billing is at its most complex. It occurs at the intersection of a number of laws and regulations, including; the Health Insurance Act and Regulations, the Private Health Insurance Act and Regulations, the National Health Reform Agreement, State and Territory determinations concerning the remuneration of salaried and visiting medical officers, individual Right of Private Practice Agreements, Medical Purchaser Provider Agreements and Private Health Fund simplified billing schemes.

The rates and billing methods are different depending on whether services are provided in public or private hospitals, whether patients in those hospitals are public or private, and whether the doctor who provided the service was a salaried medical officer (SMO) or a visiting medical officer (VMO), and there are about as many variables as there are doctors in this country.

Salaried Medical Officers (SMOs) with a Right of Private Practice are required to bill for private patients in public hospitals. Every State and Territory has different schemes and arrangements determining where the money lands, but for the most part, the rebate (which is capped at 100% of the Medicare schedule fee in this instance – 75% from Medicare and 25% from the private health fund) is retained by the hospital, so the patient will have no access to the proposed increased rebate in this scenario nor receive any benefit from it.

However, most rural and regional clinicians prefer the conditions afforded under Visiting Medical Officer (VMO) contracts, where billing arrangements and fees are different again. Contracted VMOs may be paid under State and Territory VMO remuneration policy directives, or, if they are providing regular fly-in fly-out services or doing occasional locums, will usually manage their own billing using the health fund simplified billing schemes, also known as no-gap and known-gap schemes.

A rebate rise: who gains?

It is here where the committee’s proposal perversely favours the private health funds. Using no-gap schemes the total rebate is already more than the Committee is proposing, the average being about 140% of the Medicare schedule fee. Under these schemes the private health fund tops up the 75% Medicare rebate beyond the 25% cap, on the proviso that the patient does not pay a cent. The exception is known gap schemes where a capped gap is permitted but let’s leave those for another time.

So if the committee’s proposal did go ahead, how would it fit into the vast legal landscape of the so called simplified billing schemes? Would the health fund still top up the 75% Medicare component beyond 100% of the schedule fee to 140% as it does now, or would the fund pay less because Medicare is paying more? Below is an example of one common service, demonstrating who currently pays what using the NSW no-gap scheme of BUPA:

image001

Patients do not see these transactions because their Medicare rebate is assigned to the health fund without their knowledge, and some health funds, due to insufficient legislative safeguards, already handle these tax payer dollars questionably by failing to promptly pass them to the doctor. Depending on how the committee’s proposal is applied, it may result in the worst possible outcome for tax payers, and a huge win for private health insurers, which could look like this:

image001

In this example, the committee’s proposal would save the private health fund $27.80 on one minor procedure alone, substantially increasing its revenue at tax payers expense.

A surgical windfall?

In addition, consideration must be given to the fact that different doctors bill differently so how would the committee’s proposal fit into that mix? Physicians and local GPs providing inpatient services typically use no-gap schemes, anaesthetists tend to use a mix of no-gap and known-gap schemes and surgeons are a bit of a mixed bag, often charging outside of the various schemes while occasionally opting back in for some patients.

The proposed 25% increase would therefore probably only kick in for surgeons charging outside the schemes where the total rebate currently stops at 100% of the schedule fee. However, in this scenario, the surgeon would likely end up with the net increase in his or her pocket, not because of greed, but because of the ways fees are structured and quoted.

Doctors themselves have little understanding of the way Medicare and the private health fund schemes work and usually seek to simplify quoting of fees in ways which they understand and which they believe will also make it easier for their patients to understand. So a surgeon who currently quotes an out of pocket of say $600 (which will put him/her outside of most schemes) will be unlikely to reduce this quote based on a rebate increase, particularly given we are in the middle of an ongoing rebate ice age that is affecting all doctors, not just GPs.

So the most likely outcome in this scenario, would be that the surgeon would effectively receive a pay rise and the net result again would be zero benefit to rural patients (unless it attracts more surgeons to the country which it is unlikely to do), and all the while GPs will remain at breaking point.

A logistical nightmare

From a legislative point of view this is a relatively simple change to make, but the practicalities of implementation are not. Medicare would need to identify, on a claim by claim basis, when the new rate is to be applied by linking relevant claim data to programmed logic, which would usually involve clinician provider numbers.

However, specialists have multiple provider numbers, usually one for each location at which they practice, and many practice as an SMO on one provider number and a VMO on another – same doctor, different contracts – and Medicare has no knowledge of whether doctors are SMOs or VMOs. This would therefore leave only the hospital’s provider number as the relevant identifier, but linking to it could not be relied upon unless all human error and paper claiming were immediately eliminated, which of course, is impossible.

The likely end point here, like so many Medicare changes before, is another layer of complexity added to an already impossibly complex system, leading to increases in non-compliance, for which doctors may be prosecuted.

A failed strategy

Most worryingly of all, the Committee’s proposal ignores the lessons of history or simply doesn’t understand them. In what was one of the biggest structural changes to health insurance in Australia since the commencement of Medicare, the introduction of simplified billing schemes by the Liberal Government in 2000 was designed to control patient out of pocket costs when they go to hospital.

It was hailed as the solution, which would finally and forever conquer medical fees and empower patients to shop around and get better deals because they would understand how health insurance works. When the then Federal Health Minister Michael Wooldridge introduced the Health Legislation Amendment (Gap Cover Schemes) Bill 2000 into parliament he stated the objective was to control in hospital medical fees.

It has been a catastrophic failure because sixteen years on, we are again seeking solutions to the very same problem – out of pocket costs when patients go to hospital. And here we are again applying what is essentially the exact same solution (increased rebates) which will fail again for the exact same reasons – poor understanding of the complexity of modern medical billing arrangements in Australia, and an inability or unwillingness to grasp the limitations imposed by constitutional protection against the control of doctors’ fees.

 Small changes can cause big problems

The current government’s constant tinkering around Medicare’s edges and fiddling with rebates is lazy reform, devoid of policy. But worse still, it will drive expenditure up and health outcomes down. These types of changes are not small and insignificant. They are not innocuous little tweaks, and nowhere has that been more evident than the pathology rebate fiasco where the removal of $1-$3 has led to the ludicrous situation where the federal government is now intervening in the private rental contracts of pathology providers.

It was a foolish idea that failed to consider Medicare’s enabling law which was always going to determine any available mechanisms to ensure the proposal worked as planned, and would have revealed there weren’t any. If pathologists wanted to maintain their incomes at the same levels, which they obviously would, then their only option was to charge patients full fees, because bulk billing and charging a gap is illegal, and making it legal would cause prices to soar.

Time to look under the bonnet

In the wake of Minister Ley’s resignation, the incoming Health Minister Greg Hunt and his advisors would do well to get their heads out of the Medicare Benefits Schedule and spend some time down on the factory floor learning how Medicare money moves. The way doctors are paid is a vast, complex, intersecting system of laws and regulations and you can’t just change something without understanding its impact system-wide. It’s like trying to fix a car without looking under the bonnet.

A look under Medicare’s bonnet would reveal that the Medicare Benefits Schedule is not the engine driving our world class healthcare system. The system has multiple legislative layers and multiple moving parts, all finely balanced to make the healthcare system hum. It’s in these layers under the hood where opportunities for policy development and meaningful reform can be found. Let’s hope the new Minister adopts a more considered and informed approach, because adding a pair of furry die to the rear view mirror will not turn the family sedan into a formula one racer.

Margaret Faux is a lawyer, the founder and managing director of one of the largest medical billing companies in Australia and a registered nurse. She is a research scholar at the University of Technology Sydney.

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