Outsourcing Medicare: Is it as easy as π?

Following on from the range of issues raised by Croakey contributors about the outsourcing of MBS and PBS payments, Margaret Faux discusses the most appropriate role for the private sector in supporting core government functions and the risks involved when private sector interests conflict with the central role of government. She writes:

In a U.S managed care styled initiative, private insurers have been given the right to tender to manage the operation of the government’s new Primary Health Networks, which will soon replace existing Medicare Locals. And recently, the government’s expression of interest from the private sector to provide outsourced claims and payment services for the Medicare Benefits Schedule (MBS) and the Pharmaceutical Benefits Schedule (PBS) was closed.

There’s nothing new or surprising about governments outsourcing service provision to the private sector. Recognising that key policy issues can sometimes be better addressed by tapping into private sector innovation and expertise is an important role of government. But when outsourcing amounts to the abrogation of core functions of the state, the inherent risks can be high.

The commission of audit recommendation to outsource MBS and PBS payment processing suggested that outsourcing these payments was a potentially high risk undertaking and specifically warned against outsourcing the assessment of entitlements. The problem however is that almost all MBS claims require assessment of entitlements. And given that there is not yet one third party payer of medical claims in Australia who has successfully mastered the complexity of this work, the prospect of outsourcing it to contenders such as banks, Australia Post or even the private health insurers is cause for serious concern.

The business of paying for medical services in Australia – whether related to workers compensation, third party matters, the public or private provision of services, veterans entitlements, consultations at the GP or a specialist, in or out of hospital or anywhere else – takes place across an astonishingly fragmented industry in which each third party payer has its own requirements, rules, procedures and fees. Some private health insurers even pay different rates in different states.

But of all of these payers, the most effective, efficient and accurate in terms of the core business of processing and paying claims, is Medicare. This is a basic and undeniable truth accepted by those who interact daily with all payers in the medical billing industry. So it is interesting that rather than outsourcing areas in which Medicare struggles, such as claim adjustments, complex claim assessments, provider liaison and MBS interpretations, the government has instead chosen to seek expressions of interest in the one area in which Medicare excels.

In 1973 the architects of the original Medibank Scheme, Scotton and Deeble, understood very well the importance of having a separate department to manage the complexities of medical claims processing.

“In the fragile chain of decisions on which the successful implementation of Medibank hung, the decision to establish the Health Insurance Commission must have been one of the most critical.”¹

The battle for an independent body of experts to administer the new national insurance scheme was hard fought and finally won when Bill Hayden agreed to the establishment of the Health Insurance Commission (HIC).

And this was long before private health fund schemes accessed the Medicare bucket of tax payer money, when there were approximately 5000 less Medicare services than there are today, well before some modern medical specialties had been thought of, before Magnetic Resonance Imaging (MRI) and Computerised Tomography (CT) scanning existed and at a time when the concept of Telehealth would have been considered science fiction.

But the HIC was dissolved in 2005 and with it went much needed expertise, and today no-one and no software has been able to conquer what is highly specialised and still largely manual work.

In order to consider the possible outcome of any future outsourcing of Medicare payments let us look at a frontline experience of the recent outsourcing of medical claims, which was undertaken by the Department of Defence. In 2012 government processing of Australian Defence Force (ADF) medical claims was outsourced to the private sector. In a four year $1.4 billion deal, a contract was awarded to Garrison Health Services (a business arm of Medibank Health Solutions) to provide a national, integrated solution which included the processing of ADF personnel medical claims.

Conceptualising the process was easy, however the execution was not.

Midway through 2013 many billers noticed that ADF claims, which had previously been processed without too much fuss, were not being paid. The 90 day arrears on these claims had reached unacceptable levels as had practitioner complaints. Numerous calls and enquiries later, one medical billing company had almost $100,000 worth of ADF claims returned indicating there was a new arrangement and advising that the claims should be redirected to Medibank Private as part of a new government outsource initiative.

But after redirecting the claims as instructed, they were again returned as no-one at Medibank knew anything about them. Some months later, advice was received indicating that a new branch within Medibank had taken over the role, but that before any claims could be paid, every doctor first had to register, by signing a new form. Hundreds of signed forms later the claims were rejected again, this time because the amounts were considered incorrect. ADF claims had always been paid at the AMA rates (for as many years as memory serves) but apparently a unilateral decision had been made to instead apply Medibank’s no-gap rates, which are significantly lower. It was then of course only a matter of time before the medical profession would protest against the resultant 27% reduction in remuneration, which had been imposed without consultation.

After reprocessing hundreds of claims for the third time, the first payments started to trickle in, though the anticipated calls from doctors enquiring as to why the fees they were receiving were below the AMA rates were not far behind. Within weeks a full blown dispute had erupted between the payer and one group of doctors, while others had started requiring ADF personnel to pay their medical bills at the point of service, informing them that they should sort out their reimbursements themselves. The official letters came next, in which doctors were reminded of the legal barrier which prevented them from requiring ADF personnel to pay for medical services. It fell on deaf ears.

In subsequent advice it appeared that Garrison had changed its process yet again by adopting its own new fee schedule and that no further accounts would be paid without the correct new fees, as well as the inclusion of the defence approval number (DAN), to which the EP ID number (an unexplained extra piece of data) was later added – two additional pieces of data for the one soldier were considered better than one. Many DAN inclusive but EP exclusive rejected claims later, it was discovered that the mysterious EP was apparently unknown to anyone – neither clinicians nor hospital account administrators. But with a steely resolve and tenacious spirit EPs were finally tracked down and claims could be submitted again. However one must note here that it takes on average an hour on the phone to obtain the DAN and EP for each ADF claim.

As at today, ADF claims continue to be a significant cause of patient and doctor complaints, which has escalated to a point where some doctors are considering whether they may exclude ADF personnel from their practices altogether – patients always come off worse in these scenarios. The process is manual, labour intensive, slow and from the point of view of integration and efficiency, an abject failure.  It was far simpler and much more efficient before it was outsourced.  

Because profit will often usurp clinical outcomes as the main priority in private sector participation in health, the potential risks of the proposed outsourcing of management of the new Primary Health Networks is also apparent. In fact corporate involvement in general practice has long been identified as an area of concern, and one which has contributed to increased health spending, for which individual doctors are sometimes blamed.

Since 2006 the Professional Services Review Scheme (PSR), whose objective is to protect the public interest in the standard of MBS and PBS services, has commented that the corporatisation of medical practices is a contributor to inappropriate and excessive MBS claiming by doctors. Having signed contracts binding them to daily, weekly and monthly targets (both in terms of the number of patients seen and the types of services provided) doctors have reported feeling pressured to reconcile targets with real patients. It is not uncommon for doctors working in these corporate practices to end up in front of the PSR where their MBS claiming behaviour comes under review. And due to regulatory limitations, the corporation itself will rarely be held to account.   

Our current workers compensation system (which is managed care by another name) provides another example, as well as important evidence, of the potential poor health outcomes and increased costs that can result when care is managed outside of the doctor patient relationship, and is driven by private sector profits.

Outsourcing works best when the private sector is used to support core government activity. But when it is the core government activity that is outsourced, the private sector will inevitably find itself conflicted between profit and service. 

While Aristotle might have outsourced the preparation of his meals by hiring a cook, he would never have outsourced geometry.  He would rather have eaten an outsourced pie than outsource the discovery of π itself.

1. The Making of Medibank, RB Scotton and CR Macdonald, Australian Studies in Health Service Administration, No 76