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The privatisation of Medicare: Risky business or the plan that never was?

For a political party to dismiss criticism of one of its policies as a ‘scare campaign’ is understandable. For a media outlet to do so without providing any evidence or justification raises serious questions about both its credibility and its neutrality.

Health has been a key defining issue for this election and the choice voters make this Saturday will have long-term and probably irreversible impacts on the future of Medicare.

Yet the level of scrutiny by mainstream media of both major parties’ health policies has been under-whelming at best.

Particularly disappointing is the seemingly uncritical adoption of the Coalition’s line on Labor’s claims about the privatisation of Medicare.   The overwhelming majority of the reporting on this issue has assimilated the Coalition’s rhetoric and re-hashed its argument that Labor’s position is simply a sneaky pre-election manoeuvre, without questioning the Coalition’s response or investigating whether Labor’s concerns are valid.

On the ABC’s 4 Corners program last night, journalist Sarah Ferguson, repeatedly challenged Bill Shorten on Labor’s claims about the potential for Medicare privatisation, claiming that this view was not shared by stakeholders, citing the AMA – representatives of private medicine interests – as a key example.

This is patently incorrect.

Many health experts and stakeholder groups are concerned about the Coalition’s plans for Medicare and have expressed their about the impact of privatisation under the Coalition, both before and after Malcolm Turnbull’s campaign launch speech.

For the ABC not to acknowledge the widespread concern within the health sector about Coalition policies on Medicare and to repeatedly dismiss Labor’s position as a mere political tactic is shoddy and biased journalism.

In fact, a complaint about this has already been lodged with the Australian Independent Media Network.

Luckily, Croakey is able to present a much more balanced and informed view of the debate thanks to Margaret Faux, a Medicare expert who probably knows more about the payment system than anyone else in the country,

Margaret is the founder and managing director of one of the largest medical billing companies in Australia and in the following piece she outlines the intricacies of the Medicare payment system and, drawing from international experience, explains why we should be extremely concerned about any moves to privatise the payment system.


Margaret Faux writes:

The ‘Mediscare’ label has done nothing to assist consumers to understand the issues at the centre of the Medicare privatisation debate, and the potential impacts those issues may have on their healthcare. Instead a critical health reform issue has been reduced to political point scoring and like most commentary about Medicare, it is poorly understood, and therefore easily exploits consumer confusion. No-one has actually defined what the Medicare payment system even is, but that hasn’t stopped them from declaring that whatever it is should be replaced and that having a private sector operator do that is perfectly fine.

So what is the Medicare payment system anyway? Is it broken? And If it is, then what are the risks of a private organisation stepping in to fix it? And what can we learn from other privatised health payment systems around the world?

What is the Medicare payment system?

The Medicare payment system is not a single piece of software through which Medicare claims pass. It is also not a simple system of payments attached to a menu of services or a schedule of payments. Nor is it a purely digital environment devoid of humans, in fact no healthcare payment system is and never will be because reimbursement for health services is both complex and unique in that it involves high volumes of relatively low dollar value payments, which are linked to complex coding systems that attempt to map the infinite variability of the human condition. If only patients would read the packet instructions on their illnesses, how much easier it would all be.

It is this complexity that necessitates high levels of scrutiny to ensure appropriate distribution of every health dollar, and in Australia’s case, this means tax payer dollars. Too much automation poses a very high risk of increasing non-compliance and fraud, and therefore most countries adopt a sensible, balanced combination of both human and artificial intelligence. At the moment, public servants in the Department of Human Services (DHS) fulfil the critically important human roles and as someone who works at the Medicare claiming coalface every day, I can confidently assert that without the involvement of DHS staff, the so called Medicare payment system would completely collapse, and further, many of the roles they currently fulfil cannot be replaced by a computer. That’s because nuance is not the computer’s strong point – the difference between getting a facelift to enhance natural beauty is very different from one used to repair scars from a glassing to the face, but the item codes are the same.

However, DHS staff would agree that they do struggle with their computer systems because they are old. The Medicare monolith has evolved organically over 40 years, while the technological advances in medicine have galloped ahead and unfortunately, the details of what now exists, the billing rules, which bits of legislative change were tacked on when, and how it all works, are not documented anywhere – at least not comprehensively. The totality of the system has never been successfully ascribed to computer codes or software design.

So the totality of the Medicare payment system that has got everyone talking is complex, enmeshed with nuance and intertwined with legislation and it is certainly not something that a private sector organisation can just come in and replace. It comprises both human beings and a multi-layered computer system, neither of which can easily be separated from the other. There’s the mid-tier layer where claim formatting is validated, then there’s the main frame where the rules engine resides for assessing the legitimacy of claims, and from there, claims may be paid, rejected, part paid, channelled through as in-hospital claims, diverted for assessing by humans and so on.

It has a lot of moving parts all of which have a role in preserving overall system integrity, and we need all of it – the vehicle and the drivers too.

Is the payment system broken?

No, it’s not. It might be a little cumbersome and difficult to understand for an outsider but it’s probably one of the most efficient parts of Medicare.

Medicare has always been very good at its core business of paying claims. Within two weeks of the scheme commencing on 1 July 1975 it was receiving 106,000 claims per day with volumes still rising1. Even the earliest records stated the critical importance of the payment function:

“…everyone in the commission [Health Insurance Commission] was aware that efficient payment of claims was the absolute sine qua non for the success of Medibank…2

Universal healthcare was an instant hit around the country and still is, and claims processing has never stopped or showed any signs of slowing down. Today Medicare processes hundreds of millions of claims annually and still manages to do so in an average of 1.7 days per claim3.

So as far as payments go, the system works well and always has. Australians generally have no problems obtaining their rebates when they go to the doctor. If the doctor uses an Ezyclaim or Hicaps terminal their rebate is reimbursed in real time, right there at the point of service. If the doctor uses a Medicare online claiming application, the rebate is usually reimbursed overnight, and even manual claims are deposited into patient bank accounts within about a week.

However, whilst payments are working just fine, there are problems in other areas because the old computers weren’t designed to handle modern complexity. For example, in the last few weeks I’ve been working with a public hospital to sort out a $1,000,000 bucket of rejected and partially paid Medicare claims. The reasons for the rejections are many. There is user error, Medicare error and health fund error all impacting the same claims. But the root cause is immense complexity and a lack of knowledge, in an environment where it is too easy to make honest mistakes and too hard to fix them.

It is hard to give money back to Medicare and it shouldn’t be because when errors occur or refunds are required it is in the nations interest that the process of reimbursement is simple. When claims are underpaid or overpaid or require adjustments we should not have to embark on a months long paper trail. When clinical information is required to properly assess complex claims the computer systems need to facilitate this process without compromising patient privacy.

And if we are going to continue to have profoundly complicated simplified billing schemes (spot the oxymoron) then the interface between the private health funds and the Medicare main frame needs to be upgraded to prevent endless buck passing and obstruction of legitimate claims. And we do need a much more sophisticated rules engine to better manage compliance prospectively, rather than relying on post payment audits. It is in these areas where the old system struggles and will one day fail completely, and where valid arguments for a system upgrade exist.

Who should rebuild a new Medicare computer system?

Once a decision is made concerning which specific component or components of Medicare’s computer systems are to be rebuilt, the next step is in choosing a provider to undertake the work. The challenge here will be in not being fooled by offshore providers who will seek to persuade that it will all be a bit of a walk in the park for them because it’s the sort of project they do all the time.

It isn’t. The fact is that Australia’s medical billing system is poorly understood even by Australians and a project of this magnitude is too important to leave to impressive track records in the wrong jurisdictions.  Because being an expert in the US system does not mean that you can understand or enhance the development of Australia’s Medicare.

However, if a team of appropriately talented individuals can be sourced and engaged to rebuild a brilliant new Medicare computer system, then that would be a worthwhile investment for Australians.

But ongoing management of claims processing must be retained in the hands of public servants, who are not motivated by profit. The US experience makes this only too clear.

The experience of a privatised Medicare payment system in the USA

Right from the get go in 1966, America outsourced its Medicare payment system to private operators and still does. My colleagues at the American Medical Billing Compliance Conference in Atlanta this year helped me to understand that if you think that having a private organisation manage health payment processing is innocuous, think again. Here’s a short chronology of the US journey so far:

1990       Medicare was judged to be a high risk program vulnerable to fraud and abuse.

1992       General Accounting Office (GAO) report singles out the contracting system as problematic, due to an inability to properly manage contractors.

1999       Robert Pear The New York Times

“For years mediocre officials have railed against fraud by doctors and hospitals. But now Federal investigators have traced much of the problem to people in the companies that pay Medicare claims for the Government – the very people who are supposed to be policing fraud. George F. Grob, deputy inspector general of the DHHS, said his office was investigating 19 current and former contractors and that Medicare contractors are “one of the most serious sources of vulnerability in the Medicare program”

2000       Professor Malcolm Sparrow ‘License to Steal’ … contractors pay claims, monitor them, audit providers, deal with beneficiary inquiries and complaints and run the majority of the …prescribed program integrity functions …but whistleblowers, the HCFA and OIG have discovered several of them lying, cheating and stealing in the course of their duties under Medicare….Many of Medicare’s contractors – companies that also function as private insurers or managed care providers – have inherent conflicts of interests.  The same doctors and provider institutions they are supposed to monitor and whose billings they police for Medicare are corporate partners in their private businesses.

2010       GAO “Medicare Recovery Audit Contracting” “Our prior work has shown the Centre for Medicare and Medicaid Services (CMS) has allowed known vulnerabilities that contribute to or result in improper payments to remain unresolved for years”.

2012       Kelli Kennedy Associated Press “Firms that are paid tens of billions of dollars to root out Medicare fraud are bidding on contracts to investigate companies they are doing business with – sometimes their own parent companies” – cites a report by the DHHS Office of Inspector General.

2014       Robert A. Vito Office of the Inspector General – “OIG has discovered a number of recurring issues that limit CMS’s oversight across all contractor types. CMS has developed a multitude of methods to review Medicare Administrative Contractors (MAC) performance and integrity performance issues, but does not have the tools in place to ensure that issues are corrected”.

2014       Reed Abelson and Eric Lichtblau, The New York Times, “An array of outside contractors used by government is poorly managed, rife with conflicts of interest and vulnerable to political winds, according to interviews with current and former government officials, contractors and experts inside and outside of the administration. Authority and responsibilities among the contractors are often unclear and in competition with one another. Private companies – like insurers and technology companies – have responsibility for enforcement, often with little government oversight”.

When I asked colleagues how corporate middleman fraud is still able to occur, numerous mechanisms were cited including those in Malcolm Sparrow’s ‘Licence to Steal’ quoted below:

  1. Withholding or unreasonably delaying payments to providers
  2. Destruction of claims
  3. Embezzlement of capitation funds paid by the state
  4. Collusive bid-rigging (between health funds for example)
  5. Regularly denying treatment requests without regard to legitimate medical evaluation
  6. Establishing policies that require an appeal before treatment will be given
  7. Measuring performance only in terms of absence of specific breaches of the contract language

Australia is vulnerable to all of these types of behaviours (some already exist inside the private health fund payment schemes), all of which are designed to redirect government money into corporate pockets. But in addition, because we have a provision in our constitution which allows doctors to enter private contracts with their patients, and basically ignore things like payment systems, our doctors can just jump ship anytime and leave it to patients to sort out their rebates themselves.

So what that means is that not only does privatisation of the Medicare payment system in Australia expose our tax dollars to corporate misappropriation, but in addition we are at risk of being hit a second time when we find ourselves paying full fees up front when doctors become tired of corporate game playing which delays legitimate payments. They’ll just opt for the easy option: “you pay me $1000 up front for your surgery and sort your rebates out yourself.”

You cannot separate payments from patients because money is a component of every encounter between a doctor and a patient and as a result, payments and payment systems do affect patients and also health outcomes.

It is reasonable to be concerned about any ideas, ideologies or even innocent scoping exercises that examine privatisation of Medicare because it is too precious to be preyed upon by corporate greed.

  1. The Making of Medibank page 225
  2. The Making of Medibank page 214
  3. https://www.humanservices.gov.au/sites/default/files/documents/8802-1510-ar2014-15.pdf

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.

(Added on 24 July): Margaret Faux would like to acknowledge Dr Kathryn Flynn from the University of Wollongong for her assistance in developing the timeline in relation to the US experience. This acknowledgement was inadvertently omitted by the author.

Comments 2

  1. Jim says:

    It is most interesting to hear a defence of Medicare from somebody who has built a private business out of helping providers navigate it. It seems to me thatone would be opposed to a new, improved and more automated system when you turn a buck from the current mess. Nor would you want another private business coming near your patch.

    Apart from the evident self interest on display, It is also interesting to see cited as a benefit of the current approach the apparent effectiveness of DHS staff in differentiating between legitimate plastic surgery claims and illegitimate cosmetic surgery claims. There is plenty of evidence to the contrary, to the point the Department of Health is continually trying to tighten the definitions to stop dodgy providers from billing cosmetic services as medically necessary. When even the Australian Society of Plastic Surgeons acknowledges its member routinely do the wrong thing, safe in the knowledge they will never be caught, it is time to dial down the praise for the current approach.

    I certainly agree that taking the word of American vendors that they could waltz in to Australia, roll out an overseas model and have it be an effective solution for our unique Medicare needs needs to be viewed very skeptically. For the same reason i don’t quite buy the argument the missteps and failures of these vendors, in the American system, would be replayed here.

    • Jennifer Doggett says:

      Margaret Faux has provided the following response:

      Thanks for giving me the opportunity to repeat that I have a conflict of interest which was noted on this article and was the subject of on air discussion with Phillip Adams a few months ago. In actual fact, I have a lot to gain by responding to any government tender or opportunity to outsource medical billing in Australia. My company is well positioned to assist in the privatisation of Medicare payments but I just can’t in good conscious do that – knowing what I do about the genius behind the structure of Medicare I could not feel okay about skimming off part of the Medicare payment as profit – currently I am paid in the same way as medical receptionists, secretaries and practice managers. However, it is unlikely that privatisation contractors will have strong regard for the central importance to everyday Australians of universal health cover and frankly, it is not in their interests to limit the ways they could profit from privatisation.

      In regards your second point about doctors (plastic surgeons) rorting the system, that goes directly to my PhD topic. As someone who spent months scouring the international academic literature looking for evidence of your assertion that doctors are all out there deliberately cheating Medicare, I must completely reject your claim as being false. In addition, international academic literature on the topic of healthcare fraud and inappropriate claiming all agrees on one thing – healthcare fraud is very difficult to prove and almost impossible to accurately quantify. You will help the worlds academics who are researching this area if you can share your source of empirical evidence with us.

      However if your intuition is right, then I am staggered at your suggestion that fraud is nothing more than a ‘misstep’ or ‘failure’ of a vendor. It is not a misstep or a failure it is a crime. And to suggest that it could not happen here is not only naïve, but baseless. In this country we already have problems with questionable handling of Medicare rebates, which are placed in the hands of private health funds, but it’s a phenomenon currently hidden from consumers like you and I. Allowing other vendors to expand on the practice would be very risky, particularly in the current operating environment where there is no transparency or visibility over the journey of Medicare dollars. But perhaps a system overhaul will regulate and make accountable those who are given the privilege of handling Medicare dollars as I alluded to in my article. I would also point out that in the USA, the Medicare Administrative Contractors who handle payments for the US Government do not actually handle the money, yet still there are problems. The reason is this: the cheapest way to process a medical claim is to pay it without question. Auditing is expensive, and so contractors don’t want to do it because it affects their bottom lines and where does that lead? Their profits go up, but so does the incidence of inappropriate claiming, which then pushes overall health spending up and so the cycle goes.

      Thank you for doing your part in interrogating my arguments, and expressing your views about Medicare, which is a topic I am passionate about. I want to finish by making one thing very clear – I do support an upgrade to Medicare’s computers and I said that in my article, but it needs to be handled with great care, and dismissing it out of hand as a scare campaign was in my view irresponsible, almost negligent journalism. Consumers need to understand the risks and be involved in a mature discussion on any changes to Medicare, because it affects us all.​

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