Submission on
Private Health Insurance Reform
Directions for Broader Health
Cover Products
September 2006
Federal Secretariat
Australian Medical Association
PO Box 6090
Kingston ACT 2604
Email: ama@ama.com.au
AMA Submission: PHI reform – Broader Health Cover Products
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In June 2006 the Government foreshadowed a private health insurance reform package to be
developed in consultation with industry for implementation in April 2007. Successful
implementation of the package requires a new regulatory framework that places focus on the
product rather than the fund and the AMA looks forward to the opportunity to scrutinize the
exposure draft of the legislation to be made available to stakeholders in October 2006.
Since the introduction of Medicare, legal constraints on the private health insurance funds
have limited the services they can issue, primarily to hospital benefits (in public and private
hospitals) as a private patient and related services (medical gap for private in-hospital
services, prosthetics) and ancillary health cover (dental, allied health, etc). Central to this
reform package is a proposal to permit health funds to develop products for out-of-hospital
services, to be known as broader health cover products.
The AMA is currently considering its position on this reform package. Based on the limited
information we have to hand at present, this paper seeks to comment on the broader health
cover products concept and the impact this significant change will have on people with
private insurance and their medical practitioners.
There has been a significant shift in clinical activity from institutional care to community
based care. That change has been primarily driven by advances in health technologies
including new pharmacological treatments, better diagnostics and less invasive surgical
techniques. These technological advances have delivered a sharp reduction in the average
length of stay in hospital. Further advances of this nature are expected. It makes sense in that
environment to reassess whether private health insurers should have a role in covering such
services.
However, the private health insurers have been unable to articulate which services might be
covered under broader health cover products. They seek to justify the changes by claiming
scope for cost reductions but are unable to substantiate how such reductions can be achieved
without compromising access and quality and without limiting the choices that members now
enjoy. These are critical issues because access, quality and choice are the three legs on
which private insurance stands. If private health insurance is compromised on any of these
three, it will become far harder to persuade people to retain their private cover. This has
the potential to seriously undermine the Commonwealth Government’s strategy of support
for private health insurance and the implications for an already under-resourced public
health sector are equally very threatening.
There is very considerable potential for these reforms to open the way for increased cost
shifting by both Federal and State governments without any material improvements in access
to, or quality of, health care.
The AMA has long held the view that the private health sector (including the private insurers)
is over-regulated. It would therefore welcome consolidation of existing legislation if the
Government seizes the opportunity to remove otiose provisions in the National Health Act
and Health Insurance Act such as the controversial Lawrence legislation which is now
replaced by Gap Cover Scheme legislation. That said, the AMA will vigorously oppose any
measures which, either surreptitiously or inadvertently, increase the powers of private health
insurance powers vis-à-vis providers.
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Broader Health Cover Products/ Broader Health Care Services
Broader health cover is central to the reform package. The modes of treatment in the public
and private sectors are difficult to distinguish. The medical profession has the same duty of
care to the patient regardless of the financing option he or she is using. The prime difference
is the extra rationing of access that Governments choose to impose on public patients. If there
are better, more cost effective options to traditional in-patient care that are not already
happening in the public sector (where there is no legislative restriction), then we are left
asking why are they not being adopted. If there is a case for them, then they should be
implemented in both the public and private sectors, not just in the private sector alone.
Whatever the (as yet unproven) merit in the concept of broader health cover in the
contemporary health care environment, the AMA believes there should not be any opening for
funds to develop products that determine treatment options or locations. Management of any
medical condition must remain the sole responsibility of the treating medical practitioner and
his or her team. While health funds may have some rudimentary skills in the financing of
health care, they have none in relation to its delivery and any increase in their role in this area
risks a decline in health care standards in Australia.
The AMA sees a ‘chicken and egg’ scenario where the drive from funds to develop new
products initiates a service which may otherwise have not been available. To encourage such
developments it is imperative that appropriate and clearly defined funding arrangements are in
place. Health funds claim that scope exists to develop services that do not impinge on the
MBS, but cannot demonstrate this when asked to do so. Rather, the AMA believes services
need to be identified before it will be possible for stakeholders to debate the most appropriate
funding models.
The Department’s paper has gone some way in progressing this debate by suggesting
definitions for services that are a part of an episode of care should be those that provide
clinically appropriate alternatives to hospital accommodation, substitute for hospitalisation or
prevent it. The challenge now is to put some clothing on this skeleton so as to allow a full
and informed debate.
There have been suggestions from some quarters that health funds should have increased
powers to enforce out-of-hospital care. The mere existence of an out-of-hospital option is not
grounds for conceding or determining that all patients in the category should be treated in the
out-of-hospital setting. These are decisions taken by the treating doctor with a view to getting
the best outcome for the patient, not the cheapest outcome for the funder. As noted earlier,
the third leg that underpins private health insurance is patient choice. Take that away and the
attractiveness of private insurance is severely damaged.
Were the Government to give the health funds power to make these essentially clinical
decisions, it would send us down the slippery slope to US style managed care which equates
to a lower standard of care but not necessarily cheaper care (the US system generates massive
red tape overheads which add considerably to the unit cost of care without improving quality).
If the funds want to take clinical decisions, then they must be made fully responsible for
outcomes. This means that patients must have the right to sue a fund where he or she has
been harmed by fund decisions.
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The AMA has concerns about any development that might encourage vertical integration
resulting in health insurers gaining additional market power that could restrict choice and the
capacity of medical practitioners to provide clinically appropriate care to their patients.
Health insurers should not be health care providers and vice versa.
The decision as to what care is provided and where, is a clinical decision made by the patient
in consultation with their medical practitioner.
Informed Financial Consent
The AMA has long recognised the importance of Informed Financial Consent, and believes
that in the interests of good patient care, there is a responsibility for medical practitioners to
discuss their fees with patients in advance of care being provided. AMA has developed a
comprehensive position statement on this and is in the middle of a twelve month education
campaign with the help of the Federal Government. The AMA believes that health funds also
have an essential responsibility to inform their members of the benefits available under their
private health insurance policy, and whether they will have gaps to pay.
Safety and Quality
The AMA strongly encourages the development of a comprehensive framework for an
industry-wide uniform regime for safety and quality standards for facilities and providers
offering privately insured services. Health funds, however, have no expertise in the delivery
of safe high quality health services. This is what providers do with the support of training and
standards bodies such as the Royal Colleges.
It is entirely inappropriate and unacceptable for the funder to be setting the standards. The
massive conflict of interest is readily apparent. The funds have a vested interest in cutting
costs and this disqualifies them from a role. The function of standards is to protect the
patient.
The AMA would support the establishment of an independent authority to undertake this role.
The framework needs to be specified very clearly. The independent authority must not be
beholden to the funds or, for that matter, any other stakeholder apart from the patients.
Within the standards regime it is critical that attention be given to ensuring minimal
regulatory and cost burdens are associated with achieving accreditation as these factors can be
powerful disincentives for providers.
We cannot accept standards determined by health funds. Nor can we accept a proliferation of
standards. That can only increase costs of providing care. It would be a needless and
pointless cost imposition.
Product Regulation and Governance
Given the implementation of such significant changes in a relatively short timeframe the
AMA has concerns about the apparent lack of, or intention to establish, an endorsed formally
constituted body to oversee and approve the proven clinical efficacy of new broader health
cover products before they are launched onto the market.
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The public and the profession is asked to buy a pig in a poke without knowing whether there
are good ideas out there which will benefit patients or whether the whole concept is an
illusion designed to take political attention off premium rises.
Doctors’ fees
The AMA opposes any listing of individual doctor’s fees on fund websites and will actively
campaign against any such proposition. Such activity by the health funds will cause the
public to be misled and will bring the health funds into litigious relations with the medical
profession. Health funds should turn their attention to ways they can help their members
access such information from the providers directly and more importantly ways they can help
their members access information about applicable health fund rebates.
Task substitution
The AMA would not want the broader health cover option to be seen as a vehicle for eroding
medical involvement and leadership in clinical care. Moving work out of the hospital
environment with its strong credentialling framework may be seen by some as an opportunity
to engage in inappropriate task substitution. Credentialling should remain a feature of the
programs envisaged under broader health cover schemes.
Monitoring and evaluation of Fund operations
It is important that existing PHIAC monitoring systems also have the capacity to include
broader health cover products and services that enable the industry to access data that gives a
genuine indication on whether the new products are achieving their aim and consumers are
satisfied.
Economic Impact
The AMA believes the funds generally have had great difficulty in developing an
understanding of the economic impact of day surgery facilities. There is a demonstrated
laziness on the part of the funds. Many smaller day surgery centres find it difficult to get
contracts with private health funds despite being cost and quality competitive. A paradigm
shift to broader health cover will compound rather than improve this situation.
The economic fundamentals in the private health care industry are primarily driven by fee-forservice clinical practice, not health funding models and formulas. The health funds will have
great difficulty persuading anyone that they can expand the range of services covered by their
products without any increase in premiums. That does not necessarily rule out some move in
this direction. There is, however, a need for honesty in the assessments and, at the end of the
day, it is an imperative that the funds can show their members that they are getting extra value
to justify the higher premiums.
Conclusion
The AMA believes continued stakeholder consultation around this package is essential, as to
date there is little clarity and many uncertainties around the legitimacy and intention of the
proposed reforms.
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Benefits to consumers, in particular ensuring the delivery of high quality, safe health care,
should be the first consideration in this reform package. If the package cannot make a strong
contribution there, it has no legs.
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