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Flawed co-payment proposal does not stack up

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This is an edited version of the AMA’s submission on the Australian Centre for Health Research’s (ACHR) proposal for $6 patient co-payment for GP services. It was presented by AMA President Dr Steve Hambleton to the Senate Select Committee into the Abbott Government’s Commission of Audit on 7 March.


The ACHR’s proposal for a “modest” GP co-payment has the stated “unambiguous purpose” of finding savings in Medicare outlays.

But we do not believe that ACHR’s analysis has any credibility.

The growth in Government spending on GP rebates is very moderate and well able to be sustained. The Productivity Commission’s 2014 Report of Government Services shows that the Australian Government’s real expenditure on GPs (2012-13 dollars) has increased from $301.60 in 2006-07 to $304.40 in 2011-12, an average annual increase of only 0.18 per cent.

This rate of increase is fully consistent with the ageing of the population.

The AMA does not believe that there is evidence of widespread over-utilisation of GP services.

Every GP will have a number of patients who are overly anxious about their health and attend more often than they need to, based on physical indications alone.

But, likewise, every GP has a number of patients who turn up at the door long after the appropriate time, and that this under-utilisation of primary care services has a much more costly counterpart in additional tertiary services and avoidable ill health.

The AMA sees very significant flaws in the ACHR analysis.

ACHR has constructed a no policy change scenario that involves growth in service volumes of 3 per cent a year between 2013-14 and 2017-18.

They have not provided any rationale for such a high figure.

Over the entire period of Medicare to date (1984-85 to 2012-13), the average annual growth rate was 2.24 per cent per annum.

By choosing a high-growth rate for the base case, ACHR has painted an overly optimistic picture of the scope for budget savings under their co-payment proposal.

The prime driver of GP consultations is population growth. Australian Bureau of Statistics population projections have population growth slowing gradually from 1.85 per cent in 2012-13 to 1.60 per cent by 2030-31.

The ageing of the population will contribute about 0.2 per cent a year to GP service volumes in the immediate future, and that will slow to nearer 0.1 per cent by 2030 as the baby boomer “shoulder” passes through.

An ageing population will mean more complexity in the mix of services required (more chronic care items, for example) rather than any rise in the number of services per se.

A concerning aspect of the ACHR work is the projected impact of a co-payment.

The 1991 Howe co-payment was very short-lived (December 1991 to March 1992), so it is difficult to see any impact on GP service volumes in the quarterly data published at the time.

The Howe co-payment has also been widely misunderstood (including by ACHR) as a co-payment arrangement whereas it was, in fact, a rebate reduction.

The-then Labor government brought maximum pressure on GPs not to charge the co-payment.

In the very short term, the scheme caused fear in the population but utilisation rebounded quickly once its demise was known.

The Australian Government has much more experience with PBS co-payments.

The evidence from that side is that they can have a short-term shock effect, but no enduring impact on overall growth rates once households get accustomed to the required contributions.

The reason is simple: health is a “superior good”, and people will meet out-of-pocket costs rather than forego access to health goods and services they see as important.

A rise in co-payments will, of course, have an impact on demand from the most vulnerable members of society, those who do not have any capacity to pay more.

To the extent that a GP co-payment reduces the demand for services from the most vulnerable, then the overall impost on governments would almost certainly rise as there would be an increase in avoidable hospitalisations.

ACHR has managed to conjure up MBS savings projections that are, at once, both too high and too low.

They are too high because they assume very simplistically that a $6 co-payment will be charged notwithstanding no up-front reduction in nominal MBS rebates.

On the basis on this relatively modest impost, ACHR projects quite a sharp reduction in service volumes.

Competitive pressures in urban areas with stronger GP supply will mean that it is highly unlikely that GP practices will universally charge the $6.

If the co-payment is not charged in those areas, the volume reductions will not occur either. And that is where most Australian live.

It is more likely that the co-payment would be charged in country areas where GP practices are under greater cost pressure. They have higher operating costs and less potential to garner efficiencies because the practices are smaller than the practices in the cities.

There is already a city/country divide when it comes to patient out-of-pocket costs and access to health care services more generally.

The ACHR proposal will deepen that divide.

The “announcement effect” only occurs once under the ACHR proposal (in 2014-15), yet in the following three years when the fee freeze progressively tightens the screws, ACHR continues to project large volume savings every year.

Per capita utilisation of GP services is projected to continue falling throughout the forward estimate period. The AMA views this as a highly unlikely scenario given an ageing population.

On the other side, ACHR’s savings projections are too low because the fee freeze component of the proposal would generate savings over four years of more than $1.1 billion additional to any savings resulting from volume reductions.

Rebate cuts of that order would represent a very significant reduction in Government support for patients needing to see a GP.

Were there any credibility in the ACHR volume projections (which we very seriously doubt), then the likely impact of the combined policy of a co-payment and a fee freeze would be savings in MBS outlays of more than $2 billion over four years.

The strong common interest between the profession and the government is to find a formula for GP financing that is most effective in supporting GPs in their gatekeeper/preventive care role.

If that role is performed effectively, there is a dividend in lower downstream health care costs.

In short, great care is needed to ensure that a cost cutting in one part of the budget does not generate additional costs in another part.