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Ley ‘expects’ health funds to pass on prostheses price cuts

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Health Minister Sussan Ley has raised expectations of a slowdown in the growth of private health insurance premiums after announcing a multimillion dollar cut in the cost of common medical implants.

As insurers finalise their proposed premium increases for 2017, Ms Ley has approved changes in the pricing of 2440 prostheses including pacemakers, intraocular lens’ and artificial hips and knees that she said would save health funds $86 million in the first year and $394 million over five years.

The Minister is pressuring insurers to pass on the savings to their members in lower premiums.

“I expect that every dollar of the $86 million finds its way to the bottom line to reduce the cost of next year’s premium,” she told reporters. “I expect if insurers take $86 million out of the cost they pay the hospital that will immediately transfer to lower premium increases for patients and consumers.”

But the Minister refused to specify by how much she expected premiums to fall, and demurred when asked to detail what processes were in place to ensure insurers passed the cuts on to policyholders.

Her reluctance was seized upon by Labor. Shadow Health Minister Catherine King said that while steps to improve health insurance affordability were welcome, “there is no guarantee whatsoever that these cuts will be passed on to consumers”.

But in evidence to a Senate Estimates hearing, senior Health Department officials said the move would put downward pressure on premiums and expected it would result in “a lesser increase than there would otherwise have been”.

Earlier this year Ms Ley initiated a review of the way the Government sets the price of prostheses amid complaints by insurers that they were being charged grossly inflated prices compared with those billed to public hospitals.

Health funds claimed that up to $800 million could be saved by bringing prostheses costs in private hospitals in line with those paid in the public sector. For example, a public hospital in WA is charged $1200 for a coronary stent that costs $3450 in the private system.

The claimed savings have been disputed by private hospitals and medical device manufacturers, and the Medical Technology Association of Australia told The Australian the cuts announced by the Minister would result in job losses, increased out-of-pocket expenses for patients and cost shifting to other parts of the private health sector.

Ms Ley, under pressure over mounting patient disaffection with the relentless rise of insurance premiums – which have been growing by around 6 per cent a year – has prioritised reform of the Prostheses List as a way to rein in the cost of private health cover and slow the drift of policyholders to cheaper but much less comprehensive policies riddled with multiple exclusions.

In February, she appointed Professor Lloyd Sansom to head a working group looking at medical device pricing, including the operation of the Prostheses List, which was created in 1985 to set out the maximum benefit insurers should pay for medical implants and devices.

Since 2001, there have been a number of regulatory reforms that have resulted in a significant increase in prices.

The Australian has reported that the cuts announced by the Minister are based on advice from the Sansom review, which highlighted how the regulated prices of cardiac devices, intraocular lens systems, hips and knees were “significantly higher, in many cases, than market prices based on available domestic and international data”.

“These categories are considered appropriate for initial consideration for benefit reduction because they have large volumes and benefits paid, with relatively high levels of competition among prostheses sponsors,” it said.

The AMA said it supported a “robust and transparent process” for prosthetic pricing, and backed the use of price referencing in review charges on Prostheses List.

But it urged the Government to make sure that any changes did not have the unintended consequence of reducing the range of prostheses available to privately insured patients.

The Association said it would be vigilant in ensuring that Government reforms and health fund initiatives did not encroach on the freedom of medical practitioners to make decisions in the best interests of their patients.

It called for Prostheses List reforms that emphasised the importance of clinician choice, reduce prices and were devised taking into account possible implications for the cost of rehabilitation.

Adrian Rollins