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Medicare co-payment: the economics

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The health of vulnerable patients will suffer and doctors will be left out-of–pocket under the Federal Government’s Medicare co-payment plan, the AMA National Conference was told.

In a sobering assessment of the likely effect of the Government’s co-payment policy, Chair of the AMA Council of General Practice Dr Brian Morton warned it could end up costing the health system more by causing less bulk billing, even briefer GP consultations, fewer nursing home visits, increased diagnostic testing and more prescriptions.

Health economist Professor Elizabeth Geelhoed, of the School of Population Health at the University of Western Australia, told the Conference the short-term savings from the co-payment would eventually prove costly because those who most needed medical care would be among the least likely to seek it because of cost.

The co-payment and bulk billing

The Federal Government has framed the $7 co-payment for GP, pathology and radiology services as a savings measure necessitated by what it considers to be unsustainable growth in health expenditure.

Health Minister Peter Dutton said that in the past 10 years spending on the Medicare Benefits Schedule had increased by 130 per cent and, if left unchecked, the cost of Medicare would double in the next decade, while spending on public hospitals would surge 150 per cent.

Confronted with these facts, Mr Dutton said, “no-one could deny that action had to be taken. This Government has heeded the warnings about unsustainable expenditure growth”.

Part of its response has been to impose a $7 co-payment – comprising a $5 cut in the Medicare rebate and $2 payment to doctors – which is expected to save $3.5 billion over five years.

It means the rebate for the most common Medicare item, a Level B consultation, will be cut from $36.30 to $31.30. To soften the blow for the most vulnerable, the co-payment will apply to just the first 10 visits each year by concession card holders and children younger than 16 years. After 10 visits, their Medicare rebate will be reinstated to its former level.

Mr Dutton said it was reasonable to ask patients “to take more personal responsibility for their health, through modest contributions to the cost of their care”, and made it clear that the current high rate of bulk billing (around 82 per cent) was in the Government’s sights.

“Bulk billing was intended to be for patients who could not afford to pay a full fee. It was not intended to be a drawcard to attract patients from one practice to another,” he said.

Co-payments will not be mandatory, giving doctors the scope to continue to bulk bill their patients but, Mr Dutton warned, the Government made “no secret that we encourage GPs to ask the patient for a contribution, and we incentivise accordingly”.

Just how punitive these incentives are was detailed by Dr Morton in his presentation to the Conference.

Dr Morton said doctors who waived the co-payment and continued to bulk bill some or all of their patients would find themselves up to 34 per cent out of pocket for each service.

Services provided without a co-payment did not count toward the 10-visit threshold for concession card patients and children, making it in the doctor’s interest to impose the $7 charge.

“Of course, there are times where the patient just can’t pay,” Dr Morton said. “GPs will still have the discretion in such cases to waive the co-payment. The kicker is that every time a GP does so, they will take a loss [of $5 or 14 per cent for non-concession adults and up to 34 per cent for children and concession card patients].

“If this sting is not enough of a deterrent, remember the service won’t count towards the 10-service threshold,” he said. “Habitual waiving of the co-payment will ensure the patient never reaches the threshold, and will see the GP absorbing a loss of between 14 and 34 per cent for every service.”

Dr Morton said this meant doctors would have to think very carefully about which patients they would bulk bill, and under what circumstances.

Unintended consequences

Central to the co-payment is the market economy assumption that as the cost of a service goes up, demand will slow.

But Professor Geelhoed said this was based on a bad misreading of the structure of Australia’s health system and the nature of health care, and how different it was from a market-based system.

In a market, prices are set by supply and demand, whereas in the health system they are heavily influenced by Government, she said. Furthermore, in market models of the economy, demand is driven by want, whereas in health it is driven by need. And the market approach assumes perfect information, whereas in health practitioners have much greater knowledge than patients.

Professor Geelhoed said that although it was unclear how patients would respond to the co-payment, it was already known that the less wealthy saw their doctor less often and ended up in hospital more frequently, partly as a consequence of leading riskier and less healthy lifestyles.

The co-payment was likely to exacerbate these trends, undermining the efficiency and equity of the health system, she said.

Dr Morton warned the policy could have a lot of unintended consequences.

The Sydney GP cited the example of a patient on Warfarin who switched from monthly to quarterly visits because of the co-payment. He said the treating doctor might need to consider putting the patient onto a longer acting but much more expensive anticoagulant as a result.

Dr Morton said the pathology and radiology co-payments could also distort decision making around diagnostic tests. Instead or ordering just one test, a doctor might instead order several at once to minimise the cost to their patient.

He also raised concerns about whether it would discourage parents, especially from lower socioeconomic areas, to defer or forego vaccinations and other preventive health measures.

Dr Morton said the consequences of such changes in the way medical care is accessed and provided would not be good.

“If patients become more discretionary with their GP visits – as the Government is banking on them doing – what will the implications for patient health be?

“I can tell you. There will be increased suffering, enhanced morbidity, [and] lengthier recovery times. It could also turn a preventable or treatable prognosis into a complex, chronic or terminal one.”

He said the co-payment would likely increase the incentive for doctors to shorten consultation times and increase the temptation to increase the reliance on medicines as a quick fix to get one patient out the door and another one in.

Practical considerations

Added to this were practical issues primary health providers would have to take into account in implementing the co-payment, including reviewing billing policies, informing patients about the co-payment, reconsidering the timing and frequency of lodging rebate claims, and tracking child and concession patients to measure when they reach the 10-visit threshold.

“Many practices who submit patient claims don’t so in real time – they batch the claims and send them at the end of the day, every couple of days, [or] at the end of the week,” Dr Morton said. “Identifying when a concession card holder or under 16 has reached the 10-service threshold in real time is going to be problematic.”

He added that practices which bulk billed their patients would need to overhaul their billing practices and provide multiple payment options, increasing overheads.

“These will not only add to business expense, but also the practice’s administrative burden,” Dr Morton said. “Each payment system will have its own set of reports and reconciliations. Outstanding payments and bad debts will have to be managed.”

Where to from here?

AMA President Associate Professor Brian Owler has indicated the Association is keen to talk with the Government about how the co-payment should be overhauled to provide greater protection for vulnerable patients such as the aged, Indigenous, children and those with mental illness.

Dr Morton warned that, flawed though the co-payment policy was, the medical profession should think carefully about whether it would be wise to reject it outright.

As unpalatable as the Medicare rebate cut was, it was unlikely to be undone, and, “Government alternatives for cost control could be far worse”.

Professor Geelhoed said consumers put a greater value on services they had to pay for, so co-payment “in some guise may be part of an eventual reform solution”.

Adrian Rollins