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Community Affairs References Committee - 03/07/2014 - Out-of-pocket costs in Australian health care

JAN, Professor Stephen, Professor of Health Economics, University of Sydney; The George Institute for Global Health

Committee met at 09:33

CHAIR ( Senator Siewert ): I declare open this public hearing and I welcome everybody here today. This is the first public hearing for the committee's inquiry into out-of-pocket costs in Australian healthcare. The committee has received 97 written submissions to this inquiry. I thank all those who have made submissions.

I would now like to welcome Professor Stephen Jan from the George Institute for Global Health. Thank you for your submission. Professor Jan, could I just check that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you?

Prof. Jan : Yes.

CHAIR: I would like to invite you to make an opening statement, and then we will ask you some questions.

Prof. Jan : Sure. I am a health economist at the University of Sydney and I have been doing research for a number of years, looking at the economic burden of chronic illness on households and on individuals. I have done studies in a number of countries. That is where I come from: my perspective is from looking at this problem in Australia and in a number of other countries.

My concern about the recent debate about co-payments in Australia is that we are potentially creating a developing-country problem—a problem that many countries overseas are facing in relation to their healthcare systems, a problem that we don't have at the moment, to a large extent, but that we are moving down the path towards. In our submission, we highlight a growing level of evidence of the burden of out-of-pocket costs, particularly on people with chronic illnesses, people with multiple co-morbidities, and people in low socio-economic situations.

My concern is that the rationale for increasing co-payments has not been well thought out. I think there are two possible rationales for it. One is to raise revenue. The budget recently indicated that the revenue raised from co-payments is going to go to a medical research fund. My feeling is that there are much more efficient and equitable ways of raising revenue, most obviously through the taxation system. I don't think using a $7 co-payment is necessarily the best way to raise revenue. The second possible rationale is to put a lid on healthcare spending by creating a disincentive for the use of health care. Again, I don't think that rationale has been well thought out. The reason why you would introduce a co-payment to stop people from using health care is based on the assumption that you think people can make a rational decision before they see their doctor about what is necessary and what is not necessary. I don't think individuals are very good at making those sorts of decisions. In fact, the main reason why you would go to see your GP is to get the information about what health care you need—particularly people who are elderly, and people who have multiple conditions and are juggling limited budgets, I think the rationale for putting the onus for making decisions about rationing health care at the consumer level rather than within the health system is a flawed logic, and potentially leads to greater costs further down the system.

Senator DI NATALE: Just to give a bit of context to the hearing today, this inquiry into out-of-pocket costs was in fact referred to the committee prior to the budget. So we obviously recognised, well before this budget was introduced, that we had a problem with growing out-of-pocket costs. I am just interested in getting a bit of context from you about whether you think there is a problem, the scale of the problem, and where some of the specific concerns lie.

Prof. Jan : It was a problem even before the announcement of the budget. What we have indicated in our submission is that the level of out-of-pocket costs that people face in Australia, when you compare it with the OECD average, is third only to the US and Switzerland—so we are not doing very well. We rely on out-of-pocket costs for about 18 per cent of our healthcare funding, which is an extraordinarily high level of reliance on out-of-pocket costs. So we are going further down that track with the recent proposals.

Senator DI NATALE: So, the third-worst in the world—

Prof. Jan : Not in the world; in the OECD.

Senator DI NATALE: Sorry; in the OECD.

Prof. Jan : As I said earlier, it is a big, developing-country problem and in fact many developing countries have huge challenges.

Senator DI NATALE: So we are the third-worst in the developed world. Where are the biggest problems—in which areas of medicine and health care?

Prof. Jan : The main areas are specialist care; getting people to comply with medications; and, obviously, primary health care. We do have a safety net, and that limits the annual level of out-of-pocket payments through Medicare-reimbursed services. But the limitation of the safety net is that for large parts of the year it is still incurring a significant burden on individuals, and it does act as a deterrent to healthcare use. We have quite a lot of data based on qualitative interviews with people with chronic illnesses where they do ration their health care. They know that they have a safety net, but being able to come up with the money in order to access services is a problem. There are also a whole lot of costs that are incurred outside the Medicare system which are not covered by the safety net.

Senator DI NATALE: Why is it a problem? We say we have the third-worst problem in the OECD, but is it a problem? Some people would argue that it is not a bad thing to have a price signal in health care. Just explain to me what the impact of high out-of-pocket costs is on patient care.

Prof. Jan : The reason why it is a problem is that it is a potential deterrent to not only unnecessary care but necessary care. The rationale is that you impose a co-payment and you expect patients to decide what is unnecessary care and drop that from their consumption. What we do know is that patients are not very good at making decisions about what is necessary. That has been reinforced in a number of studies over the years. Probably the best source of evidence of that is the RAND health experiments which were done in the US, which were very rigorous studies that looked at the impact of payments on healthcare behaviour by consumers. And it makes sense. Patients generally go to primary health care because they seek information about what services they need. Without that information, it is a tall order to expect patients to be able to make those sorts of rationing choices.

Senator DI NATALE: Are you saying that health care is different from other patterns of consumption? Most people who were trained in classical economics would say having a price signal is very important, provided that there is a free exchange of information, and that markets are the best way of determining the allocation of scarce resources. Why is it different in health care? What makes health care different from other areas of consumption?

Prof. Jan : Health care is very different from other consumption goods because we rely on doctors as our agents. When we purchase other goods and services, we go in there and the seller is on one side of the fence and the buyer is on the other side of the fence. We make informed decisions about whether we want to buy those products. When we are talking about health care, we go to the doctor. The doctor is the provider of health care, but they are also acting as the agent for the consumer—so they help the consumer decide on what health care, further down the track, they will need. Consumers go into this whole—I suppose—'transaction' as an ill-informed individual. The problem with a co-payment is that you are preventing people from even engaging in that first step in getting information about what health care they need.

Senator DI NATALE: So what you are saying is, while price signals might be appropriate in other areas, where there is symmetry of information between the buyer and the seller, we have a very different market dynamic at play here.

Prof. Jan : Absolutely, yes.

Senator DI NATALE: I imagine that is why the whole discipline of health economics developed separately from traditional economics.

Prof. Jan : Sure. That is correct. Yes, that is a problem. If we are talking about co-payments and creating price signals, I think a number of commentators have highlighted how co-payments are a blunt instrument. They do not really discriminate between necessary and unnecessary care. So you need a mechanism in order to ensure that, for people who need services up-front, in order to prevent higher costs further down the track, those services are encouraged rather than discouraged.

Senator DI NATALE: I will just round that off. You mentioned the RAND study, and obviously there is other literature in this area.

Prof. Jan : Yes.

Senator DI NATALE: Is the literature clear? Does it demonstrate that you are not just deterring what I suppose some people might call unnecessary visits? I would be interested to know what an unnecessary visit is. I think if you are sitting at home wondering whether you have got something that is trivial or serious, then the point of going to the doctor is to determine whether, in fact, it is trivial. I suppose, in some people's views, that is 'unnecessary'. But, if we talking about necessary visits, visits that require some sort of intervention treatment to prevent complication, is the evidence clear that price signals—that is, co-payments—deter both those things?

Prof. Jan : There is no discrimination, and price signals are targeted towards the consumer or the patient rather than to the better-informed medical professional who is better able to distinguish what is needed and not needed. The problem with this price signal is that it is targeted towards the wrong person. In a sense, it is expecting too much from the consumer.

Senator MOORE: The premise of a lot of the concerns about our system is that we are going to the doctor too much. That seems to be a threshold statement that has been made a lot. In the work that you have done, working specifically in this area, does Australia have a problem with overservicing?

Prof. Jan : It depends on what type of overservicing and how you define overservicing. We do not have a problem with healthcare costs. We do not spend more than what is average for a country of our level of wealth. In fact, we are a long way behind countries such as the US, which spends a lot more. Use of healthcare services at the primary health care level is important because primary health care, in a sense, is a gateway to the rest of the healthcare system.

Senator MOORE: Deliberately so; we made it that way.

Prof. Jan : Yes. A lot of the costs that occur in the healthcare system occur in the hospital sector through people with chronic illnesses getting rehospitalised, and people who present at emergency departments then having to go for admission. So having a vibrant and well-funded primary healthcare system is really important to achieving cost-effectiveness in the rest of the system. I think blocking people from accessing the primary health care system is the worst thing you can do in terms of the economics of the entire system.

Senator MOORE: To 'put a lid on it' is the second point that argues against that particular rationale.

Prof. Jan : If you are talking about putting a lid on the costs in primary health care, I do not necessarily think they are a problem, but if you are worried about costs, then probably a more effective way of looking at change is in the way in which we reimburse health care. At the moment we have a fee-for-service system which pays doctors on the basis that they get a payment for each visit. In a sense, you are encouraging more servicing. One of the options that we may want to consider, if we are worried about that as a cost, is a different payment system, such as a blended payment system or a capitation-based payment system. They have not entered the debate. I think we are very much focusing on what we can do to mend the fee-for-service system, and the most obvious one that comes to mind is co-payments—but, as I said earlier, I think that is a flawed option.

Senator MOORE: Just two more points from your submission: one, which has come up in a lot of the submissions, is that a lot of the concerns with the costing are in medicines. Some of the examples you give, which are quite heart-rending in many ways, involve the cost of medicines. Do you have anything to say about the way the pharmacy process operates—the medicines that are covered and the medicines that are not? My other question is you do particularly mention private health insurance, which is cropping up in a lot of the submissions as well. You have a statement in your submission:

Higher levels of private health insurance coverage cannot provide solutions to the cost burden of out-of-pocket expenses as currently constructed. In some ways it makes it worse.

They are the two areas where I would like to get some comments on record.

Prof. Jan : The overriding concern with the pharmacy process is its complexity. We have a Medicare safety net which means that the amount of co-payments that patients face when they are being prescribed drugs is capped at a certain amount annually, but it is a very difficult system to negotiate. Many patients have difficulty understanding and keeping track of their safety net entitlements. Probably the most obvious thing is ensuring the system's transparency.

It is framed as a safety net, but the PBS costs that people face still act as a significant barrier to people using healthcare services. Even though you know that your payments are capped—I think it is $2,000 per year—the out-of-pocket costs that you face when you are being prescribed multiple medications can still act as a barrier. Say you are at risk of heart disease. The guidelines indicate there are probably four or five different medications recommended—such as blood pressure lowering medication, statins and aspirin—and that is $30 each time. That is a significant impost on patients getting medications and that can lead to non-adherence and then further costs down the track.

Senator MOORE: The point you make in your submission quite clearly about the cost of that—

Prof. Jan : Yes. The point we made about health insurance was really to respond to some discussion that had been happening recently about proposals to allow private health insurers to cover the gap between Medicare reimbursement and the gap payment people actually pay. Our concern about that is that that potentially leads to cost escalation and in a sense undermines the whole idea of trying to contain costs. When you allow insurers to cover the full cost of the gap then potentially that gap gets bigger and bigger. We know from the US that, when private health insurers are allowed to enter into that area, inevitably there are cost escalations that potentially undermine the whole initiative we are talking about.

Senator MOORE: That is because the practitioners charge more?

Prof. Jan : Yes, because they know the gap is being covered by a third party.

Senator MOORE: The pressure comes from the possibility of getting coverage, which gives an incentive in some ways to lift your costs.

Prof. Jan : Yes.

Senator MOORE: Thank you very much.

Senator SESELJA: I want to get to the bottom of how, in your opinion, we have got to the point we are at. Much of your submission is about the costs now as well as comments about where we might go, so I am interested in how we have got to where we are with the third-highest out-of-pocket in the OECD. I know it is touched on in your submission, but are you able to briefly talk to the committee about what it is that we are doing differently that puts us higher than other developed nations in terms of out-of-pocket costs that consumers pay at the moment?

Prof. Jan : Sure. In general terms, it is the level of co-payments that we pay for Medicare reimbursed services and also the fact that we have a significant number of medical expenses that are not covered by Medicare or through the hospital system that people have to incur out of pocket. One example might be home oxygen for people. The coverage for that varies for chronic obstructive pulmonary disease, and we found that to be a significant burden for a particular patient population. There are a number of allied healthcare services that often are not covered under Medicare or through the hospital system that people have to pay for out of pocket. Those are really the two areas. It is gap payments or co-payments and also the services that are not covered.

Senator SESELJA: When you talk about level of co-payments, though, are you talking about what is currently charged by, say, a GP. Obviously they do not have to charge a co-payment, but many do. Are you talking about those payments? Are you talking about specialty services? Where is the higher burden coming from? We know that many of those OECD nations would charge GP co-payments at the moment. I think New Zealand, for instance, at the moment charges more, but they presumably have less overall out-of-pocket. Where is the big disparity? Can you break it down a little more?

Prof. Jan : Yes, that is a good point. Something we did raise in the report is that around 80 per cent of GP services are bulk billed, so it is not really happening in the GP area. It is mainly specialist services. A very low percentage of specialist services are bulk billed, so there is a big gap in payments there.

Senator SESELJA: So in other developed nations—take New Zealand for example; I do not know if you looked at them in detail, but I know that is one of the ones that has a co-payment for GPs—do they have better subsidies or smaller co-payments for specialist services that would bring out-of-pocket costs down in a place like New Zealand?

Prof. Jan : Sure. I must admit I do not know the New Zealand system.

Senator SESELJA: Would that be a general picture?

Prof. Jan : That is a likely scenario, yes.

Senator SESELJA: Obviously, as you say, many Australians can get bulk billed and so are not paying for their GP services at the moment, but there is quite a high cost when it comes to specialty services.

Prof. Jan : That is correct, yes.

Senator SESELJA: When you looked at how we compare with other developed nations, did you break it down between those areas? Did you look at specialty services versus primary care and that sort of thing?

Prof. Jan : No, we have not broken it down, and the evidence from this is from the Australian Institute of Health and Welfare. It generally provides aggregate figures. My hunch is that a lot of the costs are incurred in specialist services.

Senator SESELJA: So, at the moment it is fair to say that taxpayers are probably subsidising specialty services less than some other countries are but perhaps subsidising primary care more than other countries are, as a general rule?

Prof. Jan : As a general rule most countries with universal health coverage—so I am not talking about the US—do not really impose significant copayments at the primary health care level either. They are either free or very low. I do not want to be endorsing the view that we are putting significant levels of subsidy into primary health care compared with other countries, because we are not, particularly compared with countries that have universal coverage like we do.

Senator SESELJA: So, we do not subsidise primary health care more than other developed nations?

Prof. Jan : No, I would not say so.

Senator SESELJA: Where would you rank us, then? Do you know the figures?

Prof. Jan : No, I am afraid not.

Senator SESELJA: So, you are not 100 per cent sure on that one; it is speculative?

Prof. Jan : Well, in terms of aggregate data, but in terms of the systems and in terms of what I know about what the patient experience is I know that most countries do not charge the level of copayment to get through the door of a general practice that we do.

Senator SESELJA: When you say 'we do', do you mean what many GPs charge at the moment?

Prof. Jan : Yes, the gap. But, as I said, we do have quite a high level of bulk-billing, but for those GP services where there is a gap payment it can be a significant cost.

Senator SESELJA: Do you know how our levels of bulk-billing compare with those of other OECD nations?

Prof. Jan : No.

Senator SESELJA: Okay, thank you.

Senator McLUCAS: I am interested in your views, if you have any, on the impact on the billing behaviour of general practitioners of the way the GP copayment will be applied. My understanding is that a patient will be required to pay $7 for a regular attendance, $5 of which will come off the cost to the MBS in the return that they get from Medicare; $2 is a handling fee. But the piece I am interested in is the impact of the changed way that the bulk-billing incentive will work. My understanding is that with the bulk-billing incentive that is currently paid to a doctor who bulk-bills a patient—therefore driving the bulk-billing rate up to around 80 per cent—it will almost work in reverse under the new model: if a person does bulk-bill, they lose the bulk-billing incentive. Therefore, not only do they lose the $5 out of the MBS item number but also they lose, if they are in the city, the $6 bulk-billing incentive or, if they are in a regional area, $10. I do not know whether you have a view about how that will affect the billing behaviour of our GPs.

Prof. Jan : No, I do not. I must admit that I do not quite follow the question. When you say 'billing behaviour', are you expecting lower rates of bulk-billing? Essentially, you would expect that, because they are going to bear a significantly greater proportion of the cost.

Senator McLUCAS: Yes, it is not $5 out-of-pocket for the doctor; if you are in the city, it is $11.

Prof. Jan : So it would virtually eliminate bulk-billing; that is the expectation.

Senator McLUCAS: That is right.

Prof. Jan : And I think, to be fair, that is the policy intention, I would have thought—to eliminate bulk-billing from the system.

Senator McLUCAS: That is right. But it is too early for you to make a comment on how we think it will work?

Prof. Jan : Right.

Senator McLUCAS: I do not think any of us know, but I just thought you might have put some time towards it.

Prof. Jan : No. I would think that the expectation would be a pretty fair expectation—that bulk-billing will pretty much end, because GP practice is being expected to bear a significantly higher cost if they were wanting to provide the service for free.

CHAIR: Thank you very much for your submission and your evidence today.