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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
11/06/2009
Private Health Insurance (National Joint Replacement Register Levy) Bill 2009

CHAIR —Our next witnesses are from the Medical Technology Association of Australia. Good afternoon, Ms Trimmer and Mr Ross. You have information on parliamentary privilege and the protection of witnesses. We have your submission. Thank you very much for it. I now invite either or both of you to make an opening statement and then we will go to questions.

Ms Trimmer —We thank the committee for making the time available for us to follow up on our submission. I think in the overall context of the budget this might seem quite insignificant but it has quite important implications for our industry.

First of all, we, as the Medical Technology Association, are the peak national body for the companies that manufacture, export, import and distribute a whole range of medical technologies, amongst which are the orthopaedic devices that we are looking at under the coverage of this bill. At the moment there are just under 9½ thousand products listed on the Prostheses List, which is the list that the government is using as the mechanism for the levy. MTAA represents about 87 per cent of the products that are listed. So we have a good coverage of the products. Approximately 30 per cent of that 9½ thousand are orthopaedic devices and about another 20 per cent are classified as orthopaedic related products. So it is quite a large segment of the Prostheses List.

Registries themselves deliver many benefits. Certainly, MTAA and our member companies support the benefits that are delivered by well-designed registries. In fact some of our member companies provided the seed funding for the original pilot project to be undertaken and registries are very familiar items for the way in which our particular part of the healthcare industry works. We use them for a range of reasons. In this case, though, with the National Joint Replacement Registry there are many beneficiaries of the data which is generated by the Joint Replacement Registry. In fact, that is echoed in many of the other submissions which you have received, including those of the department and the Australian Orthopaedic Association.

In summary, I think you could say that MTAA has two primary concerns. The first is issues of unintended consequence arising from this bill and the second is issues of equity. Turning to unintended consequences first, we believe that the application of the levy to a product simply because it is listed on the Prostheses List is not an equitable basis. That can be demonstrated when you look at the diversity of the products that are in fact listed. The most expensive item, which has already been referred to, is $67,000. It is in fact an implant that is used primarily for children with bone cancer. It might be used once or twice a year and—happily, I think—our supplier member would be very happy if it were never used. But, of course, it is on the list because it needs to be available for the occasion when it has to be used. The sponsor also points out in their submission, and you may have noticed this, that if that particular device were not available then the treatment options would be multiple layers of surgical procedures which could cost up to $250,000. And that is without taking into account the pain that would be suffered by the patient and, of course, the anxiety and rehabilitation costs that their family would carry.

What our sponsor member has indicated is that if a levy were to be imposed—and the government has indicated in its explanatory memorandum that because of the expense of the item it would be at the higher end of the levy range—then it would really have to weigh up whether or not it retained registration of that product on the off-chance that it might be used once or twice. Our analysis of the products that are used is that 99 per cent of the listed products have minimum benefits back to the sponsor of less than $8,000, with 47 per cent having benefits of less than $1,000. So we are talking about quite a large number of items with very small benefits returned to the sponsor.

This means to us either that the government is proposing to spread the imposition of the levy very widely across a very diverse range of value products, which could go right down to screws and items such as those which are used in the surgery, or that there is a possibility that a small number of the items will be unreasonably taxed at a much higher rate. If the levy is applied based on listing and not on utilisation, then sponsors will need to reassess the benefit of retaining a product which might be used rarely, as in the paediatric example I have given, or in those circumstances where earlier use of a product has to be revised. There are many products kept on the Prostheses List at the moment which are not routinely used. They are kept there in case their prior use has for some reason to be revised in the future.

A further flaw in basing the levy on products listed on the Prostheses List is that the Prostheses List only looks at products that are used in the private health system and of course the National Joint Replacement Registry data covers pretty well all orthopaedic procedures in both public and private hospitals. One of the unintended consequences we see is that underutilised products may then be withdrawn from the private health sector and only become available in the public health sector because there would be no impost.

There are also implications, we believe, in the extrapolation of this precedent to other registries which might evolve in the future. I must say as an aside that, for the reasons I mentioned before, we are not averse to the development of well-designed registries, but other registries are less likely to be class-specific, as the National Joint Replacement Registry is. One example that the Australian Health Insurance Association has included in its submission is the concept of a cardiac registry. A cardiac registry, in order to be really effective, has to look not only at the range of devices which might be used, such as drug eluting or bare metal stents, but also at pharmaceutical solutions, which are often used, and cardiac surgical procedures such as coronary artery bypass graft or CABG procedures.

In such a scenario, there is an even greater spread of parties who will benefit from the information available—in particular the funders, both public and private, who will make informed decisions about comparative treatments. We believe that capacity to make an informed decision is of benefit to the healthcare system but, as you can see, there is not just one beneficiary of that. In the UK—and our colleagues at AOA have referred to the UK system—the levy is based on the procedure rather than the individual item.

Another unintended consequence of levying an individual item, as is proposed in Australia, may be that sponsors will combine products into what is called a ‘system’, so that you have the various bits that Professor Graves was referring to being listed as a ‘system’. That of course has the benefit of reducing the amount of the levy applicable; it also has the big disadvantage that not only is the item going to be more expensive because it integrates several products but also that any revision is going to be a lot more expensive because it will be revising the lot rather than revising a component, right down to the screws that are needed.

If I could turn to the issues of equity, I have mentioned already that there are multiple users and beneficiaries of the National Joint Replacement Registry data, and that is as it should be. Clinicians, hospitals, funders and the TGA all make use of the data in different ways. The Department of Health and Ageing in its submission recognised that the data from the registry serves to inform the safety and quality of both surgery and devices for the benefit of patients, and ultimately it is the patients who are the beneficiaries of registries like this. The Australian Orthopaedic Association also states that the registry is used to monitor mortality rates and the incidence of surgical complication which, again, enhances patient safety.

A look at all of the applications of the data that comes out of the registry serves to demonstrate that the registry is used to improve clinical technique. The surgeons use it to identify where there is an underperforming surgical procedure and the mechanisms by which that might be improved, so it is used as part of clinical education. The data is also able to identify where there is hospital infection control in cases where the data indicates a higher than usual infection rate post-procedure. It assists suppliers to look at the design of their product and how they might be able to improve that and it assists the TGA in its regulatory role in identifying possible safety issues.

Unlike in the UK, which has been cited by the department as the model, there is no suggestion by government that industry have any say in determining the amount or the methodology for the levy. In the UK, if you look at how that levy operates, the minister for health sets the amount of the levy but this is supported by a memorandum of understanding between the Department of Health; the National Assembly for Wales, which also participates in that registry; the Independent Healthcare Forum; and the industry body, the Association of British Healthcare Industries.

Again unlike the UK, industry has no involvement with the administration of the Australian registry. In the UK there is provision for three industry representatives on the steering committee. When the NJRR was first established in Australia there were two seats on the management committee for industry, but that no longer prevails. Apart from the UK, MTAA has not been able to find any other orthopaedic registry that is not funded as a public health cost, although there are some registries where there will be a diversity of contributions to the cost, usually from multiple bodies including funders and clinical bodies.

As we have pointed out in our submission, there are limited opportunities for suppliers to recover the cost. This is an issue that was also identified in the department’s submission and it is in part because of the aggressive price setting which has been undertaken in the current negotiations for reimbursement through the PDC process. Senator Furner has already made mention of the negative increase with CPI adjustment over two years. Industry has effectively been at a standstill over that time, regardless of the increase in cost. Government has also stated its position to not allow any automatic indexation, so there is no mechanism by which industry is able to recover this additional burden. The fact that there was no consultation with industry has meant that there has been no opportunity for us to work with government to frame an equitable model for the ongoing sustainable funding of the NJRR.

If I could conclude, this is a not a significant amount of money but it raises important issues of concern for public health policy because of the unintended consequences and because of issues of equity. MTAA and its members are not averse to an equitable arrangement for ongoing funding, but suppliers should not be the one interested party in the scheme that carries the whole cost, particularly where suppliers have no say in the structure of the levy nor in the application of funds raised by the levy.

CHAIR —Thank you, Ms Trimmer. Mr Ross, would you like to make any comments at this stage?

Mr Ross —No, thank you, Chair.

Senator ADAMS —I am interested in the management board. You said that originally there were two seats for industry representatives. When were they removed?

Mr Ross —I believe it was around 2005-06.

Senator ADAMS —Do you have any idea what the reason for that was?

Mr Ross —You should probably direct that question towards the Australian Orthopaedic Association. We received no correspondence relating to the exact reason at that time.

Senator ADAMS —And you had a seat on the board at that time?

Mr Ross —We had two industry representatives who were on the National Joint Replacement Registry management committee. The government since that time has formed an NJRR advisory committee, which is an outrider, if you like, and it involves membership from the TGA, the Health Insurance Association, the MTAA and a consumer representative. They teleconference quarterly to the AOA in Adelaide, but it has a different role completely from the management committee, as you would understand.

CHAIR —You are the industry group involved in that?

Ms Trimmer —Yes, we are, through one of our member companies.

CHAIR —I sometimes get drowned in the acronyms. MTAA was used.

Mr Ross —Yes, that is us.

Senator ADAMS —I am just trying to get my head around how things could be organised in a better way so that you do have not just the one area paying for the levy.

Ms Trimmer —I think it would be through some kind of equitably shared arrangement. We would certainly be happy to participate as an industry on an equitable basis. I guess the concern for us in putting forward some kind of shared arrangement, without thinking through how it might be apportioned, is the reference I made to the development of other registries in the future which will have a much higher degree of complexity than this registry. If we use this as a model and get this right then it will be a lot easier to set up other registries in the future.

Senator ADAMS —You feel that this could create a precedent in an environment where it is likely that there will be further registries in the future and, therefore, they would follow this model?

Ms Trimmer —I think that would be the tendency. This would be one of the rare registries where it is very class specific. In this case, the class is simply orthopaedic joints. Most other registries would require some kind of comparative analysis. If they were well designed registries they would involve comparative analyses across in some cases pharmaceuticals, in some cases procedures and in some cases all three components.

CHAIR —You gave us the example of cardiac, which was across a whole range of treatments. But this particular one does not have the same supplementary issues. For a joint, you do not have to look at pharmaceuticals or other things.

Ms Trimmer —No. That is correct.

CHAIR —The only other thing I was thinking of was whether the physiotherapy aspect could be taken into account with orthopaedic stuff—but that is just off the planet.

Senator FURNER —On the subject of equity, you draw your examination of the explanatory memorandum and cite the paediatric surgery, the $67,000 product. Of the 30 per cent of the 9½ thousand products that are listed, are any in a similar cost range?

Mr Ross —There are other similarly priced items on the prothesis list but they are in other categories. Defibrillators and pacemakers would be up around that amount. I have not got those particular amounts today because our focus is on orthopaedics.

CHAIR —There is no registry for those things?

Mr Ross —No.

Ms Trimmer —Not at the moment. They would fall into that cardiac registry.

CHAIR —The justification for the registry in your submission is that it is looking at the future, efficacy and all those things, yet there is no other. It is a fascinating study in itself.

Ms Trimmer —There are individual registries that are often set up by companies. You will have the opportunity to speak with a couple of companies and perhaps explore that further. They are often done as part of the clinical testing of products to enable the close monitoring that is undertaken.

CHAIR —So it is in with the TGA

Ms Trimmer —Yes. But it is a slightly different context; we are talking about post-market surveillance. I guess the other reason in support of our concern about precedence with this registry is that, even in the regulatory environment, the TGA is moving away from pre-market surveillance and putting much more emphasis on post-market surveillance, which works for these sorts of products. These are not like drugs, where you need to do a vast amount of clinical research before you can release them onto the market. A lot of the benefits of medical technologies can really only be observed when they are used with patients. So registries perform a very important function, but it is partly to inform the whole benefit of the healthcare system rather than simply the suppliers.

Senator FURNER —Other than the UK model that you relied upon, are there any other countries that have the same types of matters that we are discussing here today?

Ms Trimmer —There are quite a few other countries that have registries. In fact, I think orthopaedic registries’ origins were in the Scandinavian countries. But there are no others that require supplier subsidy; they are generally seen as public health issues and generally supported by government. In Canada, for example, it is a shared cost of the federal and state health agencies. In some of the Scandinavian countries it is a shared cost between government—I think in some it might even be clinicians—and funders.

Senator FURNER —Are they more equitable in those countries in your experience?

Ms Trimmer —It is a bit hard for us to comment on that because industry does not pay at all in those countries. The UK is the only one where industry does pay and, as I said at the beginning, we are not averse to making a contribution and there may well be a model that could be designed that would enable a spread of contribution. It is just when it is sourced to the easiest collection point, I guess, that there is lack of equity.

Senator CAROL BROWN —How much expenditure is there on hip and knee prostheses in the total expenditure by health insurers?

Ms Trimmer —I think that figure is actually in the department’s submission. We might be able to turn it up quite quickly.

Senator CAROL BROWN —You don’t keep that sort of information yourself?

Ms Trimmer —No, we do not.

Senator ADAMS —There are currently about 70,000 hip and knee replacements undertaken each year in Australia.

Senator CAROL BROWN —I don’t think I have that data, Senator Adams.

Ms Trimmer —Some of that data is included in the Department of Health’s submission.

Senator CAROL BROWN —Do you have any information about amounts paid by insurers for prostheses in, say, 2007-08? I am trying to get an idea of how much is actually spent on benefits.

Mr Ross —I could give you figures that we have collected from the Private Health Insurance Administration Council. They are for the year up to March 2009, which is as recent as they have figures. The annual expenditure is approximately $1.155 billion.

Ms Trimmer —That, of course, covers all prostheses and not just orthopaedic—

Mr Ross —Cardiac, ophthalmic, and there are other significant categories of expenditure.

Senator CAROL BROWN —So that figure is from July 2008 to—

Mr Ross —No, it is from the year to the March 2009 quarter. So it is the 12 months up till March this year.

Ms Trimmer —If you took 30 per cent of that, based on that number that we heard earlier, that would give you the percentage.

Senator CAROL BROWN —Is there a maximum number of times under the proposal that the levy can actually be imposed?

Mr Ross —It is, as I read the proposal, up to a maximum of $5,000 a year, which can be apportioned several times across the year.

Senator CAROL BROWN —So it cannot be any more than $5,000 per year?

Mr Ross —As I understand it.

Ms Trimmer —That is per item, but of course in one procedure you might have numerous items being used ranging from a screw, which might be worth a few dollars, to a significant component part which could be worth several thousand dollars.

Mr Ross —And I think the point came up before that it is rare that only one orthopaedic device would be used in a particular procedure. There would normally be several.

Senator BOYCE —Ms Trimmer, could you give me some background information on the Medical Technology Association of Australia? How many members do you have and how many of those would be manufacturers or suppliers of prostheses?

Ms Trimmer —The most relevant figure is the one that I provided in my comments. Of the products listed on the Prostheses List, our members account for about 87 per cent. Our total membership, in numbers of companies, is around 130. They range from large, global companies to Australian manufacturers and across a whole range of technologies from devices, such as orthopaedic implants, to diagnostic, both equipment and in-vitro diagnostics. We have companies that supply cardiac devices, cochlear implants and lenses right through into hospital equipment. So it is a very diverse range. It is easier to think of it as everything that is used in the healthcare space that is not a pharmaceutical.

Senator BOYCE —I am sorry; I missed that. You are saying 80 per cent of those 130 are—

Ms Trimmer —I said that 87 per cent of the 9½ thousand products on the Prostheses List are listed by member companies.

Senator BOYCE —How many companies, then, would produce or distribute products in Australia that are used for prosthesis?

Ms Trimmer —Of our members?

Senator BOYCE —Yes, of your members.

Ms Trimmer —I would say that it would probably be a good—

Mr Ross —Probably about 50 or 60, I would think.

Ms Trimmer —Per cent.

Mr Ross —Whilst my figures might be a bit dated, I believe there are probably about 110 or so companies that actually have listings on the Prostheses List—perhaps a few more. So, from that, you can identify that there are many companies that have only a small number of listings, as well as a number of companies that have large listings.

Senator BOYCE —Could you characterise those companies? I think you have started to do so, Mr Ross. Do they range from quite tiny to multinational?

Mr Ross —Our members range across that. I notice that we have Johnson & Johnson speaking after us. They are one of our largest member companies, particularly in the orthopaedic space through DePuy. But you will have noticed, through some of the submissions that you have, that there are also some smaller companies that have written in and put in submissions. Global Orthopaedic Technology and Austofix are Australian manufacturers and they are relatively small.

This is a difficult area for the small manufacturers. When costs are increased—as they have recently—for application and listing fees, and if this is added to their burden as well, it is very difficult to pass on those costs at the moment, as Ms Trimmer mentioned before. In fact, the pricing mechanisms in the prosthesis committee, as I am well aware, are very tight. Over the last three years, it has gone backwards by eight per cent with regard to those benefits that have been on the list.

Senator BOYCE —I was reminded earlier, when you were talking about the possibility that people would choose not to list, of the situation that was brought to our attention by the palliative care association about drugs that have a very small potential market in Australia. Could you talk a little about what you mentioned as the unintended consequence of what you see happening there?

Ms Trimmer —I think it is likely to arise with those large, expensive items which might be rarely used, such as the paediatric device. It is also likely to arise where companies might keep on the list, for many years, products which are no longer the ones that are currently in the market but which would be used for revision surgery to replace an earlier device.

Senator BOYCE —Sort of like the spare parts bag, so to speak?

Ms Trimmer —Exactly.

Mr Ross —In fact, some of the costs of keeping those spare parts, if you like, available are rather more significant than would otherwise be the case. In fact, some companies actually have to manufacture obsolete items to meet potential needs.

On the unintended consequences, one of the advantages of the prosthesis listing process is its predictability. Where you have patients who need particular devices, if their surgeon identifies that they need a device, it can be readily provided and the benefits of private health insurance are realised. If an item is not listed and it has to be brought into Australia, then it would have to go through the Special Access Scheme. The supplier would also have to ensure that the purchaser—or the reimburser in this case, the private health insurance funds—would be prepared to meet the cost of that item. All this takes time and effort and would certainly detract from the benefit of private health insurance, particularly for a family who might be under stress in such circumstances, as was mentioned previously. It is not impossible to get the items, but it does make it more difficult.

Senator BOYCE —You partly answered what was to be my next question—whether there was a mechanism for prostheses to be used that were not on the list. That is called a special access—

Mr Ross —A special access scheme. If a supplier found it uneconomical or commercially not viable to list on the Prostheses List, potentially it may not be viable to bring the item into Australia. In that case, they would not be registered on the ARTG and they would need to apply to the TGA through the Special Access Scheme.

Ms Trimmer —The ARTG is the Australian Register of Therapeutic Goods. It is the place where all approved products are listed by the TGA for use in the Australian market.

Mr Ross —Once an item is listed on the ARTG, it can be used in the public sector but it has to go through the next step, the Prostheses and Devices Committee, to be reimbursed through the health fund process.

Senator BOYCE —Would I be right in assuming that the profession are less likely to be aware of items which are not on the list?

Mr Ross —I would not be sure on that. Perhaps the J&J people would be in a better position to answer that. Certainly the items on the Prostheses List achieve a higher visibility and are more readily identified for use because of that. It streamlines access for those who are privately insured.

CHAIR —Mr Ross, remind me why something would be considered to not be economically viable. I understand with drugs but I am trying to get my head around the prosthesis area.

Mr Ross —At the moment, the Prostheses and Devices Committee has a very strong process which conducts a clinical assessment and then a negotiation of benefits.

CHAIR —And the person putting it on the market has to pay to have that done. It is an exact mirror of the pharmaceutical process, is it not? You have to put a proposal up to see whether it will be approved by the TGA. If it is a device which may not be used very often, it may not be considered economically viable to do that.

Mr Ross —We might be a bit confused here. To get a drug through to the Pharmaceutical Benefits Scheme, it has to first be approved by the TGA.

CHAIR —That is right.

Mr Ross —We have to have our devices approved by the TGA before they can then go to the Prostheses and Devices Committee.

CHAIR —Yes—we are on the same wavelength.

Mr Ross —If the costs in getting that entry are significantly higher than the return available for the device, a sponsor might deem it commercially not viable. There are also other ways that it could become commercially unviable. Increasingly I am getting reports from some of our sponsors that the offered benefit is below their landed costs and is below the cost they are getting in the public sector. That is not directly related to this hearing, but it is certainly an issue which is of concern to us at the moment. It does reflect the difficult nature of getting your increased costs recognised through this process.

Senator BOYCE —The other increased cost might be holding stock, as you said, for some considerable time for people who have had operations in the past and need a replacement.

Mr Ross —That is right.

CHAIR —There are no further questions. Thank you very much for your submission and for your evidence.

[3.35 pm]