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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
14/07/2009
Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009; Fairer Private Health Insurance Incentives (Medicare Levy Surcharge—Fringe Benefits) Bill 2009; Fairer Private Health Insurance Incentives Bill 2009; Health Insurance Amendment (Extended Medicare Safety Net) Bill 2009

CHAIR —Good afternoon and welcome. We are pleased you could join us this afternoon. It has been a struggle to get you in, but we are able to do so. I want to assure you that the number of senators does not reflect the interest in the item. All your evidence will be in the Hansard so that the whole committee will have access to it. It was just a timing issue. Senator Furner will have to leave somewhere in the middle of your presentation to catch a plane, but Senator Boyce and I are struggling on.

Senator BOYCE —We will be here.

CHAIR —Before you start, I just want to acknowledge that we are all going to be involved with your evidence. Is there anything you would like to add about the capacity in which you appear today?

Dr Molloy —I am Vice-President of NASOG and Vice-Chair of the IVF Directors Group of Australia and New Zealand.

Dr Pesce —I am the immediate past president of the National Association of Specialist Obstetricians and Gynaecologists.

CHAIR —I am going to immediately forget all the acronyms for your organisations but I know you are here from the IVF Directors Group. You are all welcome to make an opening statement, but have you worked out the order in which you are going to do so?

Dr Molloy —Yes. Dr Joyce will kick off.

Dr Joyce —Thank you for providing our two groups with an opportunity to address you concerning the proposed changes to the Medicare safety net. The National Association of Specialist Obstetricians and Gynaecologists and the IVF Directors Group will deliver a joint presentation today which should make the best use of the available time and avoid duplication of information which would have occurred if our presentations had been delivered separately. As you listen, please keep in mind that I speak for our patients.

In 2003 the former government faced a crisis in affordability and access for patients to a range of medical services, including obstetric care and assisted reproductive technology services. Inadequate patient rebates did not enable patients to afford necessary out-of-hospital treatment and state governments were not providing adequate services to meet increasing patient needs. In the case of assisted reproductive technology services, state governments did not and still do not provide any treatments. Medical indemnity insurance had escalated to the extent that it threatened the viability of obstetric practice and an older medical workforce in obstetrics was not being renewed by new entrants because practice was both extremely demanding and financially marginal. It was this perfect storm which brought together the drivers of, firstly, an increased demand of services and, secondly, a reduced commitment to service provision by the state public sectors. Also, because of the declining obstetric medical workforce and an undermined viability of obstetric practice the then government introduced the Medicare safety net as part of a package of measures, including assistance with professional indemnity insurance and the Medicare reform initiatives.

These measures, as a whole, did much to address the issues of access of patients to services and helped encourage older obstetricians to extend their careers and others to enter the specialty as the financial viability of practice was restored.

While not a perfect instrument, the Medicare safety net has provided hundreds of thousands of Australians with the security of affordable service access when they need it, particularly those faced with high-cost services or recurrent medical expenses. The public clearly strongly supports the benefits it provides, and the Prime Minister, then the Leader of the Opposition, and the then shadow health minister acknowledged this during the 2007 election when they undertook to retain the Medicare safety net without change, because families had come to rely on the support it provided.

The introduction of the safety net did, however, present some difficulties for both the profession and the Department of Health and Ageing in the management of billing structures. Obstetricians and fertility specialists have led specialist medical practice in informing patients of the extent of their financial commitment when entering treatment. This has been achieved through structuring billing arrangements in practice that met patient needs. When the Medicare safety net was implemented, the less flexible rebate arrangements operating in Medicare and the lack of data in the Medicare records about the pre-existing structure of obstetric and ART treatment costs gave rise to difficulties for specialties seeking to simultaneously meet Medicare and patient expectations around billing.

Much of the data drawn from billing submitted under this new funding approach by the government provided interpretational challenges for the Department of Health and Ageing.

In obstetrics, the splitting of the all-inclusive obstetric fee into an in-hospital and an out-of-hospital component produced extended negotiations between my colleague Dr Pesce and the department before a solution was agreed, although then, regrettably, this was not implemented formally by the department. You may wish to seek a more detailed explanation on this item from Dr Pesce during questions.

In assisted reproductive technology treatments, before the implementation of the Medicare safety net practitioners had taken two quite different approaches to billing, based on their experiences of patient preferences, in establishing their fee structures to recover the costs of the provision of their services. Some offered a low upfront planning and management fee and a high per cycle fee, while others implemented a higher upfront planning and management fee with a lower cost per cycle. You may wish to seek clarification from Dr Molloy on this issue during questions.

When the safety net was introduced, practitioners sought direction from the department and from Medicare officers as to whether they would need to change their billing practices to suit the more rigid rebate structure of Medicare. There was no consistency in the advice that practitioners received from Medicare, probably because there was little or no policy guidance for the Medicare officers themselves on the matter.

The surviving diversity of billing practices creates difficulties when trying to draw out trends and interpretations from the data. This is evidenced by the department’s own use of the term ‘inferred safety net costs’ rather than actual costs, because Medicare’s systems simply do not store the data in a form that could provide absolute financial information on the splits. They were not designed to do so. The absence of pre-Medicare safety net billing data also means that comparisons drawn are often problematic in the analysis.

In March this year the AMA was invited to attend a meeting with representatives of the Centre for Health Economics Research and Evaluation, CHERE, who had been engaged by the department to undertake a review of the extended Medicare safety net. CHERE had previously published a working paper, in 2006, critical of the Medicare safety net, written substantially by the same authors, which attracted broad criticism for the subjective nature of its findings and some fundamental errors. During that meeting, the CHERE representatives sought input from specialty representatives and undertook to meet with them to review progress in the report prior to submission to the government of the final report.

CHERE also indicated that, because of the complexity of the data and analysis, the report could not be completed until some time in July 2009. In the days following the May budget, the minister, however, cited a finalised CHERE report as the authority for the decision to reduce rebates for obstetric and assisted reproductive treatments. The report was released some days later. In our view, the report is flawed, both in its assertions concerning fee inflation and the basic data upon which it has been drafted. The report has failed to separate the impact of the transfer of the non-Medicare booking fee in ART to MBS items and has used an errant base fee in its analysis of item 13209 in the Medicare schedule.

CHAIR —Which I take is the ART management fee?

Dr Joyce —I do not—

CHAIR —Sorry, Dr Joyce. I just wanted to get that clear.

Dr Joyce —The report also failed to analyse the changes in delivery costs of individual services as a fee driver and there is doubt about the reliability of the sensitivity analysis which underpins its conclusions. The report fails to identify the value of benefits derived through better access to both obstetric and ART services as an offset to the cost of the Medicare safety net. The CHERE report has been inferred as the authority to substantiate claims of fee rorting and excessive doctors’ incomes, which fuelled media reports, presumably initiated to tap into the politics of envy. We reject these claims. Dr Molloy and Dr Pesce will provide examples of how the Medicare claims processes focus the recovery of costs in a fully staffed clinic onto a single doctor’s provider number.

In Australia we enjoy the second highest standard of maternity services outcome through the established obstetrician-led model. In assisted reproductive technology, we enjoy the world’s best outcomes at about half the cost in the USA and less than two thirds of the cost in the UK. Far from our medical practitioners rorting the system they provide services at the top level of outcomes for costs below the OECD average. Australian patients enjoy a level of access to quality, safe and effective obstetric services and fertility treatments overall at a cost below the OECD average. In both obstetric and fertility services, we have seen significant growth in the number of services being delivered. The number of children born has increased from a low of around 240,000 in 2003 to around 280,000 in 2008. The increase of 10 years in the average age of women and men having their first child since the middle of the last century, driven mainly by social and economic factors, is a driver of increased utilisation of fertility treatments. One in 20 Australians is subfertile and one in every six Australian couples will suffer from infertility. One in every 25 children now born in Australia was born to parents who received fertility treatment. That refers to last year.

Better access to services and treatment has certainly driven growth in costs to the Medicare safety net, but it has seen a corresponding improvement in outcomes for those patients who have been unable to gain access to appropriate treatments before the implementation of the safety net. Both NASOG and the IVF Directors Group have done significant work on the impact upon patients of the proposed cuts to the Medicare safety net. There has been much speculation in the media about just what the impact of the proposed changes will be if implemented. In a nutshell, it would mean that all Australian families seeking access to private obstetric care and all Australians who seek access to fertility treatment will be substantially worse off in financial terms at a time when the financial burden on families is at its most demanding. It will mean that some costs will be shifted from the safety net to private insurers who will then pass the costs on to families through increased premiums.

I close my introduction by asking you to note that the enabling legislation currently before the Senate in my opinion extends beyond the current proposed changes to the Medicare safety net and would enable the minister and future ministers to change or add caps to the Medicare safety net payments without needing to refer to parliament. I thank you for your time and attention. I now pass on to my colleague Dr David Molloy to make some specific observations about the impact on patients seeking fertility treatments. Please remember this is all about our patients.

CHAIR —Dr Molloy, before you start I have to acknowledge that I have been told that Senator Xenophon is on the phone.

Dr Molloy —I thank the senator for his interest. Thank you very much for allowing us to appear. The Queensland Fertility Group in Brisbane is Queensland’s largest IVF unit. I have been practising in IVF for about 20 years and delivering babies that I made for about 18 years. We have a very long and honourable history in the provision of IVF services in Australia. Most of the international innovations that have occurred in IVF to make it safer and more successful for patients have actually come out of Australia and have been applied internationally. It has now got to the point, as Hilary said, where there is an IVF child basically in every classroom in this country. About one in 23 to 25 children born are from IVF treatment.

Since 1990, Medicare underpinned the cost of IVF services through the Medicare schedule, but over the past 19 years, as one of the senators has already pointed out, the indexation of Medicare has been about one to two per cent per year but the cost of providing a technology such as this has risen dramatically. So, with simple medical fee inflation or the medical inflation index, which is actually used for most medical services, usually running at around eight to 10 per cent per year in most cities, and the increased technology and increased compliance costs that we have, the cost of the services, particularly in the early or mid-2000s, had started to move a long way away from the actual Medicare rebate.

I would also point out that we have the most compliant IVF group and provision of services anywhere in the world through an organisation called RTAC, where we are formally accredited to practise in this field. No other country has such a compliant and audited group of clinics as the IVF units in Australia. You certainly will not find IVF units in Australia making eight babies at once, and this creates a very high level of both success and safety for patients. But with compliance comes cost. Certainly our compliance costs have significantly increased over the recent years. When the safety net was introduced in 2004, what was becoming quite a large gap suddenly was underpinned by the safety net as IVF was basically considered an outpatient service.

IVF item numbers are basically global item numbers: they cover 30 days provision of services for everything that the unit does—doctors’ fees, ultrasound, pathology, scientific fees and psychological counselling are all bundled into one fee. Then, because of the Medicare Australia Act, it is put against a doctor’s provider number. That is why, when the services increased due to increased access and affordability between 2004 and 2009, those top 10 doctors that the department presented to you had an increase against their names. It was basically the billing for a global item number, on behalf of their clinic, against their provider number. It has nothing to do with their personal incomes. It is like pathologists or radiologists billing on behalf of these quite large practices.

It is also important to reiterate Hilary’s point—and I know that the senators are aware of this—that pre-2004 with the introduction of the safety net the data on gaps was missing, both in obstetrics and in IVF. It was often billed separately on a separate invoice and it was not entered into the Medicare computer at all. It was a major failing of the CHERE report that they tried to back-model that on the flimsiest of data and then show an increase going forward. The data simply did not exist in the public domain.

However, the safety net has been successful. There is no doubt that in all of our clinics there is increased access and affordability and we have seen a new social stratum of Australian working families come and seek treatment for their infertility who could previously not afford the gaps for treatment. I think a wonderful thing that the safety net has done is that it has made a high-technology service quite affordable for people. The other really good thing that it has done is that IVF services are one of the few high-technology medical services that translate well into rural and provincial areas—it is actually transportable technology. Most major provincial cities in Australia do have an IVF service so patients do not have to travel for treatment. That is relatively rare in high-tech medicine. It is more expensive providing those services in country areas, which are often poorer areas and less able to afford medical gaps. The safety net definitely made transportability of and access to those services for rural and provincial patients much, much better than they would otherwise have been.

This is about Australian families. It is about mothers and fathers who would not otherwise be so. But, as representatives of the Australian people, you have to also realise that this extends beyond simple mothers and fathers; it is about people who may not become grandparents and about sisters and brothers who may not become aunts and uncles. These changes to the safety net actually have a really important social implication. We believe that 100 per cent of infertility patients who wish to access IVF services will be worse off as a result of these changes.

The department have actually published on their website the changes to the safety net. The changes that they are making and the tentative and predicted IVF changes have actually been posted on the Medicare website and are available in document form.

I refer to Hansard on Monday, 15 June, where the health minister, Ms Roxon, said:

The cost of IVF should not increase for most patients. On average, patients are charged around $6,000 per IVF cycle, yet there are some doctors charging in excess of $10,000 per cycle. Patients who see specialists who charge $6,000 or less for a typical IVF cycle will not be worse off under these changes.

This is a position that we could basically start to live with. In fact, the charging bands for IVF units—and we are doing our own study of this at the moment—are relatively narrow. It is a very competitive industry, if you like.

The second thing is that the data that we have and the data that we have been able to get suggest that the minister is not far off the mark. The average fee is probably somewhere between $5½ thousand and $6½ thousand—around the $6,000 mark. What the department have published is, between the Medicare rebate and the safety net cap, a total subsidy of $3,000. There is a $3,000 difference between what the department have published and what the minister has stated will happen, and that has been included in the budget savings. Somehow we have to reconcile those figures, because, at the moment, 100 per cent of the average fee being charged by all units is $6,000—as the minister states, I believe not incorrectly. The department has published $3,000. There is a $3,000 shortfall that patients will have to look at paying. That means 100 per cent of infertility and IVF patients in this country will be worse off because of these changes, and we believe, on behalf of our patients, that that is unacceptable.

We believe the safety net has been good for patients, whichever side of politics you sit on. If you are inclined more to the right of politics, it has encouraged patients to come into the private sector. Because it does not pay 100 per cent of costs, patients are taking care of their own health, contributing, in a cost-wise sense, to their own health and accessing a service that is completely unavailable in the public sector. There is no public hospital IVF to speak of in this country that the patients can otherwise access. They are accessing it at their own cost. If you come more from the left side of politics, the safety net has genuinely increased access and affordability for working families in this country to have children. Senators, thank you very much for your attention.

CHAIR —Thank you, Dr Molloy. Dr Henshaw, do you want to add anything at this stage?

Dr Henshaw —No. I am happy to answer any questions.

CHAIR —Dr Pesce, do you want to add anything at this stage?

Dr Pesce —Yes. Because I am here for the AMA submission as well, I would like to make an opening statement. Thank you very much for allowing us to combine. I think it is better that we are all here together, especially since I was NASOG president until recently and there might be a few questions that I might be needed to answer.

At the outset, I would like to declare that I am an obstetrician in public and private practice in Westmead in Sydney. My private patients will be affected by the measures in the bill and the accompanying ministerial determination. Having said that, I would like to focus on the overarching impact of the measures rather than the direct impact for the medical services specifically targeted in the government’s budget measures.

The purpose of the extended Medicare safety net was to protect individuals and families from high out-of-pocket expenses when their need for medical services outside the hospital setting was unusually high. The extended Medicare safety net has helped many people get timely access to medical care and it is quite likely to have prevented downstream costs. In introducing the bill, the government has introduced a framework under which it can systematically withdraw its financial assistance to individuals and families who experience high out-of-pocket costs for health services provided outside the hospital setting.

In deflecting criticism of this bill, the Minister for Health and Ageing has made much of doctors’ charges and will have you believe that the extended Medicare safety net benefits are a windfall for doctors. The minister has said very little about government support for people who need to access private medical care outside of hospital. The reality is that the Medicare rebates do not cover the costs of most doctors’ practices. Successive governments have failed to index the Medicare schedule fees in line with the other indices, such as CPI and average weekly earnings, let alone the increase in the cost of delivering medical care. With year upon year of indexation that has been well below par, today there is now quite a disconnect between the Medicare schedule fees and the realistic cost of providing the services.

For private in-hospital services the health insurers have, for the most part, picked up the difference on behalf of their members. In the out-of-hospital setting this responsibility must fall on the government. When this responsibility became obvious as out-of-pocket costs grew, the government had two options to respond: one, it could revise the Medicare schedule fee or, two, it could introduce a limited safety net that shared the additional costs of out-of-pocket costs between patients and government. They introduced the extended Medicare safety net as their response.

In its recent budget measure, the government has targeted very specific medical services for which it will now withdraw its support to patients. These services happen to be those that appear at the top of Medicare spreadsheets as attracting the highest amount of extended Medicare safety net benefits. There are also services for which much of the package of care is provided outside rather than inside hospital, which is just the nature of the care needed by patients undergoing these treatments. Once benefits for these services are capped, these medical services will slip lower down the government’s spreadsheets and will be replaced by a new suite of medical services that attract the highest amount of benefits. We can then expect that those services will be the subject of a new ministerial determination to put caps on benefits for those services.

The AMA has concerns about how the government has modelled the effect on patients. The minister has made assertions about patients in particular scenarios not being any worse off. I appreciate that the minister is convinced of this based on the modelling she has been shown. However, doctors know what their fee arrangements are and know that patients in the minister’s scenarios will be worse off. That is why the AMA is seeking to have a clause added to the bill that requires the minister to consult with the relevant medical groups about their fee structures before making any future decisions about the caps for particular services. In this way the minister and the community will be better informed about the impact on patient out-of-pocket expenses.

We are also concerned about the actual impact of these measures in the short term. We would like to see a requirement in the bill for an evaluation of the minister’s power to impose caps as well as the actual caps that will be introduced as a result of the 2009-10 budget announcement. Thank you.

CHAIR —Thank you, Dr Pesce. Senator Furner, as you have to go, do you have time to put your question?

Senator FURNER —I have just one question on notice. When we were in Perth last Friday we heard from Mr Peter Jennings, who I understand is from the AMA. Unfortunately we ran out of time due to his lengthy submission. We did not have an opportunity to pose as many questions to him as we would normally pose. He demonstrated a graph, which he used as an exhibit, which I personally had some problems with because some of the figures were, in his words, compounded figures, hence giving an inflationary figure at the end. What I was going to ask him, and hopefully you can answer this on notice, is: why does it appear to be necessary to use CPI figures as opposed to average weekly earnings? I put that on notice and will read your response. Thank you very much.

Dr Pesce —Thank you.

Senator XENOPHON —One of the concerns that has been expressed is that, if these changes go through, one of the consequences of the increase in gap charges will be that you will have more embryos being used each time and there is a risk of multiple births and more neonatal care. Do any of the witnesses have any comments in relation to that?

CHAIR —I saw Dr Henshaw lean forward. He will take that question.

Dr Henshaw —For the record, I am the medical director of the largest IVF clinic in South Australia. We do about 3,000 cycles of IVF a year. I started working in that clinic about 15 years ago and it was routine for us then to replace three embryos inside the patient’s womb and it was quite routine for women to have two or three babies. As a result of that, the costs of neonatal care were very significant. Twins and triplets have a higher incidence of preterm delivery and a much greater need for neonatal intensive care. In my clinic now, 94 per cent of women have one embryo replaced. We have virtually eliminated twin and triplet pregnancies and all the costs that go along with that. The flip side of the coin is that, if you put fewer embryos back inside the womb, the chance of a pregnancy is less and therefore patients have to undergo more cycles to achieve a pregnancy.

The fact that patients have been able to afford to undergo more cycles is one of the great things about the Medicare safety net. It has enabled us to practise a safer form of medicine. We can now persuade patients to have a single embryo put back. They will only have one baby, with reduced costs for neonatal intensive care, and they know that a significant part of that cost, 80 per cent of that cost, is going to be picked up by the Commonwealth. That has been a huge benefit.

You will be able to tell from my accent that I have also worked in the United Kingdom. Five years ago I was the medical director of the largest private UK clinic. The cost for patients was about $10,000 at current exchange rates. We could not persuade patients to have a single embryo put into their womb. They all wanted two or three embryos put back because they knew they could not afford to come back for repeat treatments. In the United States it is quite routine for women to have four to six embryos placed in the womb and then, if they do fall pregnant with multiple pregnancies, to undergo a procedure called ‘selective reduction’, which we, thankfully, do not have to practise in Australia. One of my great fears is that if the costs that are published on the Medicare website come into play then our patients will ask for two or three embryos to be put back and we will go back to where we were when I started in Adelaide in 1995, which would be a bad thing.

Senator XENOPHON —I have one more question, Dr Henshaw. You work in Adelaide. Is Adelaide impacted on differently as a result of these proposed changes because, as I understand it, at the moment there are not any public providers of IVF, which is different from other states?

Dr Henshaw —There is no public provision of IVF services in South Australia.

Senator XENOPHON —What does that mean if you live in South Australia, then?

Dr Henshaw —If you are a South Australian, at the moment if you come to my clinic and you have reached the Medicare safety net you pay about $1,000 out of your own pocket. If this fee schedule goes through, it will mean that you pay $3,000 out of your own pocket. That is the bottom line.

Senator XENOPHON —Will it necessarily be as high as that, though—from $1,000 to $3,000?

Dr Henshaw —I have done the sums myself. They are pretty easy to do. Our fees are on our website if anyone wants to have a look at them, and the proposed caps are on the Medicare website. Anyone can do the maths and see what the cost difference is.

Senator XENOPHON —Finally, Dr Henshaw, are you saying that because there is a lack of public IVF facilities here in South Australia that the impact will be greater on South Australians as a consequence of these proposed changes?

Dr Henshaw —I do not believe it will be greater in South Australia than anywhere else. There is no public provision of IVF services in Queensland.

Dr Molloy —No.

Dr Henshaw —I do not believe there is any significant provision in New South Wales or Victoria. We also provide services in the Northern Territory, and I do not believe there are any significant public services in Western Australia or Tasmania.

Senator XENOPHON —If these changes go through, do you think inevitably there will need to be public services because people will not be able to afford it?

Dr Molloy —We believe that the state governments are struggling to provide basic services in a whole range of areas for sick patients who need category 1 surgery. I just cannot see them being able to provide adequate IVF services to replace the losses and the decrease in access that will be caused by these safety net changes.

Dr Pesce —I am the clinical director of women’s health at Westmead Hospital, which is probably the only public hospital IVF unit in New South Wales. That unit can only exist because it charges Medicare the fees that the patients pay. Even though some of its infrastructure costs are met through the public hospital system—and because of that the fees are a little bit lower than the private IVF units—it is not that much cheaper. Because patients will lose public funding through the Medicare system with this, it will impact even on the only existing public service in New South Wales.

Senator BOYCE —Is it the only one in Australia?

Dr Pesce —I think there is one in Melbourne as well.

Dr Henshaw —It is very small and I think it is about to close.

Dr Pesce —Basically, if patients cannot afford private treatment they will not have access to IVF. That is the line that needs to be understood. Because of the lack of any meaningful investment in this in the public hospital system, if you cannot afford private treatment you will not get IVF.

Senator XENOPHON —Thank you.

Senator BOYCE —IVF Directors, could you explain who you are?

Dr Henshaw —Yes. The Fertility Society of Australia has a subcommittee called the IVF Directors. The Fertility Society of Australia also has another subcommittee called the Reproductive Technology Accreditation Committee. The Fertility Society is the overarching body that is recognised in current Commonwealth legislation, NHMRC documents et cetera, and we are a subcommittee of that group. The subcommittee is made up of every medical practitioner who runs an IVF clinic in Australia and New Zealand.

Senator BOYCE —Thank you. I want to get back to some of the comments that were made earlier around whether technology costs have gone up unusually in your profession compared to overall medical costs. Could anyone comment on that?

Dr Molloy —They have risen substantially. Part of what Richard said underpinned that, in terms of our drive down to single embryo transfers. In 2000-01 there was a major leap in IVF pregnancies in Australia. We had to completely retool our laboratories for a completely different way of growing embryos. That drove pregnancy rates up for a patient under the age of 35 from around 17 per cent per cycle to between 40 and 50 per cent per cycle. It was a megaleap forward. The retooling of the laboratories, which has actually continued over the last eight years, has been extremely expensive. We have also seen an expansion of services called ICSI, where we inject sperm into eggs, which has become the gold standard treatment. This ties up a scientist for most of an afternoon with a quarter-of-a-million-dollar microscope. Also, we have had to purchase more freezers and better storage facilities because we are freezing more embryos, as we have dropped down to only putting one embryo back under optimal circumstances. There has been a large flow-on of costs for that as well. The other point I would make is that our compliance costs with our auditing programs and quality assurance programs have dramatically increased. Units like Dr Henshaw’s and mine now have a full-time quality assurance officer, and most of us have employed such a person in perhaps the last three years. That is a high-level position to oversee quality management in each unit.

Dr Henshaw —I support Dr Molloy—there have been significant increases in technology costs.

Senator BOYCE —But you would see these as unusual within the overall outpatient medical procedures area.

Dr Henshaw —It is fantastically different to the standard outpatient provision of services. Do not forget that the most complex medical procedures are performed in hospital and are subsidised by private health insurance and so on and so forth. IVF is essentially an outpatient procedure and the technology costs are significantly higher.

Senator BOYCE —We need to get to some sort of explanation as to why the department of health on the one hand is saying their technology costs are not any different to anybody’s and what you are telling us, which is that they are very different and very much higher.

Dr Henshaw —I will take that question on notice and will provide a written answer.

CHAIR —That would be really useful.

Senator BOYCE —That would be good. Dr Joyce, you mentioned that there had been some reference by the minister in relation to the budget, but when did you actually see the CHERE report?

Dr Joyce —It would have been after the minister’s presentation of the budget. We have done an analysis and there is a critique that we will be contributing in our written submission.

Dr Pesce —The report was released about a week after the budget announcement.

Senator BOYCE —That is when you first saw it?

Dr Pesce —Yes.

Senator BOYCE —In some cases you were basically flying blind in terms of trying to respond to the comments in the budget. Were these measures a surprise to you?

Dr Pesce —It was a surprise in that for a number of years I have been talking to the department and they have been discussing concerns about how the safety net arrangements were delivering a disproportionate amount of total safety net expenditure to certain groups. They indicated this was a potential problem. NASOG certainly have always said that we were willing to talk to them about their specific concerns and suggest ways that they could be addressed. We offered them several solutions. At the time they said, ‘No, we’re just going to keep gathering the data and we’ll see.’ At the end of the day we got to a situation where it was flagged that there were going to be changes. As NASOG president, I was concerned to make sure that, if there were going to be changes, they should improve things rather than make things worse. I asked for consultation with the department and the minister’s office, and that may have been referred to in previous submissions. There were only one or two meetings.

Basically we indicated that we recognise that, if they had a problem, we could work with the government and the department to address those concerns. We basically flagged changes to the way the safety net operated and recognised that, on the basis of what you have heard today, if the underlying funding through the medical benefits schedule were changed to reflect the true cost of providing the services, it might be reasonable to say, ‘That means we don’t need the safety net, to the extent that it’s currently underpinning those expensive outpatient services, to be in place.’ We offered to work with the department and the government to identify and talk about what might be an appropriate adjustment of the MBS schedule if there were going to be changes made to the safety net. That was the consultation, and it seems that half our suggestion was taken up and the other half was not, and there was no consultation about what the real fee schedules were to enable a commensurate adjustment to be made for the decreasing reliance on safety net funding. I would still like to think that that discussion could take place one day, but at this stage there is no indication.

It is quite salient to point out that a lot is made of the top 10 charging obstetricians or the top 10 per cent of charging obstetricians, but if you actually look at the bottom quartile, the bottom 25 per cent, of charging obstetricians, Access Economics modelling has shown that those patients will be at least $400 worse off. That is the bottom 25 per cent.

Senator BOYCE —Worse off than the patient—

Dr Pesce —Than they would have been if the previous safety net arrangements had been left in place.

Senator BOYCE —You are suggesting that a way the legislation could be improved is to put in something requiring the minister to consult about fee structure with the relevant medical groups. Could you tell me how you think that would work. What would happen?

Dr Pesce —I would expect that, if the government had an issue about the way its money was being spent and was worried that it may not be equitably distributed and that some patients were getting more benefit than others, we could talk about whether there needed to be some redistributive process—how that could be put in place. But at the end of the day we work from the disadvantage of not knowing what the charges are. We do not have that data. That data is not shared with us. The only reason I can give you the figures that I have given is that the CHERE report put on the record what the charges were for the various quartiles. We did not know that. We need to have data so that we can give back information to the department to make sure that they understand what the impact of their proposed changes is going to be.

We would like to see, when there is a perceived problem, that that problem is articulated to us and that we are provided with data to enable us to have a look at the problem, and then we can have a two-way conversation as to what the best solution to that problem is. We recognise that the government has the right to make policy and that the department implements that policy, but we are left out of the loop and then we are in the position of having to criticise government policy when we are actually quite willing to work with them to address the concerns they have.

Dr Molloy —We have a long and honourable history of working with the department through the MBCC process, where we present this sort of problem to the department. With a combination of our specialist medical knowledge on behalf of the patients and an understanding of the procedures that we do, we help the department interpret their data. Medicare data is very blunt data. It is basically data designed to rebate a fee. It has no other real purpose, and its use in statistical analysis to try and understand the provision of medical services is very blunt and very crude. When the department tries to use it for that purpose, sometimes they do not understand all the nuances and the effects that it can have.

Senator BOYCE —Because there is no context, you are suggesting?

Dr Molloy —Exactly correct. And when we talk together, particularly through the MBCC process, we actually do solve these problems in a very consultative way. I have been involved in MBCCs now for 15 or 16 years, and it is a good process. It is just that when things like this happen, such as with these published fees, when there has been no consultation you get a $3,000 difference, which could be a $3,000 per cycle hole in the government’s budget calculations—and that could have been saved and the difficulty that we are facing on behalf of our patients could have been very simply solved by an episode of consultation. We understand the budget process has an element of secrecy about it, but a problem like this can be solved by consulting with the medical profession, because we have a good history of working with the department on these problems.

Senator BOYCE —There was a comment earlier about the effects that this bill would have on IVF procedures if it were passed in its current form. In your view, would there be any effect on other obstetrics areas?

Dr Joyce —Yes, there would be. Thirty per cent of women have their children under the care of private obstetricians, and if there is less choice to do so because of reduced affordability then there will also be an impact on the public system, which is already overloaded, if those women turn to the public system to help them out of their predicament. Certainly for the future mothers we do see reduced choice, reduced access, and reduced affordability.

Dr Pesce —Apart from that, unlike IVF, there is a public system that women can go to. But I just wonder whether a saving of $500 to $1,000 in the private sector from MBS expenditure—

Senator BOYCE —Do you think it is going to come at a cost?

Dr Pesce —When a mother goes into the public system I think it is going to cost a lot more. In a sense, it is cost shifting to a different purse, but I do not think it is going to generate as many savings.

One of the other things that I really need to emphasise is the statement that we hear lots and lots of times that obstetricians’ fees have gone up by 267 per cent. That is just wrong. I was doing obstetrics before the safety net, and we just asked them to pay a booking fee. What that did was allow us to get our gap fee upfront, and we did not have to chase the patient later. It gave us the ability to give them fully informed financial consent.

Senator BOYCE —Was it a deposit?

Dr Pesce —It was a payment to say, ‘I am retaining a private obstetrician.’ The gap in my case was $1,500, and once the patient paid that I would bulk-bill her for the rest of the services. It enabled fully informed financial consent. The patient paid a single expense that allowed them to cover the gap, and I knew that I had no bad debts at the end of it. So it was—

Senator BOYCE —Win, win.

Dr Pesce —Win, win for everyone. When the safety net came in, I had the opportunity to raise my antenatal visit charges to take advantage of that underpinning by the government. The patients knew that they were committed to this expense; the government had said that out-of-hospital services would be underpinned by a safety net. When I heard the announcement of the safety net, I rang the department to say, ‘I’ve heard this announcement and it’s made in the context of a lot of GP enhancements—to enhance general practice,’ and I waited for the qualification to say, ‘This is to underpin general practice treatment of chronic disease,’ and that qualification never came.

After a few days I rang the department and said, ‘Can you please confirm that the safety net is meant to apply to private obstetrics as well? My impression was this was an enhancement measure, but I can tell you that, because of the way that it’s structured, obstetric patients will be able to qualify for safety net support. You’re exposing yourself to big charges that you don’t even know about, because it’s not going on the books. Please tell me whether or not you intend this to be the case—that you want the safety net to underpin private obstetric practice.’ About a week later I got a phone call from parliament saying, ‘Yes, we’ve checked and, yes, we’re happy for the antenatal component of private obstetrics to be paid for through the safety net.’ I remember saying to the guy quite clearly, ‘That’s fine, but if you see that there’s going to be a problem let me know and we can talk about it.’ I offered a number of pre-emptive solutions to avoid it, but they said, ‘No, we’re just going to see what happens.’ I said, ‘I don’t want to read that greedy obstetricians are ripping off the safety net. I’ve told you that you will now be exposed.’

In 12 months, all of a sudden Medicare expenditure on private obstetrics doubled because the previous amount, which had not been booked to Medicare, was now being booked to Medicare. To put it in perspective, more Medicare funding went to obstetric ultrasound than obstetric services in the pre safety net days. All of a sudden this unbooked amount was put on Medicare’s book and, surprise, surprise, there was twice as much Medicare expenditure on obstetrics. It was not because doctors put up their fees; it was because they transferred an out-of-pocket expense of the patient to something that the government had said, ‘Yes, it’s available.’ That has not been adequately explained or understood and, unfortunately, the statement that obstetricians’ incomes have gone up by 267 per cent is just plain wrong. I wish people would stop saying that.

Senator BOYCE —I think the point was made earlier by Dr Molloy that fees do not actually represent what goes into the practitioner’s pocket, for a start, but what you are saying is that it is not even the fee, the overall cost, that has gone up 267 per cent?

Dr Pesce —Correct. The exposure to the Medicare system has gone up because that is what the safety net did. It was not because the fees moved and changed the goalposts.

Senator BOYCE —Nevertheless, I think you have something of an image issue. I appreciate the work that the witnesses in this area have done to try and help people to understand it. There is certainly quite a lot more work to be done.

Dr Pesce —One of the problems is that you use the top-earning specialists, who have been in practice for a long time and have large-volume practices and charge the same per delivery as an obstetrician working in a rural area, who may only do 40 or 50 deliveries a year. Unfortunately the system is like that. The higher volume practice will generate the high income. You could use the top-billing obstetrician to determine the structure of fee support, and that affects the bottom 10 per cent of charging obstetricians who have been working really hard and have been underpaid for a long time. Interestingly, in my consultations with the department, they said that the inflation in safety net expenditure over the years since its introduction was not a result of the top doctors increasing their fees; it was as a result of the bottom doctors increasing their fees, because they obviously saw that for once they had a chance to actually charge a realistic amount. The highest charging doctors have not put up their fees; the lower charging doctors have been changing their fee structure.

Senator BOYCE —Where was this information?

Dr Pesce —That was just informally given to us at a consultation meeting about 18 months ago.

Senator BOYCE —By the department?

Dr Pesce —By the department, yes.

Dr Molloy —The department did allude to the fact that we had had these consultation meetings with them, which is quite true. Dr Pesce, Dr Joyce and I attended them frequently with David Learmonth and other senior members of the department, where there was a particular review, mostly of obstetric expenditure. In fact, my understanding of the data over the last two years is that the average safety net exposure, around Australia, as a fee for the management of a pregnancy for nine months is actually only $1,700. Whilst these very high fees are being quoted, the average for the country is about $1,700. That fee had only risen by—correct me if I am wrong, Andrew—about $100 a year over the time of the safety net. Basically you have your pregnancy and your precious child looked after for less than the cost of a TV screen. We could understand how the top 10 centile might have been politically unpalatable to either the department or the government, but in fact the average working obstetrician looking after the average patient out there was only charging about $1,600 or $1,700. Now 100 per cent of these women are going to be worse off because the caps have been set so low in the obstetrics section of this document that most of them will not even get to the threshold to access the safety net. So patients are going to be enormously disadvantaged, even if they are going to the 25 per cent cheapest obstetricians in this country.

CHAIR —In the discussion we had with the witness on Thursday, I actually asked if there was opposition in principle to a cap or whether it was to the size of the cap. The whole cap arrangement is being introduced in this legislation, in terms of looking at a cap for certain processes. From your perspective, is it the cap itself or the amount that is in the cap to which you object?

Dr Molloy —We can understand that, with the rebate system, the government is looking to something like a cap to limit its risk. We can actually understand the economics and the mathematics of that, and indeed that may even be sensible. We think what has happened here is that an unconscionable level of cap has been set, in that there is now four or five years of the market data showing what the costs of the services are to patients, providing a lot of good data showing access and affordability for patients across a broad social spectrum. We believe, as a first step, that these caps have been set at unconscionably low levels, to the point that all 100 per cent of patients are going to be affected in a very negative sense by that. We accept that the government may make a policy decision to limit cost exposure. That indeed might be a sensible thing for government to do. The limits that are being placed here are unfair and unreasonable to the women in this country.

Dr Pesce —One of the other things which are very difficult—and I am not confident that the modelling the department has done has taken this into account—is that the caps are set at a level which makes me feel that no single pregnancy is going to trigger the safety net threshold. You have to remember that the patients have to meet the first $1,100 per calendar year in out-of-pocket expenses before the safety net is triggered. Because the caps have been set at a fairly low level, I find it hard to see that a pregnancy in itself is going to trigger any safety net support. It is not just a question of capping; it is a question of capping in combination with a trigger threshold level for safety net support. If you are going to be, for all intents and purposes, removing safety net support, then you need to recognise either the patient is going to be a lot worse off or you have to make up for it in some other way.

The other thing which is really puzzling to me is that, if you look at the schedule of fees in obstetrics and the safety net caps which have been published by the department, there are a whole lot of services which can only be provided in hospital which have a theoretical safety net cap. I am talking about caesarean section, which cannot be done anywhere but in a hospital, so it could never attract any safety net support—and yet the new fee structure suggests that there is a safety net cap of a certain dollar amount. I am really worried that this is being used in the modelling to say, ‘This is what we’re going to be spending money on,’ when they are not. Unfortunately this is the problem with the lack of consultation with the profession. There is a blatant error there, as far as I can see. It is there on the public record and no-one is doing anything to correct it. I have pointed it out to the department on a number of occasions. They have not given me any satisfactory explanation as to why it is there. That is the price you pay for lack of consultation. I suspect they are going to find that they have made an embarrassing mistake.

Dr Joyce —You may not be aware, Senators, that the first women who are going to be affected by this proposed change, if it takes place, are not yet pregnant. They are probably going to become pregnant over the next month or so, to be 20 weeks on 1 January. Someone may have the exact date of conception worked out. The public, the women of Australia—our patients—are really not yet aware of what is in store for them and they will not be happy when they contact their obstetrician’s office or attend for their first visit and find out what the financial outcome is going to be for them.

Senator BOYCE —It could give a whole new meaning to the Christmas break!

CHAIR —When you gave your original evidence you talked about the fact that you had met with the CHERE people and that there had been a previous report written by the same organisation that seemed to have some negativity about the industry. I hope I am not verballing you, but you said words to that effect. The way it has been presented is that the CHERE report had a significant impact on the decision about which parts of the professions were going to be looked at and which areas were going to have the focus placed on them. I do not know about the size of the cap, but that is from the department’s evidence, and we have not seen their submission yet. Have you had any subsequent feedback or discussion with those people? I think in your evidence you said you had one meeting and expected that there would be others before it became public. However, the budget happened and the report became public. I know Dr Molloy and Dr Pesce also met with them, but I am just quoting from your original evidence. Has there been any further discussion with the organisation that did the original report and the modelling?

Dr Joyce —Your assessment is very accurate.

Dr Pesce —I was at the meeting, David was at the meeting and Hilary was not yet present, so she was not. We went to the meeting. It seemed to go quite well. We had the opportunity to say all the things that we have said to you.

CHAIR —The same kinds of things you have said to us?

Dr Pesce —They said to us: ‘This is going to take a long time. It’s very complex. We don’t anticipate we’re going to publish the report before July.’ We asked: ‘When is this going to be ready? Is it going to be used in the budget process?’ We were trying to read the tea leaves. They said, ‘There is no way this will be done before July.’ We said: ‘To avoid us having to go out and potentially criticise anything that we see has been done incorrectly, would you give us the opportunity to have a look at your draft report? We can’t tell you what to write, but at least give us a chance to have input into what we see you’re doing and give you some feedback.’ They said, ‘Yes, we’ll be able to do that.’ Then all of a sudden we were overtaken by events, the report was published in time for the budget and we had not been consulted.

CHAIR —Your meeting was in February, I believe.

Dr Pesce —Correct.

CHAIR —There may well be more questions that come to mind when we have a chance to see the department’s submission, which, as you heard, will now take up some of the questions we asked. We tried to get some of the AMA issues into the questions so that they are on record. Are we getting something in writing from your group?

Dr Molloy —That is correct.

CHAIR —We would like to put those two together and go through them. We will definitely continue this discussion. Thank you for your time.

Committee adjourned at 6.04 pm