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Senate Select Committee on Health

DUCKETT, Dr Stephen, Director, Health Program, Grattan Institute

CHAIR: Welcome. Dr Duckett, do you have an opening statement for us today?

Dr Duckett : Yes. I would just like to make two points. The first is about sustainability. Healthcare expenditure is going up faster than gross domestic product, but only marginally so. If we think about it, we are not about to be overwhelmed by a silver tsunami; it is more like a grey glacier—slow change is what is happening. Sure, we have to do something about adjusting the health system to meet these changed demands, but the required changes are much more sophisticated than simply a cost-shift onto consumers. We need to be stepping back to look at what really needs to be done, planning for it and introducing it carefully.

The second point I want to make is about the freezes—the rebate reductions. There are two rebate reductions taking place. The first is a $5 reduction in the rebate, which applies to the patients of general practitioners and, in particular, those who are not under 15 or who do not hold a concession card. The second and more significant rebate reduction is the real reduction resulting from the freeze in rebates that apply for all medical practitioners. The cumulative effect of those two freezes is quite significant. Although people talk about a $5 increase in the co-payment, in my view the increase in the co-payment that the ordinary person is going to have to pay is more likely to be between $30 and $40 than $5.

CHAIR: Can I ask you to respond to comments that we heard earlier today, which are along the same lines as what you have just been putting before us, and that is that the Medicare rebate could cost patients between $30 and $40. We heard evidence this morning from GPs practising in the New England area that within the next 12 months the cost for concessional patients could go as high as $60 and for non-concessional patients up to $100 per consultation. This clearly is of great concern to the doctors who are at the patient impact point in the patient consultation. What are your views about the likely impact of the government continuing on its path with this price signal?

Dr Duckett : The government's objective is actually to reduce bulk-billing, so we should not be surprised if bulk-billing reduces. That is what the policy is trying to do and, in my view, it will achieve that: it will reduce bulk-billing. How each individual practice responds is going to be a matter of the exact economics of that practice. Think about it this way. Our analysis, as we have talked about in the submission, says the cumulative impact of the freeze between now and 2018, and the $5 rebate, is going to be about 10 per cent on general practice. You cannot expect a general practice to absorb a 10 per cent reduction without doing something. And our estimates are conservative—that is, we have assumed inflation will be running at about two per cent. The most recent figures are a bit less than that, but over the last four or five years inflation has been running closer to 2½ per cent or a bit higher. So there is going to be a significant impact on general practice revenues.

Once they decide to move away from bulk-billing, they lose the bulk-billing incentive, which is between $6 and $9. They have to increase their staffing. I think the Australian Medical Association referred to the $7 dollar co-payment as a red-tape nightmare. Well, the same description can probably apply to this change. They have to increase staffing to process the red tape—to process the credit cards. They have to pay the credit card transaction fees or they have to introduce cash handling. So the costs of actually implementing this are quite substantial.

That is why I think there will be a significant shift away from bulk-billing and a significant increase in the out-of-pocket costs that patients face. If you think about the $100 figure, the current rebate for a level B is around $35 to $37 and the typical out-of-pocket cost is about $31, so already we have a base of about $68 or $70 that people are paying if they are paying an out-of-pocket cost. I think $100 is a bit rich, I have to say. I think that would be hard to justify, especially if they are not going to bulk-bill any of their patients. But I can understand why there will be a significant increase in out-of-pocket costs.

Senator CAMERON: Just on that, doctors at a surgery in Tamworth where they have 15 GPs were arguing that they will still need to exercise some bulk-billing; and, if they are going to do that for the most needy, then others will have to pick up the slack. They have said they have worked it through, and within 12 months $100 is the figure. They have had their accountants working on it.

Dr Duckett : Yes. In The Conversation piece, which I think has been distributed, and in my submission, we said that they have a number of options—either making everybody else pay more and keeping bulk-billing, or increasing it. If you think about it, this is so unfair. Why is it that the patients of a particular practice in Tamworth are the ones that have to cross-subsidise within the practice? The whole point of Medicare is that it is a universal system where the cross-subsidy occurs across the whole country, not within a small practice in Tamworth.

CHAIR: That was an important point to clarify. That is, indeed, the question. Could you give us an indication, Dr Duckett, of what the current national rate of bulk-billing is?

Dr Duckett : The national rate is around 84 per cent for general practice items.

CHAIR: Has it fluctuated over some period of time?

Dr Duckett : Yes, it has gone up and down. It went down, I think, certainly to below 80 and into the mid-70s when Minister Abbott, the Prime Minister, was actually the health minister. His job as health minister was to restore the rates of bulk-billing and he did that quite successfully. So there was a dip in the rate of bulk-billing just before he became health minister and he introduced changes which increased the rate of bulk-billing.

CHAIR: And in the period of the last government, of the Labor government, there was a steady increase?

Dr Duckett : Yes. It continued a steady increase.

CHAIR: What is the highest point that we have been at?

Dr Duckett : I am not sure, but I think it is around now. Bulk billing started off very low when Medicare was reintroduced and has steadily increased, except for that dip in the nineties.

CHAIR: Are there studies that show the correlation between improved health outcomes and higher levels of bulk billing—nationally and internationally?

Dr Duckett : Certainly we know that, if you have out-of-pocket costs, people defer visits to doctors. We also know that, if you have out-of-pocket costs and people defer a visit to a doctor, the patient cannot make a judgement about what is necessary care and what is unnecessary care; so they end up missing out on necessary care as well. And there have. been a number of overseas studies which have shown that. There has been a major study which has assessed the impact of co-payments; we cited that in a submission we made to another committee—the Senate Standing Committee on Community Affairs inquiry into out-of-pocket costs. Generally, the overseas policy direction is not to have financial barriers in general practice. The whole international direction of health policy is to try to strengthen general practice, to try to strengthen primary care because this is the most efficient level of the health system. I am not saying that general practice or primary care is perfectly organised in Australia at the moment and, indeed, I do not believe it is. I think there need to be changes, but the changes you need to make are not forcing the consumer to drive all the change in primary care when they are people who just do not know what is necessary care and what is not necessary care.

CHAIR: Senator McLucas had some questions this morning with regard to claims about out-of-pocket and responses from the health department around the figures that were cited. I wondered if you wanted to go—

Senator McLUCAS: We canvassed this last year, Chair. The college referenced your graph, Dr Duckett, that looked at out-of-pocket costs and we had a conversation with them. The department has said that that data, and it is OECD data—no, I am not sure where the data originates from. The department has said in the past that it is not apples and apples, and secondly, because Australians use complementary medicines at a higher rate than other consumers internationally, it is hard to extrapolate from that data that Australia is paying such a high level of out-of-pocket costs at the moment. I think we have had this conversation in the committee previously.

Dr Duckett : I have heard that. I contacted the OECD in response to that to get their response and I think I provided a commentary on that in a supplementary submission to one of the previous inquiries. Certainly, it may be the case, but the reality is that on the best available evidence we have, Australians are spending more out-of-pocket than most other countries.

CHAIR: Could I just ask you if the institute or if you has a view about the potential for bulk billing to be means tested?

Dr Duckett : Of course, Medicare was introduced to replace means tested arrangements. I am old enough to remember what life was like before Medibank was introduced. Before Medibank was introduced a number of programs were introduced to try to target and introduce special programs for poor people. The reality was, even with special programs for poor people, there were other people who could not afford health care because they fell outside the restricted definitions and restricted mean tests. So the debate about Medibank and Medicare was: is it more efficient and more equitable to introduce a universal scheme so no-one falls through the cracks or should we have schemes were it is possible for people to fall through the cracks? The Australian people have made the decision time and time again that the right way to do it, and in my view demonstrably the efficient way to do it, is a universal scheme.

CHAIR: Can I ask of the degree of consultation the institute has had with the previous minister or with the new minster.

Dr Duckett : The Grattan Institute?


Dr Duckett : I have met with the previous minister a couple of times when he was minister and also when he was shadow minister.

CHAIR: Do you believe the information you provided fed in in a consultative way to the decision making we have seen?

Dr Duckett : We were not consulted on the issue of a co-payment.

Senator CAMERON: I wonder why.

CHAIR: Can I take you to the current 'consultation' and I use the term loosely. We have heard from the Royal Australian College of GPs this morning the suggestion that this consultation phase may conclude in two weeks. They are calling for a six-month moratorium before any more botched health policy is announced. How would you characterise the current engagement of the new minister with the sector, particularly in terms of your experience?

Dr Duckett : We had the unusual situation which I do not think I have seen in health policy in this country of three health policies in less than a month, which suggests that policy is being made on the run. As I said earlier, we do need to look at primary care in general practice and we do need to think about whether the current arrangements are right for the future. That is not something that can be done in a two-week period.

CHAIR: Do you have any dates in your diary in the next two weeks to engage in conversations with the minister?

Dr Duckett : I would love to have a conversation with the minister on this topic.

CHAIR: Thank you very much.

Senator McLUCAS: Thank you again, Dr Duckett, for your contribution to this committee's work. I am going to ask you to comment on a point you made just a moment ago that, when the current Prime Minister was the health minister, the task he was given was to increase the bulk-billing rates. That was in mid-2000s. Then in your paper in The conversation today you say:

The result is likely to be a move away from bulk billing. This is indeed the objective of the government’s policy.

It seems to be a huge shift. Eight or 10 years ago we thought it was a really good thing to lift bulk-billing rates and in fact then Minister Abbott did increase bulk-billing rates using a number of methods. Why do you say that the government's intended policy is now to reduce bulk-billing rates?

Dr Duckett : I cannot speculate on the reasons. The minister and the Prime Minister have both said this is what they are trying to do. The current minister, the previous minister and the Prime Minister have all said that this is what the object of policy is. I can only speculate on why they might want to go down that path. The evidence is overwhelming that, if you do increase co-payments, utilisation will go down, particularly among poor people, and if you do increase introduced co-payments, people will not make judgements about whether it is necessary care or unnecessary care. The government may only be focusing on the first of those effects—that is, utilisation will go down there will be short-run savings to the budget bottom line. Whether there are long-run savings to capital health expenditure is, in my view, a very moot point because I suspect there will not be.

Senator McLUCAS: You suspect there might—

Dr Duckett : There will not be savings to total health expenditure.

Senator McLUCAS: In the long run.

Dr Duckett : In the long run.

Senator McLUCAS: How long will it take until we could see that occurring?

Dr Duckett : I think we would see a reduction in bulk-billing in the quarterly statistics, so you will see that fairly quickly. Then, depending on the reaction of GPs in terms of co-payments, you might see that in the next annual results.

Senator McLUCAS: Thank you also for your evidence about what is sustainable. In your submission, you comment that people make priority choices—you use that language. As a wealthy country, should we be making decisions and prioritising the health of our nation? Is that a reasonable and sensible thing to do?

Dr Duckett : There are a couple of components to that question. The first is that the total health expenditure in the country is not only the result of decisions by governments; it is also the result of decisions by individual consumers about whether they will go to McDonald's or somewhere else for an outing or go to a particular movie, or whether they are going to buy football boots or whatever. People make choices all the time about how they are going to spend their money. What we do know is that people will prioritise health care when they need to—and it is not just a luxury good; people value health care. It is, therefore, not surprising that, collectively across all people, as countries gets wealthier they tend to spend more on health care. It is a priority. They say, 'If we are wealthier—if we can afford to spend more on something—we will prioritise health care over something else.' There are only so many cars you can fit in your garage, for example. It is a choice that people make and, across the world, we see wealthier countries spending more on health care.

The other point is that Australia is a relatively wealthy country, but we spend less than the OECD average, taking into account our wealth and the size of our gross domestic product. So it is not as if we are a spendthrift nation; we actually have a good health system which is quite efficient and we are spending below the OECD average. In my view, this is not a question of sustainability. Sustainability is an eye-of-the-beholder question, but, even if you take, 'Are we going to bankrupt ourselves on health care?' we are spending less than the OECD average and a moderate amount of gross domestic product.

Senator McLUCAS: Is it your view that we have a reasonably efficient system in a relative sense internationally?

Dr Duckett : If you look at the OECD figures, we are below the OECD average on health as a share of GDP. I think we are below the OECD average on health per capita. We are above the OECD average in life expectancy. We have a good health system. That is not to say it cannot be improved. We have a good health system and we should treat it as a good health system and not try and dramatically change the underpinnings.

Senator McLUCAS: Thanks very much again for your evidence.

Senator DI NATALE: You spoke about Medicare and its introduction. You are a little older than me, so you are probably more familiar with the rationale for its introduction. You said it was introduced as a universal system. People who defend this measure say, 'Oh, well, it's a modest, $5 co-payment. It's not a big deal. People who are wealthy should be able to afford it.' Others would say, 'By undermining the principle that everybody gets the same level of health care at the point of access, you are undermining Medicare.' Do you think it is undermining the very principle that Medicare was founded on?

Dr Duckett : It absolutely undermines the principles. Medicare was founded as a universal scheme that everybody would have the same access to. You would not carve off particular people to have certain entitlements. That was the very type of system it replaced. Bulk-billing was supposed to be universally available. Whether every doctor picked it up or not was another matter, but Medicare was designed to be a universal system.

Senator DI NATALE: The government has said—and I note in your submission that you challenge it—'Well, we've increased spending by over 100 per cent over the last decade.' It likes quoting those sorts of raw numbers. So there has been a 100 per cent increase in spending on health over the last decade. It sounds like a lot. It sounds like things are spiralling out of control. Can you give some context to that figure?

Dr Duckett : I was surprised when that statement was repeated in Minister Ley's press release. I can understand a minister making a mistake once, but for that to be repeated really surprised me. The reason it surprised me is that it is the raw numbers. It is unadjusted for inflation. Everything has increased significantly in price over the last decade. If you are taking an economic perspective, if you are taking a policy perspective, you have to first of all adjust for inflation, at the least. Then, preferably, you should say, 'We probably also ought to adjust for the size of the population.' Sure, you ought to spend more when there are more people covered. Neither of those things were done in those media releases.

The second thing you might decide to do is adjust for how the economy grew at the same time. So instead of being this massive seven or eight per cent per annum increase, you end up with three or four per cent, which is closer to GDP growth. I am not saying that you should not be concerned about any growth. You should be concerned and you should be looking at policies. But in order to look at policies rationally, to have sensible public policy, you have to understand the problem you are trying to solve. If you do not adjust for inflation, if you do not adjust for population, you are not actually going to be looking at the right problem.

Senator DI NATALE: Let me go to the nub of your piece in The Conversationtoday and your submission, which is this idea that a drop in the rebate by $5 amounts to a $5 cost to the patient. You are saying that actually that is not how it works, and that when you take into account things like the freezing of Medicare rebates, that $5 cost that people assume they may have to pay actually means something more like $30 to $40. Can you explain that?

Dr Duckett : There are two changes that are taking place. There is a rebate reduction that only applies to GPs' patients and only applies to patients who do not have a concession card and are over 15. That is $5. That is the first change. The second change is the freeze in rebates through to July 2018. That is a bigger change in its cumulative effect. If you assume a two per cent increase or so inflation per annum, it is a six or so per cent impact in reduction in revenues to GPs, versus a four or so percentage impact from the $5. So it is a 10 per cent impact we are talking about altogether. Let us say that there is a $5 reduction in the rebate and, as the government wants me to do as a GP, I decide to stop bulk-billing that patient. I lose the bulk-billing incentive, which is between $6 and $9, depending on where I am and who they are. So instead of $5, we have got to $11 or $14 just by doing that. Then, if I am a bulk-billing practice, I have to start introducing red tape—the extra staff to actually process it, the card charges, cash handling charges, and so on and so forth.

Senator DI NATALE: Bad debts.

Dr Duckett : All of that adds up on the cost side. So there is a revenue drop and there is a cost increase. So, when you look at it, you say, 'What happens now?' If a person is not bulk-billed, the average out-of-pocket today is $31. So you would say, why would a practice not do what they are already doing—that is, an average of $31? So you immediately have an average of $31 as a likelihood; and then, on top of that, there is a $5 rebate reduction. So you are up to $36. My estimate was somewhere between $30 and $40, and the more I think about it, the more it is likely to be at that $40 end, not at the $30 end.

Senator DI NATALE: If a GP makes a decision about not bulk-billing non-concessional cardholders, what is to stop them making a decision, as we heard from the GP in Tamworth, that it is simply no longer possible for them to continue to bulk-bill concessional patients, if they want to keep their fees for non-concessional patients at a reasonable level?

Dr Duckett : The University of Sydney data suggests that concessional patients and patients under 15 account for about 57 per cent of all consultations, so it is a significant number. Then we thought there were some things that were not recorded in that University of Sydney data, so we conservatively said that about two-thirds of all consultations would be GP work that would be covered by the concessionals. That is a significant proportion of the GP's work and, if you are going to make the one-third that is left bear all the burden of all the increased costs, it might be too much. So they might have to reduce their bulk-billing for the concession card holders. I can see that as a possibility.

We estimated that if the government achieves what it wants to achieve, bulk-billing would probably drop from about 84 per cent to 67 per cent if everybody who is not a concession card holder is no longer bulk-billed. It might go below that, so it might drop into the mid- to low 60s.

Senator DI NATALE: One would assume that would be lower for practices, say, in regional and rural—

Dr Duckett : Bulk-billing rates are already lower in rural and regional Australia, so it is going to be even worse.

Senator CAMERON: I am really not sure where to start, because it is such an issue. It is not a complex issue. I want to raise this issue that I raised with the previous witness. If everyone who comes here clearly understands and can articulate the problems with increasing the cost to see a doctor, why can't the department understand this? Why can't Treasury understand it? Why can't the politicians understand it? Why can't the government understand it?

Dr Duckett : I have no idea whether the department supported this change, so it is really a case of why can't the politicians understand it. I do not know why the politicians cannot understand it.

Senator CAMERON: It just seems pretty clear after all the evidence you and every professional body have given saying this is counterproductive and it will cost more in the long run.

Dr Duckett : It is about cost shifting. The costs of the impact on the hospitals will fall on the states. The costs on patients will fall on patients. So the Commonwealth government, in a very narrow sense, might have a reduction in its outlays by shifting them onto everybody else. In my view, that is very lazy policy. Good policy is trying to address the total health system, not individual constituents.

Senator CAMERON: Could it be ideological—the Hayek approach, that government gets out of work whatever it can?

Dr Duckett : That is speculation.

Senator CAMERON: I think it is pretty reasonable speculation, given that you get senators making speeches about Hayek.

Dr Duckett : The Grattan Institute is independent.

Senator CAMERON: I want to come back to this $100. You said earlier that you thought it was a bit rich but, given what I outlined and the analysis that these doctors have done—you said that every surgery is different, every small business is different—they reckon they have done the analysis and that is what they will need to do to keep their business afloat.

Dr Duckett : I have not seen the numbers. I still think that making someone pay $100 to see a GP out of pocket—admittedly, they get a $37 rebate for it or a $32 rebate for it—is not the Australia that Australians think they are living in.

Senator CAMERON: That may be the case, but that is what the doctors were saying this morning.

Dr Duckett : I think it is poor policy if it leads to that. But, as I said, I have not seen those practice numbers, so I do not want to justify them.

Senator CAMERON: You say it is about cost shifting. Have you any estimate of the overall cost that is being shifted from the Commonwealth government, No. 1 to the state and No. 2 back to the community?

Dr Duckett : It is at least $10 billion over the forward estimates period. By the time you add the cost-shifting to the states, which I think has, on the public record, been estimated at $8 billion, and the $2 billion or so that is left in these current rebate changes, that comes to more than $10 billion.

Senator CAMERON: One of the issues that has come up is that people are still not sure whether this is about sustainability or whether it is about creating the research fund. Are you any clearer? Do you have any understanding as to why this policy is being undertaken?

Dr Duckett : Most of the money that goes into the research fund does not come from the rebate changes. The cost-shift to the states, for example, also goes into the research fund. If the rebate reductions and the rebate freeze do not go ahead, it does not alter the size of the research fund; it just changes how long it would take to get there. As I said, most of the money does not come from these changes; most of the money comes from the state changes, PBS changes and other changes.

Senator CAMERON: So the money is coming from the federal government cost-shifting back to the states?

Dr Duckett : Yes. The 2014-15 budget announced a number of changes in the health portfolio—not only the then policy about the $7 rebate change. When you add them all up, most of the money that flows into the research fund does not come from the rebate change. I think the research fund issue is a side issue. There is another issue about whether or not it is a good idea. So I think that is a distraction. What was the first part of your question?

Senator CAMERON: I was asking whether you could divvy up the amount of the cost shift to the states and the cost shift to the individual.

Dr Duckett : I think the previous secretary said that it was $8 billion in her testimony to the estimates committee.

Senator CAMERON: So that is $8 billion in total?

Dr Duckett : Yes, in total over the forward estimates.

Senator CAMERON: Given that we are a country where individuals pay internationally comparatively a very high fee now for health, this will make it worse, will it?

Dr Duckett : Again, there are a couple of issues in that. Obviously, as you say, we are one of the countries that spend a high proportion of total spending on out-of-pocket costs. This will certainly make it worse. This will certainly make it harder for people to see doctors when they need to, and it will have a long-term adverse impact on consumers, on patients. Secondly, to the extent that it shifts costs to hospital emergency departments and public hospital in-patient activity, it is bad for both the patients and the total health spending in state budgets. It is bad all around.

Senator CAMERON: So when the announcement was made—as part of the reboot strategy of the government—that the $7 co-payment would go, the issue is still there with the $5, isn't it?

Dr Duckett : Exactly.

Senator CAMERON: So the $5 plus the lack of indexation is every bit as much a problem?

Dr Duckett : The government did announce that the three strategies they would pursue at the time were going to achieve the same amount of dollars as the $7 change. So it was just a matter of how it was packaged and where the costs were going to fall. That was all that was happening.

Senator CAMERON: I wonder if they will run a public advertising campaign to let people know they are going to pay more money.

Dr Duckett : No comment.

Senator CAMERON: Seriously, if government is going to make such a decision that is going to have such an impact on the individuals, as you are outlining, surely there is a responsibility for the public to understand what is happening to their health costs.

Dr Duckett : As a general principle—

Senator CAMERON: I am joking on the advertising, but I am just saying—

Dr Duckett : As a general principle, I do not think government should advertise things that are not approved by the parliament. I think you have to be very—

CHAIR: We have seen a bit of that recently!

Dr Duckett : You have to be very careful about pre-empting parliamentary decisions. Obviously, once the decision has passed I think there is an obligation to explain the implications. I think it is important that the public understands what their entitlements are.

Senator CAMERON: But this is not a decision that will need to be passed, as I understand it. This will be a regulation.

Dr Duckett : The freeze?

Senator CAMERON: Is that your understanding?

Dr Duckett : As I understand it, the freeze does not have to go to the Senate because there is no change in the rebate, by definition. The five-dollar reduction in the rebate—I believe—certainly is at least a regulation. I am not sufficiently familiar with the legislation, but it may require a legislative change if it is making distinctions between various classes of people. But that may be able to be done by regulation. Anyway, it is a disallowable instrument.

Senator CAMERON: Okay.

Dr Duckett : Which presumably must have been made—the instrument must have been made. I suppose it is not coming into effect until 1 July?

Senator DI NATALE: It is 1 July.

CHAIR: Thank you very much, Dr Duckett, for your evidence this afternoon and for the clarity, as usual, in your explanation of what the outcome is of these policy changes that are mooted. We hope to continue the conversation—hopefully, more happily—in the future.

Dr Duckett : Thank you very much.