Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
COMMUNITY AFFAIRS LEGISLATION COMMITTEE
08/05/2000
Health Legislation Amendment (Gap Cover Schemes) Bill 2000

CHAIR —Welcome. Witnesses are reminded that the giving of evidence is protected by parliamentary privilege. However, the provision of false or misleading evidence may constitute a contempt of the Senate. The committee has before it your submission. Do you wish to make any alterations to it?

Mr Sullivan —No.

CHAIR —Do you wish to make an opening statement?

Mr Sullivan —Yes, thank you. In approaching this legislation we particularly want to raise before the committee the impact for hospitals with regard to rebates, payment by health funds and the way in which the inflationary impact of a medical gap cover will further threaten the viability for hospitals. Since in recent times, up to around June 1999, there has been about a 12 per cent increase in contributions to health funds by the community and yet, on average, only a 1.3 per cent increase in rebates to hospitals, not reflecting the real costs for hospitals that run in the vicinity of seven per cent, our concern and the experience that our hospitals are having across the country, where health funds are trying to get no gap or known gap products onto the market, is that they are attempting to do so without putting any pressure on premium price increases. That seems logical. The problem, of course, is that in order to pay for medical gap cover, moneys that also could have been allocated to meeting the real costs of care in the hospital are not being so allocated. That is the first point we wish to raise.

The second point is that it is still our position that an established commercial arrangement between a health fund and a doctor is far more preferable than the framework under consideration. At the end of the day, consumers still lack complete certainty as to whether they will be provided with no gap coverage; they still are at the mercy of the willingness of a medical specialist to participate in any product that is being offered. So, to some degree, consumers are not that better off under the arrangements unless there is some type of commercial, if not contractual, arrangement.

This applies between hospitals and health funds. It applies between hospitals and health funds for all other areas of care, including nursing care and including very essential costs—pharmaceutical costs and the like. It has obviously been accepted by the industry and it has been accepted even by the medical profession but for the medical profession it is unacceptable. That anomaly, at the end of the day, does not create enough certainty for consumers and, in response to the government's 30 per cent rebate, does not give the government enough certainty that their outlay is being most efficiently used.

We would also like to raise and draw your attention to the fact that there is quite a significant percentage—and maybe the AMA or one of the other colleges could give it to us—of medical specialists who are already effectively bulk-billing pensioners in private health. Many pensioners at the moment do not receive any extra medical gaps. Under these arrangements, of course, those medical specialists will now be able to provide a no gap cover at possibly 25 per cent increase on the MBS. It strikes us as unusual that this legislation will facilitate a new outlay from health funds when none was needed. So we draw your attention to the participation rate of medical specialists in providing for pensioners.

Finally, I think the degree to which consumers will be able to test the market for various prices and various gap cover is overblown. When individuals go to specialists and are asking what is the cost of the procedure and so on, the capacity for them to properly test the market in the time in which they wish to have the procedure and so on is questionable. It is those four main areas we are concerned about.

Senator CHRIS EVANS —I might tease out your first point about the viability of the private hospital sector. You are essentially saying that, because the funds have been urged to absorb the six per cent or so that are currently the cost of gaps, that will put more pressure on or restrict the ability to properly fund the private hospitals; is that it?

Mr Sullivan —The common theory would go that increased premium prices are a deterrent to people buying insurance. First, you have had to worry about price and, second, you have had the issue about gaps. Obviously, this legislation is going to the second. The difficulty is that there is only a limited pool of funds in the private health economy and so, if the health fund is not going to increase the take from premiums, it will need to distribute what it has out of its pool to now cover a gap cover as well as hospital rebate.

It has been our experience over the last three years that in some states there have not been increases in rebates from hospitals in real terms, even though health funds have increased their membership base. The argument back the other way always goes, `Increased membership base affords the health fund the opportunity to dampen its premium price pressure and so on.' But the problem we are experiencing is that the cost of care is not being met by the health funds and, although it may sound sensational, the reality will be that that creates gaps on the hospital side. Either private health and the product of private health continue to diminish in scope and cover, such that private hospitals will only provide what they can provide for no gap or, if we are looking at private health being a more comprehensive service, then there is going to be pressure on some of those services for gap payments. It is just how the money flows.

Senator CHRIS EVANS —So you think that there will be increased pressure on the private hospitals to introduce gap payments because of the strictures on them arising out of what is occurring with health funds?

Mr Sullivan —They have two choices. Last week one of our national chief executives, who oversees 10 private hospitals, said to me when he was discussing the budget situation for one of his private hospitals, `What's the story? We have a lot of budget pressure at the moment. What's the problem?' This person is an experienced CEO who happens to be an experienced CEO previously in the for-profit sector. He said, `It is simple: if you want me to make budget next week, I close oncology.'

In other words, there are services in the private sector that necessarily do not make a profit or meet the return on investment that maybe commercial enterprises would require. Private health can either go the path of narrowing the scope of those services, such that all those services are profitable—and in that sense can address the challenge of the reduced outlays by health funds—or the government, in putting forward this sort of legislation, needs to also examine how we are going to keep what are essential services in the private sector, which is meant to be there to complement the demand on the public sector. In the mini-economy that is the way we are financing private health, if the real-term rebates from health funds are not going to meet the costs of those essential services, then there will be pressure for gap payments.

Senator CHRIS EVANS —But there is always the tension between the private hospitals and the funds about payments. I did not know you were such poor negotiators. I thought you were fairly competent, capable people. Why don't you just sort it out?

Mr Sullivan —As you know, Senator, you are probably right: we are competent and capable. Geoff might be able to tell you a bit more about what goes on.

Mr Simper —In Queensland, the stated objective of the MBF fund was to actually reduce rebates 1[half ] per cent and that is their clear position. Other funds have approached our hospitals to say, `Our opening position is minus seven per cent.' It is not through lack of endeavour or knowledge or skill; it is the reality that the health funds have not being compliant in increasing rebates over the past three years. A number of hospitals in Victoria have had no increase for three years.

Senator CHRIS EVANS —From our point of view as public policy makers, particularly since we are now picking up 30 per cent of the bill, we think keeping private health insurance premiums down is a good thing, obviously, because there is less cost to the consumer and less cost to the electors. To be honest, it is a fairly extended argument to then say that not increasing premiums or keeping premiums under control will lead to adverse public events because the private sector will not be able to offer the range of services then. That is basically what you are saying, is it not?

Mr Sullivan —At the end of the day, about 90 per cent of a private hospital's revenue is still coming through health insurance. If, in real terms, it is not meeting the cost of care then there is going to be pressure on how you pay for the cost of care. Regarding your point about the outlay of 30 per cent, it has always been our position that a direct government subsidy should go to the services, not just the insurance. The government has chosen another course. So be it. But if the government want to feel that they are actually purchasing something, then they would actually take the cost off the service at the point of delivery, not discount health insurance where consumers may not even use it and are not obliged to use it.

Senator CHRIS EVANS —We have had that argument and I know we will have it some more. The other point you make, which I have already raised with the doctors, is that `all we have here is the enabling legislation and there are no guarantees in any of this about anything'. It is up to the funds to design what they can get the minister to tick off. Apart from putting the boundaries on it in a very broad sense, we are not controlling any of these things. Your point was that there is no certainty that people will get no gaps even with these funds. Do you want to expand on why you think that they might not get that certainty?

Mr Sullivan —I think certainty is by definition a guarantee. There is nothing in the legislation that guarantees that every consumer, when they go to any specialist, will be offered a no gap product. They are still going to have to rely on the disposition of the specialist as to whether they will participate. It is our understanding—and again, you would probably get better data from the AMA—that there is a considerable percentage of specialists who may charge just above the MBS consistently and there are others who charge quite a degree above the MBS. It is a bit of bad luck if you hit the wrong specialist in the first instance.

Secondly, as I said to you, it strikes us as odd that, where specialists are already effectively bulk-billing pensioners, we now have legislation which will give them a windfall gain to continue to do the same thing. So we have got to be very careful about what is going to be seen as the participation rate and percentage of specialists. In what particular instances will they participate? Will they participate only at the end of the day when there is going to be a financial gain rather than a gain for the consumer?

Senator CHRIS EVANS —Are you saying that an individual specialist may participate only to the extent that they will now charge pensioners the full schedule fee or AMA fee or whatever?

Mr Sullivan —There is potential for that.

Senator CHRIS EVANS —And that, with the full fee paying customers, they may continue to not offer no gap cover?

Mr Sullivan —It has already been raised here, and I know that it has been raised on other occasions, that in some regions of Australia the number of specialists for a particular procedure is such that you do not need to enter into any arrangement because `the market is yours', as they say. We take a different position from Dr Brand. This is not just another commercial industry; it is health care, and we believe that it needs to be treated accordingly.

Senator CHRIS EVANS —One of the difficulties for people is that they have bought this no gap insurance; they have paid top dollar. If a person goes along to their GP and he says, `You really want to go to this ear, nose and throat man because he is the best in the business and he specialises in your priority; go along and see him' and the specialist says, `I am not in the no gap insurance,' they are then left with a fairly difficult dilemma, I suspect.

Mr Sullivan —People have that dilemma in Canberra. One of the people at this table has recently been to a plastic surgeon to have some cancers off. The reality is that the specialist's charging arrangements do not matter—it is either that or get on a plane and go somewhere else. I think it is a very overblown statement by many that consumers can test the market about, firstly, information and access to it and, secondly, time. Also, the actual mental state a person is in when it comes to wanting a procedure does not lend itself to calm considerations.

Senator DENMAN —Could I add there where I am, which is a wonderful example—

Senator CHRIS EVANS —You are being very parochial today, Senator.

Senator DENMAN —I know, but it is a great example. Often there are no specialists in specific areas, although they do have to go out of their area. There might be one specialist in a particular area, but in other areas there are not. So the consumer has no choice but to leave the area to have some health care. Those things add extra costs too, particularly for the family who want to visit and be there.

Senator CHRIS EVANS —How do think we ought to measure and control whether or not there is an inflationary impact on premiums as a result of this measure?

Mr Sullivan —It is considered fairly orthodox that something like medical gap cover is inflationary. Most people would assume that. The best scenario is getting huge amounts of people into the health funds who are not going to use health care such that that can dampen those inflationary impacts. That is the theory. I suppose we need to ask ourselves: what is going to be this ultimate influx and what is the ceiling on that influx? Obviously none of us really know, but one can only assume that it is not going to be gargantuan from here on. We would also argue that there needs to be some discipline put back into this arrangement between the funds and the doctors. In our submission, we talk about the need for a review as to whether there has been 25 per cent take-up after 12 months. It is all very fine for a health fund to have a product; it is just as fine for the doctors to say that they may participate. But the reality is: how many of the actual procedures in private health were actually covered in that product over a given period? So the effectiveness of the scheme is important and that in itself may dampen the overall inflationary impact on health care.

Senator DENMAN —How would you conduct that review?

Senator CHRIS EVANS —Is 12 months really a fair period? It is a fairly short time frame, isn't it?

Mr Sullivan —I know they will probably blanch at this, but you could attach it to what the ACCC is already presenting to the parliament in the area of private health. You could make it a specific term of reference. I imagine the bleat will be that they do not have the resources, and that may be true, but I would think that the creativity of the parliament would be able to work that one out.

Senator CHRIS EVANS —So what do you think we would need as a take-up rate to say that this was being a success and making a worthwhile contribution? You mentioned the 25 per cent target. Is that what you think we need to get to to say that this is a worthwhile result?

Mr Sullivan —I think we have all seen this debate go around in circles for a number of years, and it is quite clear that the leadership of, say, Dr Brand in relation to this issue has been difficult for him. As he said in his evidence, it has been hard for the AMA to bring their colleagues to the table over the need for this, or probably better, legislation. At the same time, I think the community would expect more than an uptake of 10 per cent. If that is basically what the uptake is under the present contractual arrangements, I would have thought it is reasonable to go at least double that, given that the outlay now from the government is so much higher anyway.

Senator CHRIS EVANS —We do not tend to set targets in this area; we just keep throwing money and saying that if things have not declined drastically we have had a great result.

Mr Sullivan —We would be keen for some of the money to come our way.

Senator CHRIS EVANS —I am surprised you are not getting your share.

Mr Sullivan —It is great that you have had this revelation.

Senator CHRIS EVANS —Mr Schneider must be more successful even than I thought he was. I thought he did pretty well screwing the government; I did not know he was doing the hospitals at the same time.

Mr Sullivan —It is always important for these issues to come out on the table.

Senator CHRIS EVANS —Yes. I will leave it at that.

CHAIR —Mr Sullivan, I am a bit surprised that in one of your recommendations you say that the treatment of private patients in public hospitals should be restricted. Given that Australia operates under a free choice health system, I am absolutely amazed that you would make such a recommendation on this legislation.

Mr Sullivan —It was done in the context of our issue about access and inflation and so on. We would be arguing, of course, that if the service is already available in the private sector and now under this legislation it is meant to be available for no extra out-of-pocket expense, why not make sure that the private sector capacity is used? That is a rational argument for a way of complementing demand.

CHAIR —But don't you think that any restriction of patients' choice is an undesirable outcome for any call?

Mr Sullivan —Not necessarily. I do not think that individual consumer autonomy is necessarily always the highest value that we have got to preserve in health care. We would argue that the most important thing about a universal health care system is that people get timely access to essential health care, and at times that means that, yes, their choice on where that may occur may not be optimal. The community has already accepted that anyway in a way in which it endorses universal health care.

CHAIR —The other recommendation where I have much the same concern is the one where you say that the legislation should require that medical fees raised from private patients who hold health care cards should be limited to the Medicare rebate.

Mr Sullivan —Yes. That is our point about the pensioners.

CHAIR —Once again, what has happened to the issue of choice?

Mr Sullivan —Without wanting to go over it too much, where specialists are already effectively bulk-billing pensioners for their private hospital service, I see no reason why we now bring in legislation which gives them the capacity to charge above that schedule fee simply as a windfall gain. The pensioner receives no extra benefit; they are not choosing anything extra. All we are doing is inflating the cost of health care.

CHAIR —I must confess, as I say, that I am surprised at those particular recommendations, and also at the one where you mentioned access to gap insurance being limited to episodes in licensed hospitals and day surgery facilities. Apart from it being beyond the scope of the legislation, that is already a restriction that is in place. Unless somebody is a registered and licensed provider, they cannot reap the benefits. What are you driving at in that point?

Mr Simper —That point was raised by one of our member hospitals. Their concern was that the legislation may facilitate the treatment of procedures currently done in private hospitals and day care facilities in doctors' rooms without the appropriate accreditation requirements that private hospitals face.

CHAIR —But that is not classed as a hospital treatment if it is done in those circumstances. I cannot understand what you are getting at in relation to that recommendation because there is no facility to provide any payment unless there is a provider number.

Mr Sullivan —Senator, you are saying that our concerns in that area are completely allayed?

CHAIR —As I say, it is beyond the scope of the legislation to start with, but—

Mr Sullivan —You are sure of that?

CHAIR —the current situation is that that cannot happen.

Mr Sullivan —That is comforting for us.

CHAIR —As there are no further questions, thank you very much for your attendance today.

Mr Sullivan —Thank you.

[4.12 p.m.]