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Tuesday, 8 March 2005
Page: 13

Senator McLUCAS (1:25 PM) —The National Health Amendment (Prostheses) Bill 2005 amends the National Health Act 1953 to allow the minister to determine prostheses that are going to be covered by health funds with no gap payable and prostheses which are to be covered by health funds but for which a gap will be payable by the health fund contributor, and to determine the minimum and maximum benefit amount listed for each gap permitted prostheses. In making these determinations, the minister may take into account advice from experts in the area of prostheses and in the health insurance industry.

This bill requires that health funds must provide no gap cover for at least one prostheses in relation to every in-hospital procedure for which a Medicare benefit is payable. The stated aim of the bill is to enhance the value of private health insurance and increase choice for consumers—and I will say more about the stated aim at a later point. The estimated savings from this measure are $4.3 million in 2005-06 and $20.6 million in 2006-07, based on an implementation date of 1 April 2005. It is interesting to note that the earlier bill that was introduced prior to the last election proposed savings of $61.9 million over four years based on the same implementation date, 1 April 2005. That being said, this measure originally featured in the 2003-04 budget, which identified savings of up to $49.6 million, with an implementation of 1 July 2003. I make that point simply to say that the figures seem to be moving around a little bit.

This bill was first introduced into the parliament on 12 August 2004. However, it lapsed when parliament was prorogued for the election. The bill varies from the original bill only in some relatively minor technical aspects, although some of these may, in Labor’s view, impact on patient costs. From the beginning, the Labor Party has expressed real concerns about this legislation. We have expressed concerns for a very transparent reason: that the premise of this bill, ostensibly, is about saving money for the government and for the health insurance industry. Doctors groups, including the AMA, have been consulted and so has the hospital sector, both public and private. However, it is obvious that the major impact of this legislation will be felt by patients because they very well may have less choice and certainty and face more out-of-pocket costs. But it is not an issue that consumers have been made aware of. I acknowledge the difficulty in doing this. It is not until we face having to access prostheses that we, as an individual or a community, truly understand what the cost of that might be. It is only when you have to have a hip replacement or a new heart valve or a stent to clear your arteries after a heart attack that you truly understand the cost of prostheses.

Patients are being ignored by this legislation—which, unfortunately, is typical of this government. There is nothing in the bill that ensures that a patient is informed about their out-of-pocket costs, and there is nothing in the bill that ensures that any savings that may be made by the health insurance funds will be passed on to consumers. We clearly need some changes in this area, and we acknowledge that. The system that we have needs an overhaul. But there are many questions regarding the capacity of the legislation that we have in front of us to bring about the required change. In April 2003 the Howard government announced the introduction of a range of reforms to:

… make private health insurance more efficient, competitive and deliver better value for money for members.

They claimed that this set of reforms would tackle supply costs, with their subsequent pressure on premiums, by seeking to rein in the costs of prostheses and eliminating the second tier default benefit—which ensures that there is a reasonable private health reimbursement level, even when a fund does not have an agreement with a hospital—for all but a few small rural and remote private hospitals.

In the 2003-04 budget the government estimated savings from these proposals at $49.6 million over four years. But the department unfortunately could not provide us a further breakdown of how those savings would eventuate. It was clear to us then, as it is now, that these initiatives are being driven by the private health insurance sector, not by consumers. As a result of questioning from Labor on these issues and a push from the private hospitals and the doctors’ groups on the licence given to the private health insurance industry in the proposal, the government finally rescinded the decision to abolish the second tier default benefit. Therefore, the bill in front of us is dealing with only the remaining prostheses commitment, first announced in the 2003-04 budget.

In terms of how private health insurance currently covers the cost of prostheses, as it stands, there is a list of items—known as ‘schedule 5: benefits payable in respect of surgically implanted prostheses, human tissue items and other medical devices list’—that health funds must fund for privately insured patients. Manufacturers or suppliers of prostheses must apply to the Commonwealth Department of Health and Ageing for the prostheses that they supply to be included on the list. The department subsequently assess the application against specific criteria. If a prosthesis is listed in schedule 5, private health insurance will cover the full cost of the prosthesis and there is no gap.

An expert committee, the Private Health Industry Medical Devices Expert Committee, oversees the listing of prostheses in schedule 5. The committee comprises representatives of consumers, the medical profession, private hospitals, private health funds, prostheses manufacturers and the government. A frequent and quite justified complaint about the system is that each fund is required to notify each hospital which prostheses they will cover the cost of. The choice of prostheses, as we know, is generally made by the doctor—hopefully in consultation with the patient. The level of cover, though, is provided by the fund, and either the hospital or the patient is left to fund the gap.

Industry data reveals that in the year to June 2003, prostheses costs to the private health insurance industry were $546 million, up 24 per cent from the previous year, so you can tell this is a growing area of cost. The growth of new technologies makes prostheses the fastest growing sector of private health insurance cover and an area that makes the private health insurance funds keen to reel in. Three factors are driving the increase in prostheses costs for private health insurers. Firstly, the largest factor is the increase in utilisation. More people are using their private health cover to have, for example, cataract surgery or to have the hip replacement that they need. The government’s plan to have more people aged 65 and over take out private health insurance would, if it eventuated, add further pressure on the costs of utilisation. Secondly, many of these new technologies and new devices will generate cost savings because people require less time in hospital recuperating or require fewer replacements. As technology is developing, prosthetic knee devices, for example, have a longer life span so the likelihood of needing a replacement one is limited. Thirdly, but to a far lesser extent, is the increase in supplier costs.

In Labor’s view, the new process for the determination of which prostheses will be listed as ‘no gap’ or ‘gap’ and the pricing structure that will be assigned to each category under this legislation is untested and extremely complicated. There is nothing here that ensures that more than one product is listed in each ‘no gap’ category or that new technologies are considered as they become available. The likely consequence is—and this is the view of some in the sector—that only the oldest and the cheapest products will be listed as ‘no gap’. The current system for regulating prostheses, and particularly for evaluating their cost effectiveness, has been limited, and there is little by way of independent data on which to base decisions in the future. Nor is there anything to ensure that patients are provided with choice or that the savings are passed on to consumers, through a decreasing rate of premium increases, although that is the stated intent of the policy. In fact, the most likely outcome is that patients will have less choice or will pay more out-of-pocket costs for medical procedures involving prostheses.

My colleague Senator Moore will talk about the ‘hopeful’ legislation. I had to use that line; it is a beautiful line. This is very hopeful legislation, and during the inquiry we heard from many witnesses that they hoped that this would be the outcome that we would achieve. I spoke in the chamber last night about needing good data and good modelling on which to make decisions that are expensive and that impact on both public and private costs. I expressed a view about the legislation we were debating last night that making public policy requires good research and good data. This bill is in the same bucket as the aged care bill that we looked at last night that did not have very much data to support it.

I am afraid to say that, while the Howard government seemingly has a policy intent, the fact is that this legislation may very well not be able to deliver that policy intent. On the one hand, the government is championing private health insurance as being about choice but, sadly for consumers, this bill will limit choice and, in our view, increase out-of-pocket costs. The government is involving itself in an endless series of contradictions on health policy: it wants more people to take out health insurance but not to use it, it promises more choice and then joins with the private health insurers to limit that potential choice, it talks about the need to address the issues of healthy ageing but wants older Australians to pay more for their cataract surgery or their hip replacements, and it wants the savings from reining in private health insurance costs but does nothing to ensure that these are handed on either to consumers or to the budget through the 30 per cent rebate.

Labor recommended that this bill go to the Senate Community Affairs Legislation Committee to allow for public discussion on the implications of the bill. The report of that committee confirmed Labor’s fears with regard to choice for consumers. While there appear to be some steps in place to establish guidelines, codes of conduct and standard forms for doctors to assist with the provision of appropriate information to patients, Labor is not convinced that these processes are sufficiently established or tested. Given the level of hope that was expressed in that report and that will be expressed in this chamber, and given the level of uncertainty associated with the implementation and the medium-term effect of the bill, Labor moved a second reading amendment which called for a review of the bill after 1 July 2007. This is consistent with the view of a number of submissions to the Senate committee and underlines the department’s statements during the hearing which noted that the government has given a commitment to commence a review two years after full implementation of the new arrangements.

Labor’s amendment also called for the review to report in a timely manner, by 1 October 2007, for this review to be tabled by the minister and for the conduct of the review to not be unduly influenced by the private health insurance sector and to have strong representation from consumers. This amendment ensures that the issues associated with this bill that remain outstanding do remain on the table and that the appropriate checks and balances and evaluations are in place. In other words, we can be sure that we are enacting good health policy for the benefit of all Australians.