Mon Dec 15

No control, no regulation. Why private specialist fees can leave patients with huge medical bills

Written by Yuting Zhang, Professor of Health Economics, The University of Melbourne

Seeing a private specialist increasingly comes with massive gap payments. On average, out-of-pocket fees to see a specialist amount to ^[1] about $300 a year. But many spend hundreds on each appointment.

Costs quickly add up, especially if you need surgery or other treatments in hospital. Many patients are left struggling to pay.

Others rely on the public hospital system, where care is free but outpatient clinic wait times to see a specialist can be up to six years ^[2].

It’s not just wealthy Australians who see private specialists. And you don’t need private health insurance for an outpatient consultation in a specialist’s private rooms. For some regions and specialties, seeing a private specialist is the default, or only, option ^[3].

Health Minister Mark Butler has vowed to make specialist fees more affordable ^[4] in his second term of government. So what exactly is the problem? And how can it be fixed?

Allowing specialists to set their own fees isn’t working

Unlike in other comparable nations, the government doesn’t regulate how much specialists can charge in Australia. Specialists set their own fees.

But relying on the free market fails because of two fundamental flaws:

1) Market power

Specialists are a scarce resource. For example, there are currently only around 130 doctors ^[5] currently undergoing specialist training to become a dermatologist.

These high barriers to entry and geographic monopolies – where one specialist practice dominates a region – allow them to charge higher prices without competition.

The annual income of some specialists reflects this market power. The average taxable income ^[6] of specialist surgeons is about $500,000.

This forces public hospitals to pay high salaries to retain ^[7] surgeons, whose private-sector earnings are much higher.

2) Information asymmetry

Consumers lack the medical knowledge to assess quality. Patients often assume higher prices indicate better care.

In reality, specialist fees aren’t correlated with ^[8] quality of care. Experienced, older specialists often charge ^[9] less than younger, less experienced ones.

A composite of a health worker looking stressed

When it comes to public hospitals, everyone seems to be waiting – waiting for emergency care, waiting for elective surgery, waiting to get onto a ward. Private hospitals are also struggling. In this five-part series ^[10], experts explain what’s going wrong, how patients are impacted, and the potential solutions. How does the government pay specialists? The Australian government sets the Medicare Benefits Schedule (MBS) fee for specific medical services, such as initial specialist consultations. This is used to calculate the government rebate. There are some differences between fees for specialist care in and out of hospital. Hospital inpatient care: Most patients charged inpatient fees are privately insured. Medicare pays 75% of the schedule fee for in-hospital medical services. The insurer covers at least ^[11] the remaining 25% of the schedule fee. If the specialist charges a fee higher than 75% of the schedule fee and insurer contribution, the patient is liable for the gap. However, private insurers often negotiate with private hospitals and doctors (for example, surgeons and consulting specialists) about fees, and have a network of preferred providers accepting “no gap” or “known gap” products. No-gap plans often come with higher premiums. Outpatient appointments in specialists’ private rooms: Medicare pays 85% of the schedule fee for an outpatient service in specialists’ private rooms, and patients pay the rest. Private insurers are legally restricted ^[12] from covering outpatient specialist services that are covered under Medicare. Set a fair Medicare schedule fee However, Medicare schedule fees have not kept up with specialist fee increases. The government needs to pay a fair Medicare rebate for specialist fees, which should be updated annually. One way to calculate such a fee would be to to use the fee from 1984, when doctors and government agreed the Medicare fee was fair, and increase it using a measure of price increases such as the Producer Price Index ^[13]. This would make the Medicare schedule fee for an initial consultation with a cardiologists ^[14] $233, for example, rather than the current fee of $178.80. But setting a fair Medicare schedule fee alone will not solve high out-of-pocket costs, as specialists can simply raise their fees. It needs to be combined with some form of regulation ^[15]. To overcome this, the government could introduce a policy ^[16] that Medicare rebates only apply to specialists who charge fair prices, or no more than a set percentage above the indexed Medicare schedule fee. For those who charge more than the agreed amount, Medicare should not subsidise the care. Make specialists report their fees and quality indicators The government needs to facilitate comparison of specialist fees, quality, and waiting time by making this information publicly available and easy to access. The government already has a Medical Costs Finder website ^[17], and in future will force specialists ^[18] to publicly disclose their fees. But the website doesn’t have waiting times and quality indicators. These are needed for patients and referring doctors to have enough information to decide where to go for their specialist care. This fee data should be linked to available quality metrics to combat the consumer perception that higher price means better quality. Common quality measures in hospitals include: dying within 30 (or 90) days after a high risk, life-saving surgeries being readmitted to hospital within 30 (or 90) days the rate of complications, such as infections acquired in hospital patient-reported measures such as pain management, clear discharge notes and communication. The measures would need to be adjusted by risk, so if a patient is very ill, doctors or hospitals are not disadvantaged for treating them. Boost capacity the public hospital system Governments should also direct more funding to public specialist clinics – especially for high-demand specialties such as cardiology, dermatology and psychiatry. Failure to address the high cost of specialist fees will intimately result in growing financial barriers and patients not getting the care they need.