Healthy Skepticism Library item: 7797

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Publication type: news

Breusch J.
Funds start to look after their business health
The Australian Financial Review 2007 Jan 3
http://afr.com/default.aspx

Full text:

As health costs spiral upwards, an industry dominated by private funds is checking out of its cloistered existence, writes John Breusch.

It may have a reputation for being a bit sleepy, but the private health insurance sector is showing it also has a tough side.

The toughness is showing in more than just the stringent deals that industry leader Medibank Private has been striking with private hospitals.

At an industry level, funds have been challenging the health sector’s fixation with expensive technology and also winning reforms that will give them a bigger say in how their members’ health is managed.

Private health insurers occupy a unique position within Australia’s $80 billion health sector.

As in all industrialised countries, health costs are surging because of the ageing population and the unquenchable demand for new – and inevitably more costly – medical technologies.

But the structure of the sector creates its own problems.

Because the people who consume health services generally don’t pay directly for those services – the government does – there’s insufficient incentive to contain costs.

But private health insurers have an incentive, as paying for health care is their business.

Of the $80 billion that flows into the health sector each year, about $9 billion comes out of private funds’ pockets – although about $3 billion of that is funded by the government through the 30 per cent private health insurance rebate.

As Rohan Mead, chief executive of health fund Australian Unity, points
out: “The [annual] health insurance premiums’ increase is the most visible bellwether of medical costs and utilisation”.

Thanks to strong profitability, health funds are this year expected to raise premiums by less than the 7 per cent-plus annual average increases of recent years.

At the same time, an industry dominated by mutual funds is increasingly demonstrating a hard-nosed commercial focus.

MBF chief executive Eric Dodd – a former head of NRMA Insurance, the country’s biggest general insurer – says the private health sector remains something of a “cloistered industry”.

But that’s changing.

Dodd says health funds were left behind by the private hospital sector which, thanks to big, publicly owned operators such as Ramsay Health Care and Healthscope, had a more commercial outlook.

“They were driven by more commercial imperatives perhaps than the funds have been,” he says.

“I think that’s starting to change a little and [the planned float of] Medibank Private, I think, will push everyone down that path.”

And as they focus on driving down costs, the health funds are working together.

Last year, the industry – led by Australian Unity – set up the Australian Centre for Health Research.

The new think tank aims to examine various issues within the health sector, but its first contribution, released in October, suggests that the cost-effectiveness of health care will be a particular focus.

The report made the startling revelation that, of the new and increasingly expensive hip replacement devices released onto the market in the past four years, none had a lower failure rate than existing devices, while some performed considerably worse.

The findings were based on an analysis of a register tracking the performance of the joint-replacement prostheses.

By being able to identify the more effective devices, doctors were able to reduce the number of joint-replacement revisions by about 1200 a year, generating annual savings of $16 million to $32 million.

Health funds seized on the findings to call for similar registers to be used for other types of prostheses.

“These are very, very serious economic effects,” Mead says.

“So I think it’s absolutely incumbent on insurers to be advocates of this.”

And it’s not just in prosthetics that health funds are agitating for greater transparency.

The ACHR’s second paper, released in November, focuses on the broader health system, proposing that health funds be allowed to refuse payment of the scheduled fee rebate to underperforming doctors.

In doing so, the paper’s author, Russell Schneider – a former head of the Australian Health Insurance Association – resurrects the prospect of league tables that compare the performances of doctors and hospitals.

A similar proposal was put forward late last year in a bipartisan report by the House of Representatives’ standing committee and health and ageing.

But Australian Medical Association president Mukesh Haikerwal says such calls are misplaced.

League tables comparing doctors’ performances have been tried in the United Kingdom, producing perverse results, he says.

“The people who were . . . working on high-risk patients or doing higher risk procedures were basically persuaded not to do those because it made their figures look bad,” Haikerwal says.

“So it can backfire big time.”

Mead acknowledges the problem.

“Those are very legitimate claims and we need to manage that,” Mead says. “But the alternative which I’m concerned with is [that people will say] ‘well, we’ll just quietly decide among ourselves who’s good or bad and the public doesn’t need to know’.

“We don’t have sufficient visibility and transparency on things like outcome rates of procedures across the nation, and we should. The uncomfortable thing in some of these statistics is that they will throw light on areas that have too long been dark. So there will be some discomfort.”

Ramsay chief executive Pat Grier says he doesn’t have a problem with league tables, as long as they are used for the right reasons.

“I think it’s a case of pushing the quality hospitals to be quality hospitals rather than squeezing the whole industry so that the quality will go down,” Grier says.

“It’s a question of how you responsibly manage it. It shouldn’t be turned into a scapegoat and a beating up on hospitals and doctors.”

Relations between funds and private hospitals certainly seem to be improving.

Dodd points to the efforts on both sides to manage the impact of the Queensland government’s decision last year to raise nurses’ salaries by
25 per cent over three years.

“You go back four, five years in this industry and hospitals and funds were at each others’ throats all the time,” Dodd says.

“We now work on a much more co-operative basis. So when you do get those cost pressures like we had in Queensland, you don’t get the attitude that ‘you’ve got a contract, so too bad’. “

But what all these changes – whether proposed or real – amount to is insurers playing a greater role in determining what sort of health care patients receive.

And in this regard, one of the most significant changes is already in train.

From April next year, health funds will for the first time be able to fund treatments provided outside hospital walls.

The new measures are targeted at people suffering chronic diseases, such as cancer and diabetes, enabling them to access home-based care – paid for by their health fund.

The reforms have received widespread praise. For patients, there’s the benefit of not having to go to hospital, while for insurers, there’s the benefit of not having to pay for hospital costs.

Catholic Health Australia chief executive Francis Sullivan counts himself among the supporters of the changes. But he says it’s important they’re used to improve health care, not just contain costs.

“There’s every likelihood that players in the system will abuse the opportunity of the power shift that occurs, and that’s what you’ve seen in the US, where a style of managed care has been brought in,” Sullivan says.

“And this is a style of managed care, because the health insurer is wanting a bigger say on where it pays out its benefits, and what it pays it out to, and why.”