Modernising Medicare

| February 3, 2024

Medicare serves to make healthcare accessible and affordable for the entire population. The impact this has had on people’s lives over the past 40 years is undoubtedly significant.

Medicare is often associated with primary care, GPs, and bulk billing rates. But Medicare was set up as a system of national public health insurance providing universal access (for the whole population) that led to care in public hospitals becoming free of charge, subsidies to medicines that have significantly reduced their costs to consumers, as well as subsidies for GP and other private medical services.

Even as a strong system of public health insurance, Medicare also supports the private sector by providing subsidies for services provided by private specialists in their offices and also in private hospitals.

Though not part of Medicare, the Australian government also subsidises private health insurance premiums and gives tax breaks to the 45% of the population who hold private health insurance.

These subsidies indirectly support private hospitals’ running costs and subsidise specialists’ fees for private hospital services through gap cover. Support for the private sector is almost $10 billion.

Challenges to overcome

The system has evolved by delicately balancing Commonwealth and state interests, and the public interest and market power of professional interest groups, such as the medical profession, community pharmacy, and the private health sector.

Most reform tries to carefully maintain this balance in the face of rising costs and changes to disease patterns, most notably the rise of chronic disease and population ageing.

Funding battles

The first balancing act involves the Commonwealth and states arguing about hospital funding every five years, which they share, through the National Health Reform Agreements.

This structure presents an often impenetrable barrier to true integrated care between hospitals, run by states, and primary care, run by the Commonwealth.

Fairness and high-quality care

The second balancing act directly influences equity and value for money. Medical professional bodies were initially opposed to Medicare, and continue to support a large private health sector that goes against universality principles of Medicare and the equity objectives of equal care for equal need.

There remains a two-tier health system for those who can afford it (who on average have lower healthcare needs) and those who cannot (who on average have higher healthcare needs). This is both inequitable and inefficient.

In addition to fuelling inequalities, this leads to a considerable misallocation of resources such that those most in need of healthcare receive much less of it. The Australian population could be much healthier and more productive than is currently the case.

Controlling rising out-of-pocket costs

Unlike universal health insurance in other rich countries, Medicare at its establishment was unable to control medical fees. This is unusual for a developed economy, and more similar to low and middle-income countries.

GPs and other specialists in private practice retain the ability to charge any fee they wish to patients who have little advance information on costs, and no information on the quality of the care they’re recommended.

Fees which are too high or don’t reflect the “value” of the care being provided, provide perverse incentives for doctors to provide the wrong mix of services, and channels them into high-income specialties rather than specialties with the greatest healthcare needs.

Even with Medicare subsidies, patients are vulnerable, have insufficient market power, and can be exploited for financial gain.

Luckily, we rely on the altruism of the vast majority of doctors to prevent this, but there remain serious risks to patients receiving ineffective and harmful healthcare. This is partly driven by the ability of doctors to set their own fees.

As a result, out-of-pocket costs for GP and non-GP specialist care continue to grow faster than inflation, GP bulk billing rates are falling, and there’s no evidence of health outcomes improving.

Only 60% of healthcare provided is effective, 30% is wasteful and of low effectiveness, and 10% is harmful to patients.

Doctor working on a laptop, holding a stethoscope

Remodelling Medicare

Governments (and voters) seem to be generally happy with the system, and Australia fares well in international comparisons of health outcomes and costs, though does less well on equity of access.

But complacency is the enemy of progress. Can Medicare be modernised to improve population health without becoming unsustainable?

Strengthening value-based payment

Governments and private health insurers should only pay for care that’s cost-effective. This already happens to an extent, since one exceptional achievement of Medicare is the Pharmaceutical Benefits Advisory Committee (PBAC) and the Medical Services Advisory Committee (MSAC),which assess the cost-effectiveness of new medicines and medical technologies before they can be subsidised.

The MBS Review also recently examined all 5700 Medicare items for their appropriateness, but the process was run by doctors who could lose or gain financially from the recommendations made.

However, PBAC and MSAC assessment processes don’t cover the use of AI as a new technology, care provided in public hospitals, or care that’s fully private.

Such assessment should be expanded to cover the whole healthcare system.

Controlling out-of-pocket costs

Value-based payment also involves controlling medical fees. Reforms should include moving away from fee-for-service to blended payment models, reducing or removing MBS rebates entirely for doctors where fees charged are greater than a certain threshold, and by challenging the constitutional protection doctors seem to have that currently prevents direct fee controls.

Fee-setting and remuneration should be determined by an independent body based on high-quality evidence of the costs of providing care and its effectiveness.

The vast majority of doctors who set appropriate fees should not lose income – it should just be delivered in a different way.

Finding out what works through investment in health and medical research

Value-based payment also requires more investment in health and medical research, to measure the cost-effectiveness of treatments that can then feed into evidence-based clinical guidelines and better-support PBAC and MSAC and other decisions on what services taxpayers should fund.

Health economics research should be mandated in all clinical trials and research on the economics of healthcare funding, financing, and the behaviour of the health workforce needs to be better-supported.

Rethinking aspects of medical education

Doctors should be taught evidence-based medicine and health economics as compulsory subjects throughout their undergraduate and postgraduate training, and continuing professional development, so their beliefs about what is effective is grounded in evidence as well as their experience.

They should also be trained to deal with high patient expectations more effectively, which is also a driver of low-value care.

Measure success

The Australian healthcare system routinely measures deaths (failure), but doesn’t routinely measure health outcomes and patient experience (success). These are necessary to encourage the provision of value-based healthcare.

Nationally consistent measures applicable to all conditions need to be developed, allowing feedback to doctors and hospitals to continuously help to improve their care.

What next?

The future of Medicare needs to involve supporting the provision of high-value healthcare (and defunding low-value healthcare) through the serious introduction of value-based payment models, systematic investment in research, rethinking aspects of medical education, and the measurement of health outcomes and patient experience.

The past 40 years have embedded Medicare as a valued public institution. Modernisation is necessary for Australians to continue to thrive in the next 40 years.

This article was published by Lens.