Private Health Insurance in Australia

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The foundations of the modern Australian Healthcare System are three publicly-financed programmes:  Medicare, Pharmaceutical Benefits Scheme & Public Hospitals. However, private health services are an increasingly critical piece of the infrastructure, with approximately 40% of hospital admissions during 2016/17 occurring in the private system. Although not mandatory, such services can be funded through private health insurance (PHI).

The benefits of PHI include choice of doctor, assistance with the cost of treatment in a private hospital, and the cost of ancillary treatments not covered by Medicare such as dental, optical and physiotherapy. The median waiting time for elective surgery for privately insured patients has been reported to be approximately half that of public patients, at 20 and 42 days, respectively.

The PHI policies currently on offer contain a bewildering combination of benefits, co-payments, exclusions and restrictions depending upon the premium paid. Ambulance transport is usually covered, importantly as a trip may be free in some states/territories of Australia but only for ‘medically necessary’ journeys in others, or not at all.

A recent Choice review looked at free online insurance comparison websites purporting to assist consumers to select the most appropriate policy. They found that ‘free’ comparison sites may actually earn fees that make up a sizeable proportion of total premiums. Some sites only compared  part of the market, while others were owned by the insurance companies they were comparing!

Membership woes

In June 1974, around the time of introduction of universal healthcare, a peak of 78.4% of the Australian population held private hospital insurance cover. At the end of June 2018, this figure was 45.1%, with 54.3% holding ancillary/extras or general cover (ambulance at a minimum). The policy trials and tribulations of maintaining private hospital cover levels are clearly shown in the graph.

Source: APRA Quarterly PHI Statistics 

The 2011 National Health Reform Agreement allowed patients with private hospital insurance entering a public hospital to choose whether to be admitted as a public or private patient. This led to an increase in the proportion of public hospital activity funded through private health insurance. Data shows that while 1 in 12 admissions to a public hospital in 2006–07 were under PHI, this figure increased to 1 in 7 during 2015–16 (AIHW 2017) suggesting that public hospitals were encouraging patients to use their private cover. Subsequently, negatively impacting the cost of PHI premiums and public hospital waiting lists.

As policy holders uptake of medical services and the cost of treatments and procedures both rise, premium affordability is becoming an issue. The trend is away from PHI membership as premiums continue to increase year-on-year at twice the rate of  inflation in an environment of low wage growth. Younger members, who are less likely to claim, are dropping cover (refer graph) leading to the question being asked: how can PHI funds be sustainable and afford to pay (ageing) members’ claims into the future?

Further Policy Reform

In October 2017, the Government announced a significant reform package, aimed at addressing some of the issues described. Successful implementation and adoption of these reforms will be essential to maintain the existing levels of service provided by the healthcare system.

 

For more detail, see the Parliamentary Library’s ‘Private Health Insurance: a quick guide’ by Amanda Biggs, Social Policy Section (Research Paper Series, 2017–18, 4 August 2017)

Meme source: King Julian Madagascar

Under PBS co-payment data

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The Fifth Community Pharmacy Agreement (5CPA) contained a clause requiring community pharmacies to provide data to the Commonwealth on each PBS prescription dispensed at a price below the general patient co-payment. This was $35.40 when collection began on 1 April 2012 following enactment of the National Health Amendment (PBS) Act 2010. Prior to this date, PBS prescription data was only collected when a Government subsidy applied, reflecting the original purpose of the system.

The collection of data on use of PBS medicines by the Australian population has become an important secondary function. The combined impact of an increasing general co-payment amount (linked to CPI) and decreasing manufacture prices (price disclosure once off patent, no CPI), mean that a high proportion of medicines listed on the PBS are now priced below the general patient co-payment.

Given that such medicines include many commonly prescribed antibiotics, as well as medicines and other items associated with management and treatment of chronic diseases, it is important to fill this information gap. The Department of Health engaged KPMG to conduct a Combined Thematic Review of Access, Consumer Experience and Quality Use of Medicines under the 5CPA. The March 2015 Final Report did find that the initiative supported this aim. The data is collected from public and private hospitals and 99% of community pharmacies. It provides a tool for health policy planning, research, pharmacovigilance, monitoring risk management protocols and quality use of medicines in the community. The additional data has also been used to improve the accuracy of information available to the Pharmaceutical Benefits Advisory Committee (PBAC), among other decision makers.

 

The number of under co-payment Section 85 prescriptions dispensed on the PBS from 2012-13 through to 2016-17 are shown in the graph. The volume is increasing, however of more interest is the under co-payment prescriptions as a proportion of total PBS S85 prescriptions dispensed shown by the orange line. This was 24% in 2012-13 and increased to over 30% in 4 years.

Almost one third of S85 PBS prescriptions dispensed in Australia during 2016-17 were under co-payment and paid for by patients (out-of-pocket). Clearly medicines are affordable or the PBS is not the universal scheme it is generally stated to be.

Other gaps continue to exist in medicine usage data, for example, for medicines down-scheduled off the PBS to over-the-counter availability.

 

Sources: PBS statistics and Expenditure reports (www.pbs.gov.au); The Simpsons.

Primary healthcare (PHN) data

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MyHealthyCommunities is an Australian Government website managed by the Australian Institute of Health and Welfare (AIHW). The public availability of statistics and data at a local Primary Health Network (PHN) is meant to drive improvements, increase transparency and accountability within the health system.

Data for more than 140 measures by PHN area are updated regularly. The categories, shown below, align with health priorities.

Interactive tools allow you to filter on characteristics, time period and location. Available data can be downloaded as maps or as an Excel spreadsheet.

A recent report on Out of Pocket spending on Medicare services in 2016-17 quantified what we all know from our trips to the GP or specialist with half of all patients (10.9 million people) incurring out-of-pocket (OOP) costs for non-hospital Medicare services last financial year. OOP were paid by:

  • 34% of patients who had a GP service,
  • 72% of patients attending a specialist appointment,
  • 23% of patients had costs for diagnostic imaging services,
  • 44% of patients requiring obstetric services.

The data and user friendly graphics are easily accessible. In addition to the 31 PRNs, results are presented for smaller local areas, known as SA3s, of which there are approximately 300. Have a look at the Excel download to get an appreciation of the depth of the data. Below is the landing screen for  the new interactive web tool which allows you to see variation across similar local areas by remoteness and socioeconomic status.

Another great initiative well executed by the AIHW.

Primary care organisations in Australia

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The development of primary care organisations since the 1980s is based on evidence that a well-developed primary care model improves health outcomes and cost-effectiveness in the whole healthcare system. A key being their increasing use to implement public health care reforms including shifting services away from hospital settings and into the community.

Primary healthcare in Australia is provided mainly by independent general practitioners (GP) on a fee-for-service basis, predominantly funded by the Australian Government through Medicare. Over 80% of GP services are bulk-billed, with the doctor accepting a Government reimbursed schedule fee as full payment. There is no system of patient registration with a GP or practice, and patients may consult any GP.

The first major structural reform in Australian primary care was the establishment of Divisions of General Practice from 1992.  At their zenith, there were 119 nationally with 94% of GPs as members. Additional reforms included a practice incentive programme to improve quality and accountability of GP services such as paying for immunisations and prescribing reviews; a rural incentives programme that includes paying GPs to relocate to and stay in rural and remote communities and outer urban areas; and amendments to the fee schedule that encourage participation in care planning and case conferencing and more multidisciplinary care.

In 2008, the then Labor government established the National Health and Hospital Reform Commission (NHHRC) to conduct a comprehensive review of Australia’s health system. The final report  gave rise to the Council of Australian Governments’ (COAG) National Health Reform Agreement (2011). The Commonwealth Government agreed to fund a new primary healthcare structure to improve coordination and integration of primary health care in local communities, address service gaps, and make it easier for patients to navigate their local health care system.

The establishment of 61 Medicare Locals across Australian regions aimed to strengthen the primary care system (and thereby relieve pressure on hospitals and other acute providers). Medicare Locals were non-profit companies selected after a competitive application process and funded largely by the Commonwealth with $1.8 billion for the period 2011–12 to 2015–16.

Many GPs saw the new structures as a threat to their primacy in their local primary care market and an unnecessary additional layer of bureaucracy. This negative view was reinforced by the Australian Medical Association, that lobbied the Coalition Opposition on the basis of the perceived threat to the GP small businesses.

Not surprisingly, soon after coming into office, the new Minister for Health, Peter Dutton, announced a review of Medicare Locals. Conducted by Professor John Horvath, assisted by two consulting firms, the review informed the 2014-15 Budget announcement that all Medicare Locals would cease operation on 30 June 2015 and a new network of Primary Health Networks (PHNs) would be established.

Despite the significant costs associated with winding up the relatively recently established Medicare Locals, and a poorly managed public tender process, on 1 July 2015, 31 PHNs, funded by approximately $900 million, replaced the Medicare Locals.

PHNs are independent organisations funded by the Australian Government. They work collaboratively with local hospital networks (LHNs), and their boundaries closely align. Each PHN is overseen by a board. The board is advised by a GP-led clinical council and a community advisory committee.

The new PHNs are responsible for populations and geographic areas that are much larger than those of the Medicare Locals. While Medicare Locals had an average population of 355,000; PHNs service an average population of 738,000.

An example snapshot of Tasmanian PHN is provided. Refer to the PHN website for further information and links to individual PHNs.

 

 

TMI?

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While the internet is fantastic for providing access to information on any topic at any time of the day, sometimes, particularly when it comes to health issues, knowing a trustworthy source is invaluable. For Australians, healthdirect aims to be this resource.

Established by the Council of Australian Governments (COAG) in 2006 and jointly funded by the Commonwealth and State/Territory governments, healthdirect Australia is a national, not-for-profit organisation that provides approved health information to Australian consumers.

The infographic below from the 2016-2017 Annual Report would attest that the site is achieving its aim.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition to site visits for medicines information, the second most common reason for calls to the healthdirect helpline (1800 022 222) was to ask a medication question.

The medicines information provided is sourced from the Therapeutic Goods Administration (TGA), Pharmaceutical Benefits Scheme (PBS) and Guildlink and updated monthly, although a pilot of real-time distribution is underway for some components.

For those around the industry in 1991, the Baume report recommended, among other major changes to the regulatory process, that pharmaceutical companies provide a Consumer Medicines Information (CMI) leaflet in the primary pack, or by other means, for prescription products. To avoid the issue of frequent revisions, Guildlink evolved from a collaboration with members of Medicines Australia.  Electronic distribution of CMIs commenced in 1995, via the website medicines.org.au and now via multiple other channels.

The next logical step will be personalised distribution via My Health Record.

Half-term Report Card for the 6CPA

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The August 2018 edition of the Australian Journal of Pharmacy includes a report card for the Sixth Community Pharmacy Agreement (6CPA) which came into effect on 1 July 2015.

Ten key initiatives are reviewed and graded:

Grade 6CPA (1 July 2015-30 June 2020) Impact 2017 Variation to 6CPA
A+ Introduction of the flat Administration, Handling & Infrastructure fee (AHI) with annual CPI indexation Delinked Government payment for dispensing from downward cost of PBS medicines due to price disclosure, stabilising income As total PBS script volumes in 2015-16 were 2.14% lower than forecast, a $ 200 million increase via the AHI for the remaining life of the 6CPA.

An additional $10 million due to impact of measures included in the Govt. Strategic Agreement with Medicines Australia.
A Dispensing fee +2.5% and annual CPI indexation Linked dispensing fee to inflation
A Dangerous Drug fee +8% and annual CPI indexation First increase since 2006 and linked fee to inflation moving forward
A– Location rules maintained to 2020 Regulates market by inhibiting competition Govt. commitment to amend the National Health Act 1953 to remove the sunset provision
B Pharmacy level substitution for biosimilars The Government signed an agreement with the Generic Biosimilar Medicines Association around the same time
B Intention of Government to restructure remuneration for chemotherapy infusions Introduction of fair and transparent compensation after discovery of inappropriate practices by hospitals to generate funds
B– Professional services funding ($1.26B over 5 years) As PBS growth has been, and continues to be flat, this funding came from savings generated elsewhere An additional $600 million for expanded pharmacy programs of which the Govt. commits to deliver the full $600 m within the life of the 6 CPA.
C+ Agreement to support a review of community pharmacy remuneration Interestingly, the resulting ‘King Review’ was considered a pass as it is unlikely to change anything for the sector Govt. commitment to ensure the response to the review secures a viable community pharmacy sector
C– No increase to CSO remuneration ….and no delinking solution, leaving CSO distributors in a deteriorating financial position $15 million due to impact of lower script volumes and measures included in the Govt. Strategic Agreement with Medicines Australia.
D The co-payment $1 discount Unpopular as the $1 is not reimbursed by the Govt. Govt. commitment to review but is not of a predisposition to discontinue

In addition to these initiatives, last year the 6CPA was varied via signing of a Compact between the Pharmacy Guild and the Government. In response to changed circumstances, the Pharmacy Guild successfully negotiated the additional funding shown above in return for agreeing to support ongoing PBS price reform, biosimilar uptake measures, and a role in implementation of Health Care Homes. These three being critical components of other ‘landmark’ agreements forged by the Minister of Health. An impressive outcome for both parties!

Link to image source

Same bed, fewer different dreams?

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Tackling a burgeoning inbox always reveals a few gems, such as the article by Ting Wang et al. published last month in ISPOR’s journal Value in Health (2018;21:707-714).

Wang and colleagues developed separate surveys for international innovative pharmaceutical companies (n=19 companies with 29 respondents) and Regulatory (n=7; 13 respondents) & Health Technology Assessment agencies (n=8; 12 respondents) from Australia, Canada, and Europe. Questions referred to the past 5 years and alignment of regulatory and HTA evidence requirements and synergy of processes.

The findings are not surprising to those working in the HTA space for more than 5 years. In particular, with regard to the increasing need for HTA requirements to be included earlier in drug development with unanimous responses from the three key stakeholders (Figure 1, bottom statement). The high drop-out rate of molecules as they move along the development continuum and associated sunk costs mean that early studies focus on efficacy and safety variables. Collection of variables for economic evaluations (e.g. Quality of Life at specific time points, resource use, follow-up beyond primary efficacy parameter, subsequent treatments, etc.) to demonstrate cost-effectiveness is usually left to Phase III and too late for fast-track/priority reviews based on Phase II data. Once a medicine is registered, the opportunity to collect comparative data disappears, and often with it the ability to demonstrate the real value of the new medicine over existing treatments to a healthcare system.

Figure 1: Company respondents’ views on the regulatory and HTA requirements

 

 

 

 

 

 

 

 

 

 

 

Abbreviations: HEOR Health Economics, Outcomes and Research

Figure 1 also shows that the potential negative impacts on innovation by HTA are recognised across the stakeholder groups as incremental gains are considered not to be rewarded by current HTA processes. Further education around HTA may drive policy changes that recognise and stimulate innovation in the sector.

Surprisingly, HTA agencies appear less concerned than their regulatory counterparts of the pressures to speed time to access to new medicines (as shown in Figure 2). The value of sharing of information to reduce duplication is also mismatched. This may be a consequence of the lack of clarity in differences in data requirements for the evaluations, which is alluded to by the higher response rate from HTA agencies on the need to align scientific requirements for the two processes. HTA evaluations are based on comparative efficacy and safety as applies to local clinical practice, whereas regulatory agencies focus on overall risk : benefit. The comparator is usually the currently most prescribed product used for treatment in a market, and costs are based on local circumstances. As such, there is considerable variability between HTA evaluations between countries, whereas the Common Technical Document (CTD) is generally acceptable with local modifications to all regulatory jurisdictions.

Figure 2: Main drivers for regulatory and HTA agency collaboration

 

 

 

 

 

 

 

 

 

 

 

 

The article also includes further findings, more detail in supplement materials and a comprehensive set of recommendations on how to improve synergy between agencies. Pop this publication on your reading list as you travel to your next meeting with a regulator or reimbursement agency.

Source of main photo: ‘Same Bed, Different Dreams’ South Korean TV show aired in Australia by SBS

Australian Public Hospitals and Activity-Based Funding

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The National Health Reform Agreement (NHRA), signed by the Commonwealth Government and all states and territories in August 2011, committed to paying for public hospital expenditure, where practicable, using Activity-Based Funding (ABF), also known as Case mix or Episode-based funding.

ABF supports hospitals on the basis of the number, type and mix of patients treated. To ensure that payments are fair and equitable across public, private or not-for-profit providers of public hospital services, they are based on the same price for the same service.

Setting this price is the role of the Independent Hospital Pricing Authority (IHPA), established by the Commonwealth per Section B3 of the NHRA. Each year a National Efficient Price (NEP) is determined and used to calculate Commonwealth funding for public hospital services, and also to benchmark the efficient cost of providing those services.

The NEP is based on the average cost of an admitted acute episode of care provided in public
hospitals during a financial year. Each episode of patient care is allocated a National Weighted Activity Unit (NWAU). The episodes of acute care are coded using the Australian-Refined Diagnosis-Related Groups (AR-DRGs) classification system.

The NWAU is a measure of hospital activity expressed as a common unit. The ‘average’ hospital service is worth one NWAU. The price of each public hospital service is calculated by multiplying the NWAU allocated to that service by the NEP. The NEP for 2018-19 is $5,012 per NWAU.

The National Hospital Cost Data Collection (NHCDC) tabulates cost weights*, total number of separations, average length of stay and direct and indirect costs by AR-DRG. The most recent report available is for Round 20 (2015-16). The AIHW provides principal diagnosis AR-DRG data cubes up to, and including, 2016-17, although these do not include cost weights.

As diagnosis is a major driver of in-patient hospital costs, ABF for admitted acute care services is based on DRGs. Other hospital services: non-admitted out-patient care; admitted sub-acute & non-acute care; emergency department care; admitted mental health care; and teaching, training & research are costed using other information.  Excel-based NWAU calculators are available for some of these service streams.

*Note: NHCDC Cost Weights and NWAU should be identical for the same service within the same time period.

Cartoon source: http://www.sauer-thompson.com/archives/opinion/health/ [14 July 2018]

Data from Australian Hospitals

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The Australian Institute of Health and Welfare (AIHW) recently released a number of  reports providing statistics on Australian hospitals.

Australia’s hospitals 2016-17 at a glance provides an overview of public and private hospitals and services provided to the Australian community. Companion hospital statistics reports present further detail on Hospital resources 2016-17; Admitted patient care 2016-17 and Non-admitted patient care 2016-17.

The information in the reports is based on data provided to the AIHW by state and territory health authorities for the National minimum data set (NMDS). As the name implies, a NMDS is a minimum set of data elements agreed for mandatory collection and reporting at a national level. As such, a NMDS is dependent on a national agreement to collect and supply uniform data. 

The National Health Information Agreement (NHIA) is that agreement. The current NHIA between the Australian Government and state/territory government health authorities commenced in October 2013.  Established to coordinate health information in Australia, including national data standards, the agreement also includes a commitment to co-operate through the Australian Health Ministers’ Advisory Council (AHMAC) which is the advisory body to the COAG Health Council.

The description of the characteristics of data is called ‘metadata’, often said to be ‘data about data’. By allowing those collecting and using data to have a common understanding of underlying features, metadata leads to better data. The repository for Australian national metadata standards for the health, community services and housing assistance sectors was developed by the AIHW and is known as METeOR.

AIHW’s National Hospitals Data Collection is comprised of six major databases with acronyms to match! One such national data set is the National Hospital Morbidity Database (NHMD) which is the collection of electronic, confidential summary records for admitted patients from public and private hospitals in Australia each financial year from 1993-94 and ongoing.

An excellent service is the public availability of interactive cubes of data from the National Hospital Morbidity Database. For example, the principal diagnosis cube (most recent 2015-16 to 2016-17) includes information on the number of same day and overnight separations (discharges), patient days and average length of stay, by age group and sex and year of separation, for each diagnosis. It can take some trial and error to produce the information you are after in a suitable format, but well worth the effort.

CSO perspectives & direct distribution

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Feedback on my recent post about the Community Service Obligation (CSO) has provided some alternate viewpoints:

(1) Like Australia’s population, 80% of PBS items are distributed in urban areas. Hence, irrespective of the per item delivery cost, the business of distribution in major cities and larger regional centres will be profitable due to economies of scale, and the ability to offset transport costs with multiple other deliveries, particularly if not solely distributing pharmaceuticals. It is only the 20% of rural and remote deliveries that require Government subsidisation to ensure timely equitable access to PBS medicines for patients.

(2) Apparently, the counter-intuitive is the case. In urban and regional centres, distributors own and operate their own delivery infrastructure and twice a day (at least) deliveries and special orders are guaranteed as part of service agreements. However, rural and remote distribution is generally via existing transport networks. Delivery schedules are less frequent and only cost when an order is made. Consequently, the average distribution cost per item may actually be less for deliveries to rural and remote pharmacies.

(3) An economist perspective, as provided by Dan Swain (Swain Health Economics), regarding the need for a CSO funding pool. On one hand, the annual CSO cost of approximately $200 million to ensure timely delivery of any PBS item anywhere in Australia, may be considered a good investment in the context of the $10 billion annual Government expenditure on the PBS.

On the other hand, the need for a subsidy may be a signal that the pharmaceuticals distribution market is in need of restructure. That is, the CSO may be propping up an unsustainable business model instead of permitting market forces to operate as they would in a less regulated environment.

This standpoint is supported by the decision of 13 companies to date, led by Pfizer in early 2011, to adopt a direct distribution model to community pharmacies across Australia for some or all of their products. They have chosen to by-pass the full-line wholesalers completely or opted to distribute directly in addition to the existing channel.

In the case of Pfizer, this covers all PBS product lines, includes a dedicated field force and a single logistics provider (the DHL direct-to-pharmacy distribution service is known as ‘Pfizer Direct’). In this case, the aim of direct distribution was and is to protect sales of Pfizer brands from generic competition, in particular as a number of its highest volume products lose patent protection.

At the recent PharmaDispatch Conference, the reasons given by Liz Chatwin, Country President AstraZeneca, for last year’s decision to go direct for nine high cost products included, in addition to the financial savings, improved data collection leading to a better understanding of patients and how products are being used, without compromising service standards.

An overarching assumption is that the cost to distribute directly via DHL is less than the 6CPA mandated distribution costs (7.52% of ex-man cost <$930, or $70). DHL distribution occurs independent of CSO funding, however the impact on CSO distributors is immediate as they are compensated monthly in arrears based on items supplied.

Opponents to the the direct distribution model note the increased administrative burden placed on pharmacies, and an increase in medicine shortages as more companies have gone direct. The Pharmacy Guild and National Pharmaceutical Services Association are concerned that exclusive monopoly supply arrangements put the first objective of the National Medicines Policy at risk, namely ‘Timely access to the medicines that Australians need, at a cost individuals and the community can afford’.

Submissions to the current Government review of the CSO will undoubtedly present detailed arguments and evidence supporting  these divergent opinions.