Progress on prostheses reform still key to reducing pressure on premiums

What are prostheses, and why should it matter to the 13 million Australians with private health insurance?

Prostheses are medical devices, like replacement knees and hips, which many Australians will need at some point in their lives. Every Australian with private health insurance helps pay for them, through their premiums.

But every year, private health insurance customers are forced by law to pay more for prostheses than public hospitals pay. In some cases, they pay a lot more. And each time this happens it contributes to rising insurance premiums.

The Federal Government made some changes to how prostheses are priced in 2017, and since then, Medibank has been able to pass on more than $80 million in savings to our customers. This year, we expect to be able to deliver another $20 million in savings to our customers due to these reforms. However, device manufacturers continue to add devices to the list, and growth in the utilisation of prostheses has consistently exceeded the growth in procedure volume.

Medibank has passed on every dollar that would have been saved from prostheses reform to our customers in the form of lower premium increases, but device manufacturers continued to game the system. Lower prostheses prices for private patients (prices that are in line with what is paid in the public system) mean lower private health insurance premium increases – it’s that simple.

The Commonwealth Health Department is again consulting on the options for reforms and improvements to the Prostheses List, which determines the price private health insurers and the Department of Veterans' Affairs pay for prosthetic devices.

Further reform to this list is essential, because private health insurers are still paying a far higher rate for prosthetic devices on behalf of their customers than the public healthcare system. Every $200 million in prostheses benefit reductions will decrease private health insurance premiums by one per cent.

Medibank supports the Department’s proposal to consolidate the Prostheses List using the Diagnosis Related Groups (DRG) model. The DRG model works well in the public system, but some claim this will limit consumer choice and will result in poorer outcomes than the current system.

These claims are not about consumers and not about clinical autonomy – they’re about the medical device manufacturers protecting their profits.

Choice of device is, and should remain, the domain of clinicians. And the reality is that consumers are rarely, if ever, informed which specific devices / brands will be used in a procedure and what the clinical outcomes of those devices are. We strongly support clinical autonomy.

Some say prostheses reform will increase out-of-pocket costs for consumers. But why should this happen if prices reflect those in the public system? The answer, of course, is because device manufacturers want to maintain their profits and they are looking for a way to charge consumers to do so. Some devices cost five times more in the private system compared to the public system.

In the new model proposed by the Government, it wouldn’t be possible for consumers to be charged an out-of-pocket cost. This is because any prosthetic device would be paid for by the private health insurer as part of a contract with the hospital, and these contracts ensure patients cannot be charged an out-of-pocket for those costs. And rest assured, there would be allowances for complex cases or new technology, to ensure patients can access the prostheses they need. So any argument that patients would be worse off is misleading.

Moving to a DRG model, as has been successful in the public system and internationally will have no negative impact on patient care or clinical outcomes. In fact, what it would do is increase competition in prostheses pricing, putting downward pressure on cost growth. A DRG model would group individual prostheses items together into a bundle, as has worked effectively in other elements of health service delivery, without the industry gaming or steep price increases evident under the existing Prostheses List.

Private patients should not face any out-of-pocket costs for medical devices, regardless of any changes to the system. But nor should private patients continue to pay inflated prostheses rates through their health insurance premiums. The same prosthetic device should not cost more in the private system than it does in the public system.

Medibank has made a commitment to our customers and we have delivered every dollar in savings from prostheses reforms to our customers and we’ll continue to do so.

If we want to do something meaningful on the health costs of more than 13 million Australians, then real reform to prostheses pricing must happen.

Medibank's full submission to the Health Department on the Prostheses List is available to download.