New Prostheses List Reforms A Step Towards Health Insurance Affordability

18 September 2017
Both the private health and medical device industries have welcomed the Government’s commitment to reforms concerning medical device pricing.

private vs public prostheses

The Government recently released its response to the 16 recommendations made by a Senate Community Affairs References Committee report concerning pricing regulations associated with medical prostheses.

Key points from the Government’s response include:

  • The need for complete transparency in regards to any reform work undertaken by the Prosthesis List Advisory Committee
  • Agreeing that action is needed in regard to identifying “ways to reduce prostheses costs without reducing patient outcomes, or reducing the value of private health insurance to Australian consumers”
  • The need for further work put towards a future framework surround how benefits and pricing are determined
  • That “the nature and cost of services associated with a medical device on the Prostheses List be disclosed separately to the cost of the device”

What are stakeholders saying about the response?

The response has been welcomed by both Private Healthcare Australia (PHA) and the Medical Technology Association of Australia (MTAA), with the former saying that the response reaffirms the Government’s “commitment to implement sensible reforms to make private health insurance more affordable for all Australians”.

Private Healthcare Australia’s response

The representative body for Australia’s private health insurance industry welcomed the government’s response, but stopped short of flat-out praise, emphasising the need for continued action amidst rising premiums.

“Current ‘Prostheses List’ regulations have forced health funds to pay benefits for medical devices 2-5 times higher than the price charged for the same device to public patients, and in equivalent countries around the world,” said Private Healthcare Australia CEO Dr Rachel David.

Dr David stated that “this has put direct upwards pressure on health fund premiums”.

“A member fund recently reported that the insertion of a cardiac defibrillator (without complication) in a private hospital setting cost $55,000 for the prostheses component while an identical procedure (without complication) in a public hospital setting cost $15,000 using the same prostheses,” Dr David said.

“Health funds have guaranteed all savings made by reducing inflated prostheses list benefits will be passed on to consumers by way of lower premiums and we urge the Government to continue the process of reform.”

The Medical Technology Association of Australia’s response

The MTAA also reacted positively to the Government’s response, having been one of the bodies consulted by Government on potential reform in regards to medical devices – however the body was somewhat critical of the private health industry.

“We welcome this report and recognise the importance of PL reform and increased transparency but it needs to be based on facts and not fiction when it comes to evidence,” MTAA CEO Ian Burgess said.

“MTAA is working with Government to deliver reforms which improve patients access to the best medical devices in the private system.

“PL reform will deliver PHI a one off marginal premium reduction but at what cost to the medical device industry and ultimately patients?

“We expect that whatever the outcome of this process PHI will deliver to its members a 0% increase next year given the scale of the reductions they are seeking and its 13.5 million members need more than just a ‘trust us’.”

Price differences between public and private health becoming a flash-point

One of the more contentious points in the discussion about medical devices has been the device pricing disparity between public and private health patients mentioned by PHA in their response.

It’s an issue that reared its head last February, when the Government announced it would take actions to make thousands of medical devices more affordable.

This was met with approval from PHA, with Dr David noting at the time that “the Prostheses List price regulations currently compel health funds to reimburse medical device prices at levels which can be up to five times higher for private patients as they are in the public system”.

The PHA, in their recent statement concerning the Government’s response, cited their 2015 ‘Costing an arm and a leg‘ report which found that private patients were “paying $800 million per year too much for medical devices”.

The statement also noted that “recent data released by the Federal Government from the Independent Hospitals Pricing Authority (IHPA)  showed the dollars wasted are close to $1 billion”.

However, both the MTAA and the Government appear to take issue with this notion, with the Government noting that the Independent Hospital Pricing Authority data cited by PHA does “not fully take into account differences in the type and use of prostheses in the private and public sectors”.

Additionally, the MTAA says their analysis, which they claim is “the most comprehensive and robust data set that exist (sic)”, reveals a pricing disparity which is “considerably less” than the one extrapolated from IHPA data.

The MTAA also offered the following reasons for the price disparity:

  • In the public sector, prostheses are mostly purchased through tendering arrangements with a focus on bulk purchasing and limited range of prostheses that enables lower costs and lower pricing;
  • Private hospital purchasing is generally based on a single purchase at a time based on surgeon preference;
  • The level of regulatory hurdles in the private sector delays market entry which comes at a significant cost to the medical device industry given the relatively short life cycle of devices due to the high rate of incremental innovation; and
  • The level of technical manufacturer support required is significantly higher in the private market for certain products, for example for cardiac devices. In the private health services, this support is largely provided by the medical device companies while in public health services these activities are delivered by public hospitals.

The Government ultimately seemed to acknowledge the need for action regardless of the size of the pricing disparity, saying that it “is consulting with the medical device sector on a second tranche of cost savings to be delivered from 2018 to further improve the cost of private health insurance and deliver pricing stability for the sector.”

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