More visits to the doctor doesn't mean better care – it's time for a Medicare shake-up

This is part of a major series called Advancing Australia, in which leading academics examine the key issues facing Australia in the lead-up to the 2019 federal election and beyond. Read the other pieces in the series here.

Over the last 35 years, Medicare has given Australians access to high-quality health care at a reasonable cost. But, despite our justifiable pride in Medicare, it’s time to reconsider the way we pay for health care.

Australia’s Medicare system is a A$20 billion-a-year program. It subsidises most of our out-of-hospital doctor consultations, blood tests, X-rays and scans, physio appointments, eye tests and many other health services. It’s based on a long list of items and each time an item is provided, Medicare pays a benefit.

But paying doctors and other health providers a set fee for each service they deliver is not delivering optimal value for the health dollar. There are two reasons for this.

First, it encourages a higher volume of services, but not necessarily better-value services.

Second, it constrains doctors into delivering the care based on the items in the schedule, which often don’t meet the needs of complex patients.

Read more: Explainer: what is Medicare and how does it work?

One promising alternative is “bundled payments”. Rather than paying doctors a “fee for service”, they would be paid a prospective lump sum to care for the patient’s medical problem, over a specified period.

The lump sum would be a pooled payment for all services provided to treat the condition. The provider’s role would be to coordinate the patient’s care across different parts of the health system and work with a range of health professionals to deliver high-quality care.

This would give doctors greater flexibility to manage the care patients need. At the same time, doctors would be held accountable via measurements of the quality of their care.

Importantly, this would give patients greater access to a broader range of services and make it easier to navigate our complicated health system.

Why health costs are rising

Between 1984 and 2018, Australian government spending on services outside of hospitals has increased from A$426 to A$818 per person, after adjusting for inflation.

This increase is almost entirely due to service volume. Back in 1984, the average Australian made 7.25 out-of-hospital Medicare claims a year. By 2018, this had escalated to 15.34; a doubling in the average number of claims.

The biggest growth has been in the number of pathology claims for blood and tissue tests (1.4 in 1984 to 5.2 in 2018), followed by GP consultations (4.2 compared to 6.3) and diagnostic imaging, including X-rays and other types of scans (0.3 versus 1.0).

This is not just the result of population ageing. At every age, we are making more Medicare claims. In 1985, people aged between 75 and 84 made 16.1 Medicare claims per year. In 2018, this number had grown to 44.6 claims per person per year.

Medicare prices have been very steady. For GP consultations, for example, the benefit paid per service has increased by 72% over the 35-year period, and mostly as a direct result of policy initiatives such as the Strengthening Medicare reforms introduced in 2004-05.

In fact, since 2005, the benefit per service has declined by 6% in real terms. This is a result, in part, of the Medicare freeze imposed by government between 2012 and 2018.

So price control is only one part of constraining expenditure growth. The other is the volume of services.

Read more: FactCheck: has Medicare spending more than doubled in the last decade?

The medical care market has undergone considerable corporatisation. Corporate entities now own around 10% to 15% of all GP practices in Australia.

Corporate entities can own and run primary care practices as well as pathology laboratories, diagnostic imaging services and even pharmacies. This creates more incentive to refer patients to their own businesses for blood tests and imaging to increase the volume of claims, and therefore increase profits.

Greater spending doesn’t mean better care

The second critique of Medicare is that current funding arrangements create disincentives for delivering optimum care over a longer period, particularly for complex patients who require multiple services from multiple providers. They might have cancer, for instance, or multiple chronic diseases such as heart disease and diabetes or dementia.

Currently, Medicare makes a payment for every claim made within what we call an “episode of care” – a set of services to treat a condition, or a procedure. Each provider in that episode has an incentive to increase their own volume of care, but there are virtually no incentives to coordinate or deliver an optimum pathway of care for the patient.

Further, there are too few opportunities and rewards in this system to give doctors flexibility to offer different types of care for patients. This includes care provided by nurses, physiotherapists or dietitians; email or telephone consultations; patient education; and coordination services.

Instead, pay doctors a lump sum

The main feature of a good payment system is that it creates the right incentives for providers and patients to use health care resources effectively, efficiently and equitably.

Bundling payment involves working out the best care pathways for each condition. Cancer, for example, is a complex disease that requires ongoing care from primary, specialist and hospital services.

Under a bundled payment, the patient’s GP clinic would be paid a lump sum to ensure the patient receives all the services they need. This includes consultations, health checks, blood tests, physiotherapy, dietetics, patient education, and so on. The GP would have more control over how each of those services is delivered.

If viable, the GP could bring some of these services into their practice, or they could subcontract them to other organisations.

The practice would be held accountable for providing high-quality care through various performance measures. These could range from patient satisfaction measures to objective measures such as timeliness of care or fewer avoidable complications. Payments could, in part, be made conditional on meeting performance targets.

Ultimately, because we are giving the provider more say over how care is delivered, the model of care can be more easily adapted to the needs of the patient.

Health reform must be based on evidence

In the small number of countries where bundled payments have been piloted, they are associated with improved quality, financial savings and increased patient satisfaction.

A bundled payment for hip-fracture patients in England, for example, resulted in more patients receiving surgery within 48 hours after admission and lower death rates.

Read more: Creating a better health system: lessons from England

Although these studies show promise, the evidence base is still in its infancy.

Successful reform in this area will require careful design of the bundles, the payment levels and patient selection process, as well as how best to monitor quality care. In particular it requires robust evidence to determine:

• what constitutes an optimal bundle of care for a particular condition
• the cost of delivering those services
• how the payment should be adjusted for the specific characteristics of a patient
• the role performance targets may play in motivating health providers to deliver high-quality care.

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