Fee-for-service?          □
Annual fee-for-patient? □

Are you prepared for Medicare reform? Find out how we’re working with health care providers to prepare for tomorrow.

  • Share

The current raft of primary health care reforms will soon impact the majority of health service providers. At a recent EY forum, Dr Tony Sherbon, EY’s Federal Healthcare Leader, met with industry representatives to discuss the impact of the proposed changes. This synopsis of the ensuing discussion looks at the changes health care providers can expect over the short and medium term, and how they should prepare and respond.

A sector ripe for reform

In 2016, we expect strong momentum in health care reform. The grim fiscal health care reality of Australia’s ageing population, increased utilisation and growing consumer expectations has created both bipartisan support for genuine change – and increasingly realistic and receptive industry stakeholders. For example, for the first time, the Australian Medical Association has accepted the possibility of capitation – funding GPs based on patient population need – as an alternative to the current fee-for-service model for primary care.

For health care providers – even those not marketing directly to GPs or their patients – the coming changes will reverberate through the system. The reform process is already proving to be highly complex – throwing up numerous uncertainties.

Organisations across the sector need to understand how their market is likely to evolve and what they should do to prepare for the coming changes.

Expected elements of reform:

  • Changes to the Medicare model

    In its current fee-for-service (pay per GP visit) form, Medicare poses an increasing burden on government finances. For those with chronic disease – who account for the vast majority of Australia’s health costs – fee-for-service creates issues around both cost containment and quality of care. These patients require longer consultations to solve their complex health issues – not the frequent, short GP visits incentivised by fee-for-service. For such frequent Medicare claimants, the Government is proposing a form of bundled payment for a package of complex care coordinated by a GP.

    This system involves paying doctors an annual fee for each patient they have enrolled in their practice – in return for the GP looking after that patient for the whole year. In this model, GPs do not receive more money for seeing their patients more often. Instead, they benefit from lower costs themselves if patient health improves and they require less care in the future.

    This is not to say that fee-for-service is dead. This will still be needed for people who are relatively healthy and only require episodic care or for those, such as children, who should be encouraged to see a GP regularly.

    Likely timing
    Despite media expectations, changing the way GPs are paid is likely to be a four- to five-year exercise because costing health bundles is technically extremely difficult. The problem is that you can’t have a single bundle for a particular diagnosis. One person suffering from heart failure may also have a variety of additional complications. Costing will need to be on a graduated basis, calculated at the patient level.

    Implications for providers
    Organisations selling products or services into the primary or secondary care sector should start planning now for how they will respond to bundled payments. As part of the costing process, providers will need to show how and where a device, test or service fits into care pathways and packages. Costing for graduation will be a particular issue. Providers must manage how their costs are reflected as packages are built up. Right now, providers should watch for updates on timeframes and how the bundling process will work technically. As an indication, the industry discussion paper A Model for Australian General Practice: The Australian Person-Centred Medical Home,examines the practicalities of implementing a performance-based model.

  • Continued emphasis on primary healthcare networks (PHNs)

    After initial scepticism, stakeholders are beginning to accept that PHNs, which oversee all state health care providers, will be the vehicle behind multiple reforms. For example, PHNs will play a key role in the mental health reform process, particularly through planning and commissioning primary mental health services at a regional level, supported by a flexible funding pool for mental health and suicide prevention services.

    Likely timing
    PHN boundaries appear to be settled and are unlikely to change further, despite WA forming a massive single network. In the next decade, more funding will be channelled through these networks, including for hospital services and chronic care.

    Implications for providers
    Any providers receiving direct funding from government agencies will find their funding transitioned to a PHN.

  • Medicare Benefits Schedule (MBS) reform

    The MBS Review Taskforce is considering how the more than 5,700 items on the MBS can be aligned with contemporary clinical evidence and practice and improve health outcomes for patients. The Ear Nose and Throat (ENT) sector has already responded; others will likely follow by schedule. In doing so, stakeholders should be aware that the Government appears to have a genuine interest in redesigning MBS so it becomes a quality tool – not just a reimbursement tool.

    Likely timing
    In 2016, the Taskforce will form Clinical Committees and continue to hold stakeholder consultation forums. Stakeholder responses will be required on an ongoing basis for the next 12-24 months.

    Implications for providers
    Rather than cutting an item, the Government is more likely to freeze it. At first this will reduce bulk billing incentives. Over time, demand will reduce substantially and, eventually, the item will become uneconomic. Providers should therefore be wary of offers to freeze a rebate.

  • Public hospital payment reform

    For the last four years, Australia’s public hospitals have been using activity-based payments, with a national price – set by an independent umpire – for a list of 1,000 weighted hospital services. The Commonwealth funds a portion of each service, the states pay most of the balance and private health insurers make up the rest. The system, which has been operating in Victoria for 20 years, has already saved the NSW and Queensland governments significant proportions of their hospital expenditure. Activity-based funding incentivises hospitals to treat patients more efficiently and in the most appropriate setting. As such, the state and territory premiers are keen to keep it, rather than revert to the annual fight over block money.

    Eventually, the Federal Government looks set to create a market-contested structure for hospital services, offering major opportunities for private hospitals and other private service providers – both current and new entrants.

    Likely timing
    We expect progress on a contested market in the next two or three Council of Australian Governments (COAG) meetings.

    Implications for providers
    This is an important opportunity for private hospitals to access public funding to provide public hospital services.

  • E-Health in flux

    The Government is transitioning activities and resources from the National E-Health Transition Authority (NEHTA), and also from the My Health Record system operation activities, to a new entity called the Australian Digital Health Agency (ADHA). The ADHA will assume governance responsibilities for all national digital health strategy, design, development, delivery and operations and functions, as well as operating and evaluating the My Health Record ‘opt out’ participation trials.

    Likely timing
    The Commonwealth is currently recruiting board members and a CEO. The Agency will open for business on 1 July 2016, with a mandate to accelerate the uptake of E-Health.

    Implications for providers
    The ‘opt out’ pilots will certainly increase registrations, but they will not solve the functionality problems currently hampering clinical adoption. Currently, the Personally Controlled Electronic Health Record (PCEHR) is hard to navigate and is not on a mobile platform. There will be substantial opportunities for the market to develop a mobile E-Health platform as the ADHA gets up to speed.

To discuss your organisation’s best response to pending health care reforms, contact:

Dr Tony Sherbon
Federal Healthcare Leader, EY
Tel: +61 2 6267 3915

Dr Tony Sherbon previously led a comprehensive national reform of public hospital funding across Australia through the national implementation of activity-based funding. Prior to that, he had 28 years’ experience in clinical and administrative management, including four years as Chief Executive of SA Health. Dr Sherbon previously chaired the Australian Health Ministers’ Advisory Council and was a board member of the South Australian Health and Medical Research Institute, National E-Health Transition Authority and Health Workforce Australia.