$5 Medicare rebate cut could cost patients up to $40 more

Non-concession patients may end up paying a A$30 to A$40 co-payment, not a A$5 one. Pete/Shutterstock

The Christmas-New Year silly season gave Australia three health policies. At the start of December, the policy from the 2014 budget was still on life support. But in mid-December, then-health minister Peter Dutton announced a new rebate reduction policy. This survived less than a month.

In January, the new health minister, Sussan Ley, dumped the minimum time requirement for a level B consultation – the most common type of patient visit – and promised to consult on what should replace it.

Two other elements of the government’s revised co-payment policy remain: a A$5 cut to GP funding for each service a GP performs for patients who are over 15 and don’t have a concession card; and a freeze on Medicare rebates until 2018.

As I’ll argue today at the hearings of the Senate Select Committee on Health, the cumulative impact of the freeze and the A$5 rebate reduction on general practices, and therefore on patients, will be substantial. Non-concession patients may end up paying a A$30 co-payment, not a A$5 one.

Impact on general practices

Data from University of Sydney BEACH surveys suggest that up to 57% of visits would be exempt from the reduced rebate because the patient has a Commonwealth Concession Card, Repatriation Card, or is a child up to the age of 15.

To account for other exclusions (15-year-olds, patients getting GP health plans and GP management plans) and to be conservative, let’s assume that two-thirds of patients are exempt from the A$5 funding cut.

The average practice (with an average distribution across the four consultation items, an average proportion of exempt patients and an average bulk billing model), would suffer about a 4% reduction in revenue across level A to D consultation items (the overwhelming majority are level B; A is for simpler, shorter consults; C and D are for complex, longer consults).

The more significant impact is the second, slow-burn reduction: the freeze on all rebates. The table below shows the estimated impact on per patient revenue in general practice under this policy for the four common consultation items.

Assuming inflation of 2% a year, the low end of the Reserve Bank target and recent experience, the cumulative impact on the freeze between now and June 2018 will be a further 6% cut in general practice revenue.

Estimated average funding reduction per patient in 2018

Funding reductions for mid-2018 are relative to today (in real terms); analysis is restricted to level A-D consultations; assumes bulk billing will decrease and incentive payments will reduce from 84% to 67%. Grattan Institute

In total, if inflation runs at 2% and the A$5 rebate cut goes ahead with its 4% revenue impact, general practices will face effective, real reductions in rebates from these consultation items of just over 10%. Cuts of that magnitude will challenge the business model of most general practices.

The result is likely to be a move away from bulk billing. This is indeed the objective of the government’s policy.

Impact on patients

So, if a practice decides to reduce bulk billing, what fees will it charge?

For bulk-billing practices, the cost of introducing fee-collection processes, including potential cash handling, is not trivial and may be more than A$5 a consultation. The Australian Medical Association described the initial co-payment proposal as a “costly red tape nightmare”. The A$5 scheme is likely to attract the same description.

A move away from bulk billing also means that the practice will lose the current bulk-billing incentive of A$6.15 or A$9.25 (depending on location and other factors).

In deciding their strategy, practices would need to consider not only the immediate impact of the A$5 rebate reduction, but also the slower but greater impact of the rebate freeze. If practices know that the value of the government rebate will erode over time, it would be prudent to set fees now that take this into account, especially as they have absorbed the impact of the existing freeze initiated by the previous Labor government.

The rebate reductions and the freeze are likely to lead to reductions in bulk billing and increases in co-payments. Guy Mayer/Flickr, CC BY-NC-ND

The average out-of-pocket payment, when there is one, is A$31 at present. The combined impact of the freeze and the A$5 rebate reduction raises the risk that practices would move to the prevailing non-bulk-billed co-payment.

If practices decide to maintain bulk billing for some non-concessional patients subject to the A$5 rebate reduction, GPs may offset the reduction by increasing the co-payment for people who already pay one. The average co-payment for non-bulk-billed services could then increase significantly above its current level.

Impact on patient demand

Imposing a A$31 fee may reduce demand, as patients baulk at paying the fee, defer the visit until they have multiple problems, or go to a hospital emergency department or pharmacy instead.

The impact of a reduction in daily demand on practices is unclear. Many practices can’t meet demand on any given day and already fill more appointments than they have available by making patients wait a day or two or longer for appointments. More than a quarter of people who visited a GP felt they had to wait longer than was acceptable.

Some patients don’t wait and seek care elsewhere, from pharmacies or other GPs. But if demand drops as a result of co-payments, waits might reduce and patients who might otherwise have sought alternative treatment sources would see a GP. The overall impact might be no reduction in realised demand.

In summary, the rebate reductions and the freeze are likely to lead to reductions in bulk billing and increases in co-payments. This is as the government intends. But the increase in co-payments is likely to be significantly greater than the A$5 rebate reduction, probably in the range of A$30 to A$40 for a standard, level B visit.