Mind the Gap: Part 7 - Private Hospitals

And now we return to normal programming. This is the last instalment of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

7. Private Hospitals

Private hospitals get some money from the Governments but on the whole these are relatively small amounts compared to Public hospitals. They make their money by charging their patients. If a patient has no insurance then they have to pay out of their own pockets. If they have insurance then they can get the insurance company to pay the hospital, or the patient pays the hospital and gets the money back from the insurance company.

This only covers the costs of the beds, the food, the nursing staff, any equipment used during the patient's treatment and other care that is received at the hospital. Usually there is also a co-payment that the Insurance company charges the patient (often $50/day), though this depends on your level of cover and whether the hospital has an agreement with the insurance company.

A doctor who consults on a patient or performs an operation at a private hospital will charge the patient separately. This is again eligible for a Medicare payment, and the doctor is entitled to charge the patient more if he feels that it was worth more than the CMBS rate. The CMBS fee itself usually relates to the type of operation and how difficult the operation was (in general terms). Where possible, most surgeons will give the patient an estimate of the expected surgeon's fees and gap costs, but this will depend what exactly was done at the operation, since it is impossible to accurately predict what needs to be done until the patient is on the table, asleep, and the operation starts.

Furthermore, unexpected complications that arise still need treatment, and therefore patients and insurance companies will occasionally receive further invoices beyond what was originally planned. This is part and parcel of all medical care, and while insurance companies understand this often patients do not, unless this is clearly explained to them early on in the piece.

The components charged by a surgeon in a Private Hospital will usually consist of consultation fees related to visiting the patient in hospital (prior to any operations) and surgical fees related to the time and effort involved in each operation or procedure performed. These fees usually include a component referred to as "aftercare" - namely postoperative management of a patient for reasonable time and effort incurred after an operation that proceeds smoothly. Where complications arise or a more complex situation develops, further consultation fees may be raised, but Medicare requires some justification that such fees are "Not Normal Aftercare (NNAC)".

Beyond the physician or surgeon who admitted the patient, fees may be raised by other specialists who are involved in the patient's care, such as the Anaesthetist, a Surgical Assistant (usually a qualified doctor assisting the primary surgeon), Intensive Care Physicians, Radiologists, and other Specialists (e.g. General Physicians, Cardiologists, other Surgeons etc.). The overall costs can be quite high, but again in most cases Medicare covers the CMBS portion of the fees, and the patient will only be left with small gap fees to pay.

All in all, a typical patient being admitted for a hip operation will receive bills for:

• Hospital charges (Nursing care, meals, bed and equipment costs) - usually reimbursed or paid by the insurance company, co-payments paid by patient
• Implantable Prosthesis charges (e.g. a Moore's Prosthesis) - usually reimbursed or paid by the insurance company
• Surgeon's Preoperative Fees (CMBS portion paid by Medicare via insurance company, Gap fee paid by patient)
• Surgeon's Operative Fees (CMBS portion paid by Medicare via insurance company, Gap fee paid by patient) - usually includes aftercare
• Anaesthetist's Fees (CMBS portion paid by Medicare via insurance company, Gap fee paid by patient)
• Surgical Assistant's Fees (CMBS portion paid by Medicare via insurance company, Gap fee paid by patient)
• Other specialist's fees where necessary (CMBS portion paid by Medicare via insurance company, Gap fee paid by patient).

In cases where a patient has no private health insurance, they will find that most of the fees raised by doctors will be covered by Medicare, and the Gap Payments should be relatively small. The most expensive out-of-pocket costs are those billed by the hospital for facility costs and prostheses. Not uncommonly, the Gap Payments may only add up to several hundred dollars, while the Hospital and Prosthesis charges may be many thousands.

Not all private hospitals are new and flashy.

• Public hospitals chase private patients
  
• Performance bonuses for veterans hospitals
  
• Abbott proposes private management of public hospitals

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Hopefully this series of posts have been enlightening, and help to unravel the world of Australian Private Health Care. Basically, there is a lot of money shuffling around the system, oblivious to the patients who receive the end-product. The costs of health care are far greater than many people think, and the current health insurance and Medicare system have done an amazing job of blinding patients to the true cost and value of health care - making it something that we take for granted.

Obviously it has done wonders for the underlying health of our society - we have some of the highest standards of health care in the world, and it is readily available to the vast majority of Australian Citizens (with notable exceptions in the Indigenous population). It has kept health-care costs down quite successfully. But it has also led to the result where we do not appreciate the value (both financial and otherwise) of our own health.

Health Insurance companies are making vast amounts of money by "value-adding" to a Government-funded service. They present the costs of having your operation in a Private Hospital as being something they pay for, when in fact it is still largely paid for by the Government. They are working hard to further hide the true cost of doctors' fees from the public, to make the Gap Fee an exception rather than the rule. And they are being very successful.

This is the end of this series of posts. I hope you enjoyed it.

Mind the Gap: Part 6 - Public Hospitals

This is Part 6 of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

6. Public Hospitals

Public Hospitals have nothing to do with Medicare. They get their money from State and Territory Governments, charities, donations, and anywhere else they can make money (for example, raffles and lotteries). They then spend that money on treating as many patients as possible.

Most Australian State and Territory Governments decide how much to pay a hospital based on factors like how many patients go through the emergency department each day, how many patients live in the area of that hospital, what kind of diseases the hospital treats in a particular year and also how many and what type of operations are performed at that hospital. This is called a "Case-Mix" system. As a response, hospitals like treating conditions that make them money (such as gastroscopies, colonoscopies, haemorrhoidectomies, orthopaedic surgery, coronary angiograms or heart bypasses) and not so much treating those that lose money (cancers, difficult infections, major operations where patients are in hospital for a long time). That doesn't mean that they don't treat them, just that the accountants get unhappy.

In order to keep hospitals on their toes, the Governments also penalise hospitals by taking money away if they do anything that makes the Government look bad, such as having long waiting lists, people waiting in the emergency department for more than 4 or 12 hours, or going on ambulance bypass because they are full. These fines are in the order of about $10,000-$100,000 for each occasion or unmet target. Therefore hospitals will do almost anything to meet these targets and avoid being hit with penalties, even if it means not paying staff or cutting back on "financially viable treatments". In many cases, hospital budgets are "make or break" depending on the extent of these penalties, and usually there is a mad rush to meet targets in the few weeks leading up to the end of a financial reporting period.

Doctors are paid a fixed salary by the hospital for all of their work (including ward rounds and operations), and usually there are arrangements to pay for overtime or extra work that is not rostered or expected beforehand. As in all industries, the more work the hospital can squeeze out of its staff without paying them, the better their bottom line.

As a secondary concern, public teaching hospitals are also responsible for the teaching and training of medical students and postgraduate doctors. Where hospitals have strong undergraduate teaching alignments with universities, there may be arrangements for universities to pay the hospital directly (in particular, teaching costs associated with clinical tutoring of full-fee paying medical students from private universities), or indirectly (e.g. funding part of the salary of clinical staff for their academic duties, contributing to infrastructure costs and building works, etc.). Besides community kudos, there is little or no money in this, and no effective outcome measures exist or are employed to measure performance in this area. It is therefore often ignored and the quality of teaching declines year by year.

Major public hospitals also receive some extra money for research through public and private sector research grants. This, rather than undergraduate or junior doctor teaching, is probably responsible for the alignment of hospitals to university departments.

Just like private hospitals, public hospitals are more than happy to treat privately insured patients, as they then get reimbursed from the Private Health Insurer for some of their costs and therefore more money can go to treating uninsured patients.

While privately insured patients do not get any special treatment in a public hospital, they may feel good because they are effectively making a donation to the public hospital. They also benefit from the fact that major public hospitals are usually better equipped and have more round-the-clock medical staff than private hospitals, and are therefore better at managing very complex or critical patients than small private hospitals. An added benefit is that due to the profit incentive, many public hospitals will pay for any excess payments incurred by the patient on their policy, which means that subsequent admissions to a private hospital later in that year will be excess-free.

With the Federal Government's Lifetime Health Insurance drive in 2000, many patients took out very basic health cover, essentially private insurance when treated in a public hospital only - effectively a Clayton's Private Health Insurance policy: a policy which is good for everyone except the patient. Thankfully these policies are becoming less common as they are gradually withdrawn from the market by Health Insurance Companies.

Sydney Hospital from Wikipedia

• Public hospitals chase private patients
  
• Performance bonuses for veterans hospitals
  
• Abbott proposes private management of public hospitals

More on this series next week.

Mind the Gap: Part 5 - GapCover

This is Part 5 of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

5. GapCover

This type of scheme, which goes by many names from insurer to insurer (such as GapCover, No-Gap, EzyClaim, "Just Ask", MediGap, etc. etc), basically involves an agreement between the doctor and the insurer to avoid the patient paying out-of-pocket expenses. In effect it is a bulk-billing system for private health insurance. Insurance companies agree to pay the doctor directly, for an amount above the CMBS rate, with the doctor undertaking to limit or waive any out-of-pocket or gap expenses to the patient. This type of arrangement has long been in place with the Department of Veterans' Affairs (DVA), Victorian Transport Accident Commission (TAC), and WorkCover (previously WorkCare).

The doctor benefits if they did not charge large gap fees to begin with, as they get paid more than CMBS, and they do not have to worry about bad debts (often more than 10% of patients will not pay their bills).

The Government and the Insurance Companies look good because they have "eliminated gap fees". Even better, the insurance companies now have a means to limit future payments to doctors, because they can just make sure that the agreed rates rise at less than CPI, and in 10 years time they are underpaying doctors substantially and there is a community expectation that doctors cannot charge gap fees.

This has worked very effectively for Medicare's Bulk-Billing system for 20 years, and GapCover is merely a similar scheme to cap doctors fees in the longer term while providing a short-term enticement.

The erosion of Medicare benefits is one reason for increasing Gap Fees

• Canberra urged to ban gap fees
  
• Patients to be informed of gap payments

More on this series next week.

Mind the Gap: Part 4 - Private Health Insurance

This is Part 4 of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

4. Private Health Insurance Companies

Unlike overseas insurance companies, Australian Private Health Insurance Companies do not usually set an anual dollar limit on benefits, or directly dictate medical care to their members like US Health Maintenance Organisations (HMOs).

The unique structure of Medicare extends to all Australians, including those who have Private Health Insurance. What this means is that Australian Health Insurers can depend on the Federal Government continuing to pay the bulk, or at least a known minimum, of health care costs for their members. Therefore, they are only responsible for meeting the difference between what the CMBS pays and what the provider charges (the Gap Fee). This includes the 25% of the CMBS fee which Medicare will not pay.

In actual fact, Private Health Insurers in Australia generally have policies which will:

• only pay for inpatient services (i.e. services rendered in a hospital)
• only pay for the 25% difference between the CMBS fee and the Government Rebate (i.e. not any gap fees on top of this)
• pay for costs incurred by the hospital during that period of hospitalistion
• pay for approved consumables and surgical implants used during operative procedures

As explained later, hospitals also receive money from state and territory governments for these services, so Private Health Insurers basically pay a standard fee intended to bridge the difference between the hospital's costs and the state or territory funding.


On top of this, Private Health Insurers in Australia benefit from a Federal Government drive to promote Private Health Insurance via a 30% Government rebate for Health Insurance Premiums. All in all, they have it pretty easy, and are raking in cash hand over fist, though they refuse to admit it when it is time to raise premiums. Instead, they employ specialists to help them think of hare-brained schemes to waste money and hide their profits.

The largest health insurer in Australia is Medibank Private which is currently privately owned by the Federal Government. Unfortunately for the ordinary taxpayer, Medibank Private has done such a good job of hiding its profits that the Federal Government thinks it would be better off privatising the company rather than keeping the income stream.

Medibank sale details to be decided
Medibank: In sickness and in health
AMA maintains Medibank premiums will rise
AM: Medibank privatisation good for consumers: Abbott
AM:Labor rejects claims of benefit from Medibank sale
The World Today: Govt set to confirm sale of Medibank Private
PM: Govt to sell Medibank Private
No guarantee on premiums
$50m private health ads 'planned'
Shakeup for medical insurance
Labour to target doctors over fees

More on this series next week.

Mind the Gap: Part 3 - Estimates of Costs

This is Part 3 of a series outlining the Australian Health Insurance industry from the perspective of a health provider. Dr Dork has prompted me to add an extra section to my series.

3. Estimates of Costs

Dr Dork said:

What disturbs me is when there is not financial disclosure prior to a procedure. I personally outline costs with every patient, and believe this is always necessary.

As a patient, I've also had some surgeons send me large unexpected bills. The bills don't piss me off. The fact that it is unexpected does.

Precedents demonstrate that lack of financial consent excuses the patient from paying, if they so choose.

Of course patients should expect an indication of the costs involved in their care - but just like when you contract a builder or any other tradesperson, the initial quote can balloon out if there are unexpected issues that need to be addressed.

As the "point man" (or "woman", or "person" etc...) the surgeon is often put under the spot to supply quotes or cost estimates from the private hospital, the assistant, the anaesthetist, the visiting physician, orthotics, physiotherapy etc. As things stand today, it is impossible for one doctor to presume to know what everyone else will charge.

Ultimately, such cost estimates are only indications of likely cost, and the failure is in the practitioner's ability to explain that to the patient. Usually this is because the patient is so worried about what the "gap fee" will be!

Things are somewhat easier for a physician (for the benefit of our US readers, internist) treating a patient as an outpatient - a set fee is charged per visit. Imagine giving the patient a quote for their hospital admission for, say, community acquired pneumonia? Who is to say how long they will be in hospital and how many inpatient visits or procedures you may be involved with? Should the patient refuse to pay anything beyond the first week because you said they would probably only be in hospital for that long?

Obviously the patient has the right to walk out of the hospital after a week, just as you have the right to fire your builder - but that's not very productive when you've got a half-built house. At the end of the day, if the builder fixed an unexpected major problem that had you been there you would have agreed to anyway (possibly because there is little or no choice) then would you deny payment just because they didn't talk to you first? Perhaps that is an issue of principle over pragmatism.

More on this series next week.

Mind the Gap: Part 2 - Gap Fees

This is Part 2 of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

2. Gap Fees

A doctor has the right to charge more than the CMBS fee if he or she feels that their service was worth more than this minimum amount. Ultimately, in our free market economy, doctors charge as whatever they feel is reasonable, and the Gap Fee is an artificial construct due to the expectation that the patient will not be out-of-pocket. If all doctors charged above the CMBS rate, then the Gap Fee would no longer be viewed with an air of disdain, but would merely be a normal copayment (like an insurance excess).

There are a lot of reasons why doctors may (or may choose not to) charge a certain fee, but the doctor has the right to set that fee as they see fit. It is usual that patients are informed of the fee they will need to pay before the consultation, but the final fee will depend on how much of a service they receive during the consultation, which cannot be determined until the consultation happens.

Note that even if the doctor charged only the government-recommended CMBS fee a patient would still be out of pocket 25% of the fee unless the doctor engaged in bulk-billing (and therefore being subject to at least a 15% pay cut). Many doctors feel that the CMBS rates are woefully undervalued, especially since they have not kept pace with inflation over the last 30 years. It is common for doctors to routinely charge 200% or more of the CMBS fee, though being as kind-hearted as doctors are, patients in financial difficulty are often bulk-billed.

The erosion of Medicare benefits is one reason for increasing Gap Fees

Plan closer for doctors to reveal fee gap
Patients urged to question medical costs

More on this series next week.

Mind the Gap: Part 1 - Medicare

When I used to catch the tube in London there was routinely an announcement as the train approached - "Mind the gap please". I am thinking of putting one of these signs up at the private hospital around the corner.

It is not that I have any objection to gap fees - I have some understanding of why they exist. Unfortunately, very little of the general population does. So here comes a brief lesson on the private health insurance system as it stands in Australia. This is part 1 of a 6 part series providing a brief overview of the funding aspects of Health Care in Australia from the perspective of a health professional. I am not an expert in these matters, but hopefully enough to explain how the system works from a practical perspective.


1. Medicare

Medicare is a form of social service support introduced initially in 1975 whereby taxpayer funds cover the basic costs of patients to see doctors in hospitals, clinics, rooms or offices, and even home visits or tele-consulting. More information on the history and development of Medicare is available here and here. The amount of money that the GP or Specialist receives from Medicare is determined by

1. How complex the problem is;
2. What procedures or services the doctor performs or provides during that consultation;
3. How long the doctor spends with the patient or on the consultation.

This payment from Medicare is called the CMBS Fee (Commonwealth Medicare Benefits Schedule) and is either paid to the doctor directly, or indirectly via a number of means.

The original intention was for patients to pay at least a $20 gap fee for any services provided by a doctor (primarily outpatient consultations including seeing, examining, diagnosing, ordering tests, and dispensing treatment to a patient). This evolved to a situation where doctors were given a recommended (CMBS) fee to charge the patient. The patient would then pay the doctor directly and then they would take their bill to a Medicare Office where they would be reimbursed for 75% of the CMBS Fee, effectively leaving the patient out of pocket 25% (the gap fee). Alternatively the patient could take a doctor's invoice to a Medicare Office where they could obtain a cheque written out to the doctor for 75% of the CMBS fee and then pay the remainder to the doctor directly. Cheque fraud by patients was common.

Because there was no cap on a doctor's total fee, the back-and-forth travelling incurred by the patient, and also the fraud problems caused by the above arrangement, the Government then tried to simplify arrangements by introducing Bulk-Billing, which involves doctors undertaking not to charge a gap fee in return to being directly paid 85% of the CMBS fee.

Similar fees apply if a doctor visits a patient at home, or while they are an inpatient in a hospital.

The biggest success of Medicare has been to introduce bulk-billing, and therefore hide the true cost of health care from the patient, effectively saying that health care is free, when the Federal Government is really just buying health care in bulk for its taxpayers, and demanding a discount from doctors while doing so.

In the meantime, the Government uses Medicare to control and dictate who, where, and how doctors practise medicine, by limiting provider numbers (numbers issued to health professionals in order to access Medicare Benefits), bonding doctors to rural placements in order to access benefits, requiring GPs to be "Vocationally Registered" in order to access higher benefits, and placing very specific limitations and conditions on individual procedures and items before claims for benefits can be made. For better or worse, in effect the Federal Government works as a very large US-style Health Maintenance Organisation (HMO).

• Regional doctors back opposition to bonded plan
  
• ABC Guide to Private Health Insurance
  
• More incentives urged for rural doctors
  
• Program aims to encourage country practice
  
• Islanders turn to witch doctor amid GP crisis
  

More on this series next week.