PHA CEO Dr Rachel David spoke with the ABC’s David Bevan about the impact of medical device pricing on premiums

Station: ABC Radio Adelaide
Program: Mornings
Date: 19/06/2023
Time: 9:17 AM
Compere: David Bevan
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


DAVID BEVAN: Dr Rachel David is CEO of Private Health Australia. Good morning, Rachel.
RACHEL DAVID: Good morning, David.
DAVID BEVAN: Thank you for giving us your time this morning. Now, we’re following up a piece that’s in the News Corp papers today saying Australia is paying $1 billion a year more than other countries for medical devices like hip and knee replacements. Is that the case?
RACHEL DAVID: Look, yes, it is, and it particularly affects private patients but it also has the effect of pushing up prices in public hospitals as well and the costs of the health system. So Australia is an outlier in terms of how much we pay for commonly used surgical supplies and medical implants like hip and knee replacements, pacemakers, cataracts, and so forth. This is down to some of the decisions that were made by the federal government back in around about 2006, which fixed the prices for all of these things at very high levels, and they never came down. So the prices didn’t move in line with the market. And now we’re in a situation where we can be paying up to five times as much for a commonly used item like a pacemaker in Australia as anywhere else in the world. And we’ve been campaigning on this for a long time. The Federal Government has made some concessions, but the pace of change has been incredibly slow.
DAVID BEVAN: But whose idea was it to fix the price of hip and knee replacements or equivalent other devices? Who thought that was a good idea?
RACHEL DAVID: Well look, it came out of the federal government back in 2006, and it was- look, it was before my time, and it might have seemed like a good idea at the time because it would guarantee benefits for all of these items. But the mistake that it made was that it fixed the prices, and so, as you know over time, the cost of technology, particularly older technology like the bolts and screws and hips and knees we use in surgery, it comes down over time. But these prices didn’t move. In fact, they kept going up. And so-
DAVID BEVAN: [Interrupts] So if I’m a surgeon and I want to replace somebody’s hip, do I have to go to the same supplier as everybody else and have to pay this fixed price? I can’t- and I’m not trying to be flippant here. I can’t order one in from overseas at a cheaper price?
RACHEL DAVID: No. What happens is a surgeon can order whatever medical technology they like, but the health fund or DVA or whoever else it is has to pay this fixed benefit. So if the surgeon was to order a cheaper one, the health fund or DVA would still have to pay the higher benefit regardless. And-
DAVID BEVAN: [Talks over] So who gets the difference? Who’s making the windfall here?
RACHEL DAVID: Well, about two thirds of the windfall profits go straight to a handful of big multinational companies that sell these products globally. About one third of it is actually- they will use to secure their suppliers here in Australia. So they do pay rebates and benefits to hospitals and doctors to secure their suppliers, but that again is a characteristic of the Australian market that’s meant that local manufacturers can’t compete because they can’t compete with the benefits that the multinationals might be paying in terms of free goods or rebates to hospitals. So, it’s actually quite a toxic system and it’s in an environment where we’re doing everything we can to keep inflation out of the health system. It’s inflationary, and what we’re looking at is a situation where we’re trying to ensure that premiums don’t go up, and this is one of the major factors that causes premiums to go up.
DAVID BEVAN: Because premiums are going to go up. When are they due- when do we get the next round of private health insurance premium increases? Is that at the start of the new financial year, or is it…
RACHEL DAVID: It usually is something that is negotiated with regulators at the end of the calendar year. And traditionally, any increases that are approved take effect in April. During the pandemic, the health funds delayed a lot of the premium increases. So that cycle is- people might see that premiums are going up slightly at other times during the cycle because the health funds didn’t want to add insult to injury during the pandemic and put prices up during that time.
DAVID BEVAN: Okay. So, prices shouldn’t go up between now and next April. Have I understood you? Because you usually announce it around April.
RACHEL DAVID: Yes, that’s right. So that’s what normally happens in a non-pandemic year.
DAVID BEVAN: Oh, right. And that’s what we’re back into now?
RACHEL DAVID: Yes, effectively.
DAVID BEVAN: Alright. Right, so because it’s June, you should know what your private health insurance premiums will be for the next- until next April.
DAVID BEVAN: Yes, okay. But it’s a constant battle to try and keep the premiums down. And you’re saying the private health system could save $1 billion a year if they just- and fix these-
RACHEL DAVID: [Talks over] If we had a more rational approach- yeah, if we had a more rational approach to pricing. And what we’re talking about, we’re not talking about new and innovative products and people missing out on new and innovative products. That’s a tiny number of the things that we’re talking about here. Most of this technology is very well-established. The plates, screws, hips, knees used in surgery have been- the technology’s been available for decades, and Australia is way out of whack with other countries in terms of what we pay.
DAVID BEVAN: Sue wants to know does this also apply to hearing aids? I just paid $8500 for mine and the health fund paid $500.
RACHEL DAVID: Yeah, look, it does. But the hearing aids are funded under another system, which is- yeah, but this particular list of 11,000 items is particularly for surgical implants and surgical supplies. So hearing aids being worn outside of the body is a slightly different system. But there are some issues with that as well, which means that people probably should compare prices if they can.
DAVID BEVAN: [Laughs] Okay. Maybe that’s an interview for another day. Dr Rachel David-
RACHEL DAVID: Quite possibly.
DAVID BEVAN: Yeah. Dr Rachel David, just before you leave us, where will this go now? The Private Healthcare, which represents the private health funds, are saying we’ve got a dopey system here now because of all of these devices. They’re fixed and the prices have actually come down, but we’re still paying the old prices and that’s costing us about $1 billion a year. Do you take this up with, what, Mark Butler from South Australia, the Federal Health Minister?
RACHEL DAVID: Yes, we’re in an ongoing dialogue with Minister Butler and what we’re saying is with inflation in the system, we can’t squeeze hospitals anymore. They are struggling with the costs of power, food, and recruitment the same as everyone else. So we need to do something about this that’s faster and more effective than some of the attempts at reform in the past. And that’s the message that we have. So we’re going to look at the whole system and how it’s working and how we can keep inflation out, but this is a key part of keeping prices down.
DAVID BEVAN: Okay. Dr Rachel David, thank you very much for talking to us.
RACHEL DAVID: Thanks, David.
DAVID BEVAN: CEO, that’s Chief Executive Officer with Private Healthcare Australia. So they represent the private health funds.
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