To place downward pressure on private health premiums, a deal between Australian MedTech’s peak body and the Federal Government is expected to generate $900 million in savings in medical device costs for health funds. But will this be passed on to consumers, and do these Prostheses List reforms go far enough?
There’s no secret of the constant tension between the Australian medical technology (MedTech) industry and private health insurers (PHI): both blame each other for rising private health premiums.
But some important developments have taken place in recent months affecting the way certain ophthalmic products like intraocular lenses (IOLs) are priced that ophthalmologists and their patients ought to know about.
The Federal Government has been keen to reform the Prostheses List (PL) – introduced and reviewed multiple times since 1985 – which is the way private hospitals and device companies know the exact price PHIs will pay for devices used in private surgery. The PL has grown in both size and complexity, now including more than 11,600 items.
In 2019-20, more than 3.1 million prostheses on the list were supplied at a cost – to private health insurers and policyholders – of approximately $2.1 billion. Ophthalmology prostheses – such as IOLs, glaucoma drainage devices, intraocular gases and artificial irises – account for around 5% of all benefits paid by health insurers.
Therefore, the Federal Government has invested $22 million over four years to introduce reforms that it hopes will push PL benefits closer to prices paid in the public system. As a result, it’s hoped the reforms will improve the affordability and value of PHI to Australians by keeping downward pressure on premiums, while still maintaining access to high quality medical devices.
But who is responsible for rising premiums is a contentious topic.
Last year health funds delivered what they described as the lowest average premium increase in 21 years, which was still 2.7%. Private Healthcare Australia (PHA) – which represents 20 registered health funds and collectively represents 97% of people covered by private health insurance – blames the MedTech industry due to the “inflated” prices health funds pay for medical devices in Australia, especially compared to other countries.
But the Medical Technology Association of Australia (MTAA) – representing companies like Alcon, Bausch + Lomb, Device Technologies and Johnson & Johnson Vision – says it’s down to the multi-billion-dollar ‘management expenses’ that PHI’s pay for their own executive salaries, bonuses and expensive offices.
Either way, Australia’s MedTech industry has accepted it has a role to play in reducing PHI premiums and is working through a phased reduction of prostheses prices with the government through the PL reforms program.
In one of his final moves as Federal Health Minister, Mr Greg Hunt vowed to pave a smoother pathway towards the reforms that will be implemented by 2025.
Despite objections from the PHI industry that described it as “a last- minute pre-election deal” with big international MedTech companies, Hunt signed a Memorandum of Understanding (MoU) with MTAA on 17 March.
In essence, the four-year agreement outlines the Commonwealth’s iron clad commitments to the MedTech industry. The most important pertinent to the ophthalmic industry are:
• PL items will have their benefit levels reference priced by establishing the gap between the prices paid in public hospital system and the PL.
• PL devices priced less than 7% above the Weighted Average Price (price for prostheses in Australian public hospitals, as determined by the Independent Hospital Pricing Authority (IHPA)), would not be reduced.
• PL benefits for devices with a benefit more than 7% above the Weighted Average Price are to be reduced by:
40% of the difference on 1 July 2022;
20% of the difference on 1 July 2023; and
20% of the difference on 1 July 2024,
• However, PL device prices can not reduce below a 7% “floor”.
• No reductions to PL benefits are to occur in year four of the reforms, between 1 July 2025 and 30 June 2026, effectively providing a 20% private adjustment factor on the initial gap between the Weighted Average Price (public price) and the PL benefit.
The first price reductions have already come into effect on 1 July 2022. The public benchmarking was undertaken by IHPA, and its advice on the PL adjusted benefit amounts affected several ophthalmic items, according to government documents at the time of print.
For example, the benefit for viscoelastic (high molecular weight) was reduced from $65 to $58, while capsular tension rings dropped from $143 to $121 (simple) and $301 to $254 (complex). Others affected included foldable posterior chamber IOLs that included a microincision or edge modification element (i.e. foldable posterior chamber IOL with edge modification and aberration technology, toric >7 D, violet blue light filter is priced from $817 to $760).
In accordance with the MoU, these items, and others considered above the 7% price paid in public hospitals, would then be reduced another 20% in 2023 and then again in 2024.
Interestingly, intraocular fluids (viscoelastics) were originally slated for delisting by the health department entirely and to be funded by “alternative arrangements”. It didn’t go through with this after the ophthalmic sector advocated against the move, but the fact this was initially proposed compromised confidence in the PL reforms process for some groups.
Time for health funds to step up, says MTAA
In signing the MoU with the Federal Government, MTAA was thankful for the certainty it provided, but was keen to highlight the “enormous sacrifices” the MedTech industry had made.
MTAA chair Mr Maurice Ben-Mayor was thankful for the agreement’s focus on recognising “the explicit distinction” between the public and private markets that still guarantees patient access and doctor choice. He was also thankful for former Minister Hunt’s decision to lead the reforms “away from abolishing the Prostheses List” and towards a process that would provide greater certainty for MedTech companies.
MTAA said the government’s measures would lead to significant cuts being passed on as savings to PHI companies by way of more than $900 million delivered by the MedTech industry. But it was important this trickled down to the consumer.
MTAA CEO Mr Ian Burgess said the total cuts incurred by the Australian MedTech industry of more than $2 billion over eight years, is in stark contrast to the $2.4 billion profits corporate health insurance companies have generated over the last two years.
“MTAA put forward the most comprehensive reforms to the PL, ever. Our industry understood the need for fit-for-purpose and effective reforms to the PL that could reduce premiums, while protecting the patient access and doctor choice guarantee of the PL,” Burgess told Insight.
“The MoU was developed to clarify and set guardrails in an attempt to rectify the serious issues in the previous government’s proposed reforms. While the MoU still leaves significant challenges and didn’t address all of industry’s concerns, it made sensible and necessary changes to the former government’s previously announced reforms.
“MTAA fully expects corporate insurers to pass on the savings provided to them through MTAA’s four-year agreement to consumers, in full. Mechanisms should be put in place to ensure this occurs and consumers reap the benefit.”
MTAA believes that while these reforms will still place a significant burden on the MedTech industry, they’re far better than “the devastating changes the private health insurance industry had been lobbying for”, which it said could have seen doctor choice and patient access to medical devices severely restricted or even abolished.
At the time of signing the MoU (March 2022), Hunt said the government recognised the importance of providing predictability for the MedTech industry and the MoU set out a process to ensure a more seamless implementation of the reform arrangements. He said it would also ensure the commitment of the medical technology industry to see through the reforms.
“In particular, the MoU provides clarity to industry about how items on the list will be costed, setting in place a process to reduce the gap between the cost of medical devices in the public and private health sectors over three years,” he said.
But private health insurers aren’t impressed
Health fund peak body Private Healthcare Australia (PHA) believed the MoU amounted to a “watering down” of the PL reforms, and questioned whether the price reductions were enough.
In fact, PHA has called on the since-elected Albanese Government to reverse the Hunt-MTAA MoU that it says “locked in prices for medical devices in the private system 7-20% higher than public prices”.
PHA CEO Dr Rachel David said the deal would transfer an estimated $250-$400 million from Australians with PHI to medical device companies over the next four years.
According to PHA, Australian Prudential Regulation Authority (APRA) data over the past three years showed there was a 1.4% decrease in health fund benefits paid for in-hospital medical (MBS) services and a 2.6% reduction in hospital episodes over the period.
But there had been a 4.3% increase in benefits paid for medical devices (prostheses) over the same period. This is in spite of the slowdown in surgery performed due to the COVID-19 pandemic. But MTAA said the numbers show insurers spent 4.2% less for medical devices compared to this time last year, despite procedure numbers recovering.
“The fact that medical device claims consistently continued to grow out of proportion to the number of procedures performed in hospitals during the COVID pandemic is evidence the pricing of medical devices in Australia’s private health sector is the single largest contributor to increasing PHI premiums,” David, of PHA, said.
She said the Albanese Government must prioritise medical device pricing reform in the upcoming Federal Budget so health funds can begin to offer premium relief to Australian families.
“Every single dollar saved by private health funds as the price of devices becomes fairer between the public and private systems will be sent back to members in the form of lower premiums. It will also save the budget around $100 million over the next four years,” said David.
“We cannot simply barrel down the path of the US health system which is facing 10% premium growth due to out-of-control health inflation.”
Removal of general use items
A consequence of the work undertaken to clarify the PL scope has meant that hundreds of general use and consumable products have been identified for removal because they either do not meet the current criteria for listing or because they will not meet the new definition or listing criteria.
The Federal Government has made it clear this should not result in any additional out-of-pocket for consumers and has requested that insurers and private hospitals work together on an alternative funding agreement and to facilitate negotiations.
David, from PHA, said the removal of 400 ‘general and miscellaneous’ items from the PL was long overdue and will not impact patient care.
“Using a government price list to pay for consumable items like sponges, glues and staples is completely inefficient. Prices have been too high for too long and international medical device companies have profited at the expense of Australian consumers,” she said.
“These items remain wildly overpriced in Australia relative to other markets. The items will all be funded but not at five times market value. Suggesting that any health fund offering to roll up the funding for these consumable items into general contracting arrangements is refusing to fund the items is just mischievous.”
More reading
MedTech Industry sounds alarm at Prostheses List ‘regrouping’ reforms
Concerns Prostheses List reforms could impact day surgeries
Victorian elective surgery blitz to feature cataract surgery hubs
