Announcing the ill-fated 2014 budget initiative to introduce a consumer co-payment for general practice visits, the then health minister, Peter Dutton, lamented that annual Commonwealth health costs had increased from A$8 billion to A$19 billion over a decade. He described the increase as “unsustainable” and used it to justify the budget’s bitter pill.
The implication of his announcement was that consumers were driving the increase in costs and that action to change consumer behaviour was necessary to rein them in.
The growth numbers were presented as part of the government’s then mantra of a “debt and deficit disaster”, and massaged to create maximum shock and awe. The minister’s numbers did not adjust either for population growth or inflation.
Nonetheless, a more legitimate set of growth numbers would still show Medicare Benefits Schedule (MBS) payments growing at an annual rate of 2.3% in real per-head terms, faster than growth in government expenditure overall (1.8%).
But this still leaves open the question of whether consumer behaviour is driving rising costs or whether there may be other causes.
A report released last week by the Parliamentary Budget Office shows that government policy has driven a significant proportion of the growth in MBS costs. In fact, of the A$325 real increase in MBS spending per head since 1993-94, all but A$74 has been the result of explicit government decisions.
MBS spending per head is the product of the rebate for each MBS item and the per head use of those items. Both elements of this calculation have been tinkered with as part of policy change over the last two decades.
Governments have increased rebates for some items faster than inflation. This has been done, for example, to encourage an increased rate of bulk billing. New item numbers have also been added as part of major policy reviews.
(Each MBS service involves one or more item numbers and an associated description. For example, an ordinary consultation with a general practitioner is item number 24.)
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The single largest cost impact (A$51 per head) came from changes to diagnostic imaging items, including new items for magnetic resonance imaging (MRI). But implementation of policies to expand magnetic resonance imaging and reform diagnostic imaging items more generallyhas been poor.
It is questionable whether consumers are getting value for money from this investment. Also, some diagnostic imaging tests appear to be overused.
Policies designed to increase bulk billing accounted for an extra A$70 per head: increasing the GP rebate from 85% of the schedule fee to 100% accounted for A$42 per head; targeted increases in the rebate to increase bulk billing rates accounted for the rest.
When did Medicare spending soar?
In the decade to 2003-4, Medicare spending grew by A$53 per head. Just over half of that was attributable to the addition of new diagnostic imaging items to the schedule. In the next decade, spending grew at five times that rate – by A$272 per head.