Jump in prostheses use puts lower rise in premiums at risk: Medibank, Bupa

Health insurers say lower premium increases are at risk because of a jump in the use of prostheses in the private system.

Medibank Docklands building in Melbourne. Picture: AAP

Private health insurers have warned that lower premium increases are at risk because promised savings from affordability reforms have been wiped out by a jump in prostheses volume.

The revelations have prompted Health Minister Greg Hunt to order a review of the Prostheses List, which sets the price health insurers must pay for medical devices. A spokesman for Mr Hunt told The Australian that the Health Department had been asked to ensure that currently listed items met the listing criteria.

“It is important prostheses utilisation is commensurate with clinical need,” he said. “Reviews of the Prostheses List groups will be undertaken to ensure items listed on the list are clinically effective and cost-effective.”

Medibank and Bupa have revealed that the $200m in savings that insurers were banking on from prostheses reform was eradicated last year by an increase in medical device use.

Health insurers said they had factored in the expected savings last year when delivering the lowest annual premium increase in a decade, which was an average of 3.25 per cent.

The federal government signed a deal with the Medical Technology Association of Australia in 2017 to cut the price of some items on the Prostheses List as part of reforms to tackle the private health affordability issue. That agreement was designed to save health insurers $1.1bn over four years, which they agreed would be passed on to customers via lower premium increases.

Medibank group executive of healthcare and strategy Andrew Wilson said while the industry did see an 8.5 per cent decrease in the cost of devices last year, an 8.6 per cent increase in the number of prostheses used in the private system had erased those savings. Insurers say medical device companies offset the price cuts by adding new items to the Prostheses List and pushing volumes. Medibank data showed the “internal adhesives” product group on the list, which includes items such as skin glues, had seen a 160 per cent increase in volume. The amount it paid for that product group increased from $5.4m in 2018 to $8.5m in 2019.

“The intent of the MTAA agreement was that through price cuts to key devices, significant savings would be achieved. We just haven’t seen that,” Dr Wilson said. “What we have seen is that despite flat hospital episodes, the volume of prosthetic devices used has significantly increased.”

Ian Burgess, chief executive of the MTAA, said the savings and volume growth realised was in line with what was forecast in its agreement with government.

The head of the MTAA, which includes global giants Medtronic and Johnson & Johnson, said he was not surprised by the insurers’ claims ahead of their annual premium talks with government.

“They are in the middle of a negotiation and they are trying to get the best result they can, so I expect them to say that,” he said.

“Our agreement has delivered and continues to deliver exactly what was expected under the department modelling.”

Bupa’s Australian health insurance boss Dwayne Crombie said the upcoming government negotiations to determine next year’s annual premium increase would be difficult, given Mr Hunt wanted a figure below 3 per cent.

Dr Crombie said with costs rising at 4.5 per cent, insurers would have to identify 1.5 per cent in savings to reach the minister’s target.

“The only other choice we have is to keep taking stuff out of products, which is not a good choice, rather than make the system more efficient, which would be the preferred choice for a consumer,” he said.