Soaring specialist fees force Labor to weigh radical intervention
Rising out-of-pocket costs are undermining Medicare, but the Constitution has long been seen as a bar to regulation. How far can government go to safeguard the scheme’s fundamental tenets?
With those words in his second reading speech introducing Medicare legislation in 1984, Hawke government health minister Neal Blewett articulated the promise of a national health insurance scheme that placed the principle of universality at its core.
From tortuous beginnings in which Gough Whitlam’s democratic socialist Medibank vision was opposed not only by organised medicine but also vociferously within Labor’s own ranks, Medicare emerged as an article of faith for the modern Labor Party; not only a vital social service but a potent electoral weapon central to modern Labor’s identity as the party of fairness and equity.
That weapon has been used by Labor in recent times to maximum effect, from “Mediscare” campaigns and bulk-billing electoral war chests to ubiquitous Medicare card props at press conferences.
And now a new front in the politics of Medicare: the war on specialist fees.
Rising out-of-pocket costs for specialist fees have been described by federal Health Minister Mark Butler as the latest “barbecue stopper in the healthcare system”.
According to the Grattan Institute, out-of-pocket fees paid by patients have soared by 73 per cent in real terms since 2010. Almost two million people reported that they avoided seeing a doctor when they needed to in 2023. A small minority of medical specialists are charging exorbitant fees well above the Medicare Benefits Schedule rebate to the patient.
But while private specialists across the board are now copping consumer and political heat, it is the deep and abiding failure of the public health system that is one of the central drivers of the affordability crisis, together with governments’ abrogation of their duty of proper workforce planning. State governments have severely underresourced outpatient clinics. Specialists have fled the public system. People wait sometimes for years to see a specialist or obtain surgery in the public system, placing families who cannot afford to pay at the mercy of private specialist costs.
“One of the things that was striking when Medicare first came in is that medical costs were one of the second or third highest sources of bankruptcy,” says University of Sydney associate professor in health policy James Gillespie, a co-author of the 2013 book Making Medicare: The Politics of Universal Health Care in Australia.
“Debts due to ill health are again one of the leading causes of bankruptcy today, but more dramatic factors that are probably easier to measure are the withdrawals from superannuation to pay for healthcare and medical tourism trends, which are both on the rise, and it’s not just about cosmetics, it’s about serious surgery.
“People are going to India or Thailand because it’s so much cheaper.
“Medicare was meant to move beyond charity or judgment of the worthiness of the patient by the doctor. And so I think it’s the out-of-pocket component that is now the real problem. It’s a problem for the taxpayer because the taxpayer thinks they’re paying for a system that provides access and equity, but they’re not.
“We’ve known that for a long time, and we’ve had attempts to solve it. But we’ve always ended up back with this problem of a market that is tightly controlled by doctors, which means they can set their own fees, and that there isn’t much competition. It boils down to that. Governments have known that for decades, they’ve tried various policy options against it.
“None of the strategies has worked for various reasons that boil down to governments not really having the policy levers or not being prepared to test levers like fee regulation.”
Medicare’s original intent – to cover 85 per cent of the Medicare schedule fee for medical services outside of hospital – is now far from a reality, particularly in specialist room consultations.
Medicare rebate freezes and a lack of indexation have eroded the benefit to patients, and average out-of-pocket costs have skyrocketed, with the average gap fee charged to patients rising from $49.56 in 2010-11 to $117.18 in 2023-24. The heavy cost to patients has prompted the Grattan Institute to call for the naming and shaming of doctors who charge extreme fees, which it defines as three times or more the Medicare schedule fee.
Grattan also has called for the federal government to remove Medicare funding from specialists who charge excessive fees.
The issue is now firmly in Butler’s sights. Pointing to wide variation in specialist fees “seemingly with no rhyme or reason”, the minister branded some charges to patients “completely a rip-off” and confirmed the government is considering legislative options to rein in out-of-pocket costs in what would loom as a historic test of the Commonwealth’s power to regulate Medicare.
“I’m looking at these options very carefully because traditionally, doctors have been allowed to charge a modest fee on top of the Medicare rebate, but it’s gone well beyond that in some areas,” Butler said. “This is not just an impost on people’s hip pockets. For people to not have important procedures because of the cost, it’s impacting the health of the nation as well.
“I’ve asked the department to consider opportunities for reform in this area and I’ve been clear with the doctors’ groups that all options are on the table.”
The medical fraternity now faces the urgent task of seizing the initiative as the politics of specialist fees heats up. They’ve long condemned the charging of egregious fees, but pronouncements have done nothing to rein in the outliers. Former federal chief medical officer Brendan Murphy, a renal specialist, has called for self-regulation within the profession to ward off the risk of government intervention, and “ethical reflection” by specialists of the impact of substantial fees on people with limited or fixed incomes on equity of access to healthcare.
In the past, most patients rarely saw a medical specialist, relying mostly on their GP for healthcare and using hospital care only if they were very sick.
Many more graduate doctors now are training as specialists rather than becoming GPs. These doctors complete an enormous amount of training and have reasonable expectations of earning high incomes – which they do. Medical specialists accounted for five of the top six highest income-earners in 2021-22, with average taxable incomes ranging from $255,000 to $460,000. Interestingly, older, more experienced doctors are rarely those charging the highest out-of-pocket fees.
“The AMA has always said that we don’t support egregious fee setting and that we do support transparency and informed financial consent,” Australian Medical Association president Danielle McMullen says. “I think there is generally a clear community and profession shared understanding of when fees are way out above what patients and peers would expect. And while that sounds difficult to tie down, that actually is what has worked for us for many years. The reasons there are particular challenges now relates to how much support patients are getting to access care in the public hospital system, in general practice or alternatives to care.
“I think there has been a shift in access in those areas, so suddenly we’re seeing more of a spotlight on specialist fees.”
Medical colleges face at the very least an acute public relations challenge as public resentment over out-of-pocket costs grows. It’s far from clear what action they could take to clamp down on the practice, but it’s also clear that there is much to draw on to refute the “greedy doctors” narrative and to ward off any contemplation by the government to peg policy to the Medicare Benefits Schedule.
First, the costs of specialist practice have grown exponentially and have not been matched in any remote sense by commensurately rising remuneration from Medicare. Further, the Grattan Institute’s definition of what constitutes an extreme fee has been criticised as essentially meaningless given it’s pegged to Medicare benefits schedule fees, which now bear no relation at all to the cost of providing healthcare.
Criticism of this yardstick is articulated in blunt terms by Howard government health minister Michael Wooldridge.
“It is rubbish,” Wooldrige says. “The MBS has nothing to do with patient payment of doctors. This is not a trivial point. It’s a very serious point.
“The fact is, the MBS is based on the 1960s Gorton common fee with modifications over 57 years, and it’s determined by whatever government is willing to pay. It is what the government chooses to give the patient towards the contribution. So it’s got nothing to do with payment of doctors whatsoever. Doctors are not employees of government and never have been.
“That has been fought tooth and nail for 80 or more years continuously, and so that raises the question as to whether the classification of extreme fee being three times the MBS fee is actually a good yardstick. And it’s not – it’s a ridiculous yardstick.
“It’s a little bit like poverty. Poverty is a relative number, not an absolute number.”
Initially, federal government action will focus on fee transparency, with specialists mandatorily required to upload their fee data to the Medical Costs Finder website. Transparency is designed to increase pressure on doctors to charge within the realms of the average. But the statement of “all options on the table” has raised the spectre of more muscular policy and the potential for unprecedented intrusion into medical specialists’ control of their own incomes and hence the market.
That goes to the heart of one of the nation’s greatest dilemmas in the provision of healthcare: that despite pouring billions every year into subsidising medical services, the federal government has exerted little control in regulating doctors’ fees.
To guarantee access to public hospitals, GP consultations and private specialists, the federal government is pouring $34bn into Medicare in 2025-26 from total federal funding on health of almost $200bn – about 17 per cent of total government spending and a little more than 10 per cent of GDP. Australia is almost unique in providing such an enormous spend on a universal health insurance scheme in the absence of government control over medical fees. In Canada, by way of contrast, doctors who access Medicare are forbidden by law from charging gap fees for medically necessary services.
The conundrum at the heart of the nation’s social welfare scheme has its roots in Australia’s Constitution, and the interpretation of a little-known aspect of the health and welfare power that contains crucial words that limit federal power over medical services.
That constitutional clause – section 51(xxiiiA) – grants the commonwealth power over medical and dental services “but not so as to authorise any form of civil conscription”.
The civil conscription insertion came about as a result of Chifley government attorney-general H.V. “Doc” Evatt’s concession to Robert Menzies, who sought to guarantee that Australia would not go down the path of Britain in legislating a national health service.
A referendum in 1946 to insert s51(xxiiiA) – the only successful referendum Labor has ever put to the people – was necessary after a High Court decision struck down the Chifley government’s 1944 Pharmaceutical Benefits Act which – relying on the commonwealth’s appropriations power under section 81 of the Constitution – sought to make certain medicines free for the public.
The court found that any act to appropriate money under s81 had to be supported by a specific head of power, which at the time there was none in the Constitution relating to the control of doctors or the sale of drugs. The judgment placed into doubt the commonwealth’s power to govern over a wide array of social services.
In drafting a new head of power to overcome this issue, the Chifley government had firm advice from the federal solicitor-general that the civil conscription addition to the 1946 constitutional amendment would not have wide scope and that “the only kind of legislation which the amendment would preclude would be such as compelled doctors or dentists in effect to become servants of the commonwealth, or to have the whole of their professional activities controlled by commonwealth direction”.
But the civil conscription clause has been interpreted as far wider than that and was later to result in Whitlam being precluded from realising his vision for universal healthcare.
In a 1961 Curtin Memorial Lecture, Socialism Within the Australian Constitution, Whitlam railed against the High Court’s “fantastical” interpretation of the s51(xxiiiA) civil conscription clause: “The present constitutional position is quite unsatisfactory, in which … the medical profession participates in any scheme only on its own terms.”
Whitlam was chiefly referring to the High Court’s interpretation of s51(xxiiiA) in the 1949 British Medical Association v Commonwealth test case, which has long been cited as a major barrier to the federal government’s development of health policy and ability to control the medical market. The BMA – trenchantly opposed to nationalisation of health services – in that case challenged the commonwealth’s requirement under the Pharmaceutical Benefits Act to issue scripts on a particular prescription pad. The High Court majority gave a wide interpretation to what was meant by civil conscription, deeming that to specify how doctors should undertake prescribing amounted to compulsion through interference in the provision of a medical service.
The High Court’s early restrictive interpretation of what amounts to civil conscription cast a “long shadow” over Australian health policy, creating a longstanding timidity by governments in regulating Medicare that some argue may be timely now to challenge.
“The impact of those early cases, I think it could be said, was immediate and crushing, or at the very least there was a crushing sense of the confinement of the ability of the federal government to do much other than create a scheme that transferred specific payments for services to doctors,” professor of public law Fiona McDonald says. “So health policy from that point was very much confined to essentially ‘we pay, and they do’.
“At the heart of all of this discussion about specialist fees today is this tension, which is how much latitude should be given to specialists to maximise their income potential, and how much is legitimate for the state to impose any type of control over that.”
After completing groundbreaking analysis of more recent High Court and Federal Court judgments concerning the civil conscription clause, McDonald now concludes the scope for governments to regulate Medicare is potentially quite wide, as long as the regulation does not intrude on clinical practice.
“What we can see from looking in detail at the cases is that there is a recognition that there needs to be some ability for the federal government to address things like equity, like efficiency and essentially good financial governance.
“And so in the context of out-of-pocket costs, we need to be thinking very much about equity and whether there is a legitimate mechanism that the federal government can use to address these concerns about equity and inequity of access based on the level of co-payments that are being charged. The trends are that any sort of reasonable kind of rules that are put around the sort of participation in Medicare could be respected.
“One of the arguments that could be made from a legal perspective is, if you put some sort of income cap or threshold cap on private practitioners, is the government mandating someone to provide a particular service in a particular way?
“What the case law is telling us is that the High Court is increasingly of the view that if you go through Medicare, that’s essentially a choice that you make. You choose to sign up to the conditions. So if you can make an argument that your choice in signing up to Medicare is that you will receive a certain amount of money and you’ll have some sort of limitation on how much you can co-pay, then that might be something that the High Court would respect.”
One can be sure that this emerging debate over what might be the true scope of federal power in limiting out-of-pocket costs to patients is one Butler is following closely as he considers the possible shape of Labor’s policy on this issue.
“I hope this is a tipping point,” says Professor Yuting Zhang, a health economist at the University of Melbourne who has gathered data on specialist fees that are published by the university’s Health Analytics, Leadership, and Economics Hub. “Something has got to change. The cost of living is high and some of the extreme fees we are seeing are just getting ridiculous. We see some of the fees being charged are 10 times higher than the Medicare schedule fee. No one can justify that.
“I just think in healthcare, really, there’s a huge amount of market failure. I don’t think healthcare fees should be determined by the market.”
But Professor Zhang’s own data reveals the problem of extreme fees exists only at the margins. “If you look at the mean and median fees being charged, they’re not outrageous,” she says. “I can tell you, most doctors are charging a reasonable price. Those charging outrageous fees are a very small proportion, probably less than 5 per cent.”
What hasn’t grabbed the headlines in the Grattan Institute’s excoriation of extreme fees by specialists are the major driving factors behind the trend documented in its health policy lead Peter Breadon’s recent report.
Those drivers are the critical lack of timely access for surgery in public hospitals and particularly in outpatient clinics, and the nation’s failure to plan for, and fund the training of, a sustainable and adequate medical workforce.
Medical colleges often cop the blame for locking up the supply of specialists, accused of anti-competitive practice by limiting training places to maximise incomes, but this accusation makes little sense given it is public hospitals that train specialists. Indeed, medical colleges frequently have said they would like to expand their trainee intakes but are hampered by a lack of state government support.
In 2014, the Abbott government abolished the agency Health Workforce Australia, leaving the nation with no national co-ordinating body for health workforce policy and governance.
“The market supply of orthopaedic surgeons is probably a 15-year training timeline,” says Wooldridge. “That’s even longer than the market supply of Jesuit priests. You just cannot have economic feedback loops when you’ve got that long a time lag between making a decision and getting an outcome. So when you have that situation, you have no alternative but to plan.
“And there’s really no evidence that we’re doing much of that. I mean that as a criticism of every government for a very long time.”
In an absence of proper investment in training sufficient doctors and caring for those who rely on the public system, both state and federal governments have long been content to let consumers carry the cost for a failing public healthcare system.
“This issue goes right back to the origins of Medibank,” Gillespie says. “I think governments just thought it was too difficult, and so there was this privatisation of risk, really shifting a lot of the financial and medical risks on to the consumer, and that cost shifting means that the pressure on governments to do something has not been as great.
“So the interesting thing now is whether it’s a political breaking point where governments can’t just accept it and spend their whole time focusing on general practitioners, which is what they’ve done in the past, where the really big problems are elsewhere.”
Taking on medical specialists in any direct attempt to curtail their income would be brave territory indeed for any government. There is much scope for alternative coercive policy – not least through the National Health Reform Agreement – that could force greater state government accountability to care for those who rely on the public system or other measures to influence the market. Butler has repeatedly and specifically ruled out raising Medicare rebates to specialists on the basis that doctors would simply raise their fees commensurately. While all options are on the table, the biggest risk on the horizon if Labor were to contemplate any direct attempt to regulate the charging of out-of-pocket costs is that such a move could undermine one of the central tenets of Medicare that the party holds so dear.
“I think it would be irresponsible to base your policy on legal adventurism when you haven’t done everything in your power to address those things you can do,” Wooldridge says. “It’s quite common in healthcare policy that you have perverse outcomes, and this would be guaranteed to have a perverse outcome. Anyone with market power would simply opt out of Medicare. It would be very divisive. If that were to happen, that is a two-tier Medicare system that’s very different from what we have.
“So it would take an enormous amount of hypocrisy to ignore that issue here. But anything’s possible in politics.”
“In a society as wealthy as ours there should not be people putting off treatment because they cannot afford the bills. Basic healthcare should be the right of every Australian.”