Australian Medical Association prescribes new regulator to save private health system

The Australian Medical Association warns the private health system is on the brink of becoming unsustainable.

The top doctors’ body is concerned insurers, private hospitals and medical device companies are locked in combative relationships that hamper the sector.

The Australian Medical Association is calling for a new regulator to oversee the private health system, control premium rises and drive reforms in the sector, warning that the industry is on the brink of becoming unsustainable.

The private health insurance industry has been described as being in a “death spiral” as young­er people abandon their policies and older people, who draw down heavily in benefits, take out policies in greater numbers.

Private health insurers, private hospital CEOs and medical devices industry chiefs will come together in Canberra on Thursday with the AMA for a summit that will discuss reform of the sector and the proposed new independent body. Health Minister Mark Butler will address the summit.

An independent private health system authority proposed by the AMA would regulate the behaviour of all players in the private health sector, have the power to review and approve health insurance premium rises and be responsible for the prudential regulation of insurers, perform continuous review of policy settings including government rebates in collaboration with the sector, and implement system-wide reforms.

AMA president Omar Khorshid said at a time when the public system was relying on the private sector for support amid unprecedented Covid-19 pressures, many consumers were beginning to doubt the value of private healthcare amid the industry ­policy spats.

“One of the problems we have at the moment is that everyone feels threatened that whenever a new idea comes up, it threatens the financial viability of a certain player in the system, whether it be hospitals, insurers, doctors, or the manufacturers of medical devices,” Dr Khorshid said.

“That lack of trust inhibits reform, and undermines the value perceived in the community in the product.”

The top doctors’ body is concerned insurers, private hospitals and medical device companies are locked in combative relationships that hamper the sector in tackling a crisis of sustainability that one hospitals sector chief has labelled an “inevitable slow-­motion car crash”.

“The current regulatory arrangements were designed at a time when private health insurance was in a relatively healthy position with strong membership, when most insurers operated on a not-for-profit basis, and when private hospitals had a greater profit margin,” the AMA says in a discussion paper that outlines its pitch for the new ­regulatory body. “With the private healthcare sector facing increasing pressures, it is evident that these arrangements are no longer fit-for-purpose, and the only levers available to insurers to reduce outlays, drive innovation and fill gaps in service delivery are ones that have the potential to lead Australia down a managed care pathway, or at least a pathway for insurers to be healthcare delivery providers with a significant conflict of interest.

“A mechanism is required to ensure the long-term sustainability of the private healthcare system as an enabler of patient choice, improved access, innovation, and clinical autonomy regardless of what the private healthcare landscape may look like in the future.”

The AMA says as well as a joint policy reform agenda involving all of the players in the private health sector, the independent body should take over as a central regulatory role in favour of the current piecemeal arrangements.

Currently, a swath of bodies regulate the private health sector, including the federal health department, the Australian Prudential Regulation Authority, the Australian Competition & Consumer Commission, the Commonwealth Ombudsman and the Australian Commission on Safety and Quality in Healthcare.

“A new Private Health System Authority would help ensure a cohesive regulatory model by relieving the Department of Health of its conflicted role as a regulator and policymaker and it would incorporate new functions to fill gaps in the current regulatory environment,” Dr Khorshid said.

“Under current arrangements no one has looked at the bigger regulatory picture to gauge the impact of ad hoc changes or balance the interests and needs of ­patients, day hospitals, private hospitals, private health insurers, medical device manufacturers and doctors.”

The suggestion the independent body could function as a regulator has been rejected by the private health insurance industry.

“We don’t believe that any further regulation or a further regulator with enforcement powers is warranted,” Private Healthcare Australia CEO Rachel David said.

“That will simply duplicate the functions of the other regulators and create a regulatory burden that would put upward pressure on management expenses.

“If what the AMA is proposing is a collaborative group, similar to what we had with the Private Health Ministerial Advisory Council, which operated under the previous government, that’s something we could consider so long as it didn’t again add an expensive administrative burden to the funds.”

Australian Private Hospitals Association CEO Michael Roff said any policy and regulatory reform proposals must focus on delivering better value for the consumer. “The point that the AMA makes about the health department being conflicted in having a role as both policymaker and regulator is a valid point,” he said.

“And that’s certainly something that could be addressed in the sorts of arrangements they’re proposing. Although you’d really need to nut out the detail because the sector is currently very regulated when you look at all of the bodies that are involved.”

Pat Garcia, chief executive of the non-profit private hospitals body Catholic Health Australia, agreed with the AMA that the toxic policy environment within the sector was hampering reform amid existential challenges to the sector. The Medical Technology Association of Australia said the AMA proposal followed its own suggestion for a fit-for-purpose private health authority.