Graeme Samuel urges cuts to price-fixing prostheses list

Graeme Samuel has strengthened his call for deep cuts to government-­controlled price-fixing for device implants.

Former ACCC boss Graeme Samuel has called for greater price cuts for prostheses.

A top consultant to the federal government on health reform, former competition boss Graeme Samuel, has strengthened his call for deep cuts to government-­controlled price-fixing for hips, knees and other device implants.

Calling recent recommendations by Health Minister Sussan Ley to cut the prices for private patients by 10 per cent for a range of medical implants “just the tip of the iceberg”, Mr Samuel called for far more substantial cuts.

Mr Samuel took aim at controls by government mandate, which keep prices for implants for private patients up to five times higher than the amount paid by public patients, as well as against international benchmarks. He said that pricing should be left to market forces.

“The reductions that have been announced in respect of the prostheses list are just the tip of the iceberg,” he told The ­Australian. The recent modest price reductions announced by Ms Ley were decided ahead of the last federal election but delayed — and kept under wraps until after the poll — following massive lobbying by ­representatives of private ­hospitals and lobbyists for the device-makers.

In the aftermath of the election, a string of changes in Ms Ley’s office led to a number of proponents for reform departing. Health industry observers singled out Ramsay Health Care chief executive Chris Rex as one of those pressing the government hardest to ditch reform of the prostheses list.

Mr Rex has argued in the past that private insurers’ calculations that the cuts to the list prices could save consumers $800 million a year are fantasy.

Others privately say the Ley ­reforms are so small that the “big guys” in the private hospital chains and multinational manufacturers are laughing all the way to the bank.

Mr Samuel has made no secret of his concerns about the closed-state nature of prostheses prices, where private hospitals and multinational device-makers and health conglomerates have been in a position to potentially cream off huge mark-ups in Australia. His volley carries a sting for the Turnbull government which has promoted itself as a champion of competition and innovation.

In relation to the prostheses list, the government stipulates what price private patients must pay for implants regardless of how cheap identical devices might be in a public hospital.

A ceramic-on-metal hip in a public hospital might cost $4900, while a private patient could be billed up to $11,000. A pacemaker costing $7000 in Germany could cost an Australian private patient $50,000 for the identical item.

A speech in June by Mr Samuel revealed his strong concerns about the potential for rorting through the prostheses list. Covering ­aspects of the health industry ­including competition, transparency and accountability, Mr Samuel declared his complete ­opposition to the PL, as the list is known in health circles.

“For my part I would transition to the complete abolition of the prostheses list,” he said at the time. “We know that it includes around 5000 items that are obsolete. We also know that benchmarked against international pricing and public health system pricing, the list is way out of kilter with anything that might be regarded as reasonable.”

Mr Samuel urged private insurers to join forces to push down prices in the interests of consumers.

Under this scenario, private insurers could strike price deals — for what Mr Samuel calls “rational pricing” — directly with suppliers, or negotiate with hospitals from a stronger market position. He proposed that they might deal directly with a state procurement authority which enjoys powerful market bargaining.

Aiming at private hospitals and manufacturers, Mr Samuel added: “The margins are not just moderate — in many cases they are beyond belief, and can only lead an observer to the conclusion that somewhere in the supply chain, whether it be prostheses suppliers, hospitals, or others involved in the purchasing system, the consumer is being exploited.”

Private insurers claim the mark-ups they are forced to pay by government fiat inflate costs by $800m a year. They have argued that huge profits have been skimmed off by the multinational manufacturers and private hospitals in Australia who can cut deals on rebates.

Health industry observers say Ms Ley’s 10 per cent price ­reduction for specified implants over six years will be marking time. Devices covered by the 10 per cent cuts are cardiac items and intra-ocular lenses, and a lesser 7.5 per cent cut for hip and knee replacements starting next year.

Ms Ley has argued that the ­reforms show the government has taken action and it is now up to the insurers to pass on lower premium increases next year. She said the reductions would reduce costs for insurers by $500m over six years.