Insurers call for DRG model for medical devices

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"While the future of fast food looks good, the future of private health insurance is shaky," according to Ben Harris, the director policy and Research at Private Healthcare Australia.

Mr Harris was speaking as part of a panel on the first day of the MedTech 2020 conference. The panel also included Paul Dale, policy director at the Medical Technology Association of Australia.

"While the numbers of people with private health insurance is sliding slowly, younger people are not joining, and some are leaving," said Mr Harris.

"With community rating a feature of our system, that means costs are rising above inflation. We know that the next few years are going to be tough economically, and that means private health insurance is under threat.

"The largest proportion of cost increases for private health insurance are prostheses," he continued.

"In 2019-2020, a year impacted by the pandemic, the sector struggled. Income from private health insurance was down for public hospitals; down for private hospitals; and quite a long way down for doctors and for allied health. Despite this sea of red ink, private health insurance paid more for prostheses in 2019-20. It was the only part of the industry to increase income."

He said, "Now, there is a clear patient benefit for increased costs for many, if not most, medical devices. I believe that medical devices have the potential to provide incredible value for patients, and I want to see more innovation.

"However, I am not convinced that significant increases in payments for generic items like glues, screws and grafts are providing real cost-benefits to patients. A doubling in funding for leads and accessories for neurostimulators is not providing additional patient benefit. Increases in volume well in excess of surgery numbers do not point to a strong cost-benefit for Australian patients.

"We want to see a strong medical devices sector serving a large and growing pool of patients with private health insurance. Our view is that increase in device costs and volume is compromising the growth of the sector as a whole."

Mr Harris questioned the current regulation of the Prostheses List.

"More than 10,000 items individually listed, and prices set without competitive pressures," he said.

"Economic growth is driven by competition. Command and control economic models fail. They fail consumers, and in the end, they fail providers. It is clear to nearly everybody who has looked at the Prostheses List outside this room that it is fundamentally flawed and does not provide value to the community."

He said Private Healthcare Australia supports a move to a Diagnostic Reference Group model.

"The proposal as it stands is a DRG device price not a total negotiated DRG. There would be a device construct price created, and the remainder of the hospital/funds DRG/case payment model for surgery/or/acute care etc would remain as is," he said.

"DRGs are the international standard. DRGs have been recommended by a number of commentators, including IHPA, the Grattan Institute and many others. It’s a system that easily translated into the current system for the vast majority of procedures."

Mr Harris added, "DRGs also reward innovation, and provide the certainty and sustainability that will be needed to increase the size of the industry.

"Yes, there will be winners and losers. There are players who would lose out from a move to DRGs. However, the medical device industry as a whole would benefit. You are better off being 9% of a $25 billion growing sector than 12% of an $18 billion declining private health sector."