There have been loud squeals of confected pain following the federal government’s decision to abolish a handout to big pathology and imaging companies worth well over $200 million a year. The concern is predictable but misplaced.

The handout is in the form of an ‘incentive’ payment to encourage bulk-billing of medical tests and diagnostic imaging. The change will come in from 1 July next year and, according to the MYEFO documents, will save $675 million over the following three years.

The history of this measure is worth repeating. The Gillard government tried to save money on Medicare rebates where new technology had made services cheaper to provide, and where Medicare’s outdated price was wastefully high.

They took on two of the biggest gougers in the whole of medicine ‒ ophthalmologists and pathologists. And they lost.

The operation to replace lenses in the eyes of people with cataracts has become much quicker, easier and cheaper. The surgeons were making a fortune out of an outdated Medicare payment. But they staged a successful scare campaign and the government backed off.

The pathology industry has been booming for decades …

At about the same time, the Labor government took on the pathologists. This industry has been booming for decades as a result of increasing automation, vastly increased throughput and lower wage costs (many of the new machines don’t need highly-trained staff). Doctors are ordering many times more tests and scans than ever before. A substantial proportion of these have been shown to be clinically unnecessary and sometimes, as in unnecessary X-rays and CT scans, actually harmful.

The government tried to reduce Medicare payments to reflect the current reality. Again there was a scare campaign. Again the government was forced to back down, but this time only part way. The rebates were reduced, though not by as much. And the government introduced an ‘incentive’ payment for bulk-billing to give it political cover for its back-down.

Pathology and imaging companies do well out of Medicare. Pathology rebates in 2014-15 added up to over $2.5 billion; for imaging it was over $3.1 billion. Together, that’s almost $5.7 billion.

Pathologists, particularly, have based their business models on bulk-billing. And they are making very considerable profits, despite government moves to increase competition in an area dominated by only three companies. Primary Health Care, which provides a third of all Australia’s pathology and a smaller proportion of its imaging, made a profit last year from its pathology services of over $153 million and of over $73 million from diagnostic imaging.

The companies have increasingly followed a vertically-integrated model, owning corporate GP medical centres where doctors are encouraged to order a lot of tests to be done by the same company’s pathology and imaging divisions ‒ which is where the real money is made.

The latest scare campaign began within moments of the government’s announcement. Predictably, the most hysterical were the pathologists themselves. Cancer patients would die, said the College of Pathologists, threatening massive charges to patients.

‘If people opt out of pathology testing because they are worried about how much it is going to cost, there will be a resurgence in the late diagnosis of cancer, and there will be adverse outcomes,’ said the College’s president, Dr Michael Harrison.

And the AMA ‒ the trade union for doctors, including pathologists ‒ chimed in. ‘These measures are simply resurrecting a part of the government’s original ill-fated co-payment proposal from the 2014 budget,’ said the AMA’s president, Brian Owler. ‘It’s yet another co-payment by stealth.’

For the record, it’s not.

That policy, when Tony Abbott was Prime Minister and Peter Dutton was the Health Minister, was to bung on a $7 co-payment onto every Medicare item. But there is no reason to believe that abolishing the pathology incentive payment will hit bulk-billing rates.

Here’s why.

Encouraging as many tests as possible …

The pathologists have built their businesses around bulk-billing, and encouraging as many tests from as many doctors as possible. Stepping away from bulk-billing would require the entire industry to abandon the model under which it has prospered so well for so long.

In 1984-85, when Medicare began, the bulk-billing rate for pathology was 43.7 per cent. It has risen every year but one ever since, and now stands at 87.8 per cent. The introduction of the incentive made no discernible difference to that inexorable rise.

In Tasmania, it’s even higher: 89.2 per cent of pathology is bulk-billed, up from only 28.5 per cent at the start of Medicare. For imaging, Tasmanian rates are also higher than the national average: 77.3 per cent against 76.9 per cent for the nation.

If widespread patient co-payments were introduced by these wealthy companies, doctors would think twice before referring their patients for a test or a scan. Unless the service was clinically necessary ‒ and a substantial proportion of the tests and scans being done at the moment have no clinical benefit ‒ they would be unlikely to order it.

That would mean the companies’ business model would collapse. The chances of them risking that are small indeed.

The present federal government has an appalling record in health. Under Tony Abbott, billions of dollars were ripped out of state public hospitals. And the Turnbull-Morrison government has shown no interest at all in meeting the challenges of state budgets, which are being overwhelmed by unfunded health costs. The ill-fated Medicare co-payment and the across-the-board freezing of rebates is dreadful and damaging policy. The present inadequate state of the health and hospital system is substantially down to the present government.

But the pathology measure is in a different league.

In a cost-shaving government, any health minister without a political death-wish would argue for the smallest cuts possible in this sensitive portfolio. If Sussan Ley has managed to limit Scott Morrison to this, she hasn’t done too badly.

Martyn Goddard has written extensively on the health system. His articles are HERE

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