Contracting and Default Benefits Working Group, 21 February 2017

Summary of the third meeting of the Private Health Ministerial Advisory Committee – Contracting and Default Benefits Working Group, 21 February 2017, Department of Health offices.

Page last updated: 06 March 2017

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Members Secretariat
Steve Somogyi, Chair Charles Maskell-Knight, Secretariat
Andrew Sando, Australian Health Service Alliance Susan Azmi, Secretariat
Luke Toy, Australian Medical Association Vanessa Sheehan, Secretariat
Michael Roff, Australian Private Hospitals Association  
Darryl Goldman, Catholic Negotiating Alliance  
Jane Griffiths, Day Hospitals Australia  
Jamie Reid, Finity Actuaries  
Jennifer Solitario, HBF  
Cindy Shay, HCF  
Jenny Patton, Healthe Care  
Matthew Koce, hirmaa  
Scott Bell, Nexus Group  
Dr Rachel David, Private Healthcare Australia  
Allan Boston, The Bays Healthcare Group Inc.  

1. Welcome, apologies and review action items

  • The Chair opened the meeting.  There were no apologies for this meeting.
  • The Chair advised that only one member had provided the Secretariat with a request for Hospital Casemix Protocol data analysis, and that the Secretariat is considering what analysis it could provide in relation to the request.

2. Declaration of Conflict

  • Members did not declare any new conflicts of interest.

3. Second-tier default benefits - Hospital Peer Groups

  • The Secretariat presented a paper on the Australian Institute of Health and Welfare - Australian Hospital Peer Groups and their potential to be used to categorise hospitals under the second-tier arrangements.  Members generally agreed to further explore this option, but were conscious of the risk of adding complexity to the arrangements without commensurate benefits.

4. Alternatives to basing the second tier calculation on contracted rates

  • Mr James Downie, Chief Executive Officer of the Independent Hospital Pricing Authority (IHPA), presented on the IHPA’s key functions and hospital costing data collections.  Mr Downie also described some options for how a pricing model could be used as an alternative to a health insurer’s average contracted rates for the calculation of second-tier benefits. 
  • The Working Group discussed issues that would need further consideration should an independent pricing option be pursued, including data requirements and implementation costs.
  • Members had a range of contrasting views on whether de-linking the second-tier calculation from the contracted rates would benefit the contracting environment more generally, for example by removing perceived opportunities for manipulation. 

5. Second-tier patient hospital out-of-pocket analysis

  • The Working Group considered analysis on the average gap payment made by patients to hospitals for episodes funded through the second-tier arrangements.  The analysis indicated that few hospitals charge very large gaps under the second-tier arrangements.
  • The Working Group discussed whether consumer protection would be improved by publishing average gaps under second-tier.

6. Member presentations and perspectives

  • One member presented two papers to the Working Group.  The first paper provided evidence collected from a sample of private day hospitals about their experience with the contracting and second-tier arrangements.  The second paper provided some benchmarking information about private day hospitals. The Working Group discussed the papers.
  • One member presented a paper which provided information about private hospital services and financials. This analysis was undertaken in relation to the question of whether second-tier is required to protect private hospitals.
  • Members reiterated a range of issues important to each sector.  Members also confirmed their contrasting positions on the impact/need for second-tier default benefits in a contemporary market.  The discussion included whether the second-tier arrangements:
    • are still essential to ensure consumers have choice of hospital; and
    • protect consumers if a hospital and insurer go out of contract in the short term; or
    • set a floor price for contract negotiations which stops the market working efficiently; and
    • make it difficult for insurers to offer consumers cheaper insurance products in exchange for reduced choice of hospitals.  
  • Members reiterated their previous agreement that any consideration of the second-tier arrangements needed to focus on consumer benefit.

7. Second-tier calculation considerations

  • Members discussed, if the second-tier was to continue, whether the second-tier arrangements should be different depending on the nature of the hospital; for example, large hospital/hospital group compared with small independent hospitals, or rural hospitals compared with metropolitan hospitals.

8. Second-tier administration

  • The Working Group discussed the current process for hospitals to gain second tier eligibility by applying to an industry based Second Tier Advisory Committee for approval against a number of quality and administrative criteria.  Members generally agreed that this process should be reviewed. 
  • The Secretariat agreed to consider whether this role should be undertaken by the Department of Health, possibly at the point of Commonwealth hospital declaration, and if so whether the cost of undertaking this role would be recovered from industry.

9. Contracting

  • Members raised that, due to contracting confidentiality, it is difficult for the Working Group to consider issues in the contracting environment.      

10. Action Items and Next Meeting

  • The Secretariat will prepare an options paper for the Working Group to consider at its next meeting. 
  • The next meeting is scheduled for 3 March 2017.  The Chair noted that three Private Health Ministerial Advisory Committee members will not be able to attend the next meeting and agreed that they could each send a proxy if they wished.

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