Explainer: paying for GP services

This post has been revised on the 21st August 2014.

Recently the debate around healthcare has focused on paying for GP services. The proposal for a patient co-payment is one example. Other proposals include capitation, blended payments and managed care. Arguments over the best funding models for primary care may appear to have little relevance for most patients, but how we fund primary care services can impact on the quality of care, as explained in this paper from the Primary Health Care Research & Information Service (PHCRIS).

Currently, most primary care services like GP visits are funded through Medicare. GPs receive most of their remuneration through fee-for-service (FFS) payments, which is where the GP bills an amount for the provision of an individual service. Around 82% of GP services are bulk billed, meaning the GP directly bills Medicare for the patient visit rather than billing the patient.

But not all GP services are paid for in this way. A growing number involve ‘blended payments’, where as well as FFS, the GP receives an incentive payment as a ‘reward’ for providing an improved level of service. Practice incentive payments (PIP) are currently paid for a wide range of enhanced services such as the provision of after-hours care; managing patients with chronic conditions such as asthma or diabetes; undertaking pap smears on under-screened women; providing services in aged care facilities; referring domestic violence; adopting e-health technology; providing care to Indigenous patients; practising in rural areas; and teaching. In 2012-13, 5,189 GP practices received PIP payments from Medicare totalling nearly $280 million, according to the Department of Human Services latest annual report (p. 112).

FFS and incentive payments make up the bulk of GP remuneration in Australia. But the rise of chronic diseases like diabetes has led to calls to reform this blended payment system in order to support more multidisciplinary team care. Chronic diseases typically require care from a range of health providers over a long period of time. Both the Final Report of National Health and Hospitals Reform Commission (p. 135) and the Report on Primary Care Reform in Australia (p. 141) recommended consideration of other funding mechanisms in primary care to address this and other challenges. While FFS is well-accepted by the profession and patients and is seen to support patient choice, there are concerns that it discourages team-based care and longer-term care of patients with complex or chronic conditions. This is why alternative models such as capitation are discussed.

Capitation (also referred to as fund holding or lump sum payments), involves payment to a GP based on the number of patients enrolled or registered with the practice. Capitation is currently used to a limited degree in Australia mainly to fund health care in under serviced areas such as remote Indigenous communities. It is also applied widely in New Zealand where it has become the main mechanism for funding primary care. Capitation-funded services can target vulnerable population groups who have a greater need for multidisciplinary team care.

Another proposal is managed care. Managed care, broadly, is where the price and use of health services is controlled by a single funder, usually a private health insurer. It has its origins in the United States where publicly financed health care is limited and most health care is paid for through employer health funds, which can exert influence over individual health providers in price negotiations. But the expansion of managed care here could be controversial, as noted in this Croakey blog. Opposition could also be expected from doctors who may have concerns that managed care would intrude on their clinical autonomy.

It should be noted that debate over reforming health funding arrangements is not new. This Parliamentary Library paper outlines some of the funding reform options that have been considered previously.

Meanwhile, evidence around the effectiveness of particular funding mechanisms in delivering improved primary care outcomes is not conclusive. A Cochrane literature review on how each of capitation, FFS and mixed systems of payment influenced the behaviour of primary care providers found few studies had evaluated this, and concluded more evaluation of these funding mechanisms was required. As the more recent paper from PHCRIS notes, one study suggests capitation can encourage the provision of preventive health services, but evidence remains insufficient to support the use of financial incentives to improve quality.

Health Minister Peter Dutton has indicated support for capitation  as part of a blended payments system, and has also signalled support for a greater role for private health insurers in primary care. However, if past debates over health reform are an indication, any attempt to move to a new funding model for primary care should be handled with care.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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