Bills Digest No. 41 1999-2000 Health Insurance Amendment (Professional Services Review) Bill 1999

Numerical Index | Alphabetical Index

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History
Main Provisions
Concluding Comments
Contact Officer & Copyright Details

Passage History

Health Insurance Amendment (Professional Services Review) Bill 1999

Date Introduced: 2 June 1999

House: House of Representatives

Portfolio: Health and Aged Care

Commencement: Clauses 1, 2 and 3 commence on Assent. Items 8 and 27, which are related to the issue of whether a practitioner has kept adequate and contemporaneous records, commence on November 1 1999 or the first day of the month following the month in which the Act receives Assent, whichever is the later. The remaining provisions commence on the first day of the month following the month in which the Act receives Assent.


This Bill is directed at improving the operation of the professional services review scheme, which is a system of peer review of doctors in relation to inappropriate Medicare claims, or prescribing patterns. The amendments are a response to Federal Court decisions in 1997 which have adversely impacted on the scheme.


The Health Insurance Amendment (Professional Services Review) Bill 1999 proposes to amend the Health Insurance Act 1973 to ensure the continuing effectiveness of the Professional Services Review (PSR) Scheme.

Professional Services Review (PSR) Scheme

The PSR Scheme commenced on 1 July 1994, having been established by the Health Legislation (Professional Services Review) Amendment Act 1993. The original legislation was developed by a taskforce which comprised representatives of the then Commonwealth Department of Human Services and Health, the Health Insurance Commission (HIC) and the Australian Medical Association (AMA). Amendments aimed at clarifying certain aspects of the PSR Scheme came into effect on 6 November 1997. Although the PSR Scheme focuses both on fraud and inappropriate practice, amendments contained in the Health Insurance Amendment (Professional Services Review) Bill 1999 are directed towards refining the Scheme's effectiveness in dealing with inappropriate practice.

What is the PSR Scheme?

The aim of the PSR Scheme is to deal quickly and fairly with inappropriate practice under Medicare, via a peer review mechanism.(1) The PSR Scheme replaced the Medical Services Committees of Inquiry which previously had the responsibility for policing overservicing (now described as inappropriate practice) under Medicare. The effectiveness of these Committees in dealing with overservicing had been questioned by the Australian National Audit Office (ANAO) in its report Medicare and excessive servicing: Health Insurance Commission.(2)

A major focus of the PSR Scheme is to prevent, detect and investigate fraud and inappropriate practice in regard to medical services for which a benefit has been paid under Medicare. This includes, for example, consultations and services provided by general practitioners (GPs), optometrists and medical specialists, pathology tests, diagnostic imaging including X-rays and ultrasound, and surgical and other procedures performed on private patients in hospital. The PSR Scheme also covers the Pharmaceutical Benefits Scheme (PBS). The administration of Medicare and the PBS is the responsibility of the Health Insurance Commission and the Commission is also responsible for the payment of benefits under both schemes. Also subject to the PSR scheme are proprietors of practices, chiropractors, physiotherapists, dentists and podiatrists. The PSR Scheme does not cover the hospital care and treatment of public patients because a medical benefit is not paid on these occasions. Issues of fraud and inappropriate practice in public hospitals are the responsibility of the State and Territory Governments.

A key element of the PSR Scheme is its reliance on peer review. This is arguably one of the Scheme's greatest strengths in that practitioners are judged by their peers. However, for those practitioners whose practice profile differs substantially from the mainstream of the profession, some problems can emerge. Practitioners who may treat a large number of patients with conditions such as chronic fatigue syndrome and whose treatment philosophy may not be shared by the majority of the profession have argued in the past that they have had some difficulties with peer review.

Fraud and inappropriate practice

The distinction between fraud and inappropriate practice is an important one. For fraud to have occurred a person must have obtained a payment to which he or she is not entitled and the payment must have been obtained by the person supplying false or misleading information.(3) Inappropriate practice, by contrast, is defined as:

A practitioner engages in inappropriate practice if the practitioner's conduct, in connection with rendering or initiating services, is such that a Committee of his or her peers could reasonably conclude that:

in the case of a medical practitioner-the conduct would be unacceptable to the general body of the members of the speciality (general medicine is taken to be a specialty) in which the practitioner was practising when he or she rendered or initiated services; or

in the case of a dental practitioner, optometrist, chiropractor, physiotherapist or podiatrist-the conduct would be unacceptable to the general body of the members of the profession in which the practitioner was practising when he or she rendered or initiated the services.

a person (including a practitioner) or a person who is an officer of a body corporate engages in inappropriate practice if the person knowingly, recklessly or negligently causes or permits, a practitioner employed by the person or body corporate to engage in conduct that constitutes inappropriate practice by the practitioner.(4)

What is the extent of fraud and inappropriate practice?

The extent of fraud and inappropriate practice under Medicare is not known with any great certainty. Various estimates have been calculated from time to time, with the latest estimate provided by the Australian National Audit Office in its 1997 report Medifraud and Inappropriate Practice: Health Insurance Commission. In this report, the ANAO estimated that fraud and inappropriate practice may account for between 1.3 and 2.3 per cent of payments from the Medicare and Pharmaceutical Benefits Schemes. At that time this translated to around $100 million to $190 million (approximately $133 million to $236 million in 1999-2000). Of this, the magnitude of inappropriate practice was estimated by the ANAO to be around 1.0 per cent of Medicare payments, or about $60 million per year(5) (approximately $69 million in 1999-2000).

The graph below, reproduced from the 1997-98 Annual Report of the PSR Scheme, indicates the distribution curve for the number of services provided by vocationally registered GPs in 1996-97. The Annual Report notes that the shape of the graph in relation to the number of services has altered little in recent years. Practitioners regarded as at risk of inappropriate practice would generally be clustered around the upper percentiles. As the graph indicates, a small number of practitioners are responsible for a very large number of services.

Medicare - Total Services 01/07/96 to 30/06/97

Source: Professional Services Review, Annual Report 1997-98

Performance of the PSR Scheme

The latest annual report of the HIC indicates that since the inception of the PSR Scheme in 1994, 14 practitioners have been found to have engaged in inappropriate practice. This has resulted in the repayment of benefits totalling $1.149 million and periods of disqualification from working within the Medicare arrangements ranging from one month to one year. A further 5 practitioners have entered into agreements with the Director, Professional Services Review which have resulted in disqualification from Medicare for periods of up to 10 months.(6)

It should be noted that the PSR peer review process commences only in instances where prior counselling of practitioners by the HIC is considered to have been unsuccessful.(7) Since the PSR Scheme began in 1994, HIC Medical Advisers have undertaken approximately 2000 counselling interviews. Practitioners in a range of specialties have been counselled, including general practitioners, optometrists, ophthalmologists, vascular surgeons, psychiatrists, urologists and ear, nose and throat specialists.(8)

The table below provides an overview of the PSR process since its inception in 1994.

an overview of the PSR process since its inception in 1994

Source: Professional Services Review, Annual Report 1997-98

The Yung Case

Amendments proposed in the Health Insurance Amendment (Professional Services Review) Bill 1999 have been prompted by the outcome of two Federal Court cases. The first was an appeal heard by Justice Davies (Yung v Adams 150 ALR 436) in 1997 in which the judge found a number of deficiencies in the PSR process including that natural justice was denied to the practitioner under review. An appeal was then made to the Full Federal Court which handed down its decision on 15 May 1998. The full bench of the Court also found against the PSR Scheme.(9) As a result of the Federal Court decisions, a comprehensive review of the Scheme has been undertaken by a committee comprising representatives of the Health Insurance Commission, the Director of Professional Services Review, the Commonwealth Department of Health and Aged Care and the Australian Medical Association. The Committee reported its recommendations for amending the legislation in March 1999 and the Federal Council of the AMA endorsed the amendments to the PSR Scheme at its meeting on 11-12 March 1999.

Main Provisions

The Bill amends the Health Insurance Act 1973. Part VAA of the Act deals with the Professional Services Review Scheme. Item 27 amends the definition of inappropriate practice. Proposed subsection 82(3) provides that in determining whether a practitioner's conduct constituted inappropriate practice, a Professional Services Review Committee must have regard to whether or not the practitioner kept adequate and contemporaneous records of the rendering or initiation of the services. The Explanatory Memorandum notes that this will enable a committee to find that a service that was not recorded was not performed.(10)

The Director

Under section 86 of the Act, the HIC may ask the Director of Professional Services Review to conduct an investigation into whether a person has engaged in inappropriate practice in connection with the initiation or rendering of services. Item 33 inserts proposed sections 89, 89A and 89B which bestow investigatory powers on the Director. The Director must conduct an investigation, in such a manner as he or she thinks appropriate into the referred services. If the Director suspects fraud, the matter may be referred to the HIC. In carrying out an investigation, the Director may require the production of documents that are relevant to the investigation. Proposed section 89B defines relevant documents to include clinical or practice records of services rendered or initiated during the referral period by: the person under review; a practitioner employed by the person under review; or a practitioner employed by a body corporate of which the person under review is an officer.

Item 35 rewrites the way in which the Director may deal with referrals from the HIC. Under proposed section 91, the Director may dismiss a referral if he or she is satisfied that there are insufficient grounds on which a Committee could reasonably find that the person under review has engaged in inappropriate practice.

Proposed section 92 provides that the Director and the person under review may enter into an agreement for the purposes of dismissing the referral. Such an agreement would involve the person under investigation admitting that they had engaged in inappropriate practice and consenting to a specified disciplinary action. This may include: a reprimand, repayment of Medicare benefits, and disqualification (full or partial) from Medicare or prescribing under the Pharmaceutical Benefits Scheme. The amendment means that a wider range of disciplinary tools are now available. The existing section 92 only permits referrals to be dismissed if partial disqualification is imposed.

Agreements between the Director and the practitioner will only be valid if approved by the Determining Authority. This Authority is established by proposed section 106Q.

Under proposed section 93 the Director may make an adjudicative referral to a Committee to determine whether conduct constituted engaging in inappropriate practice.

The Bill imposes certain time limits on action by the Director. Proposed section 93A states that if a Director has not notified the person under review that an investigation is underway or notified the person that matters have been referred to an adjudicative committee within 6 months of a referral from the HIC, the Director is taken at the end of that period to have decided to take no action. However, proposed section 93B provides that a Director must take action in relation to a further referral relating to the same practitioner.

Proposed section 93C is also designed to accelerate proceedings. Except where the HIC has made a further referral, the Director has 9 months from the date of referral by the HIC to dismiss the referral, enter into an agreement or make an adjudicative referral to a committee. This 9 month period may be extended by the Director under proposed subsection 93C(5) if the person under review fails to comply with a notice to produce relevant documents.

Rights of Persons Under Review

Item 43 rewrites provisions which deal with rights of persons under review at hearings. The current section 103 does not allow a person under review to be represented by a lawyer. Proposed section 103, amongst other things, allows a person's lawyer to address the Committee on questions of law arising during the hearing and to make a final address to the Committee on questions of law, the conduct of the hearing and the merits of the matters to which the hearing relates.

Proposed section 105 states that the Committee can continue to conduct a hearing if a person under review fails to attend a hearing or attends but does not answer questions. If a practitioner fails to appear and give evidence, the Director must disqualify the practitioner from Medicare [proposed subsection 105(3)]. Proposed subsection 105(2) provides for an exemption where a person has a medical condition.

The Committee is empowered to require the production of documents or information under proposed section 105A. For the purposes of the section, relevant documents include clinical or practice records of services rendered or initiated during the referral period.

The Committee

A Committee must generally make its final report to the Determining Authority within six months of referral. The Director may grant extensions on this time frame (proposed section 106G).

Proposed section 106H restricts the scope of the Committee's findings to services mentioned in the referral from the Director. If, in the course of proceedings, the Committee forms the view that other conduct by the practitioner may constitute inappropriate practice, the matter may be referred to the Director for investigation.

Proposed sections 106J-106KB address the difficulties caused by the Federal Court ruling that the Committee must consider each individual service contained in the referral. The Committee is not required to have regard to all the services covered by the referral under proposed section 106J. In fact proposed section 106K specifically allows the Committee to use samples of services to draw conclusions about other services covered by the referral. Under the section, the Minister may make a determination specifying the content and form of sampling methodologies that may be used by a Committee. Such determinations are disallowable instruments. Other sampling methodology may be used if the Committee is advised that the sampling methodology is statistically valid by an accredited statistician.

Proposed section 106KA provides a mechanism for dealing with practitioners who have a high volume of procedures per day. Regulations made under proposed subsection 106KA(3) may prescribe circumstances for a particular specialty where services will constitute a 'prescribed pattern of services'. Proposed subsection 106KA(1) states that a prescribed pattern of services constitutes inappropriate practice. The person under review bears the onus of satisfying the committee that the services were rendered or initiated under exceptional circumstances [proposed subsection 106KA(2)].

Proposed section 106KB enables the Committee to make a finding of inappropriate practice even in circumstances where there is a deficiency in the clinical or practice records. A 'generic' finding of inappropriate practice may be made on the basis of other evidence such as information from the HIC, the Director's report or the hearing.

The Determining Authority

The Determining Authority is established by proposed section 106Q. The Authority's functions and powers are conferred under Part VAA of the Act. Proposed subsection 106Q(2) states that the Minister may issue guidelines to the Authority. These guidelines are however disallowable instruments. The membership of the Determining Authority is provided for in proposed section 106ZPA. It shall consist of nine members including eight practitioners from various specialties and one person who is not a practitioner.

Agreements between the Director and the person under review must be referred to the Determining Authority (proposed section 106R) for ratification or refusal. Unless the Authority makes a determination within one month of receiving the agreement it will be deemed to be ratified.

Under proposed section 106T, if the Authority receives a report from the Committee in which all or a majority of the members conclude that a person under review has engaged in inappropriate practice, the Authority must make a draft determination. Copies of that draft determination must be supplied to the person under review, who must be invited to make submissions within 14 days. A final determination must, under proposed section 106TA, take into account any submissions made by the person under review.

Proposed section 106ZPR provides that following the final determination of the Determining Authority, the Director may publicise: the name and address of the person under review, their specialty, the nature of the inappropriate practice found and the nature of the punishment (e.g. reprimand, disqualification, repayment of Medicare benefits etc.)

Concluding Comments

The decision of the Federal Court in the Yung case weakened the Professional Services Review Scheme considerably. There is widespread agreement that the scheme is in need of reform. The Minister for Health and Aged Care has acknowledged that the scheme proposed in the Bill may need further modification in the light of judicial interpretation and has committed the Government to reviewing its operation within 18 months.(11)


  1. Professional Services Review, Annual Report 1994-95, Canberra, AGPS, 1994

  2. Australian National Audit Office, Medicare and excessive servicing: Health Insurance Commission (ANAO report no. 17, 1992-93), Canberra, AGPS, 1993.

  3. Australian National Audit Office, Medifraud and Inappropriate Practice: Health Insurance Commission, (ANAO Report No. 31, 1996-97), Canberra, AGPS, 1997:p 6

  4. Professional Services Review, Annual Report 1997-98, Canberra, 1998

  5. Australian National Audit Office, Medifraud and Inappropriate Practice: Health Insurance Commission: xii, p 34.

  6. Health Insurance Commission, Annual Report 1997-98, Canberra, HIC, 1998: p 98.

  7. Professional Services Review, op cit: p 70
  8. Professional Review Division, Results of the PSR Scheme,

  9. For a comprehensive overview of the two Federal Court decisions, see David Walsh, 'Peer review - implications of the Yung case', Australian Health Law Bulletin, August 1998: pp 1-4.

  10. p. 6.

  11. The Hon. Dr Michael Wooldridge, Hansard, 23 June 1999, p 7265.

Contact Officer and Copyright Details

Paul Mackey and Mark Tapley
19 August 1999
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
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