Bills Digest no. 85 2006–07
Private Health Insurance (Prostheses Application and
Listing Fees) Bill 2006
WARNING:
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.
CONTENTS
Passage History
Purpose
Background
Financial Implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Private Health Insurance (Prostheses
Application and Listing Fees) Bill 2006
Date introduced: 7 December 2006
House: House of Representatives
Portfolio: Health and Ageing
Commencement: The Act commences at the same time
as the Private Health Insurance Act 2006 which is 1
April 2007.
The Bill
proposes to impose, as a tax, fees for listing prostheses;
including for the application to list, for the initial listing and
for the ongoing listing of prostheses. The Bill proposes that the
Private Health Insurance (Prostheses Application and Listing Fee)
Rules specify these fees.
This Bill was introduced with six other Bills
that amend or create a range of Acts to reflect the new regulatory
regime detailed in the accompanying Private Health Insurance Bill
2006. On 7 December 2006 the Senate, on the recommendation of the
Selection of Bills Committee, referred the suite of Bills to the
Community Affairs Committee, for inquiry and report by 26 February
2007. The Committee intends to hold a public hearing in Canberra on
2 February 2007.
Prostheses are artificial devices that are
attached to the body as an aid, or substitute for body parts that
are missing or non-functional. Prostheses can include cardiac
pacemakers and defibrillators, cardiac stents, hip and knee
replacements and intraocular lenses, as well as human tissues such
as human heart valves, corneas, bones (part and whole) and muscle
tissue.
Under current health insurance arrangements,
private health insurance funds are required to pay benefits for
prostheses that are provided as part of an episode of hospital
treatment where a patient has cover and for which a Medicare
benefit is payable for the associated professional service.
Following changes to legislation in 2005 two categories of
prostheses are available for which benefits are payable:
-
No-gap prostheses. No-gap prostheses are listed
with a single benefit amount, and patients will have no
out-of-pocket expenses for these prostheses. For each type of
prosthesis there is at least one no-gap prosthesis available.
-
Gap-permitted prostheses. Gap-permitted
prostheses have both a minimum and maximum benefit amount listed.
For these prostheses health funds are required to pay at least the
minimum benefit amount. Patients may incur an out-of-pocket expense
for these prostheses, which will be the difference between the
minimum and the maximum benefit amount. (1)
The Prostheses List (Schedule 1 of the
National Health Act 1953) specifies the prostheses and
human tissue products that attract health funds benefits and the
amount of benefit to be paid, and is released twice a
year.(2) There are currently more than 9,000 products on
the Prostheses List.
A ministerially appointed committee called the
Prostheses and Devices Committee (PDC) recommends to the
Minister for Health and Ageing the prostheses that should be listed
and the benefits payable for them. On average, for each Prostheses
List released:
The time taken to list a prosthesis averages
around 24 weeks and involves clinical assessment and benefit
negotiations. (4)
Items on the Prostheses List must first be
registered on the Australian Register of Therapeutic Goods (for
which fees are levied on a cost recovery basis).(5)
Since 1999 fees have been payable for
applications to list products on the Prostheses List and to
maintain a listing. However, payment of the fees has been
voluntary.(6)
The suite of legislation comprising the
Private Health Insurance Bill 2006 (PHI Bill 2006) and the six
accompanying Bills, proposes changes to the current health
insurance regime. This includes broadening the range of services
covered by private health insurance to include benefits for out of
hospital treatment and hospital substitute treatment. These
benefits will also apply to prostheses, provided they are listed on
the Prostheses List, and fees for listing are paid.
Specifically, the Private Health Insurance
(Prostheses Application and Listing Fees) Bill 2006 (the current
Bill) requires fees be paid in three stages: when an applicant (or
sponsor, usually the manufacturer of the prostheses) first applies
to have a prostheses listed, then when the initial listing occurs
and finally for the ongoing listing of the prosthesis. It is
anticipated these fees will apply from July 2007.
The actual fee amounts will be specified in
the yet to be released Private Health Insurance (Prostheses
Application and Listing Fee) Rules following consultation with
industry. However, in a recent circular to the industry the
government indicated that the fees for the April 2007 Prostheses
List would be:
-
$1,050 for each new prostheses
application,
-
$180 for continued listing on the
List.(7)
The Bill allows for the fees to not bear any
relationship to the cost of the services (that is, the cost of the
listing process itself); but, in a circular to industry, the
Department indicated that the Bill is aimed at full cost
recovery.(8) This cost recovery would be for costs
incurred by the following:
-
the Prostheses and Devices Committee and
associated committees
-
the Clinical Advisory Groups and Panel of
Clinical Experts
-
cost of Benefit Negotiators (the Australian
Health Insurance Association has agreed to meet this annual cost,
estimated at $952,000 p.a.); and
-
secretariat services.(9)
The yet to be released Rules will specify the
fees for each part of the listing process, that is, at application,
at initial listing and for ongoing listing. However, section 5 (3)
specifies that the maximum amount that can be levied in relation to
each fee shall not exceed $2,000 in the financial year in which the
Act commences. Fees for subsequent years will be imposed according
to the amount worked out under the indexation factor (based on the
Consumer Price Index) specified in section 6 of the Bill. Fees for
ongoing listing will be payable when the new Prostheses List is
released twice a year.
The Bill also allows for the amount of a fee
to be nil.
According to the Private Health Insurance Bill
2006 Guide the changes relating to Listing Fees for prostheses
provide a framework for sponsors of prostheses to have them listed,
and allow for a cost recovery process. As noted above, the
government had indicated to industry that it was proposing full
cost recovery arrangements for the listing of prostheses in a
circular to industry in July 2006.(10)
In addition, there has been ongoing concern
over the growing cost of prostheses and medical devices to the
health funds over the past decade. The benefits paid for prostheses
benefits has been described as an area of substantial growth by the
industry regulator the Private Health Insurance Administration
Council (PHIAC). The table below shows the growth in benefits paid
for prostheses in recent years:

However, the regulator has also noted that
anecdotal evidence suggests a slowing in the rate of growth of
benefits for prostheses, although there is insufficient data to
confirm this yet.(12)
The Bill, along with Private Health Insurance
Bill 2006 and the other five accompanying Bills, has been referred
to the Senate Community Affairs Committee, but no significant views
have yet been reported. Industry (in the form of the Medical
Industry Association of Australia (MIAA) and medical device
suppliers) has previously endorsed the principle of full cost
recovery for the listing process.(13) However, the MIAA
has previously raised concerns regarding the cost recovery
arrangements applied by the Therapeutic Goods Administration for
listing products on the Australian Register of Therapeutic Goods.
In a submission to the Productivity Commission inquiry into cost
recovery arrangements, the MIAA pointed to high registration fees
imposed by the TGA discouraging the introduction of new products to
the Australian market.(14)
The current process for listing prostheses
involves considerable application of resources and time by the
Department. It is estimated by the Department that the cost of
operating the Prostheses List will increase from the current cost
of $0.85 million to $4.3 million per annum as more prostheses are
listed.(15) This Bill will effectively transfer the full
cost of managing the Prostheses List to industry, generating
savings for government.
On the other hand industry will have some
certainty as to the annual cost of maintaining prostheses on the
Prostheses List through the application of annual indexation for
listing fees, effectively allowing industry to estimate with some
certainty the future cost of applying for and maintaining a
listing. Further, by passing listing costs back to industry the
Bill may provide an incentive for sponsors of prostheses to ensure
that prostheses are clinically proven before they apply for
listing, and perhaps consider removing some less used prostheses
from the list (rather than bear the cost of ongoing listing).
However, the Bill also allows the government
to set fees that bear no relationship to the actual cost of the
Prostheses Listing service, possibly jeopardising the transparency
of the process. Sponsors may also seek to have less profitable
prostheses removed from the list (or not sponsor these at all) in
order to reduce the costs of listing; but this may reduce choice.
As noted by the Productivity Commission, even small product
registration charges can reduce the number of products that a firm
may choose to market in Australia (16). Further, if
industry found the cost recovery arrangements arduous they might
seek to recoup some of their costs by passing these on to the
health funds, in the form of higher cost prostheses. However, the
peak health fund organisation, the AHIA, has indicated that it will
continue to meet the annual cost for Benefit Negotiators (estimated
at $952,000) thereby reducing the financial cost to industry, and,
arguably, reducing the likelihood of these costs being passed
on.(17)
Currently the cost of running the Prostheses
List is $0.85 million, but the Department estimates that this will
increase to around $4.3 million annually; under full cost recovery
the Government would recoup this amount from industry.
Clauses 3 and
4 specify that the Private Health Insurance
(Prostheses Application and Listing Fee) Rules, specify the fees
for application, initial listing and ongoing listing for a
prosthesis listed for health benefits under the proposed
Private Health Insurance Act 2006. It
also specifies that these fees are imposed as a tax.
Clause 4 provides for the
Rules to specify the days for which an ongoing listing fee is to be
payable, but there must not be more than two fee imposition days in
any twelve month period.
Clause 5 allows the Rules to
specify different application, initial listing or ongoing listing
fees for different circumstances. It further allows that the
maximum amount of an application or initial listing or ongoing fee
is $2,000 in the financial year the Act commences; and in later
years as determined under indexation provisions of section 6. This
section also allows for fees to be set that bear no relation to the
cost of the service.
Clause 6 allows for the
calculation of the maximum amount of a fee by multiplying the
indexation factor of the financial year by the maximum amount of
the fee in the previous financial year. The formula to be used to
calculate the indexation factor for the financial year is described
as the sum of the index numbers for the quarters leading up to
March 31, divided by the sum of index numbers for the quarters
leading up to the previous March 31. The index number for a quarter
is the All Groups Consumer Price Index number, as published by the
Australian statistician. If the indexation factor is less than 1
the ongoing listing fee remains the previous year s maximum.
Clause 7 specifies that the
person who makes an application to list a prosthesis is responsible
for paying the application fee at the time of application; further
it specifies that if an application to list is granted the person
who made the application is liable for the initial listing fee
which is payable at the time of notification of the successful
application; and they are liable for the ongoing listing fee
payable on the ongoing listing fee imposition day.
Clauses 8 and
9 allow for the Minister (by legislative
instruments) and the Governor General to make rules and regulation
for the purposes of the proposed Act.
The Bill proposes full cost recovery
arrangements, whereby industry will meet the costs associated with
listing prostheses for health benefits from July 2007. This will
generate savings for Government, provide the industry with a more
formal framework for prostheses listing and encourage greater
accountability from sponsors of prostheses. The measure may result
in fewer prostheses on the Prostheses List over time.
- Department of Health and Ageing
Prostheses List webpage,
http://www.health.gov.au/internet/wcms/publishing.nsf/Content/health-privatehealth-prostheseslist.htm,
accessed 22 Jan 2007.
- The Prostheses Schedule exists by virtue of a
determination issued by the Minister under Schedule 1 of the
National Health Act.
- Department of Health and Ageing
Prostheses List: guide to listing and setting benefits for
prostheses and devices The Department, August 2006, p 14. URL:
http://www.health.gov.au/internet/wcms/publishing.nsf/Content/05CFBCDCE7A7A0C1CA257
1C600227D49/$File/PL%20Guide%20April07.pdf , accessed 7
February 2007.
- ibid, pp. 15 16.
- For details of fees levied by the Therapeutic
Goods Administration for listing items on the ARTG see website
http://www.tga.gov.au/docs/html/feesach.htm#fees
, accessed 24 January 2007.
-
Prostheses List: guide to listing and setting benefits for
prostheses and devices op. cit, p. 18.
- Department of Health and Ageing
Funding of the prostheses arrangements through full cost
recovery Private Health Insurance Circular PHI 45/06
19 July 2006, URL:
http://www.health.gov.au/internet/wcms/publishing.nsf/Content/0E3999D7D3AECFFCCA257
1B00009657D/$File/45_06.pdf, accessed 7 February 2007. This was
expected to be an interim voluntary arrangement, pending
the final passage of legislation.
- ibid.
- ibid.
- ibid.
- Private Health Insurance Administration
Council, Operations of the Registered Health Benefits
Organisations Annual Report 2005 06, PHIAC,
Canberra, 2006, p. 63.
- ibid, p. 2.
- Private Health Insurance Circular PHI
45/06, op. cit.
- Productivity Commission Cost recovery by
government agencies: inquiry report Productivity Commission,
Report no. 15, 2001, p. 105.
- Private Health Insurance Circular PHI
45/06, op. cit.
- Productivity Commission, op. cit, p.
106.
- Benefit Negotiators negotiate benefits for
prostheses and devices with manufacturers, suppliers and
distributors and advise the Prostheses and Devices Committee on the
appropriate level of benefit to be recommended to the Minister.
Members of the BNG are drawn from health funds and are appointed by
the PDC.
Amanda Biggs
13 February 2007
Social Policy Section
Parliamentary Library
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ISSN 1328-8091
© Commonwealth of Australia 2007
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