This chapter discusses cost effectiveness of subsidised devices and the
effectiveness and accuracy of the billing code and Prostheses List.
The Private Health Insurance Act 2007 (PHI Act) provides for
mandatory benefits to be paid by private health insurers for a range of
prostheses that are provided as part of an episode of hospital treatment (or
hospital substitute treatment) where a Medicare benefit is payable for the
associated professional service (surgery).
The prostheses for which a benefit must be paid by a private health
insurer are listed on the Prostheses List. The Prostheses List is made under
the PHI Act and the Private Health Insurance (Prostheses) Rules which require
private health insurers to pay benefits for those prostheses. The arrangements
for including products on the Prostheses List help to ensure that benefits paid
by insurers are 'relative to clinical effectiveness'.
The Prostheses List Advisory Committee (PLAC) advises the Minister about
the listing of prostheses and their appropriate benefits in the Prostheses
List. In making its recommendations to the Minister about which products should
be included on the Prostheses List, PLAC considers the clinical effectiveness
of the product including comparative cost and comparative safety.
The Prostheses List arrangements, the PLAC and its predecessor, the
Prostheses and Devices Committee (PDC), were established to control inflation
in private health insurance benefits paid for prostheses.
The PHI Act provides for two categories of prostheses:
- no-gap prostheses: these prostheses are listed with a single
benefit which health insurers are required to pay; and
- gap-permitted prostheses: these prostheses have both a minimum
and maximum benefit listed. For these prostheses private health insurers are
required to pay at least the minimum benefit.
The TGA noted that between 1999 and 2002, the growth of the cost of
prostheses significantly increased the benefits paid by private health
insurers. In response, the Government introduced a package of reforms to
private health insurance that included new arrangements for listing products on
the Prostheses List that provide for an evidence-based assessment of products
and a centralised benefit negotiation process.
The PLAC terms of reference and business rules state that:
The Prostheses List arrangements, the PLAC and its
predecessor, the Prostheses and Device Committee, were established to control
inflation in private health insurance benefits paid for prostheses. The
Prostheses List plays an important role in ensuring the sustainability of the
Australian private health insurance system, and helps to achieve the
Government’s policy objective of ensuring private health insurance remains
affordable and accessible to all Australians.
The Prostheses List
The Prostheses List contains 9 645 prostheses including 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.
The Prostheses List does not include external devices such as external breast
prostheses, only surgically implanted prostheses.
The Prostheses List is managed by the DoHA which is also accountable for
grouping devices and determining the benefit to be paid.
The Prostheses List is divided into two parts: Part A for prostheses and
Part B for human tissue. A new Part C is being developed as a consequence of
the Doyle Review. Part C will include items currently on the Prostheses List
which do not meet the listing criteria but have proven clinical benefit, for
example, insulin pumps. Part C items will include clinically effective and cost
effective devices, such as those that are:
- not surgically implanted but with an internal part that is
integral to the effectiveness and designed to combat a pathological process or
modulate a physiological process; and
- surgically implanted devices to monitor a pathological or
The Prostheses List contains information on devices including billing
code, product category, sponsor, product name and benefit(s). The billing code
is a reference code allocated to a listed prosthesis and facilitates hospital
invoicing procedures and the payment of benefits by insurers. The billing code
may be allocated to a single piece product, a system or set, or a pack
containing different sizes of otherwise identical items. Sponsors are required
to provide catalogue numbers for each component of a billing code. This allows
users of the Prostheses List to understand what each billing code covers.
Prostheses List Advisory Committee
The PLAC was established on 4 October 2010 and replaced the PDC in
response to the HTA Review recommendations. The PLAC is comprised of an
independent chair, with members having expertise in current clinical practice,
health insurance, consumer health, health economics, health policy, private
hospitals and the medical device industry. In making recommendations, the PLAC
considers advice from Clinical Advisory Groups (CAGs) and members of the Panel
of Clinical Experts (PoCE).
The main roles of the PLAC are to provide advice to the Minister about
whether prostheses should be included on the Prostheses List. In doing so, the PLAC
- whether a submitted or listed product is a 'prosthesis';
- whether the prosthesis under consideration has similar clinical
function, effectiveness and safety compared with other prostheses included on
the Prostheses List intended to treat similar clinical conditions;
- whether the cost of the prosthesis under consideration is similar
to other prostheses included on the Prostheses List intended to treat similar
clinical conditions; and
- whether the prosthesis under consideration should only be listed
on a conditional basis, and, if so, appropriate conditions that should be
applied to its listing.
The PLAC also provides advice about grouping and description of
prostheses. Grouping of prostheses enables a single (benchmark) benefit to be
established for prostheses with similar clinical function, effectiveness and
safety. Groups are being progressive developed by DoHA in response to
recommendation 12 of the HTA Review (see below). The PLAC provides advice about
appropriate benefits that are to be paid by private health insurers for
prostheses included on the Prostheses List. Determination of the benefit is
based on clinical effectiveness of the prosthesis compared with other listed
prostheses providing similar clinical outcomes for comparable clinical
circumstances. In addition, the PLAC refers concerns about the intrinsic safety
of prostheses to the TGA and provides advice about other matters as requested
by the Minister for Health and Ageing.
Reviews of the listing and setting
of benefits for prostheses
There have been two reviews of the prostheses arrangements for private
health insurance. The first review was undertaken in 2007 by Mr Robert Doyle.
The findings of the Doyle Review were overtaken by the HTA Review. The HTA
Review commented that the Review provided 'an opportunity to revise current
arrangements which impede progress for reform of Prostheses List activities to
develop a more sustainable model for the future, as recommended by the Doyle
Review to reduce regulatory burden (including costs) imposed on the medical
The HTA Review made three recommendations aimed at simplify administration of
the Prostheses List by streamlining administrative processes and removing
That in order to reduce regulatory costs:
terms of reference for the PDC and its subcommittees be revised by July 2010 so
that it is clear that its assessments of prostheses only consider clinical
effectiveness (including comparative cost and comparative safety); and
of communication between the TGA and PDC should be formalised to ensure that
any concerns the PDC encounters regarding the intrinsic safety of prostheses
are immediately referred to the TGA and dealt with appropriately.
That the PDC be restructured by July 2010 to ensure that its
membership is balanced and:
individuals with expertise in current clinical practice, health policy and
representation from health consumers, health service providers, and the health
insurance and health technology industries; and
(c) has an
That the arrangements for the Prostheses List be changed by
2011, with appropriate consultation, to:
applications on a continuous basis, but still make the Prostheses List every
and maintain groups of products with similar clinical effectiveness;
the negotiation of benefits for individual listed products, and instead
establish and maintain a single (benchmark) benefit for the products included
in each group, with sponsors being required to accept this benefit in order to
the negotiation, setting or publication of maximum benefits, to eliminate the
potential for gap payments for patients who have Private Health Insurance
the establishment of new product groups (or sub-groups) where a sponsor
establishes clear superiority of their product compared to those in an existing
The Government accepted these recommendations. As noted above, the
following matters have since been implemented:
- Recommendation 10: the PLAC has been established to replace the
PDC, with revised terms of reference and new membership (recommendation 10a);
and a communication protocol for the referral from the PLAC to the TGA of
concerns regarding the intrinsic safety of prostheses or devices has been implemented
- Recommendation 11: the PLAC replaced the PDC, with revised terms of
reference and new membership; and
Recommendation 12: the continuous acceptance of applications for
the Prostheses List commenced on 2 August 2010 (recommendation 12a). A
stakeholder consultation meeting was held in June 2010 and general agreement on
the approach to implementation of recommendation 12b-e was reached. The
Minister has approved this approach, including the establishment of a
Consultative Committee, and phased implementations which will occur throughout
2010 and 2011. The Consultative Committee is continuing to meet to consider the
proposed groupings and group benefits of products.
Public health system
In the public health system, medical devices are supplied under
agreements or tender arrangements between the supplier and the public hospital.
Public hospitals also receive payments from health insurers for private
patients who elect to be treated in a public hospital.
Submitters noted that the reimbursement of medical devices has been
addressed in the HTA Review with the Review's recommendations being
progressively implemented. Medtronic Australasia, for example, commented that
'some positive changes have been made'.
AusBiotech added that:
With its revised membership and terms of reference, PLAC
should assist with developing clinical evidence requirements for new Prostheses
List applications as well as the development of procedures and models for
assessing the cost effectiveness of medical devices in a more rigorous and
However, submitters also argued that a number of issues still remained
to be addressed including addressing comparative cost effectiveness mechanisms,
limitation of listing on the Prostheses List to implantable devices and the
influence of gap payments on choice of device. Medtronic Australasia, for
Medtronic commends MSAC [Medical Services Advisory Committee]
on the work it has done to develop a new framework for the MSAC assessment
processes. However, we believe MSAC is experiencing significant teething
problems with the new processes, resulting in a great deal of uncertainly for
applicants who have applications in progress. This includes significant
examples of "shifting goalposts", undocumented processes, partially
implemented processes, poor communication of changes and processes, and
expectations and lack of transparency. There are further improvements to be
made here if Australia is to deliver internationally recognised good HTA
Cost effectiveness of subsidised
The cost effectiveness of medical devices is a significant issue for
both the private and the public health care sectors. The benefits paid by
private health insurers for prostheses for the 12 months to March 2011 were
$1.3 billion, which represented 10.6 per cent of total benefits paid by health
insurers during that period.
The Medical Technology Association of Australia (MTAA) commented that prior
to the implementation of the recommendations of the HTA Review, cost
effectiveness of implantable devices was assessed relative to comparator
devices already on the Prostheses List. However, following the HTA Review, the
grouping of products and the application of a benchmark benefit for each group
of like products has been gradually implemented. The MTAA noted that the
grouping mechanism employed to enable comparisons is 'a simpler and more
appropriate approach than evidence-based assessments for reimbursements of
products on the Prostheses List'.
Other submitters raised the issue of the lack of comparative cost
effectiveness of devices in relation to total benefits and costs. JJM commented
that the cost effectiveness of devices should not be limited only to the device
itself. Rather, total benefits and costs should be taken into account both
within sectors and across sectors, for example, the utilisation of medical
technology within the private sector may accrue savings to the Pharmaceutical
JJM went on to state that it supported evidence-based medicine to achieve
objectives including enhanced healthcare decision-making, access to appropriate
technologies and optimal use of healthcare resources. JJM commented that:
Individual patient needs should supersede short-term cost
considerations, especially for the use of new treatments that potentially
address unmet medical need and that may change the paradigm of therapy.
JJM concluded that medical technology costs 'should not be judged in
isolation or in silos for budget setting and budget holding'. However, JJM
argued that this does not currently occur in the Australian healthcare sector
and as a result there is 'non-realisation of cost savings within the overall
expenditure on the healthcare system'.
AusBiotech put a similar view and commented that the 'current system
provides no incentive for medical practitioners and healthcare providers to
look at the entire cost of the treatment over multiple admissions'.
The need to assess comparative effectiveness was raised by the AHIA. The
AHIA argued that assessment of effectiveness should consider both cost and
clinical effectiveness of devices, with only devices which have been proven to
be both more clinically effective and more cost effective should be listed.
Dr Michael Armitage, Chief Executive Officer, AHIA, explained further:
At the moment if someone brings in, for argument's sake, a
stent to be put into a cardiac artery it is usually compared with another
stent. It is, however, not compared on a comparative cost-effectiveness, or
indeed comparative clinical effectiveness, basis with, for argument's sake, a
coronary artery bypass graft. More importantly, it is not compared against, in
this particular case, the use of optimal medical treatment—in other words,
standard drugs that are used every day, and there is a trial in America, called
the COURAGE trial, which seems to indicate that optimal medical treatment is
better than either of those other two things. So there is a need for
The AHIA concluded that:
...the medical devices should be competitively contestable to
ensure ongoing growth. However, in ensuring an informed consumer, information
should be readily available on comparing the best available HT alternatives.
In relation to cost effectiveness, Medibank Private commented that
within the Australian healthcare sector there is a fragmented approach with
separate processes for medicines, procedures and devices. Thus the healthcare
sector does not benefit from a global approach. In addition, Medibank Private
noted that the take up of new technologies relies on suppliers introducing
specialists to new medical devices or direct supply or hospitals. This,
Medibank Private argued, is undertaken 'without any clinical evidence other
than Therapeutic Goods Approval (TGA), or formal industry accepted process for
reimbursement (such as that that exists for prostheses)'. A further matter
raised was the change to the regulatory regime to contain costs. As a
consequence, Medibank Private commented that approval, funding and use of new
medical devices are 'complex and highly regulated'.
While acknowledging the work of the HTA Review, Medibank Private argued
that there are features of the current system which have 'led to unintended and
unwanted outcomes for the Australian health system' and continue to affect the
success of changes to existing arrangements. Medibank Private pointed to excessive
costs for the health system as there is a lack of genuine competitive pressure;
product selection that is predominantly determined by clinical choice without
reference to cost effectiveness; and different classes of prostheses with
widely differing benefits may be used with no clinical justification for the
Medibank Private outlined the features which are contributing to adverse
outcomes. First, the scale and size of the Prostheses List is inhibiting
attempts to group products on the basis of clinical effectiveness. For example,
a review that involves around 2 500 products remains incomplete after almost
two years. Medibank Private also noted that there is a major backlog of reviews
of listings and benefits intended to be undertaken by the PDC, resulting in
inconsistent benefits set for products with similar clinical effectiveness.
However, the AHIA commented that the 'grouping exercise is on technical rather
than relative clinical effectiveness grounds'.
Medibank Private went on to comment on practices in the private and
public sectors and noted that the differing benefit setting arrangements for
prostheses between the public and private hospitals sectors result in private
health insurers having to reimburse prostheses at much higher levels in the
private hospital sector where clinicians are not required or encouraged to consider
cost effectiveness. While some differences reflect the level of training and
product support between public and private hospitals, benchmarking indicates
variation that exceeds this justification. In addition, there is a lack of
emphasis given to considerations of cost effectiveness in the private sector
which makes it difficult to encourage device suppliers (or sponsors) to develop
and support generic prostheses. Medibank Private commented that 'while the
regulatory framework needs to ensure that there are appropriate incentives for
sponsors to invest in prostheses, innovations to develop generic products where
they achieve the same or better results in more cost effective ways are
However, the AOA also commented that the price differential between the public
and private sectors is not as great as it has previously been as procurement
arrangements have now been undertaken by the States rather than individual
Medibank Private pointed to three further features which effect the
the encouragement of market competition between sponsors will
help offset the market failures which exist in relation to prostheses, for
example, information gaps for consumers who rely on clinical guidance, which is
not required to reflect cost effectiveness considerations in any meaningful
- there is a paucity of information regarding clinical best
practice to guide the choice of prostheses despite the work of the NJRR. As a
consequence, the substitution of certain devices for more cost effective
selections where clinical effectiveness is maintained is undermined; and
- there is a significant degree of discounting on prices actually
paid by parties along the supply chain (sponsors, private hospitals, and
possibly clinicians). Medibank Private argued that private health insurers, and
ultimately the consumer, miss out on sharing in the discounts and no price
disclosure or other comparable mechanism exists for sharing discounts.
A final matter raised by the AOA in relation to costs generally is that
there is no mechanism to take account of any increase in the value of the
Australia dollar. Such a mechanism would ensure that the purchase cost of imported
devices can be adjusted as the value of the dollar increases, thus providing
benefits for consumers and the health sector.
As noted above, the Prostheses List was considered by both the Doyle
Review and the HTA Review. The HTA Review recommended changes to the Prostheses
List process. The Australian Private Hospitals Association (APHA) was of the
view that 'it is too early in the process to make any definitive statements
about how the new list is working'.
However, other submitters, while acknowledging that some changes have been
implemented, argued that problems still remain. For example, Medibank Private indicated
that there are 'inherent problems' in present prostheses systems which include:
- errors in prostheses listing of legislated requirements – Medicare
Benefits Schedule/Australian Register of Therapeutic Goods (ARTG) numbers are
absent, generic or incorrect;
benchmarked benefits are generally overpriced compared to
overseas examples and Australian public market;
- the constructs of the list are overly complicated with individual
components of a prostheses being listed;
- no common identifier or coding system is in use. In addition, billing
code identifiers for manufacturer codes are not publicly available;
- there is no audit of performance as a commercial instrument which
creates unnecessary error rates and acceptance of poor practice;
- no benefit setting processes have been investigated or proposed
post the HTA review; and
- the list has an inadequate classification system in that
substitutable devices cannot be easily identified.
These problems were also raised by other submitters with the AOA
commenting on the accuracy of Prostheses List descriptors. The AOA stated that
the relevant Clinical Advisory Groups are still identifying products that have
been incorrectly listed in higher paying groups 'which companies rarely
volunteer as an issue'. The AOA concluded that 'there are no penalties to
ensure effective compliance and from the evidence it would seem that companies
are not good at self-regulation'.
Medtronic Australasia commented on the lack of sufficiently clear and
detailed guidelines on the clinical evidence requirements for listing products
on the Prostheses List. Medtronic Australasia argued that as there are no clear
guidelines, there have been instances of what appears to be an inconsistent
assessment of product application which 'greatly increases uncertainty for companies'.
In addition, Medtronic Australasia stated that company requests for higher
benefits for certain products due to clinical superiority are not currently
being assessed as the criteria for superior clinical performance have yet to be
The AHIA also commented that the grounds for superiority are inconsistent, not
transparent and should be based on patient register performance.
Issues with the billing codes were raised by the AHIA which argued that
identification and coding standards remain fragmented across the industry and
need to be addressed so that there is an effective link in the HTA information
chain and that opportunities provided by the implementation of e-Health and the
push towards a national product catalogue are captured.
Dr Armitage, AHIA, commented that there is no billing code to catalogue
link so that funders are unsure of what they are paying for. Dr Armitage called
for action to be taken so that there is a link between the billing code and the
This concern was supported by the AOA which argued that billing codes and
catalogue numbers should be linked, 'as any one billing code can cover a
multitude of catalogue numbers with inherent capacity for new technologies to
be introduced into the billing code without scrutiny'. The AOA concluded:
This linkage would not only enable more accurate auditing of
devices and technology, but would enable device and technology companies to
more accurately access their data through independent bodies such as
registries. It would also bring a level of transparency to billing practices.
The MTAA noted that DoHA is continuing in its efforts to ensure that
product descriptions contained in individual billing codes are appropriately
descriptive of the approved listing and that all entries have current
registration with the ARTG. The MTAA commented that 'this is a burdensome task
in respect to a list with over 9 000 entries but a necessary task which MTAA
The Australian Private Hospitals Association commented that no concerns
have been raised by its members in relation to billing codes.
Submitters raised a range of other issues concerning the Prostheses List
including the type of devices that may be listed. The MTAA, St Jude Medical and
Boston Scientific Australia New Zealand (BSC) commented on the criteria for
listing that requires the device to be implantable. It was argued that this
requirement is unnecessarily restrictive and does not take into account new
technologies. St Jude added that that the 'rigid and anachronistic' rules of
the Prostheses List resulted in the most cost saving and effective clinical
treatment is not delivered to patients.
As a result there is a cost to the health system. In addition, the MTAA argued
that 'private patients do not always receive the benefits of technologies which
are otherwise available on the Australian market'.
BSC noted that 'increasingly technologies are being designed such as
radiofrequency ablation, which if used, prevents the need for implantable
devices, such as a defibrillator' which is a less invasive treatment.
St Jude Medical provided the example of its pressure wire which is used during
coronary angiography. Where the pressure wire is used, the average number of
coronary stents used is lower. However, as private hospitals do not receive any
additional benefit for using a pressure wire, St Jude Medical stated that there
is financial disincentive to use the device despite the significant decrease in
heart attacks, death and overall cost. In the public sector, the uptake of this
technology is higher as 'there are different financial drivers'.
The MTAA acknowledged that the HTA Consultative Committee has terms of
reference that will include examination of funding for cost-effective
technologies that are not eligible for listing on the Prostheses List.
While BSC concluded that it:
...shares the concerns of health funds that we do not want to
address these perverse incentives by listing every possible device. However,
there is an opportunity to create an alternative list of surgical treatments
requiring non-implantable devices to provide patients and doctors with the same
certainty they enjoy from the Prostheses List.
BSC is working with the MTAA on a principled-based approach
to creating a "Schedule C" for non-prostheses device treatments. As
technologies evolve, there will be increasing need for a explicit list that enable
doctors to provide the most appropriate treatment option for their patients. To
do this, Australia will have to eliminate the perverse incentives inherit in the
Prostheses List definition.
St Jude also recommended that Part C of the Prostheses List should be
revised to allow for devices such as the pressure wire to be listed.
Two matters which affect the choice of medical devices were raised by
AusBiotech. First, AusBiotech stated that the size of the gap payment required
to be paid by a patient can influence the choice of device made by the medical
practitioner. As a consequence, the sale of 'unselected' medical devices is
impeded. Secondly, the revision of the Prostheses List twice per year can
similarly effect the utilisation of devices. AusBiotech stated that when a new
device is listed, benefits established for medical devices can universally
change due to the new product being listed 'subsequently altering the gap
payment required by the patient'.
Medtronic Australasia noted that the development of a review and appeal
processes for both the Prostheses List and for MSAC are progressing very
slowly. As a consequence there is currently no mechanism for internal appeal
and review of decisions and concluded that 'it is imperative that this be addressed
as a matter of urgency'.
Finally, the AHIA commented that there is no process proposed post the
HTA review and no constructive papers have been commissioned or information
released around which the industry can base decisions in regards to an ongoing
process. The AHIA stated that 'this would include how benefit setting would
work into the future, what would be the mechanisms for controlling benefit
growth, and any indications of the establishment of further registries to
ensure quality and safety'.
A significant issue raised during the inquiry was the lack of assessment
of comparative cost effectiveness of devices. It was argued that as a
consequence, savings in other areas such as the PBS are not being identified.
Evidence pointed to the fragmentation of the approval system across pharmaceuticals,
devices and processes working against a global approach. The committee
considers that more rigorous comparative cost effectiveness would benefit the
healthcare sector, and there is some way to go before this can be implemented.
However, the committee considers that once the recommendations of the HTA
Review have been fully implemented, the strengthening and streamlining of processes
will allow for comparative clinical and economic evaluations by MSAC. These
issues of clinical effectiveness were also considered in chapter 3
The committee notes the changes being made to the Prostheses List as a
result of the HTA Review. While there remain some concerns with the Prostheses
List, the committee considers that many will be addressed as further changes
are made. In relation to the restriction of listing of implantable devices on
the Prostheses List, the committee notes that a new part to the Prostheses List
(Part C) is being developed which may address some of these concerns.
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