CEO Speech: A sustainable private health system for the benefit of millions of Australians
CEO speech to the Australian Private Hospitals Association's National Congress in Melbourne on 18th March 2019.
Thank you to the Australian Private Hospitals Association for inviting me here today.
I wish to acknowledge the Wurundjeri people of the Kulin Nation who are the traditional owners of the land on which we meet today and pay my respects to their Elders past, present and emerging. We also recognise the health gap that continues to exist between Indigenous and other Australians, and acknowledge those people working in their communities to help close this gap.
Australia has one of the best health systems in the world in part because of the strength of the dual public/private system.
More than 13.5 million Australians participate in private health insurance. At Medibank, we insure 3.8 million people. Our customers appreciate the choice that private healthcare provides, and more broadly our role in taking pressure off the public system.
People invest in private health insurance for peace of mind and choice. We can only deliver on this promise in partnership with you, Australia’s high-quality private hospitals, and the experts who deliver the healthcare.
Private hospitals are essential to the health insurance value proposition. Medibank’s Patient Reported Experience Measures survey has shown that at least 95% of private hospitals are rated at least an 8 out of 10 by our customers.
Nevertheless, our sector is facing some challenges, and I am sure you agree that it is vital to ensure private health insurance remains sustainable both now and into the future.
Together, our industry has to balance rising costs with the essential elements of being affordable and meeting the needs of customers and patients. It’s this challenge that is driving Medibank’s focus on value and transparency.
In 2018, Medibank and ahm paid $5.3 billion in benefits to our customers, supporting more than 1.3 million hospital admissions, 500,000 surgical procedures and 23.8 million extras services.
We know that affordability is still a big issue – our customers tell us it is. Over the past decade the cost of healthcare in Australia has risen by 4.5% p.a. above inflation, while wages have only grown by 0.4% p.a. above inflation over the same period.
Dealing with this in a meaningful and sustainable way requires reform to the system. We have worked with the Government over the past two years to deliver on its platform of transparency and affordability.
The upcoming Government reforms are the biggest changes to the sector in 18 years, and we are working hard to minimise disruption to our customers. Medibank has chosen to adopt all of the Government’s optional reforms, on top of those that are mandated, because we believe they will deliver better outcomes and improved affordability for our customers.
We are well placed on reforms, and we have written to all providers to ensure they know how the changes may impact their practice and patients.
From next month, hospital insurance policies will be classified into four tiers - Gold, Silver, Bronze and Basic - with standardised clinical categories for treatments to make it clear what is and isn’t included in policies. These new tiers need to be adopted by insurers over the next 12 months.
We’ve begun contacting our customers about these changes, as some people may be impacted before others, depending on their level of cover and what policy they have with us.
38 new standard clinical categories will be introduced from next month, and we have 12 months to adopt these categories for all policies. Medibank and ahm already have new reform-compliant health insurance products for sale, giving customers the opportunity to choose the most suitable cover.
The individual MBS items within each clinical category will also be standardised and this means that, depending on their type of cover, customers will see some hospital products being changed, with some MBS items being added or removed so the products comply with the Government’s requirements.
Not all customers are directly impacted by the Government reforms, but for those that are, our focus is on making the transition as simple as possible.
From 1 April, approximately 150,000 Medibank and ahm customers will have up to the maximum 10% young adult discount applied to their policy, which is an optional reform but one we believe is important to attract and retain the under-30s.
We will also make a higher hospital admission excess of $750 available on most products to give customers the option for lower premiums. There is no requirement for customers to change to products with higher excesses, but essentially for each $250 increase in excess, annual premiums are 4% lower.
Additionally, we have made it easier for customers to upgrade their policy and access in-hospital mental health services, resulting in hundreds of customers being able to make mental health claims when they needed help the most. We have already spent millions of dollars on additional care as a result of the waiver.
I am proud that we have been able to assist these customers as a result of the mental health upgrade option, meaning customers can upgrade their cover to include in-hospital mental health treatment without serving a waiting period. Medibank went a step further by removing the two-month waiting period on psychology services on current Extras products.
This needs to be just the beginning. We want a system that is more affordable, easier to use, and creates greater customer value. We are working hard within our business to achieve this, including reducing our own costs by $60 million over three years, but these challenges cannot be solved by private health insurers alone Both major political parties recognise that more must be done. Our role is to advocate for this on behalf of our customers, but we need to work even closer with you to ensure our healthcare system is sustainable into the future.
We believe there are three more major reforms that are necessary.
Firstly, more needs to be done on transparency, especially around out-of-pocket costs. The number of customers who say that these are a key reason for dropping their private health insurance has more than tripled over the past five years, with out-of-pocket expenses currently in excess of $30 billion p.a or $1,200 per capita, which means Australia has the seventh highest per capita out-of-pocket expenses in the world.
Customers want to know what their healthcare experience will be like and what it will cost. In the age of transparency, this challenge affects most sectors, but we are playing catch-up in healthcare. We have more information available to us than ever before, but surprisingly little data available on our healthcare system and how it relates to us personally.
The recommendations from the Government’s out-of-pocket costs committee are a good start, and we’re pleased the Australian Government has decided to accept the recommendations. If treatment costs and quality data are more readily and universally available, Australians will be able to make more informed choices about their healthcare and this is a good thing.
In the last 12 months, we have launched several important initiatives to help our customers get the information they need when they go to hospital.
The new search tool, Find a Provider, shows customers how often a specialist charges an out-of-pocket fee to a Medibank customer. This provides people with more certainty on cost, but it is not the solution, which will come from stronger collaboration between medical, hospital and payer stakeholders.
Our customers have also been asking us a lot of questions about what’s a good hospital for them and what should they be looking for. Going to hospital isn’t an everyday experience and it can often be daunting, so it’s not surprising that people are asking these questions.
Since 2016 we’ve surveyed 36,000 customers who have had an overnight hospital stay so we can have a better understanding about what’s important to them.
As I referenced earlier, our PREMs data is now online with most of our partner hospitals. This patient experience information has had 270,000 page views from more than 48,000 users since going live in November.
In working through how we publish this data, we sat with many of you and used your feedback to shape how this information is presented. We will regularly update the data on our website.
Sharing this data with hospitals and highlighting potential patient concerns has already led to good results, with one hospital group changing the way they employ and roster nurses after hearing customers had concerns about nurse communication and responsiveness.
It’s also a great example of the healthcare system working collaboratively. I’m encouraged by the feedback we’ve had from you, and that the data shows the private hospital sector has been doing a great job – as I said earlier, 95 per cent of our customers gave their experience in a private hospital an 8 out of 10 or above, while for public hospitals the comparable rate was only 65 per cent.
If you’re not already participating in the PREMs project, I encourage you to reach out to us so we can share the data we already have and improve transparency for patients.
By making this patient experience information available, we can help our customers to make the choices that are right for them.
The second great challenge we face is Australia’s changing demography. The number of Australians aged 65 and over is set to double within the next 40 years. The ageing population means greater demand on our health system and simultaneously fewer taxpayers to help fund it.
Additionally, one in every two Australians has a chronic disease. This accounts for approximately $45 billion or 36% of the total health budget. Unless more is done to prevent and manage chronic disease, these costs will swamp the public and private health systems.
We need new solutions. The further development of alternative care pathways, such as ambulatory centres, day hospitals, specialist centres and home-based care will be imperative as changing healthcare delivery and technology are making this possible. This comes against the backdrop of Australia having the largest growth in acute hospital beds per capita in the G10 over the past five and 15 years.
One of the avenues we’re exploring to provide choice at an affordable price is Medibank at Home. Our in-home care services provide real choice to patients about where their healthcare is delivered, in consultation with their treating doctor.
Our national Rehab at Home service has benefitted thousands of patients, and Medibank at Home trials now include dialysis, chemotherapy, reconditioning rehab, infusions and palliative care.
Our Medibank at Home patients have had more than 9,500 health interactions so far this financial year. This includes treatments, visits and home care calls.
This is only possible through our partnerships with our providers; the doctors and hospitals who offer their patients this choice, the providers who deliver the at-home services including nurses, physios, and occupational therapists, and the organisations who add the personal care element, whether it be meals, social visits or helping patients get back to their doctor for follow up appointments.
We want to work with you to provide these services, so we can meet customer demand at an affordable price.
Finally, we also need to be smarter about healthcare spending. And if we are seriously considering reform then surely, we must address the Productivity Commission’s estimate that 10% of healthcare spending either has no effect, causes harm or it is not worth its cost. We await the Government committee’s MBS Review findings.
There is also more work to do on prostheses. Moving to a new system of procurement with international reference pricing would save customers around $500 million a year. The prostheses reform to date has delivered $50 million in savings, and we passed every cent onto customers, resulting in our lowest premium increase in 18 years.
Labor’s policy to cap premium increases at 2 per cent will be challenging. As I mentioned earlier, over the last decade the cost of healthcare in Australia has risen by 4.5 per cent per annum above inflation, and this policy will not change these costs. While we want to reduce costs for our customers, the ALP’s policy does not address the rising costs within the system.
A low and capped premium environment would mean we need to work even more closely with you to ensure our system remains sustainable.
We need to be realistic about the impact this would have on private healthcare operations. There will be some tough calls to make on all sides, but I want to be clear that we understand the importance of working together on these challenges.
We all want private healthcare to be more affordable, easier to use, and provide greater patient value. We are working hard within our business to achieve this, and as I said earlier, this includes a plan to have delivered $60 million in productivity savings by 2020, and we will inevitably need another round of cost reduction in the period ahead. But affordability problems cannot be solved by insurers alone.
There is much more to do and we must come together as the private health sector to tackle some of these challenges – this is a joint responsibility.
I know there is a lot of innovative thinking happening in your organisations already, so thank you for bringing these ideas to the table.
The next two years will be crucial to ensuring we deliver a more financially sustainable private healthcare system while continuing to provide a differentiated proposition and high-quality care to the 13.5 million Australians who entrust us with looking after their health.
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