Protheses List Reforms

The prostheses list appears to be a remnant of a command economy.

The Department of Health has called for commentary on a consultation paper regarding reform in the sale and procedurement of surgival implants. A core characteristic of the market for prostheses within private healthcare appears not to have been addressed in the consultation paper. Unlike most other markets, there is a disconnect between the person choosing the product, the person using the product, and the person paying for the product. Market forces can therefore exert little downward pressure on prostheses prices.

The simple diagram below sets out the roles and players in the market for prostheses (roles along the top, and players down the left side). In a normal market for goods or services, the user, the chooser, the payer and the buyer are the same player (light blue dots). In the Australian market for prostheses, each of those roles is carried out by a different market player (dark blue dots).

The result of this is that the market is not responsive to price signals. There is no incentive for a surgeon to choose a particular implant based on value criteria. He or she is free to choose a more expensive prosthesis with marginal or no gains for the user/patient, and the patient’s health fund is obligated to pay for it.

A useful reform would seek to redress this situation, and pass price signals back to the “chooser” or the user. A price signal will have most impact if it translates to a financial outcome to either the patient or surgeon.

Because private hospitals do not choose the prosthesis, they often have limited opportunity to negotiate meaningful deals with a focused group of manufacturers. Instead, private hospitals are required to purchase devices from a wide range of manufacturers as directed by surgeons who are by-and-large visiting medical officers. Limiting surgeon choice is a highly charged topic, raising concerns of “managed care” along US lines. Because the healthcare industry allows clinicians free choice, we must accept higher pricing and hidden purchasing costs.

The following suggestion is intended as a thought experiment: one way of allowing medical free choice, while passing a price signal to the surgeon and his or her patient could be to have the doctor’s office procure implants instead of the hospital. The implant could remain funded through private health insurance (through the surgeon’s existing MPPA with health funds).

Finally, the New Zealand approach may be useful. The PHI covers a basic or mid-range device for the patient’s treatment, while more expensive devices result in an out-of-pocket charge. This forces a conversation about value between surgeon and patient on the implant options. Should a patient’s fellow health fund members contribute to the patient’s top-of-the-range lenses, or should the upgrade costs fall to the patient?

[Image: By Frank C. Müller, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=23063533]