Medicare is covering less of specialist visits. But why are doctors’ fees so high in the first place?
- Written by Susan J. Méndez, Senior Research Fellow, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne
Fees for medical specialists are going up faster than Medicare rebates[1], leading to a bigger gap for patients to pay.
Recent data from the Australian Institute of Health and Welfare[2] shows that in the first quarter of this year, Medicare rebates covered just over half (52%) of the total fees. This is down from 72%[3] two decades ago, and the lowest proportion on record.
Doctors can charge what they like, while the government determines the Medicare rebate. The difference between the two, or the gap, is what impacts patients. For GPs, the government provides an incentive for doctors to bulk bill[4], but there’s no such incentive for other specialists.
Doctors blame large gap payments on rebates being too low, and they’re partly right. After adjusting for inflation and increasing demand, the average dollar amount one person receives in Medicare rebates annually dropped from A$349 to $341[5] over the past decade.
But this is only a part of the problem. When many people can’t afford hundreds (if not thousands) of dollars for essential specialist care, we need to look at why fees are so high.
How do specialists set their fees?
Although general practice is technically a speciality, when we talk about medical specialists in this article, we’re talking about non-GP specialists. These might include paediatricians, oncologists, psychiatrists and dermatologists, among many others.
In determining fees, specialists consider a combination of patient-level, doctor-level and system-level factors.
Patient characteristics, such as the complexity of the patient’s medical condition, may increase the price. This is because more complex patients may require more time and resources.
Specialists, based on their experience, perceived skill level, or ethical considerations, may charge more or less. For example, some specialists report[6] they offer discounts to certain groups, such as children or pensioners.
System-level factors including the cost of running a practice (such as employing staff) and practice location also play a role.
Problems arise when prices vary considerably, as this often signals limited competition or excessive market power. This holds true for medical services, where patients have little control over prices and rely heavily on their doctors’ recommendations.
In recent research[8], my colleagues and I found fees varied significantly between specialists in the same field. In some cases the most expensive specialist charged more than double what the cheapest one did.
Doctor characteristics influence fee-setting
My colleagues and I recently analysed[9] millions of private hospital claims from 2012 to 2019 in Australia. We found the wide variation in fees was largely due to differences between individual doctors, rather than factors such as patient complexity or the differences we’d expect to see between specialties.
Up to 65% of the variance in total fees and 72% in out-of-pocket payments could be attributed to differences between doctors in the same field.
To understand what doctor-level factors drive high fees, we looked at[10] data from a representative survey of specialists. We found older specialists have lower fees and higher rates of bulk billing. Practice owners tended to charge higher fees.
We also found doctors’ personalities affect how much they charge and how often they bulk bill patients. Doctors who scored more highly on the personality trait of agreeableness were more likely to bulk bill patients, while those who scored more highly on neuroticism tended to charge higher fees.
What we couldn’t show is any evidence fees were associated with competition.
Effects on patients
This is not a competitive market. On the contrary, it has high entry restrictions (long training requirements) and a limited supply of specialists, particularly in rural and remote areas[11]. Meanwhile, patients’ access is controlled by the need for referrals which expire, generally after a year.
Patients are often unable to shop around or make informed decisions about their care due to a lack of information about the true cost and quality of services.
For private hospital services, the fee structure is complicated by the fact that several providers (for example, surgeon, anaesthetist, assistant surgeon) bill separately, making it difficult for patients to know the total cost upfront.
Despite efforts to introduce price transparency in recent years, such as through the government’s Medical Costs Finder[12] website, the system remains far from clear. Reporting is voluntary and the evidence is mixed[13] on whether these tools effectively reduce prices or increase competition.
All of this contributes to high and unpredictable out-of-pocket costs, which can lead to financial strain for patients. About 10.5% of Australians[14] reported cost was a reason for delaying or avoiding a specialist visit in 2022–23.
This raises important questions about equity and the sustainability of Australia’s universal health-care system, which is built on the principle of equitable access to care for all citizens.
What can be done?
Patients can take steps to minimise their costs by proactively seeking information. This includes asking your GP for a range of options when you’re referred to a specialist. Note the referral from your GP can be used for any other doctor in the same specialty.
Similarly, ask the specialist’s receptionist what the fee and rebate will be before making an appointment, or for a detailed quote[16] before going to hospital. Shop around if it’s too high.
But responsibility doesn’t only lie with patients. For example, the government could seek to address this issue by increasing investment in public hospital outpatient care, which could boost competition for specialists. It could also publish the range of fees compared to the rebate for all Medicare-billed consultations, rather than relying on voluntary reporting by doctors.
Price transparency alone is not enough. Patients also need quality information and better guidance to navigate the health-care system. So continued investment in improving health literacy and care coordination is important.
If things don’t change, the financial burden on patients is likely to continue growing, undermining both individual health outcomes and the broader goals of equitable health-care access.
References
- ^ Medicare rebates (www.abc.net.au)
- ^ Australian Institute of Health and Welfare (www.aihw.gov.au)
- ^ down from 72% (www.abc.net.au)
- ^ bulk bill (www.health.gov.au)
- ^ A$349 to $341 (www.aihw.gov.au)
- ^ some specialists report (www.sciencedirect.com)
- ^ Drazen Zigic/Shutterstock (www.shutterstock.com)
- ^ recent research (papers.ssrn.com)
- ^ recently analysed (doi.org)
- ^ we looked at (papers.ssrn.com)
- ^ rural and remote areas (www.aihw.gov.au)
- ^ Medical Costs Finder (medicalcostsfinder.health.gov.au)
- ^ evidence is mixed (doi.org)
- ^ 10.5% of Australians (www.abs.gov.au)
- ^ vectorfusionart/Shutterstock (www.shutterstock.com)
- ^ detailed quote (www.ama.com.au)
