Aggravating aggregates

I was interested in the recent debate surrounding the federal government’s plans to cease the bulk-billing incentive for pathology (here’s a good example, and Minister Ley’s response here). There was quite a kerfuffle on facebook when Royal College of Pathologists of Australasia president Michael Harrison was quoted as saying the cuts (the incentive is ~$3.50) would lead to co-payments of $30. Never mind the obvious conflict-of-interest in the peak body for pathologists defending a government payment directly to pathologists, let’s look at some data.

Using the Medicare statistics for 2014-2015 we can plot the rate of bulk-billing for out-of-hospital pathology, and the average government benefit per pathology item (I have excluded the pathology initiation fees for clarity). As you can see there is a kink in 2009 when rates were dropping, causing the Labor government to introduce the incentive payment. I have adjusted the average benefit per pathology item to CPI (presented in Jul 2015 dollars according to ABS 6401.1). You can see that this benefit has been dropping in real terms (15% since 2003/04), due to the fact that the government does not automatically index items on the Medicare Benefits Schedule.

pathology1

Using the Health CPI (ABS 6401.2) instead, the real value of the benefit drops 32%. It is well known that health costs increase at a more rapid pace than inflation (e.g. Private Health Insurance premiums increased three times the rate of inflation last year):

It may seem that the government is sticking it to pathologists and pathology consumers by implementing a harsh efficiency dividend. But maybe not.

Heterogeneity

There are several stories the data tells. I’ll put forward two hypotheses. Imagine the government funded 10 pathology items in 2003. Of those, 8 were standard blood tests (@$10 each in 2015 money, bulk-billed) and 2 were complex fertility tests (@$60 each, with $30 co-payment). The bulk-billing rate was 80%, in this case because all the standard tests were bulk-billed. The average subsidy was $14.

In 2015, let’s say bulk-billing rate was 95% and the average subsidy was $11. Looking at these figures, you might say that the government had failed to increase its subsidy with inflation, and the industry had increased productivity to make up for the short-fall, ensuring they were still able to bulk-bill.

The other hypothesis is that pathology experienced greater growth in standard blood tests than in fertility tests. Indeed if there were 95 blood tests and 5 fertility tests in 2015, that would explain the lower subsidy.

I don’t know if statistics on individual Medicare line items are available, but we need to see a sophisticated analysis beyond aggregate figures in order to make a reasoned judgement about the impact of the incentive on bulk-billing rates. Merely reporting the percentage rise/fall of an aggregate figure representing many heterogeneous items will not suffice.

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