The freakonomics of Australian healthcare: an ophthalmology case study

Paul Smith. Photo: Lucas Smith.

Tucked away down a back street in one of the less salubrious suburbs of Melbourne is a former karate studio turned private hospital.

Even to the untrained eyed it does not exactly look like a hospital, more like a few office rooms behind a concrete and glass facade and a couple of plant pots.

There are others like it around Australia – to all intents and purposes a normal medical clinic but whose owners have managed to secure it formal accreditation as one of 600-plus private hospitals that appear in the AIHW stats.

The official status of some of these establishments, as I hope to explain, is actually a mystic portal into the way politics breeds irrationality into the health system.

The journey starts with the private health insurers who have not been happy about what they regard as pseudo-hospitals. There emergency is part of a cost-shifting pantomime with private health insurers as the principal victims.

“You see doctors setting up day surgeries in their rooms and then billing [private] health funds for a day admission, when you know the person has just really had a consultation and some tiny little procedure,” Dr Rachel David, CEO of Private Healthcare Australia, was telling The Australian earlier this month.

“They’re doing it so that they get some revenue, but they’re also doing it to eliminate co-payments. You see that in some specialties like skin lesions. It happens a lot in ophthalmology when they’re doing things to people’s eyes that take five minutes and they’re saying, ‘Oh well, it’s a day admission,’ and the person walks out without a co-payment.”

What specific treatments are we talking about? 

The best-known examples are intravitreal eye injections used in the treatment of retinal conditions, predominantly age-related macular degeneration, diabetic retinopathy and retinal vein occlusions.

When the Medicare Taskforce arrived a few years ago with its mandate to strip out low-value care, it took a particular interest in item 42738, which pays a $247 rebate for “paracentesis for the injection of therapeutic substances and/or the removal of aqueous or vitreous humours”.

The taskforce said the big problem was that these clinically simple injections had been formally classified as “type B” procedures (ie, hospital day case), rather than “type C” procedures (those that do not require a hospital support system to administer). 

Yes, there are exceptions — patients with, say, nystagmus or eye movement disorders or cognitive impairments where the injections could not be administered without sedation.

But in general, a hospital (real or pseudo) is the wrong place to administer.

Given the resulting cost — health insurers say they are being charged three or four times what it would cost in a non-hospital setting — the arrangement should be regarded as low-value care.

This was something the Australian Society of Ophthalmologists also made clear at the time.

The taskforce’s final ophthalmology report issued in 2020 attempted to described what was happening as a result of the dabblings of Adam Smith’s hidden hand.

“In-hospital intravitreal injections for retinal disease, such as macular degeneration, should occur in fewer than 3% of patients. It currently occurs in 18% of patients, and this number is increasing.

“The [expert ophthalmology] committee felt that this is largely unnecessary and may be due to financial incentives.”

Here’s the twist.

Since the taskforce report came out, its recommendations for the reclassification of intravitreal eye injections have gone into the health policy dustbin.

The injections were discussed at the highest ministerial level back in 2020 — with the then-health minister Greg Hunt being briefed about their fate. It seems he decided to leave well alone.

Like many of the specialist recommendations put forward by the Medicare Taskforce (it’s ambitious/foolhardy plan to revamp items for specialist consults, for instance), it turned out that bringing enlightenment to the Australian healthcare system was going to be tough.

Despite the protestations of Dr David, the informed rumours are that the health insurers are reluctantly willing to accept the bill. 

For one of the big brand health insurers, it would be about $20 million a year.

The reason is simple enough. If they were to withdraw cover, a sizable number of their members would be up in arms about suddenly being hit with out-of-pocket fees of between $200 and $400.

Always a good idea in big business to prevent small consumer-led riots — so the spend, you suspect, is probably seen as part of the marketing.

The ophthalmologists don’t mind either because the absence of a gap fee probably means fewer grumbles from the patient.

The day surgery owners don’t mind because it means revenue for day surgeries.

The Federal Government doesn’t mind because it means less funding lost to the Medicare Safety Net.

The state governments don’t mind because it cost-shifts the drug expenditure at $2000 per treatment to the Federal Government’s PBS tab — and it also eases the squeezed capacity constraints in their public hospitals.

Yes, there are a few ophthalmologists out in the corporate world exploiting this system by transforming their clinics into hospital day surgeries in return for health insurance cash.

But if your hard endpoint for the health system is clinical outcomes, it sort of works.

“The costs end up spread across all the stakeholders in a peculiar way that only freakonomics experts could design,” says Dr Peter Sumich, president of the Australian Society of Ophthalmologists.

“It’s a beneficial mutation of market capitalism and government funding, with some perverse elements.

”But it seems to work effectively, with Australia having the best outcomes for macular degeneration treatment in the world and delivered to public, private, suburban, regional and remote communities.

“Attempting to redesign it or to create a new equilibrium would have unintended consequences I could not predict.”

There is a deeper political point to all this however.

The health insurers frustrations with intravitreal eye injections are part of a wider frustration. The ban on them funding out-of-hospital care covered by Medicare.

If they were given the freedom the overwhelming majority of intravitreal eye injections would be done specialist clinics.

More importantly, at least for the insurers and arguably for patients, they’d be funding the sort of GP care that keeps people out of the hospital altogether.

But that is obviously were the managed care debates begins, rendering it another health reform some will argue is best left well alone.

Paul Smith is Australian Doctor’s editor

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