Reducing Medical Device Prices Could Save Australian Government $1 Billion

Australia’s government could save more than $1 billion over four years if prices for medical devices such as pacemakers and hip joints were brought into line with those paid in other countries, private health insurers contend.

In a submission to the Commission of Audit, Private Healthcare Australia (PHA) claims manufacturers charge up to five times as much for these products in Australia as they do in comparable nations. For example, a pacemaker that costs $5,884 in Belgium costs $11,780 in Australia, according to figures provided by PHA. A corail femoral stem, which is used in hip replacements, costs $1,361 in Belgium and $4,700 in Australia. 

”Lower costs will allow greater numbers of Australians to improve their quality of life with new prostheses for the same price,” the submission says.

The overpricing of the replacement joints is being compounded by the failure of hospitals to pass on discounts they get on bulk purchases of prostheses to health fund members, PHA charges.

The organization said if Australian prices for the devices were aligned with those charged internationally, the change would deliver almost a quarter of a billion dollars a year in savings to the public purse, assuming the government pays 30 percent of the cost of each device through the private health insurance rebate. On current trends, the annual savings would rise to $335 million by 2017.

In 2011-12, private health insurers spent $1.5 billion on prostheses, accounting for about 14 percent of all benefits paid. 

Reform of prostheses pricing on this basis would save the Federal Government around $241 million per year instantly from the contributions it makes to the cost of private health insurance premiums through the Australian Government Rebate, the insurers said in a submission to the Audit Commission. ”Reducing prostheses outlays would also make private health insurance more affordable and attractive for non-insured Australians, easing the burden on the public hospital system.”

In addition to overpricing a government inquiries and academic studies have been told private and public hospitals get big discounts on prostheses they don’t pass on to health fund members.

By law health funds have to reimburse private hospitals for the medical devices used in patients at the price that is listed on the government’s Prostheses List.

However, hospitals that buy the devices in bulk can pay less than this set price under discounting deals with suppliers.

The Australian Private Hospitals Association (APHA) accused PHA of “having a record of fudging the figures” and said any discounting that had been going on in private hospitals was shrinking as the market became tougher. “To the extent there is any profiteering it would be the public hospitals when they treat private patients. Health funds have to pay the Prostheses List price but public hospitals that bulk buy devices can get them at a price that is between 20-25 percent lower than that,” APHA CEO Michael Roff said.

The Medical Technology Association of Australia (MTAA), which represents medical device companies, noted that the government’s prostheses pricing process has frozen pricing to 2005 levels with no increases on single items, “which is in stark contrast to the yearly premium increases of private health insurance funds.”

MTAA’s chief executive Susi Tegen said comparing costs of devices internationally is fraught because prices vary according to the size of the market in each country, labor and transportation costs. In addition, some countries have incentive pricing systems and the price of a device can vary within a country.

The MTAA said discounting to private hospitals does occur but the size of the discounts is not monitored and the Australian Competition and Consumer Commission has not expressed concerns about it.