May 14, 2014

What the Federal Budget means for the health sector

The key focus related to health in this year’s Budget is savings. The introduction of GP co-payments, changes to PBS provisions, Medicare safety nets and indexation arrangements will contribute significant savings. We assess the key initiatives impacting Australia’s health sector.

NAB’s view:

The key focus related to health in this year’s budget is savings. The introduction of GP co-payments, changes to PBS provisions, Medicare safety nets and indexation arrangements will contribute significant savings – with the majority of these savings being directed towards the Medical Research Future Fund.

That said, these savings will come at the expense of healthcare consumers, which will lead to increased costs and/or lower demand for a range of services.

While lower demand would be a negative for service providers, this may be offset by the net gain from the co-payment. The introduction of GP co-payments is accompanied by the removal of restrictions on fees for hospital emergency departments (although introducing such measures would be up to individual state governments). In the absence of such fees, increased burden could be placed on the public health system (with individuals seeking emergency treatment to avoid the GP co-payment).

Key initiatives:

  • A major initiative in this year’s budget is the establishment of the Medical Research Future Fund from 1 January 2015. It will be allocated around $1 billion of uncommitted funds from the previous Health and Hospitals Fund, and then receive the estimated savings from health measures in this budget, until it reaches $20 billion by 2020. Net earnings will be used to fund medical research, primarily through the National Health and Medical Research Council (with funding of around $20 million in 2015-16 rising to $1 billion a year from 2022-23). There will also be $200 million over five years for research into dementia treatment.
  • Introduction of co-payment for standard general practice consultations and out-of-hospital pathology and imaging services (which account for around 70% of Medicare services). From 1 July 2015, the Medicare Benefits Schedule fee for these services will be reduced by $5 and providers will be allowed to collect $7 (a net $2 gain to the provider). Concession card holders and children under 16 face the co-payment for only the first 10 services in each calendar year.
  • Changes to costs of PBS medicines and Safety Net thresholds – with the PBS co-payment to increase by $5 per prescription (or $0.80 for concession card holders). The general safety net threshold will also rise by 10% a year for four years from 1 January 2015. The safety net for concessional patients will also be increased. These changes are in addition to the normal CPI indexation arrangements. Combined, these measures will save $1.3 billion over four years.
  • The Government will provide $379 million over five years for new and amended listings for the Pharmaceutical Benefits Scheme.
  • Health related National Partnership Agreements with the states are being modified or abolished. In particular, public hospital funding arrangements are set to change, resulting in savings of $1.8 billion over four years. National Partnership Agreements on Improving Public Hospital Services and Preventative Health are ending.
  • A new Medicare Safety Net will be introduced from 1 July 2016 – which will simplify the three existing safety nets for out-of-hospital services. The new scheme will have lower thresholds for most people, but is expected to result in budget savings of around $270 million over five years.
  • Medicare Locals (established under the previous Government) will be replaced by Primary Health Networks – which will align more closely to state and territory health networks to reduce duplication between state and Federal Governments.
  • Other health sector savings include a reduction in some rebates and a pause to indexation of some Medicare Benefits Schedule fees and Health Flexible Funds for two years. Further savings come from not indexing income thresholds for the Private Health Insurance Rebate and Medicare Levy Surcharge for three years.
  • There will be an additional 300 training places for General Practitioners from 2015. However the Prevocational General Practice Placements Scheme is being ceased – contributing to the funding for this measure. The Government will also provide $238 million over five years to double incentive payments for GPs who provide teaching opportunities to medical students.
  • A rationalisation of Indigenous programmes, grants and activities (including healthcare related work) is expected to produce savings (which will be directed towards the Medical Research Future Fund).
  • The Government will cease the Aged Care Payroll Tax Supplement from 1 January 2015 – which will save $653 million over four years. The Government is also reprioritising $1.5 billion over five years from the Aged Care Workforce Supplement including through increasing aged care subsidies for home and residential care providers.
  • A range of programmes and agencies have been abolished (e.g. Dental Flexible Grants Programme, Diagnostic Imaging Quality Programme and the National Health Preventative Agency).
  • The introduction of the Medical Research Future Fund is a positive for the research section of the healthcare sector. Under this plan, direct Government funding for medical research will double, with the potential for significant long term benefits (providing that the funds are efficiently allocated).

Industry comment:

The Australian Medical Association welcomed parts of the budget, including the additional GP training places (though expressed concern at the abolition of the Prevocational General Practice Placements Scheme), investment in medical research, the preservation of prevention and health workforce functions (despite the abolition of agencies), and the creation of Primary Health Networks.

However, the AMA were concerned that the burden of costs on patients is too heavy – with co-payments for GP services (and potentially emergency departments) and PBS medicines, cuts to Medicare rebates and frozen rebates for Medical Specialists.

The Public Health Association of Australia was critical of the co-payment scheme – arguing that it will create barriers to accessing primary care for the disadvantaged while increasing the burden on public hospitals. They were also critical of cuts to preventative health agencies – arguing these bodies could have provided greater long term savings.

The Australian Healthcare and Hospitals Association argued that the cost burden for healthcare has been shifted to the states and consumers – suggesting that states and territories lack clarity of funding beyond the next two financial years.

Leading Age Services Australia (LASA) had a mixed response, welcoming the redirection of the Aged Care Workforce Supplement. However, it is concerned that the removal of the aged care payroll tax supplement will negatively affect the sector’s capacity to deliver services for older Australians.

Our economists’ view

Alan Oster, Group Chief Economist, NAB – Overview

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