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Putting pathology bulk billing to the test

Vaseline 3 months ago

For many people, the term “bulk billed” refers to a doctor’s visit for which they do not have to pay out-of-pocket. But another form of bulk billing is in the news ahead of the May federal budget: bulk billing of pathology tests, such as blood tests.

This refers to the reimbursements that pathology companies receive from Medicare for performing out-of-hospital laboratory tests, the type that your doctor may order to help diagnose or monitor diseases.

These pathology fees have been frozen for almost a quarter of a century. Is that fair? Apparently not, argues Australian Pathology, which represents private pathology laboratories.

It recently launched the ‘Keep Pathology Bulk Billed’ campaign. At its core is a request for approximately $160 million more per year for pathology companies. It states that this is necessary to keep most out-of-hospital pathology tests free to the public.

But simple solutions proposed by vested interests and involving more public resources are rarely in the public interest. Here’s how we can design a fairer pathology system, fit for the 21st century, that keeps testing free to the public.

Pathology is big business

Collecting and analyzing specimens is big business. Pathology providers received nearly $3.25 billion for out-of-hospital testing from Medicare rebates in 2022-2023. Pathology tests are also carried out in public and private hospitals, but these are funded through a combination of different schemes.

Nearly all (over 99 percent) out-of-hospital pathology services are billed in bulk. That is a much higher percentage than that for GP visits, which was approximately 80 percent in the same period.

Pathology use is increasing faster than the population is growing. This is partly because there are more chronic diseases in the population, and partly because new tests are becoming available.

The pathology offering is concentrated in a few hands, with a number of providers listed on the Australian Stock Exchange. Increases in pathology rebates, as Australian pathology calls for, would go directly to the bottom line, increasing shareholder value.

Drive-through COVID testing

Remember drive-through testing? In the early days of the pandemic, private pathology companies performed millions of COVID PCR tests. Photo: Christie Cooper/Shutterstock

Why are pathology companies now calling for more funding? Pathology companies’ profits grew during the early years of the COVID pandemic, with the introduction of widespread PCR testing and associated government funding.

But the industry was accused of profiting from the “COVID-19 misery,” and the gravy train eventually came to an end. So pathology companies are now looking to replace that revenue, using the latest campaign to try to increase discounts.

Does the pathology industry have a point?

At first glance, a freeze on government funding for pathology for 24 years seems unfair. But a look into the world of pathology reveals an industry experiencing significant productivity growth.

A greater number of standard tests, as we have seen in recent years, can lead to higher productivity. For example, companies can make their testing equipment work harder – run them longer, load them with more samples – reducing the cost per test. Improvements in equipment also allow tests to be performed more quickly, allowing for greater economies of scale.

But a fee freeze is a lazy policy, an example of ‘set it and forget it’.

While it provides some benefits to taxpayers, it is not optimal. That’s because it assumes that all productivity savings (through automation, digitalization and greater economies of scale) exactly offset the higher costs due to inflation. This will probably never be true. Given the current level of automation and consolidation, this is likely to funnel excess profits into the pockets of providers, costing governments more than they need.

More changes to pathology offerings are in the pipeline. Advances in artificial intelligence are accelerating and automated reading of some pathology tests could further reduce pathology costs, increasing profits for providers.

Future policies should reflect changes in the costs of providing pathology services, the details of which are sparse.

What has to happen?

The government should take a step back and ask whether a reimbursement system for pathology services, designed a century ago when pathology provision was literally a cottage industry, is still appropriate in an era of extensive automation and ownership concentration. The answer is clearly no.

Reforms must first dump the existing, unlimited fee-for-service payment system. Pathology is a big business and as such must be paid for through tenders and contracts.

Two people are looking at a document, one is about to sign it

Pathology providers should be invited to tender for contracts to keep costs down. Photo: fizkes/Shutterstock

Pathology companies should be invited to tender for the provision of out-of-hospital pathology services in designated geographical areas. Two or more tenders may be approved to maintain competition between providers and keep options open before the end of the tender period. Pathology contracts may not entail out-of-pocket payments by consumers.

Pathology in a hospital may not fall under the same regulations. Instead, private hospitals should make their own contractual arrangements for the provision of pathology, as they do now.

Public pathology services – run by state governments or their agencies such as Pathology Queensland – are also changing.

Consolidation of public pathology services in New South Wales delivered significant productivity improvements. Victoria has begun a less ambitious reform process, consolidating into three public providers rather than the single public provider model seen in NSW, Queensland and South Australia. This will probably also result in savings.

Public providers should be invited into the procurement process together with private providers to increase competition.

What is the take home message?

The world of pathology provision is in flux, with more changes on the horizon, whether related to technology or consolidation. In this environment, it is not good policy to pay more to private providers with an expired payment system. This despite the simplistic appeal and the advocacy of vested interests.

So the next time you go to a pathology collection center and see posters encouraging you to email your MP to “get the pathology bulk billed”, beware. The campaign is more about corporate profits than saving money.

Stephen Duckett, Honorary Enterprise Professor, School of Population and Global Health, and Department of General Practice and Primary Care, The University of Melbourne

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