Privatising Medicare: what’s really at stake

9 minute read

?“Mediscare” did little to help us understand the real issues with Medicare privatisation, writes Margaret Faux


The “Mediscare” label has done nothing to assist consumers to understand the issues at the centre of the Medicare privatisation debate, and the potential impacts those issues may have on their healthcare, writes Margaret Faux.

Instead a critical health reform issue has been reduced to political point scoring and like most commentary about Medicare, it is poorly understood, and therefore easily exploits consumer confusion.

No-one has actually defined what the Medicare payment system even is, but that hasn’t stopped them from declaring that whatever it is should be replaced and that having a private sector operator do that is perfectly fine.

So what is the Medicare payment system anyway? Is it broken? And If it is, then what are the risks of a private organisation stepping in to fix it? And what can we learn from other privatised health payment systems around the world?

The Medicare payment system is not a single piece of software through which Medicare claims pass. It is also not a simple system of payments attached to a menu of services or a schedule of payments. Nor is it a purely digital environment devoid of humans, in fact no healthcare payment system is and never will be because reimbursement for health services is both complex and unique in that it involves high volumes of relatively low dollar value payments, which are linked to complex coding systems that attempt to map the infinite variability of the human condition. If only patients would read the packet instructions on their illnesses, how much easier it would all be.

It is this complexity that necessitates high levels of scrutiny to ensure appropriate distribution of every health dollar, and in Australia’s case, this means taxpayer dollars. Too much automation poses a very high risk of increasing non-compliance and fraud, and therefore most countries adopt a sensible, balanced combination of both human and artificial intelligence. At the moment, public servants in the Department of Human Services (DHS) fulfil the critically important human roles and as someone who works at the Medicare claiming coalface every day, I can confidently assert that without the involvement of DHS staff, the so called Medicare payment system would completely collapse, and further, many of the roles they currently fulfil cannot be replaced by a computer. That’s because nuance is not the computer’s strong point – the difference between getting a facelift to enhance natural beauty is very different from one used to repair scars from a glassing to the face, but the item codes are the same.

However, DHS staff would agree that they do struggle with their computer systems because they are old. The Medicare monolith has evolved organically over 40 years, while the technological advances in medicine have galloped ahead and unfortunately, the details of what now exists, the billing rules, which bits of legislative change were tacked on when, and how it all works, are not documented anywhere – at least not comprehensively. The totality of the system has never been successfully ascribed to computer codes or software design.

So the totality of the Medicare payment system that has got everyone talking is complex, enmeshed with nuance and intertwined with legislation and it is certainly not something that a private sector organisation can just come in and replace. It comprises both human beings and a multi-layered computer system, neither of which can easily be separated from the other. There’s the mid-tier layer where claim formatting is validated, then there’s the main frame where the rules engine resides for assessing the legitimacy of claims, and from there, claims may be paid, rejected, part paid, channelled through as in-hospital claims, diverted for assessing by humans and so on.

It has a lot of moving parts all of which have a role in preserving overall system integrity, and we need all of it – the vehicle and the drivers too.

Is the payment system broken?

No, it’s not. It might be a little cumbersome and difficult to understand for an outsider but it’s probably one of the most efficient parts of Medicare.

Medicare has always been very good at its core business of paying claims. Within two weeks of the scheme commencing on 1 July, 1975 it was receiving 106,000 claims per day with volumes still rising1. Even the earliest records stated the critical importance of the payment function:

“…everyone in the commission [Health Insurance Commission] was aware that efficient payment of claims was the absolute sine qua non for the success of Medibank…2

Universal healthcare was an instant hit around the country and still is, and claims processing has never stopped or showed any signs of slowing down. Today Medicare processes hundreds of millions of claims annually and still manages to do so in an average of 1.7 days per claim3.

So as far as payments go, the system works well and always has. Australians generally have no problems obtaining their rebates when they go to the doctor. If the doctor uses an Ezyclaim or Hicaps terminal their rebate is reimbursed in real time, right there at the point of service. If the doctor uses a Medicare online claiming application, the rebate is usually reimbursed overnight, and even manual claims are deposited into patient bank accounts within about a week.

However, while payments are working just fine, there are problems in other areas because the old computers weren’t designed to handle modern complexity. For example, in the last few weeks I’ve been working with a public hospital to sort out a $1,000,000 bucket of rejected and partially paid Medicare claims. The reasons for the rejections are many. There is user error, Medicare error and health fund error all impacting the same claims. But the root cause is immense complexity and a lack of knowledge, in an environment where it is too easy to make honest mistakes and too hard to fix them.

It is hard to give money back to Medicare and it shouldn’t be because when errors occur or refunds are required it is in the nations interest that the process of reimbursement is simple. When claims are underpaid or overpaid or require adjustments we should not have to embark on a months long paper trail. When clinical information is required to properly assess complex claims the computer systems need to facilitate this process without compromising patient privacy.

And if we are going to continue to have profoundly complicated simplified billing schemes (spot the oxymoron) then the interface between the private health funds and the Medicare mainframe needs to be upgraded to prevent endless buck passing and obstruction of legitimate claims. And we do need a much more sophisticated rules engine to better manage compliance prospectively, rather than relying on post payment audits. It is in these areas where the old system struggles and will one day fail completely, and where valid arguments for a system upgrade exist.

Who should rebuild Medicare’s computer system?

Once a decision is made concerning which specific component or components of Medicare’s computer systems are to be rebuilt, the next step is in choosing a provider to undertake the work. The challenge here will be in not being fooled by offshore providers who will seek to persuade that it will all be a bit of a walk in the park for them because it’s the sort of project they do all the time.

It isn’t. The fact is that Australia’s medical billing system is poorly understood even by Australians and a project of this magnitude is too important to leave to impressive track records in the wrong jurisdictions.  Because being an expert in the US system does not mean that you can understand or enhance the development of Australia’s Medicare.

However, if a team of appropriately talented individuals can be sourced and engaged to rebuild a brilliant new Medicare computer system, then that would be a worthwhile investment for Australians.

But ongoing management of claims processing must be retained in the hands of public servants, who are not motivated by profit. The US experience makes this only too clear.

Right from the get go in 1966, America outsourced its Medicare payment system to private operators and still does. Since then it has been beset with ongoing corporate middleman fraud, including:

  1. Withholding or unreasonably delaying payments to providers
  2. Destruction of claims
  3. Embezzlement of capitation funds paid by the state
  4. Collusive bid-rigging (between health funds for example)
  5. Regularly denying treatment requests without regard to legitimate medical evaluation
  6. Establishing policies that require an appeal before treatment will be given
  7. Measuring performance only in terms of absence of specific breaches of the contract language

Australia is vulnerable to all of these types of behaviours (some already exist inside the private health fund payment schemes), all of which are designed to redirect government money into corporate pockets. But in addition, because we have a provision in our constitution which allows doctors to enter private contracts with their patients, and basically ignore things like payment systems, our doctors can just jump ship anytime and leave it to patients to sort out their rebates themselves.

So what that means is that not only does privatisation of the Medicare payment system in Australia expose our tax dollars to corporate misappropriation, but in addition we are at risk of being hit a second time when we find ourselves paying full fees up front when doctors become tired of corporate game playing which delays legitimate payments. They’ll just opt for the easy option: “you pay me $1000 up front for your surgery and sort your rebates out yourself.”

You cannot separate payments from patients because money is a component of every encounter between a doctor and a patient and as a result, payments and payment systems do affect patients and also health outcomes.

It is reasonable to be concerned about any ideas, ideologies or even innocent scoping exercises that examine privatisation of Medicare because it is too precious to be preyed upon by corporate greed.

Margaret Faux is a lawyer, the founder and managing director of one of the largest medical billing companies in Australia and a registered nurse. She is a research scholar at the University of Technology Sydney

This is an edited version of an article that first appeared on the website


  1. The Making of Medibank page 225
  2. The Making of Medibank page 214

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