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Reorganisation: "Lawrence" Contracts

A fifth problem was a serious struggle over two and a half years that arose from another discussion paper, this time published in 1993 by the then Minister for Health, Graham Richardson, describing two broad proposals for arresting a serious decline in private health insurance coverage, which the paper said was caused by rising out-of-pocket expenses and premium rates. One suggested reform of the private health insurance sector in a number of ways, including an amalgamation and/or rationalisation process that would bring about funds that were bigger, fewer and more efficiently administered, and therefore able to offer lower premiums. The other suggested changes in payment arrangements for treatment in private hospitals that would put a brake on the fees by doctors for that treatment. These changes would include private hospitals contracting services from doctors at agreed rates and legislation that would limit the cost of services negotiated between doctors, private hospitals and the funds. The paper said that the result would be a more efficient system “to achieve the competitive pressure which would restrain the rising costs of healthcare and the fees charged by doctors”, or, as Senator Richardson himself put rather less fastidiously, a system that would leave doctors “free from any incentive to perform unnecessary procedures in order to maximise payment”.

The AMA set out to oppose these ideas vigorously; publicly, in a document entitled Right Problem, Wrong Answer, and internally, in expanding its expertise in the Federal Secretariat by setting up a new Hospital Policy Department. It argued that, apart from the control over doctors’ fees that the Richardson proposals envisaged, they were more likely to reduce insurance coverage than to reduce it and that coverage was more likely to be increased by encouraging it among lower and middle income earners through tax incentives. The response of Senator Richardson’s office was that the AMA’s suggestion would involve huge expenditure on subsidies for doctors, hospitals and the funds. But the proposals were creating such aggravation – not just within the AMA and the profession at large but also within its own ranks – that the Government referred them to a Caucus-ACTU Working Group. Even the Working Group found them too contentious. In its report in June 1994, it opposed the idea of a higher Medicare levy on higher-income people who refused to take out health insurance coverage, but it also rejected the payment arrangements option as unworkable and described the assumption in the paper that a floor was needed under the health insurance participation rate as neither warranted nor necessary. The Richardson proposals ended there. But the state of affairs that gave rise to it lived on: rising out-of-pocket expenses and insurance premiums. A couple of months after the Caucus-Working Group had reported, the Government launched for discussion yet another set of proposals to save costs through reform of the health insurance system – this time by the new Minister for Health, Dr Carmen Lawrence.

In a meeting towards the end of July, the Executive Council had anticipated possible directions in Dr Lawrence’s proposals, including preferred-provider arrangements with private hospitals and mandatory informed financial consent, but little information had been given about their detail. In August, when the proposals were finally released, they differed in several respects from those put forward by Senator Richardson but, though they were still weak on detail, there was enough in them to alarm the AMA, which began to prepare for the next stage in the process: legislation. The point of the Lawrence proposals for discussion was said to be to remove “regulations that restrict efficiency and competition”, allowing the funds to negotiate with doctors and hospitals arrangements that gave “a better deal on behalf of their members”. They envisaged (among other things) the funds covering members for the full cost of medical services if they could reach agreement with doctors, a system of single billing for hospital treatment, a formal financial consent process requiring doctors to explain to patients what they could expect to pay for particular services, a ‘Private Patients Hospital Charter’, and an independent process to sort out complaints about insurance. The Lawrence proposals were seen to have changed in some ways in the enabling legislation introduced by the Government in December. The charter and the informed financial consent ideas had been dropped. The preferred provider arrangements had been set out in detail. The AMA had anticipated much of what had been left.

The Health Legislation (Private Health insurance Reform) Amendment Bill was the vehicle for managed care, a concept that, the AMA argued, not only severely compromised the quality of patient care but had also torn the profession apart when it was introduced into the United States. It provided (among other things) that insurers would be allowed to reach preferred provider arrangements with doctors through medical purchaser provider agreements (MPPAs) and hospitals through hospital purchaser provider agreements (HPPAs). MPPAs would allow insurers to strike agreements with doctors in which – with a number of ifs and buts, some of them concerning fee levels – the insurers would pay directly for medical services eligible for Medicare benefit provided by doctors to patients in hospitals. HPPAs would allow insurers to negotiate agreements with preferred hospitals for 100 per cent coverage for members for charges by these hospitals, but not with others. Insurers would have to provide benefits for members for treatment in non-preferred hospitals only in emergencies.

The Executive Council had a long discussion in December about the Bill and its ramifications for medical practice, especially its potential for enabling the progressive introduction of case payments. It asked the Federal Secretariat to coordinate legal advice for members about the legislation and agreed that Dr Nelson (now President, succeeding Dr Shepherd) would consult Senators with a view to their referring the Bill to a Senate committee where it would be properly analysed. Dr Nelson succeeded. In May 1995, the Senate passed and sent a Bill to the House of Representatives which was heavily amended and subject to review after 12 months. But, with the support of Liberal-National Coalition Senators, it also referred the Bill to the Community Affairs Legislation Committee for inquiry and report on or before 1 July 1996. An election was due before then.

The managed care issue was not the only reason for the AMA’s markedly more belligerent attitude in the early 1990s. Its relationship with government had been tested by other issues of the kind summed up by Dr Nelson in his Presidential Messages in the annual reports for 1993 and 1994. By the end of 1993, the relationship had improved. But the AMA still needed to oppose government intervention that it judged to be inappropriate; for example, changes to private health insurance that necessitated “a protracted political campaign” by the AMA. These changes had not just been unworkable, he said, but they had also been philosophically unacceptable because they violated “the principles of the private doctor-patient relationship”. In 1994, the sins of government included a hospital system unable to cope and widely believed to be in crisis, continuing decline in a private health insurance scheme that should have been releasing some of the strain on the health system, government threats to private medical practice and standards, including “the unilateral transfer of money from Medicare benefits to direct practice income subsidy schemes” – and, at the base of it all, a Commonwealth policy vacuum. For all these reasons, the AMA was operating “at a turning point for medicine”.

There were other reasons. The AMA was turning its attention to questions that were broader than medicine, though with implications of significance for medicine and health generally. Dr Nelson reported in 1993 that he had taken the AMA “into a range of important health and social issues”. They included Indigenous health, mental illness, unemployment and the effects of drug and other substance abuse on young people. In that same year, the AMA appointed its first Aboriginal Health Policy Coordinator and established links with the Aboriginal and Torres Strait Islander Commission and several Indigenous health services. The structure of Federal Council committees (and that of the Federal Secretariat) reflected the new range of interests as it developed through the 1990s. At the beginning of the decade, the interests of Federal Council’s 12 committees reflected the AMA’s political, professional and industrial agenda, only two of them covering road safety and aged care. In 1997, a youth health committee was created and a Youth Health Advocate appointed. Dr Mukesh Haikerwal, who would be Federal President from 2005 to 2007, was anticipating the impact of new technology on medical practice, including the use and privacy of patient information. At the end of the decade, when Dr Kerryn Phelps had become the first female Federal President of the AMA, road safety had gone but aged care had been joined at various stages by Indigenous health, public health, and complementary medicine. Early in the new century, under the Federal Presidency of Dr Haikerwal, the AMA continued to focus its advocacy energies on more such broad emerging issues: the health effects of climate change, access to IVF, better health care for asylum seekers and refugees. The health environment had broadened to extent rarely imagined back in the 1980s; the structure and focus of the AMA had changed with it. In his Presidential Messages, Dr Nelson had reported on two other developments that were to give the AMA much grief later, after he had moved on to federal politics. One was his report of a growing tendency among patients, “fuelled by government-funded community organisations”, to litigate to win compensation for mistakes or misadventures in medical treatment, a development that was seriously pushing up the costs of medical insurance. The other was his observation that the AMA-Government relationship had improved since the early turbulent 1990s. The first was to create enormous problems for members, especially specialists, and preoccupy the AMA for some years. The second would lead to such a serious convulsion within the organisation that one of the branches was reported to be seriously considering secession.

The AMA was entitled to anticipate a complete change of scene in March 1996 when the Labor Government had been replaced by a Coalition Government. Before the election campaign, the Coalition had among its health policies supporting health insurance and the private system and abolishing Medicare. But, during the campaign, there being little evident public support for the idea, abolition of Medicare was very publicly dropped. But the Coalition maintained its policy of support for the private system and, when it came into office with a strong majority, AMA member Dr Michael Wooldridge became Health Minister. But the AMA-government relationship was not, as expected, about to become all that less uncongenial – not immediately, at any rate. And the Lawrence legislation was not yet quite dead.