How does an anaesthetist decide what to charge for a basic unit?
The anaesthetist charges what they think is a appropriate fee. Some of that fee will be reimbursed by Medicare, and some of that fee will be reimbursed by the private health insurance company (assuming that the procedure is covered by Medicare and also by the private health insurance policy.) If the fee that the anaesthetist charges is larger than what is reimbursed, then there will be a “Gap”.
Different private health insurance providers, and sometimes different policies offered by the same provider, reimburse different amounts to the patient for the same operation. Therefore what “Gap” is incurred will depend largely upon which private health insurance company you are insured with.
The AMA schedule
The AMA (Australian Medical Association) creates a schedule (list of services and prices) each year which advises all types of doctor what the AMA calculates that their services are worth.
The list of services closely matches the services listed in the Medical Benefits Schedule (MBS, or Medicare), but the values allocated to those services are often different to the value that the government has placed on them.
To arrive at the figure of an appropriate value for the service, the AMA and its relevant subcommittees (such as the Australian Society of Anaesthetists, or ASA) take into account factors such as:
- The “market price” of professional services, such as the cost of services provided by other professions, for example lawyers, accountants, electricians, and dentists.
- The extent of training and qualifications required to perform their services.
- The expected length of one’s career.
- The overhead costs that the professional incurs (employing staff, renting rooms, running an office, indemnity insurance, etc.)
- The unpaid component of one’s professional role (management, teaching, research, keeping up to date,etc).
- Work security.
- The complexity of the work involved.
- Risks of the work involved.
- The relative value of the service provided to the client.
I am unable to reveal the price that the AMA currently values one “basic unit”, as it is considered confidential intellectual property of the AMA. I can say that it is more than four times the price that Medicare values one “basic unit”. More accurate information may be found here.
The AMA supports doctors charging up to their schedule, and suggests that if doctors charge more than the AMA schedule that in some cases it may be justified, but in many cases the AMA would consider this to be “overcharging”. The AMA accepts that their schedule is a guide only, and that doctors should set their fees individually and in competition with each other.
On one hand, this sounds a bit like “doctors setting fees for doctors”, and that there may be a conflict of interest in this. It would be fantastic if a truly independent body could take over the task of creating and updating the AMA schedule, but the fact is that the AMA is the only body with the expertise and the motivation to create this schedule. Other bodies that may be motivated to create a similar schedule, for example the federal government and the private health insurers, also have a conflict of interest. They have a financial incentive to allocate lower values to the respective services than their true value, as the higher the value they allocate for them, the more they will need to pay when somebody uses them.
I am fairly comfortable that the AMA schedule is a reasonable representation of an appropriate value for various services. There were two very large studies in the past which tried to start from scratch to determine what these values should be. The first of these was the “Most Common Fee” study in 1968-70, which was used to work out values for the original MBS which came into existence in 1973. The second study was the “Relative Value Study”, conducted in the second half of the 1990s and released in 2000, to try to determine if the MBS should be completely overhauled to make it fairer and more representative. Both studies determined that the actual value of various services was reasonably close to the AMA schedule at the time.
The value that the AMA ascribes to each service usually goes up every year due to two factors:
- CPI (inflation) – if the service is worth the same amount in “real” terms, then it will rise in “nominal” terms by the same as inflation.
- Average Weekly Earnings (AWE), or Wages – the bulk of a doctor’s overhead costs are linked to wages, whether this is paying staff to run their rooms, or medical indemnity insurance (which is linked to wages of lawyers and staff of the insurer and to potential payouts which are often based on the cost of care – again wages). If wages rise at a faster rate than inflation, then the doctor’s overhead costs will also rise by more than inflation, and all of this must be paid for by the income that the doctor earns from providing services to patients. This will be reflected by a rise in what is an appropriate fee to charge for each service, and it may be different to inflation.
The value of some services in the AMA schedule may fall from time to time, as new techniques allow the same service to be performed more efficiently. A well-publicised example of this is the advances in performing cataract surgery over the last 40 years. Similarly, if Australia has a recession with negative CPI and a fall in wages, it is likely that the AMA schedule will be indexed downwards.
Although the AMA schedule is an advisory schedule rather than an official government schedule, in most states including Tasmania it is accepted by Workcover and the respective Motor Vehicle Accident insurer (MAIB in Tasmania), and these bodies pay the doctors the same fee for their services as suggested in the AMA schedule.
How does an anaesthetist decide how to set their fee?
Each anaesthetist decides independently how to set their fees. They will take into account all of the factors listed above, as well as where they live and what sort of work they do. To see in detail how I set my fees, see the section “what will my gap be?”
An anaesthetist has several options when setting their fees.
They may set their fees at a rate higher than the AMA schedule per “unit”. There are good reasons that an ananesthetist may choose to do this, but the AMA and ASA in general do not support this, and suggest that it is possible that this anaesthetist is overcharging. The patient will incur a “gap” which may be quite large.
They may set their fees at the AMA schedule per “unit”. The AMA and ASA consider this to be a fair and reasonable fee to charge, however, the patient will incur a “gap” which again may be quite large. The exception (in Tasmania) is that if the service is covered by Workers Compensation Insurance or Motor Accident Insurance, then these bodies accept the AMA rate as a fair and reasonable fee, and they will pay this, so the patient will not have a “gap”. There is also at least one private health insurance policy that accepts the AMA schedule as their “no-gap” schedule, and so patients covered by this policy will not have a gap.
They may set their fee at less than the AMA schedule per “unit” but more than their patient’s insurance company’s “no-gap” rate, which depending on the insurance company is usually between $31 and $37 per “unit”, with some outliers. The patient will incur a “gap”, which again may be quite large, but it will be smaller than if the anaesthetist set their fees at the AMA schedule per “unit”.
They may set their fee at the “no-gap” rate offered by the insurance company. This will be a different rate for each different insurance company – usually between $31 and $37 per “unit”. It is generally a steep discount to the value that the AMA recommends is a reasonable fee, but the privately insured patient will not incur a “gap”.
The above examples all apply to patients with private health insurance that have a “no-gap” schedule. Most private health insurance policies do have a “no-gap” schedule, but some do not.
For patients with private health insurance whose policy does not have a “no-gap” schedule, the anaesthetist may charge the Medical Benefits Schedule (MBS) rate, currently $19.80 per “unit”, if the patient is to not have a gap. This is a greater than 75% discount to what the AMA considers is a reasonable fee for the anaesthetist’s services.
For uninsured patients, or for services covered by the MBS (Medicare) but not by the patient’s private health insurance policy, then for the patient to not have a gap then the anaesthetist may “bulk-bill” the patient, which means charging 75% of the MBS (Medicare) rate. 75% of $19.80 is $14.85 per “unit”. This is a greater than 80% discount to what the AMA considers is a reasonable fee for the anaesthetist’s services.
In addition, an anaesthetist may structure their fees so that the patient does not incur a “gap” greater than a certain amount (a “maximum gap”.)
This will happen if the anaesthetist is not willing to discount their fees by more than half to meet the “no-gap” schedule offered by most private health insurance companies, or greater than 80% to meet the Medicare rebate amount, but they still do not want to charge the patient a gap which they consider may inflict excessive financial stress upon their patient.
In these cases, the anaesthetist will charge their fee per “basic unit”, but if the operation is one that accrues so many “units” that the “gap” is greater than the “maximum gap”, then the anaesthetist will reduce their fee per “unit” for that operation only, so that the difference between the total fee and the amount the patient will be rebated is equal to the “maximum gap”. In this case the total fee, and hence the “gap”, would be less than if the anaesthetist charged their normal fees.
For some examples, see the section “What will my gap be?”