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What is the Medical Benefits Schedule?

“Developments in recent years would suggest that the schedule fee simply represents the amount that the Government, having regard to budgetary and economic considerations, is willing to pay for the provision of particular medical services.”  (Commonwealth Auditor General’s Audit Report No.32, 2.2.4, 1990-91.)
 

 

The Medical Benefits Schedule (MBS) is a major component of Medicare.

The MBS was first introduced in 1973 as part of the Health Insurance Act.  It was designed to provided universal health insurance to Australians.  Before 1973, if somebody who was not insured with a private health insurance company consulted a doctor, then the doctor would charge their fee, and their patient would pay it and would not be eligible for any reimbursement.  Some people could not easily afford this, and so illness would present them with great financial hardship, or they would not go to the doctor when they needed to.

The original MBS in 1973 was a list of 1880 different medical services from different types of doctor.  Each medical service was assigned a “Schedule Fee”, and the federal government was willing to reimburse the patient 85% of the “Schedule Fee” through the Medibank scheme (now Medicare).  The intention was not to make medical services free (although they often would be if the patient held private health insurance as well), but to make them affordable to most people.

The prices were worked out by using the results of a survey of doctors’ fees.  This survey was conducted in 1968-69 jointly by representatives of the Commonwealth; the Australian Medical Association (AMA), and the private health insurance companies.  A list of 1880 “Most Common Fees” was drawn up.  These were not the average fees, but the fees most commonly charged for each particular service.  The “Most Common Fees” list was used as the basis for the MBS “Schedule Fees”.

Many of the original 1880 services in the MBS are still in use today, with their “schedule fees” having been indexed most years since 1973.

 

In 1987, the Federal Government decided to reduce the amount that they would reimburse people for “in-hospital services” from 85% to 75% of the “schedule fee”, and it remains this way today.  This means that if you see your GP or your surgeon in their consulting room, and if they charge the same as the MBS “schedule fee”, then you will receive 85% of their fee back from Medicare with out-of-pocket costs of 15% of their fee.  However, if you had an anaesthetic and surgery in a private hospital and the anaesthetist and the surgeon both charge the MBS “schedule fee”, then you would receive 75% of their fees back from Medicare with out-of-pocket costs of 25% of their fees.

In practice, this was rarely an issue for the patient.  If the patient had private health insurance, then the insurer was (and still is) obliged to reimburse the patient the difference between the Medicare rebate and the “schedule fee” (ie, the other 25% of the “schedule fee”) for in-hospital services.  In the case of elective surgery, in 1987 (and usually today, with the exception of some day surgeries) the cost of the hospital stay and the theatre and prostheses fees were far greater than the doctors’ fees, and in the uncommon event that an uninsured patient paid for their own admission, this reduction in Medicare reimbursement was of little significance compared with the overall cost of the admission.  If the patient was insured, than the whole cost would be covered by the insurance company anyway.

It is implicit, however, that the patients do meet the higher “gap” of 25% from 15% of the MBS “schedule fee” through higher private health insurance premiums.

 

Failure of the MBS to keep up with inflation

When the MBS was introduced in 1973, it was a reasonable representation of the value of a doctor’s services, based on market forces.

The Australian Medical Association (AMA) also has a “Schedule” of services and the associated value of each of these services.  The services in the AMA schedule closely match those in the MBS schedule, but the value that the AMA recommends that each service is worth is independently calculated by the AMA, and may be different to the value allocated to the same service in the MBS.  To read more about the AMA schedule, click here.

 

From the introduction of the MBS in 1973 until 1980, there was a lot of inflation (prices doubled within these 7 years), wages rose only slightly more than inflation, and the MBS values also doubled in this time.  The values of the AMA schedule remained fairly close to the values of the MBS during this time.

Between 1980 and 1992 there was a lot of inflation ($2.50 in 1992 was worth the same as $1 in 1980), and wages approximately tripled.  There were also two recessions which put pressure on government finances.  The values of the MBS doubled in this time, but this was less than inflation and a lot less than wages.  The values of the AMA schedule began to diverge from the values of the MBS, more doctors began charging fees that were greater than the MBS, and more patients started to incur out-of-pocked expenses after their rebates, known as “gaps”.

 Indices vs Gov MBS Anaesthesia Fees 73-12

The Auditor General’s report and the Relative Value Study

As out-of-pocket “gaps”, especially when unexpected, were very unpopular with patients who held private health insurance, the government ordered the Auditor-General’s office to conduct an audit into the “Administration of the Medical Benefits Schedule”.  This report was released in 1991.  The report made many comments and recommendations.  One of its comments was:

“Developments in recent years would suggest that the schedule fee simply represents the amount that the Government, having regard to budgetary and economic considerations, is willing to pay for the provision of particular medical services.” 

One recommendation made by this report was that a further study be conducted into reforming the MBS, such that all doctors of all disciplines be paid in multiples of a single basic unit for their services.  The MBS would assign a single value for one unit, and it would assign a number of units for each service based on its relative value.  The number of units for a service may be adjusted up or down over time as the nature of the service changes (for example, cataract surgery becoming so much faster over the last 40 years).

This recommendation was acted upon, and the Relative Value Study was commissioned.  The Relative Value Study was finalised and released in the year 2000.  When determining the appropriate value for the various medical services, it found that the equivalent value for most items in the MBS would increase substantially, putting a lot of pressure on the Federal budget.  (The values calculated in most cases were similar to the values in the AMA schedule, which was by now quite different from the MBS).  Possibly due to budgetary constraints, most of the recommendations from the Relative Value Study were never acted upon.

 

MBS continues to fall further behind inflation

From 1992 until today it has been a period of low inflation, but prices have still increased by over 80% in the last 25 years.  Wages have risen to be over 2.5 times as large today than they were in 1992.  Medicare rebates for anaesthetic services have risen approximately 35% in this time, falling even further behind inflation and wages than they already were in 1992.

Most recently, the MBS was last indexed (increased) in November 2012, and the present state of play is that the MBS has been frozen until at least July 2020.  One can expect inflation to increase by around 20% in this period, and so effectively Medicare rebates will become another 20% lower in “real” terms in these almost 8 years.

At present the MBS values anaesthetic services at less than 25% of the value that the AMA schedule ascribes to them.  Both sides of politics have admitted that anaesthetic services are undervalued by the MBS (Tony Abbott when he was health minister in the Howard government, Nicola Roxon when she was health minister in the Rudd government.)

 

The initial promise of Medibank/ Medicare was to provide cheap, accessible health care to everybody, and for a decade or so the system maintained this promise.  Over the last 35 years however, the MBS has declined in “real” (inflation-adjusted) terms, such that it can no longer claim to provide universal accessible health care, and is now little more than a subsidy that helps a bit to reduce people’s out-of-pocket expenses for their medical care.