Australia a 'treasure island' for medical device giants: ex-hospital boss

The former chief executive of Australia's second largest private hospital operator has backed health insurers' claims they are being gouged by medical device manufacturers, saying the country is referred to as a "treasure island" for the industry.

Robert Cooke, who has 40 years of experience in the health industry including six as chief executive of hospital group Healthscope, said it was clear Australia "pays too much" for prostheses, which range from replacement hips through to medical sponges.

Australia's private health insurers have been pushing federal Health Minister Greg Hunt to overhaul the government's "prostheses list", which mandates how much they pay for more than 10,000 prosthetic and implanted medical devices.

Health funds say they pay global medical giants like Medtronic and Johnson & Johnson two or three times more than Australian public hospitals and international clinics for products such as replacement hips, which is a costs they must pass on to members.

Mr Hunt last week rejected the insurers' proposal to increase their premiums by an average of 3.5 per cent next year, saying he was determined to keep it at 3 per cent.

It comes at a time when the sustainability of the private system has been put at risk by people dropping out of health insurance due to high membership fees, with private health coverage slipping from 47 per cent of the population to 44 per cent over the past five years.

Mr Cooke said that an investor in Boston told him four years ago that Australia was considered a "treasure island" for device makers because of the high prices they command.

“They were more interested in how could Australia pay so much and the margins be so much and whether, as an investor, that would continue," Mr Cooke said.

Mr Cooke said that while the issue should be addressed, it would only provide temporarily relief for insurers, who face a bigger challenge from hospital wages and an ageing population.

Device manufacturers also cross-subsidise prices in the public system with higher prices in the private sector, so, the private sector and government need to be aligned on what they pay otherwise manufacturers will "continue to cherry-pick the system," Mr Cooke said.

However, Craig McNally, CEO of Ramsay Health Care, which is Austraila's largest private hospital operator, said prostheses spending was driven by advances in technology and an ageing population and that it was not fair to compare prices across the private and public systems.

“I don’t see prostheses as any different to any other part of the system – we’re not arguing that staff costs, which are 60 to 65 per cent of the system, should be reduced," Mr McNally said. "So, I’m not sure why prostheses gets identified differently."

Ian Burgess, CEO of device maker lobby group Medical Technology Association of Australia, said different countries had different operating environments, health systems and regulations that led to different prices.

“The ‘big three’ corporate health insurers (Medibank, Bupa and NIB) have not paid one extra cent for medical devices in the past two premium years, while raising prices over 7 per cent and banking $1 billion worth of profits between them," Mr Burgess said.

Mr Hunt struck a deal with device makers in 2017 aimed at lowering their prices and saving health funds $1.1 billion over four years, with one round of discounts applied in 2018 and another to come into effect in February 2020.

Private Healthcare Australia, the health insurance lobby group, says spending on devices only fell by $13 million last year, not the $250 million expected, because of a 19 per cent increase in the volume of "general and miscellaneous" items such as surgical sponges and glues, which they allege manufacturers redesigned or repackaged to maximise revenue.

Mr Hunt has launched a review into those products and whether they should be removed from the prostheses list but he has so far resisted calls from insurers to do away with the price list entirely and move to a central procurement model for both the public and private system.

A spokesman for Mr Hunt said the government was delivering the most significant reforms to health insurance in over a decade, making it "simpler to understand and more affordable", and that the $1.1 billion in promised savings on devices "will be achieved".

Prostheses account for about 10 per cent of health insurers' costs.