Medicare and Private and Public Medical Practice: Utilisation and Substitution

The Commonwealth Government is currently undertaking a review of various issues in the health sector. A recently published study by John Deeble has analysed expenditures, utilisation, workforce issues etc. under Australia’s current health insurance arrangements (Medicare) for the provision of medical services remunerated on a fee-for-service basis. This study has highlighted increased utilisation of services as a major “management issue”. It is demonstrated here that the data on which these conclusions are based are deficient in several respects. By analysis of other data it is indicated that the picture of fee-for-service medical practice under Medicare presented by Deeble is out of focus in several important dimensions. More specifically, the high utilisation rates have been obtained by “adjusting” data and ignoring substitution behaviour between services provided by outpatient departments at public hospitals and services provided on a fee-for-service basis. Also the Deeble analysis has ignored institutional changes that involve “transfers” of health expenditures from one government entity to another. This study shows that on the basis of empirical data, Deeble has considerably overestimated the growth of per capita utilisation of medical services in Australia since the introduction of Medicare. It also casts doubt on the need for “reform”.