Proposed co-payment model a costly red tape nightmare for medical practices – Independent report

The AMA today released an independent report that shows the Government’s proposed co-payments for general practice, pathology, and diagnostic imaging would be a costly red tape nightmare for medical practices.

The report – The Red Tape Burden of the Proposed Medical Services Co-payment – details the results of modelling of the red tape (additional administrative) costs of the proposed medical services co-payment, with a particular focus on the costs that will be encountered by General Practices.

AMA President, A/Prof Brian Owler, said that the additional measure of cutting the Medicare patient rebate by $5 would dramatically cut funding for medical practices, and the cumulative effect could make some practices unviable.

The report shows that red tape and potential bad debts could totally erode the $2 of the co-payment the Government planned to pass on to GPs.

The report’s analysis takes account of the tender time, the verification time, the documentation time, the back office time, financial institution fees, and cash handling costs that practices will face under the Government’s flawed model

Depending on the level of computerisation of practices, the estimate of the additional red tape burden is between $1.41 per service and $1.61 per service.

Assuming similar unit costs in Pathology and Diagnostic Imaging, the aggregate dead-weight cost on the economy of the Government’s model is between $274 million and $313 million in the first year (2015-16), rising to between $289 million and $331 million by 2017-18.

The cost to practices rises even further when bad debts are taken into account. For example there is a cost of $0.35 per service for a bad debt rate of 5 per cent or $2.80 for a bad debt rate of 40 per cent.

A bad debt rate of 8.5 per cent is the break-even point. For anything above 8.5 per cent, the combined costs of administration and bad debts will exceed the extra $2 per service that the Government says will be retained by practices.

“The Government has committed to an agenda of deregulation and red tape reduction, but its Medicare co-payment proposal achieves the opposite,” A/Prof Owler said.

“The Government’s model is unfair on disadvantaged patients and unfair on practices.

“This report shows that the Government’s claims of additional funding for general practice will be quickly eaten away by extra red tape and compliance.

“The Government needs to abandon its model and work with the profession to support high quality and affordable general practice, pathology, and diagnostic imaging services, especially for the sickest and the poorest in the community,” A/Prof Owler said.

The report is available at

Major elements of the report’s analysis include:

Key Variables

The key variables determining the additional red tape costs are:

  • Additional administrative time: The estimation model quantifies the additional administrative time required to process payments;
  • Wage rates: Wage rates for administrative staff vary across the country. The low range estimates of wage rates (Adelaide, Hobart) are $20 per hour for front office staff and $24.00 per hour for back office staff. With on-costs included, these become $25 per hour and $30 per hour. The high range estimates of wage rates (Perth, Sydney, Canberra) are $22 per hour for front office staff and $27.50 per hour for back office staff. With on-costs included, these become $27.50 per hour and $34.38 per hour;
  • The payments mix: Relevant studies show that cash payments generate higher costs than electronic payments (payment by EFTPOS/credit card/debit card);
  • Software links to POS machines: If medical practice software does not offer an automatic link to point of sale machines (as is typically the case in retail settings with links from cash register to the machines), administrative costs will be increased somewhat as a result of the need for double entry; and
  • The rate of bad debts: If they turn out to be high, the unit cost of bad debts will dwarf the unit costs of administering the co-payment.

The greatest uncertainty in the estimates is the time that will be required to establish whether or not an eligible patient has paid the co-payment ten times in the year to date, and therefore will be eligible for the safety net.

Costing methodology

The estimate of costs has been modelled taking account of:

  • The tender time: The time to tender cash or an electronic means of payment;
  • The verification time: The time needed for an online inquiry to ascertain a patient’s eligibility or not for the safety net (applies after 10 co-payments in the year to date);
  • The documentation time: The time to prepare and issue an invoice and/or receipt;
  • The back office time: The additional time required in back office functions, including processing and debtor control;
  • Financial institution fees: Applicable to electronic payments (payment by EFTPOS/credit card/debit card); and
  • Cash handling costs: The additional costs required by the need to collect, account for, and bank all cash payments.


6 November 2014


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