Pathology payments are bleeding taxpayers dry

by Stephen Duckett

The government could save up to $175 million a year by changing the way it pays for pathology testing and negotiating a fairer share of efficiency savings with industry, according to a new Grattan Institute report.

Blood Money: paying for pathology services finds that while new technology, industry consolidation and volume growth have transformed the economics of pathology testing since Medicare was introduced, government still pays for tests in the same way it did 40 years ago.

Taxpayers spend more than $2.5 billion a year on pathology services via Medicare, but they’re not getting a good deal, the report shows.

‘Automated technologies mean that additional tests cost the provider very little, yet the government still pays the full average cost for each test,’ says Grattan Health Program Director, Dr Stephen Duckett.

‘And while pathology corporations enjoy the benefits of volume growth, government is missing out on the benefits of price competition.’

The government has negotiated a five-year agreement with the pathology industry to limit growth in spending, but the caps have been exceeded in each of the first four years of the agreement. And when government wants to change policy settings, the pathology companies use the threat of steep co-payments as a bargaining chip.

Blood Money calls for changes to ensure patients are protected from out-of-pocket charges and taxpayers get to share the savings from economies of scale and efficiency gains.

Tendering for services should be part of more commercial purchasing arrangements with pathology providers. A pilot scheme could be trialled in Victoria, where a tendering system already operates in regional areas.

‘It is time to overhaul the way we pay for pathology services,’ Dr Duckett says. ‘This is an opportunity to make savings without cutting services to the sick and vulnerable, and it must not be missed.’

Download an audio recording of Stephen Duckett speaking about the report.

Read the report

For further enquiries: Stephen Duckett, Health Program Director
T. +61 (0)3 8344 3637 E. media@grattan.edu.au