Report calls for fairer pathology payments

The Grattan Institute has released a report calling for the government to change the way it pays for pathology testing, in a move which would save up to $175 million a year.

‘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. This means taxpayers are not getting a good deal on the $2.5 billion they spend on pathology services via Medicare every year.

“Automated technologies mean that additional tests cost the provider very little, yet the government still pays the full average cost for each test,” said 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.

The report 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. It says tendering for services should be part of more commercial purchasing arrangements with pathology providers and suggests trialling such a scheme 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 said. “This is an opportunity to make savings without cutting services to the sick and vulnerable, and it must not be missed.”

The report can be viewed on the Grattan Institute website.