Breaking news! Federal Health Minister offers your GP a lifeline!
The national media have reported that the Federal Health Minister is open to doctors charging an “additional fee” when a patient is bulk billed.
This provides practices an excellent opportunity to overcome a six year Medicare freeze (the first Medicare freeze commenced in 2013).
We believe this will more than likely be passed on the 1st July 2015. There are four key things you need to know.
1. The Media Reports – new hope of unlocking the freeze may be in sight!
As we have earlier commented on, the reported four year Medicare freeze fails to account for the two year freeze implemented in 2013 and earlier years. Doctors/practices have been absorbing these freezes and miniscule rebate rises for decades. These small rises in rebates have not kept up with average wage rates or pension rate increases. The real victim is you, the patient.
These initiatives attack the very heart of the quality patient care that you expect to receive and deserve.
Your practice is either being forced to cut costs and possibly over service or risks burning out their workforce should they continue with bulk billing in the current environment. Continued bulk billing without change is doing more harm than good to your medical practice. Ultimately this is eroding your access to quality healthcare when you need it most.
Last week on 8th March 2015, the Sydney Morning Herald reported: Medicare co-payment could still happen – bulk-billed patients may face gap fees
“Under the current rules, if a doctor bulk bills a patient, they must accept the Medicare rebate of $37.05 as full payment for the service. Alternatively, the doctor must forgo the Medicare rebate and charge the patient a higher fee upfront, usually about $70. The patient then claims the $37.05 rebate from Medicare.”
“Doctors groups have long argued for the ability to charge gap fees without giving up the Medicare rebate, and such a change would give doctors the ability to recover income lost through a four-year freeze on rebate indexation.”
To clarify, a patient never loses their access to a Medicare rebate e.g. $37.05. The real issue is how a doctor is paid and how they disclose this to a patient.
Under the current system, a patient has to pay both the Medicare bill and the gap when they pay for a consult, which results in a higher upfront payment for the patient. The new offer by the Government to fix this problem is a proposal to allow the patient to pay only the gap, with the practice directly billing Medicare for the Medicare rebate.
This appears to be a win-win situation because a doctor would prefer to bulk bill and charge the Government (not the patient) directly for the $37.05 Medicare rebate, but also have the ability to charge a gap on top for incidentals. This would significantly improve cash flow and reduce the risk of bad debts. More importantly, it is easier to justify a smaller fee, so there would be less patient resistance. We discuss some practical tips for overcoming patient resistance in point 3 below.
2. The opportunity for patients and practices to introduce an “additional fee”
The choice of a practice to charge an additional fee could significantly and immediately offset any inflationary practice costs, minimising the need for across-the-board fee increases. Regardless of the position of the Government, you can introduce this procedure now by simply not bulk billing and starting to charge a gap for medical services and additional fees for incidentals such vaccines and bandages.
The real benefit is that this is a fairer user-pays system.
- Additional income of up to $40,000 to $80,000 p.a. could be generated;
- Has no impact on bulk billing or cash flow;
- Bad debts are non-existent if payment is required on the day; and
- Practices that can demonstrate value can charge extra. Patients are more prepared to pay for a smaller out of pocket incidental cost e.g. for a vaccine or a fit bit watch;
The challenge is to educate existing patients and providers about the out of pocket costs of running a medical practice.
3. So how do you charge an additional fee that a patient is more willing to pay?
Step 1 – Overcome the philosophical barrier of charging a patient!
It is always great to give something away for free. Unfortunately, doing so means it is less valued. From a medical perspective, one could argue that it encourages less engagement of patients in their own care and thus means a higher medico-legal risk.
The best patients are the ones that ask more questions, which is more likely if you charge a gap. In the interests of providing better quality care and improving patient outcomes, these aspects of customer behaviour should be embraced and not feared.
Often, we hear that the patient cannot afford a $10 gap. Then you see the odd patient going down the road to spend $100 on smokes and alcohol, or they jump into a nice European car. You would have to ask why are people not making their health a priority? Are you making them aware? If you were, would they value your service more? To the contrary, we can always keep finding a reason not to charge, until one day you go broke for being so charitable with your time and money.
A patient may survive, but this is not good enough if the practice ultimately dies under an unsustainable practice business model! Everyone loses, including the patient and the community.
Your point of a differentiation or value statement should not just be about price or it could have fatal consequences for everyone. To use this analogy, you do not want to ride in an airplane with poorly paid, angry airline staff, including the pilot, just so you can have a dirt cheap airfare. Cheap services may come at a serious price later on.
All people want is value for money and high quality care. This is harder to achieve when it is a service because they are perceived as intangible. The real test on how valued you are is if somebody is prepared to pay an out of pocket expense for your consult.
A patient may make a comment like: “She only talked to me for 15 minutes and charged $80 for the consult”. Clearly, this does not help.
Unfortunately, very little regard is given to the idea of educating patients on what it takes to provide a high quality, patient-centered service. Cost effective smart systems and training is all that is needed. The key is for a practice and a provider to start communicating their true value in simple and positive ways to patients. This can be achieved in many practical ways through a well-presented practice website with photos of the surgery and staff in uniform, waiting room posters, well trained staff, telephone messages on hold and providing tangible take home educational material through patient information sheets and sharing relevant and vetted weblinks with patients.
Take home value – Turning the intangible to tangible means higher value
At the end of the day, patients are prepared to pay more for a tangible product than an intangible service. So structuring any additional fee should ideally provide some take-home value, preferably something physical. It can be as simple as a piece of advice written on your letterhead or charging for a consumable.
For this reason, charging for a consumable, a report or use of a specialised facility is a low-hanging fruit opportunity because people can see, touch and feel these things. It shows you care because most practices or doctors do not go to this trouble. This is therefore a competitive edge.
Practices could either charge for:
- Tangible good e.g. consumables or vaccines and/or;
- Intangible services e.g. use of a treatment room or a facility fee to see a practice nurse to perform a BMI assessment with a brief written report.
People are more likely to purchase and pay more to a reputable organisation for a tangible product. To give an extreme example, most people would pay $20,000 to $30,000 if they wanted to purchase a four door sedan. If the same car came with a three star badge on the bonnet, they would be prepared to consider paying a little more due to a higher perceived quality.
How did companies like Mercedes Benz achieve this? They provided evidence of their quality without us needing to ask by publishing photos of their safety testing and manufacturing processes. This allows us to compare them with their competitors and make an informed decision. They provide these details because it builds trust. How often does your practice volunteer information like this?
The convenience and reliability arising from the endorsement of a service by a trusted practice means a smaller but higher premium can be charged for a number of reasons.
The main reason is because the trusted practice has gone to the trouble of vetting the good service. The mere uncertainty of not buying the exact same product at a local pharmacist or supermarket means many patients fear that they could put their health at risk or they may experience a delayed recovery.
Then there is the convenience. We are all so busy these days that the higher price a practice could charge will be far less of a burden than the additional cost of time and travel for the patient to purchase the same product elsewhere. So do not feel bad about selling complementary products and services such as allied health.
Step 2 Why start selling more consumables or introduce a facility fee?
A typical small 3 GP practice may spend annually $40,000 in medical consumables. Simply charging a fee to recover this cost will impact on the bottom line as most practices absorb this necessary cost as an overhead.
Meanwhile, all the other patients in the practice are being charged more to subsidise those patients who utilise this higher cost service. This is neither fair nor equitable to the patients or the practice.
Practices should consider whether it is fair to charge other patients to subsidise services to a few. A user pays system is a much fairer alternative. Clearly, a provider or practice has the final say in charging patient that is genuinely financially disadvantaged.
People will always vote for something for free, so expect some resistance. Only make exceptions for genuine cases. In the medium to long term it is simply not sustainable or in anyone’s interest to systematically bulk bill your patients.
Step 3 – Make sure you comply with tax office and providers tax obligations!
Providers may want a share of a practice’s consumable sales, sometimes up to 10% of the fee charged to a patient. Practices should seek up to 100% cost recovery.
Should this be the case, ensure your written and signed service/provider agreements reflect this arrangement from a commercial, accounting and tax point of view.
This will avoid any legal disputes and/or misunderstandings. Such arrangements must be open and transparent. Our template agreements address this issue.
The worst thing is to break an individual’s trust as it can have a long-term negative impact on practice morale. It is far better to have a constructive dialogue before introducing a change.
The Tax Office will charge the practice a 10% GST for additional fees against the practice if it is not structured correctly, which may undermine your strategy.
Many practices operate using a service entity such as service trust. If an additional fee is raised from this entity, then the provider needs to be charged 10% GST on this fee. The provider will receive a 100% refund on this GST component. Note that the patient may need to be charged GST on this additional fee.
Regardless of what structure you have, a patient will need to be charged GST on any fee that cannot be proven to be “medically necessary” at the time of consult. For example, the bandages provided were not used at the time of the consult.
Regardless of whether the service was bulk billed or not, this does not automatically mean the additional fee is GST-free to the patient.
Ignore these rules at your peril. Your practice could be significantly out of pocket if you do not get your taxation and legal obligations right from the outset.
Contact your adviser or us at firstname.lastname@example.org for more information.
Step 4 – Make sure your administration systems comply with your provider agreements!
Some simple, practical steps to consider:
- You need legal authority. Update your provider agreements and ensure they are signed;
- Maintain separate bank accounts if using a service entity. Consider whether you need to maintain a separate bank account for these fees to ensure they are banked in the correct entity. This will have GST implications as discussed above;
- A common mistake is practices overpay their doctors, dentists or allied health providers when calculating consumables. Ensure your Excel spreadsheets, MYOB, QuickBooks or Xero data files that account for consumables or facility fees correctly account for any GST as per your signed provider agreements. We have template charts of accounts you can purchase from Health and Life. A common mistake is that practices pay a percentage of the GST collected on the fee to the provider, when it should be Nil. Poor systems cause a bigger multiplier effect and make this a major problem by the end of the financial year. Our Doctors Pay Calculator overcomes this problem and automatically processes the practices and the providers BAS for them; and
- Another common mistake is forgetting to invoice a patient. With a rubber band, wrap pre printed invoices e.g. $20 around bandages and vaccines, so staff do not forget to charge patients the additional fee.
- Educate patients on how to get Medicare refund checks quickly. Finally regardless of the media reports, have your website, online appointment system, telephone messages on hold and waiting room signs tell patients how they can have their Medicare rebates automatically and electronically deposited into their bank account within a week. This will reduce any further out of pocket resistance.
- Offer convenient payment options. Make sure you have credit and debit card facilities available that are linked to one bank account. Remind reception staff when making the appointment to ask patients how they will be paying for their account on the day.
Where to from here?
For more information, contact our office at email@example.com or 1800 077 222 for a no obligation chat, with David Dahm our CEO and Founder of Health and Life – national Health Practice, Tax and Accounting Advisers since 1992. Alternatively visit our website at www.healthandlife.com.au.
If you are seriously considering the immediate positive benefits of a practice restructure or changing accountants who better understand your needs, we hope when you click on this link it will help.
Please consult us or your adviser before acting on any information.
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