Prostheses List: Cost Recovery Impact Statement

1 July 2012 - 30 June 2014 - Administration of the Prostheses List

Page last updated: 04 September 2012

Printable version of the Cost Recovery Impact Statement 1 July 2012 - 30 June 2014 (PDF 8382 KB)

Glossary
Overview
Policy Review - Analysis of Activities
Design and Implementation
Ongoing Monitoring
Certification
Cost Recovery Links

1. Glossary

GLOSSARY OF TERMS
ARTGAustralian Register of Therapeutic Goods
ASLAverage Staffing Level
CAGClinical Advisory Group
CRISCost Recovery Impact Statement
DoHADepartment of Health and Ageing
FMA ActFinancial Management and Accountability Act 1997
FRLIFederal Register of Legislative Instruments
HTAHealth Technology Assessment
HTA CCHealth Technology Assessment Consultative Committee
HTA ReviewReview of Health Technology Assessment in Australia 2009
HTSHealth Technology Section
MBDMedical Benefits Division
MBSMedical Benefits Scheme
NOCNegotiating Oversight Committee
PDCProstheses and Devices Committee
PDNGProstheses Devices Negotiating Group
PHIBPrivate Health Insurance Branch
PLACProstheses List Advisory Committee
PoCEPanel of Clinical Experts
TGATherapeutic Goods Administration
ToRTerms of Reference

2. Overview

2.1 Purpose

This cost recovery impact statement (CRIS) has been prepared to document prostheses listing arrangements that are delivered on a full cost recovery basis. The prostheses listing arrangements refer to the activities involved in listing prostheses and their benefits for the purposes of private health insurance reimbursement. The Prostheses List (‘the List’) is the schedule to the Private Health Insurance (Prostheses) Rules, and is divided in three parts: Part A (Prostheses), Part B (Human Tissue) and Part C (Other Prostheses – Cardiac Event Recorders and External Infusion Pumps). Under section 72–1 of the Private Health Insurance Act 2007 private health insurers must pay the minimum benefit (or if there is a separate maximum, at least the minimum and no more than the maximum benefit) accorded to each prosthesis appearing on the List:
  • for which an insured person has appropriate cover;
  • that are provided as part of an episode of hospital treatment or hospital-substitute treatment; and
  • for which a Medicare benefit is payable for the professional service associated with the provision of the prosthesis.
The arrangements for listing products on the List help to ensure that the benefits paid by insurers are related to clinical effectiveness.

The costs of administering the List, including assessing applications and producing the List, are recovered from prostheses sponsors via payment of:
  • application fees;
  • fees to initially list products; and
  • fees to maintain ongoing listings.
The legislative authority for collecting the fees is contained in the Private Health Insurance Act 2007 and the Private Health Insurance (Prostheses Application and Listing Fees) Act 2007. The prostheses list cost recovery arrangements were introduced on 1 April 2007 under the above mentioned Acts and associated Rules. Full cost recovery commenced on 1 July 2007.

Human Tissue products (Part B of the List) are predominantly supplied by
not-for-profit organisations and their listing is not currently subject to cost recovery.

The Department of Health and Ageing (DoHA) administers the prostheses listing arrangements and associated cost recovery arrangements.

The CRIS transparently demonstrates compliance of the prosthesis list cost recovery arrangements with the Australian Government Cost Recovery Guidelines (‘the Guidelines’).

2.2 Background

The charges are imposed to meet the costs of administering the prostheses listing arrangements. Compulsory application and listing fees are imposed on sponsors, as they are the primary beneficiaries of the prostheses listing. By listing their prostheses, sponsors have certainty that private health insurers will pay benefits for their prostheses on the List.

Sponsor

Sponsors are companies or individuals that apply for listing a product, or who already have a product listed on the List. A sponsor may be the manufacturer and/or the supplier or distributor of a prosthesis. It is the sponsor from which costs associated with listing the prostheses are recovered.

Prostheses List

The Prostheses List is a list of prostheses together with their associated benefits recommended by the Prostheses List Advisory Committee (PLAC) and determined by the Minister for Health through a Ministerial Determination. The List is updated every six months and published each February and August.

There is no statutory definition of ‘prosthesis’. Instead, criteria for listing products on the List are applied by the PLAC to each product assessed for listing. This helps to ensure that every product is considered in the same way, and that the PLAC’s recommendations for listing are consistent, fair and equitable. The criteria for listing products are available in Prostheses List: Guide to listing and setting benefits for prostheses, published by DoHA and available on the Prostheses page.

The type of products on Parts A, B and C of the List include:
  • cardiac pacemakers and defibrillators;
  • cardiac stents;
  • joint replacements;
  • intraocular lenses;
  • human tissues such as human heart valves, corneas, bones (part and whole) and muscle tissue; and
  • cardiac event recorders and infusion pumps.
The List contains approximately 10,000 prostheses. The List does not include external legs, external breast prostheses, wigs and other such devices.

Prostheses List Advisory Committee (PLAC)

The PLAC is a ministerially appointed expert advisory Committee that provides recommendations to the Minister for Health about prostheses to be listed on the List and appropriate private health insurance benefits for listed prostheses. The PLAC considers advice from several sub-committees nine Clinical Advisory Groups (CAGs) and the Panel of Clinical Experts (PoCE) - about the clinical effectiveness of listed prostheses.

Health Technology Assessment Review Implementation

The implementation of recommendations 10, 11 and 12 of the Review of Health Technology Assessment in Australia, 2009 (HTA Review)1 has resulted in changes to prostheses listing arrangements.

Recommendations 10, 11 and 12 of the HTA Review contain specific changes to streamline the prostheses listing arrangements. Recommendations 10, 11 and 12a have been implemented; work is progressing on recommendation 12b-e.

Recommendation 10

Recommended a review of the Terms of Reference (ToR) for the Prostheses and Devices Committee (PDC) and formalisation of communication channels between PDC and the TGA.

Recommendation 11

Recommended the restructuring of the PDC.

Recommendation 12a

Recommended continuous applications for the Prostheses List.

Recommendation 12b-e

Recommended the finalisation of groups of products with similar clinical effectiveness, establishment of a single benefit for products in each group and elimination of maximum benefits mandating gap payments for consumers.

Table 1: History of cost recovery arrangements for the prostheses listing

1999Voluntary cost recovery for prostheses arrangements approved by the Minister for Health and Aged Care.
April 2003Government announces prostheses reforms.
October 2005Legislation for the first Prostheses List commenced.
April 2007Private Health Insurance Act 2007, Private Health Insurance (Prostheses Application and Listing Fees) Act 2007 and associated rules commenced.
July 2007Full cost recovery for prostheses arrangements began.
January 2009Prostheses fees increased.
June 2010Implementation of Health Technology Review recommendations – 3 recommendations specific to the Prostheses List arrangements. Recommendations 10 and 11 – Reconstitution of the committee with new Terms of Reference (ToR). Recommendation 12 – streamlining of the application processes including finalising the groups of products with similar clinical effectiveness and establishment of a single benefit for products in each group.
2012-13 BudgetRemoval of joint replacement prostheses with unacceptably high revision rates - to be implemented in early 2014 (effect on the overall cost recovery arrangement is yet to be assessed).
Table 1 shows a timeline of events in relation to cost recovery for the prostheses arrangements. Voluntary cost recovery for administering the prostheses arrangements was approved in 1999, by the then Health Minister. Agreement to those arrangements was obtained from the medical devices industry following round table discussions with stakeholders that led to the deregulation of the prostheses arrangements at that time. Charges to sponsors were implemented from the 1999–2000 financial year and monies received were paid to DoHA.

The initial charges were nominal ($140 to list a product and $45 per six months to maintain a product on the List). Sponsors were invoiced retrospectively based on the previous year’s application and listing activities.

Reforms to prostheses listing arrangements were announced by the Australian Government in April 2003. Specific details of new prostheses arrangements were discussed and agreed in broad terms with stakeholders (representatives from the medical profession, health insurers, private hospitals, sponsors and consumers) between 2003 and 2005, including:
  • clinical assessment as integral to the listing process;
  • centralised benefits setting for all products on the List; and
  • the introduction of gaps for products—previously health insurers were required to pay benefits for 100% of the cost of every product listed.
The introduction of clinical assessment and benefit negotiation processes were recognised as being more costly than the previous arrangements. In February 2003, Government agreed that the costs associated with these prostheses arrangements would be met by industry. The implications of the Government decision resulted in the implementation of arrangements to recover the costs of producing the List.

The legislation underpinning the reforms commenced on 31 October 2005.

To support the introduction of new clinical assessment and benefit negotiation as part of the new listing process, the Minister for Health and Ageing established an expert advisory committee, the Prostheses and Devices Committee (PDC).2

Following negotiations and agreement with industry on new prostheses application and listing voluntary cost recovery arrangements, the then Health Minister made a decision that:
  • listing fees (for 2004–05) would not be increased prior to implementation of the National Health Amendment (Prostheses) Act which occurred on 31 October 2005;
  • the listing fees would then double in 2005–06 ($280 to list and $90 per six months to maintain a product on the List); and
  • full voluntary cost recovery arrangements would apply from 1 July 2007.
The arrangements for listing and setting benefits for prostheses that were implemented in 2005 remain in place. However, the legislation has been replaced since then. The Private Health Insurance Act 2007 and associated Rules commenced on 1 April 2007. This legislation initiated a number of key reforms to private health insurance in Australia. The most significant change introduced with the legislation relating to the prostheses arrangements was the full recovery of costs associated with the administration of the List and processing new applications to list products from sponsors.

Under subsection 72-10 (3) of the Private Health Insurance Act 2007, an application to list a product on the List must be accompanied by an application fee imposed under the Private Health Insurance (Prostheses Application and Listing Fees) Act 2007.

The Private Health Insurance (Prostheses Application and Listing Fees) Act 2007, sections 3 and 4, imposes fees as a tax for:
  • making an application to list a prosthesis;
  • initially listing a prosthesis where the Minister for Health has granted an application; and
  • maintaining an ongoing listing of a prosthesis.
The fees are a charge that are payable by sponsors for the particular activities of application, initial listing and ongoing listing. These fees do not constitute general taxation.

The fees are set out in the Private Health Insurance (Prostheses Application and Listing Fee) Rules. Full cost recovery commenced on 1 July 2007.

Since 15 January 2009, the fees have been $600 per application, $200 to list a prosthesis and $200 every six months to maintain a product on the List (Table 2). No charges apply to human tissue prostheses. Fees are updated from time to time, and new fee structures are introduced by making new versions of the Private Health Insurance (Prostheses Application and Listing Fee) Rules.

Table 2: Current prostheses application and listing fees, 2012

Activity
Amount
Application
$600
Initial listing
$200
Ongoing listing
$200
Internal review
$1,000
Where the Minister for Health has decided to grant an application to list a product, DoHA will inform the sponsor of the Minister’s decision, and that an initial listing fee is payable in respect of each product to be listed, within 14 days of the sponsor receiving the letter.

The Minister for Health is able to delegate his or her powers and functions in making the Private Health Insurance (Prostheses) Rules. The Minister’s delegate is the Assistant Secretary, Private Health Insurance Branch (PHIB), Medical Benefits Division (MBD) of DoHA3.
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The ongoing listing fee must be paid by the sponsor within 28 days of the ongoing listing fee imposition day specified in the Private Health Insurance (Prostheses Application and Listing Fee) Rules. There are two ongoing listing fee imposition days within a twelve month period. They are currently specified in the Private Health Insurance (Prostheses Application and Listing Fee) Rules as 15 March and 15 September. These ongoing listing fee imposition days reflect the List cycles of February and August each year.

2.3 Australian Government Cost Recovery Policy

In December 2002 the Australian Government adopted a formal cost recovery policy to improve the consistency, transparency and accountability of its cost recovery arrangements and promote the efficient allocation of resources. The underlying principle of the policy is that entities should set charges to recover all the costs of products or services where it is efficient and effective to do so, where the beneficiaries are a narrow and identifiable group and where charging is consistent with Australian Government policy objectives. Cost recovery policy is administered by the Department of Finance and Deregulation and outlined in the Guidelines.

The policy applies to all Financial Management and Accountability Act 1997 (FMA Act) agencies. In line with the policy, individual portfolio ministers are ultimately responsible for ensuring an agency’s implementation and compliance with the Guidelines.

3. Policy Review — Analysis of Activities

The current prostheses listing arrangements were established to control significant increases in benefits paid for prostheses between 1999 and 2002, which created risks for the financial viability of the private health insurance industry and affordability of private health care for the broader community. To address these risks, the prostheses listing arrangements were introduced to ensure the sustainability of the health system, in particular the private hospital and insurance sectors.

During the assessment process, devices submitted for inclusion on the List are assessed with regard to comparative qualitative clinical function and effectiveness, comparative cost effectiveness and comparative safety to devices already on the List. This helps to ensure that resources are used to support the lowest cost health care interventions for achieving the maximum health improvement.

Part A

As of February 2012, there are 9,731 products on Part A of the List. The following steps form the process of application and listing of a product on Part A of the List. These steps are also described in the Prostheses List: Guide to listing and setting benefits for prostheses, published by DoHA and available on the Prostheses page.

Application

  • A sponsor of a product included, or with an application to be included, on the Australian Register of Therapeutic Goods may apply to have that product listed on the List. The TGA is responsible for regulating the quality, safety and efficacy or performance of therapeutic products in Australia.
  • Under subsection 72-10 (3) of the Private Health Insurance Act 2007, an application to list a product on the List must be accompanied by an application fee. The application fee covers the costs of processing applications, including clinical assessment to ensure the prosthesis meets the listing criteria (which includes an ARTG listing, an applicable MBS item number associated with the implantation of the device, and confirmation that the product is provided as part of hospital or hospital substitute treatment), decision making and administrative processes. The application fee is specified in the Private Health Insurance (Prostheses Application and Listing Fee) Rules.

When an application is received

The standard process for receiving and processing majority of applications is outlined as follows. However, there may be circumstances where the processing of an application does not follow a standard process. For example, when clinicians seek clarification of evidence provided by sponsors or DoHA requests that a sponsor split an application into several applications.

Since the implementation of recommendation 12a of the HTA Review, applications have been received on a continual basis rather than in six monthly cycles. The List is still published every six months.

Applications are checked by departmental staff for completeness:
  • Each application is assigned an application number and details are entered into a database.
  • Applications are distributed for clinical assessment.

Clinical Assessment

  • Clinicians assess the clinical effectiveness of products based on the evidence submitted by sponsors in their applications and make recommendations to the PLAC on whether or not products should be listed and the basis for their recommendations.
  • MBS item numbers for medium and high risk devices are reviewed by the department to ensure appropriate MBS item numbers are available for the procedure using the device.

PLAC consideration

  • The PLAC meets approximately five times during an application cycle to consider clinical advice. The PLAC formulates recommendations on which products are demonstrably clinically effective and so should be listed with appropriate benefits; and which products do not meet the criteria for listing or for which clinical effectiveness has not been demonstrated and so should not be listed.

PLAC advice to the Minister and sponsors

  • DoHA provides the PLAC’s recommendations to the Minister for Health, and the Minister or their delegate decides which applications to grant and not to grant.
  • Upon the decision by the Minister for Health or delegate to grant the applications, sponsors are sent a letter which advises of the applications that the Minister has granted and seeks payment of the initial listing fees for these products. Where the Minister has decided to not grant an application, the letter providing this advice to the sponsor will include reasons for the Minister’s decision.

Minister makes the Prostheses List

  • The Minister for Health makes the List. Where sponsors have not paid initial listing fees for applications that the Minister has granted, their products will not be included in the List.

Release of the Prostheses List

  • The List is released.

Amendments

Sponsors may also apply to amend details of their products on the List. Amendments may be made to:
  • the sponsor’s name where the Therapeutic Goods Administration (TGA) has approved the transfer of a product from one sponsor to another;
  • the name of a prosthesis where there has been a change to branding;
  • description; and
  • size.
Where an application to amend a listing may have a clinical impact, the application is forwarded to the relevant CAG/PoCE for consideration and advice is given to the PLAC. In recent times, there have been around 2,000 amendments per application cycle. Ongoing listing fees include costs related to amendments.

Part B

Part B of the List sets mandatory benefits that private health insurers must pay for human tissue items provided to their members during insured hospital treatment. There are currently 272 products on Part B of the List which includes ophthalmic, cardiothoracic and orthopaedic products.

Human tissue items on the List are currently not subject to clinical assessment or benefit negotiations, and out of pocket expenses for patients are not permitted. Also, there is no cost recovery from industry for the costs associated with producing Part B of the Prostheses List – these costs are met through Budget (taxpayer) funding.

The Private Health Insurance Branch (PHIB), DoHA, processes all applications for human tissue listings and makes recommendations to the Minister for Health on whether new items should be placed on Part B of the List. It also considers applications to increase benefits for existing items and makes recommendations to the Minister for Health on the quantum of such increases.

Part C

The Private Health Insurance (Prostheses) Amendment Rules 2010 (No. 2) took effect on 14 January 2011 and require a prosthetic device to be insulin infusion pumps or implantable cardiac event recorders in order to satisfy the listing criteria for Part C. New applications for Part C are assessed in the same way as applications for Part A and are also cost recovered.

Seventeen insulin infusion pumps and implantable cardiac event recorders are currently listed on Part C of the List.
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Internal review

Occasionally, though not as prevalent as in previous years, an application to list a product on the List does not result in the outcome sought by the sponsor. In these instances, the sponsor is able to seek what is known as an ‘internal review’ of the processes that led the advisory committee to make its recommendation. The internal review is conducted by the Secretary of DoHA or their nominee (usually the First Assistant Secretary, Medical Benefits Division of DoHA). On completion of the review, the reviewer makes recommendation(s) in writing to the advisory committee, which explain the findings and outline the recommended actions (if any) to address the findings of the review to the sponsor involved.

The grounds on which a sponsor may seek review of the PLAC’s process are as follows:
  • there was a significant deviation from the process (as set out in the Prostheses List: Guide to listing and setting benefits for prostheses) by the PLAC or one of its supporting committees/groups, which had an adverse impact on the outcome sought by the sponsor in its application; and/or
  • other significant issues of process had an adverse impact on the outcome sought by the sponsor in its application.
In conducting an internal review, the internal reviewer would ordinarily have regard to matters such as the following:
  • the terms of the request for internal review;
  • review of Departmental files;
  • advice from the secretariats to the PLAC, CAGs and/or PoCE; and
  • legal advice.

Stakeholders

Sponsors of prostheses products are the primary stakeholder group affected by the cost recovery arrangements. Since 1999, DoHA has undertaken extensive consultations (through meetings with the Medical Technology Association of Australia, individual prostheses sponsors and other private health stakeholders) about charging arrangements for prostheses listing.

Cost recovery of prostheses listing has resulted in additional costs to sponsors of prostheses, namely the costs of applying for listing, and listing products on the List. These costs may be passed on to purchasers of prostheses including public hospitals and consumers receiving private services. Although the application and listing fees result in extra costs for sponsors, they obtain substantial benefits from the continued operation of the List, with private health insurers being required to pay the minimum benefit for prostheses on the List.

Other stakeholders include patients undergoing prostheses surgery, clinicians performing surgery on the patients, public and private hospitals, private health insurers, the PLAC, DoHA and the Australian Government. All stakeholders derive benefits from the streamlining of prostheses arrangements.

Conclusion

It is appropriate that the costs associated with the prostheses arrangements be met by sponsors for the following reasons:
  • the arrangements were implemented to control significant increases in the costs of prostheses and to ensure the private health insurance sector remains financially sustainable; and
  • sponsors are the primary financial beneficiaries of the prostheses listing.
In addition, for equity purposes it is appropriate that charging for prostheses listing be made mandatory rather than voluntary.

4. Design and Implementation

4.1 Basis of Charging—Fee or Levy

Charges for prosthesis listing application assessment, initial listing and ongoing listing are imposed on a fee for service basis as the individual users/beneficiaries of these activities can be identified and charged directly.

4.2 Legal Requirements for the Imposition of Charges

The legislative authority for the imposition of charges for prostheses listing activities is provided by the Private Health Insurance Act 2007 and the Private Health Insurance (Prostheses Application and Listing Fees) Act 2007. The latter Act is cited as “an Act to impose, as a tax, fees in relation to applications for listing, and listing, of prostheses and for related purposes”. The fees are set out in the Private Health Insurance (Prostheses Application and Listing Fee) Rules.

The List arrangements are defined in sections 72–1, 72–10, 72–15, and 72–20 of the Private Health Insurance Act 2007, and in the Private Health Insurance (Prostheses) Rules.

Sections 72–10 and 72–15 of the Private Health Insurance Act 2007 require the applicant (e.g. sponsor) to pay fees:
  • when an application is received to add a new device to the List;
  • when an application is granted by the Minister for Health (the applicant must pay an initial listing fee); and
  • to ensure the ongoing listing of a device on the List.

4.3 Costs to be Included in Charges

The costs included in the charges are:
1. Committee expenses;
2. Departmental operational expenses; and,
3. Administrative expenses.

The committee expenses relate to preparation, sitting fees and travel expenses for clinician and consumer participation in the PLAC, CAGs and the Health Technology Assessment Consultative Committee (HTA CC), as well as for clinical assessment, including:
  • operation of the PLAC as the expert advisory committee that makes recommendations to the Minister for Health on products submitted for the List and their associated benefits;
  • operation of the CAGs, which provide specialist clinical advice to the PLAC;
  • operation of the PoCE, comprising approximately 45 specialist clinicians for consideration of products that fall outside the expertise of the CAGs;
  • operation of the HTA CC, which considers implementation of the HTA Review recommendations 12b-e, which relate to streamlining the prostheses listing arrangements, including the grouping and benefits of products, before they are endorsed by the PLAC; and
  • operation of the Prostheses Sections (within DoHA), which will continue to review and refine the prostheses listing arrangements during the period of validity of this CRIS in order to implement recommendations from the HTA Review. This includes work on the policy issues underpinning the prostheses listing arrangements to ensure they remain efficient and effective and relevant into the future.
Departmental operational expenses include:
  • administrative support to produce the List; maintain approximately 10,000 products on the List; conduct continuous application assessments involving over 450 applications in each List (produced twice a year); provide secretariat support to the PLAC and CAGs; administrative support to approximately 45 clinicians on the PoCE; and
  • costs of developing and maintaining the Private Health Insurance (Prostheses) Rules and providing public access to an electronic database of the List. Production costs include fees for registering the Rules on the Federal Register of Legislative Instruments (FRLI), which are not set by DoHA.
The two main administrative costs associated with the prostheses arrangements are:
  • committee and secretariat expenses; and
  • departmental operational and program support expenses.
Health insurers, private hospitals and sponsors meet the costs associated with their own participation in the PLAC. The Negotiating Oversight Committee (NOC) (formerly the Prostheses and Devices Negotiating Group) was funded by Private Healthcare Australia, however, the Minister for Health agreed to disband the NOC following implementation of the HTA Review recommendations.

The cost components associated with the prostheses listing activities in 2012-13 and 2013-14 are detailed in Table 3. Approximately 1,000 applications and 4,000 amendments are processed for the List each year. Ongoing listing fees include amendments. Thus, sponsors are not charged a separate fee for amendments, rather the cost of amendments, which varies depending on the type of amendment made, is included in ongoing listing fees. The application fee does not represent the full cost (around one-fifth to one-quarter) of processing a standard application, with the remaining cost recovered through listing fees. This is primarily due to the risk of market distortions if a full cost recovery fee was applied at the application stage. This approach is also consistent with the Government’s decision to introduce reforms, which allow for the recovery of costs incurred in administration of the List across the life cycle of the product listing.

The distribution of cost components associated with prostheses listing activities across fees are shown in Table 4. The percentage of costs attributed to each task is related to the percentage of time spent by staff and committees on that particular task (e.g. new applications). The cost attribution in Table 4 is indicative only.

Since 2011-12, corporate support expenses included a component for an upgraded on-line database for the List. These expenses are projected to continue during the period of validity of this CRIS, offset by savings in administrative costs that will no longer be required with the improved database.

The List is currently being created from an electronic database using a largely manual process. A new database, currently under development, will allow for electronic methods of processing, including submission of applications, approval, review, appeal and online publication. Any savings gained from the upgraded database (such as due to double handling and reduced errors) will result in fees being reduced or increases being contained.

Organisational Changes since May 2012

In May 2012, the three Prostheses Sections were merged into two sections and the Health Technology Section (HTS) moved to the Private Health Insurance Branch. The HTS will work on a number of policy issues to assist with reforms to the prostheses listing arrangements, and as such, will continue to be recovered. This work includes policy development on the definition of a prosthesis and associated listing criteria, a process for the setting of benefits for new prostheses and reviewing benefits for currently listed prostheses, reviewing Parts A, B and C of the Prostheses List, development of an appeals mechanism and development of consultation pathways with other key HTA Committees. The rest of the Private Health Insurance Branch staff will work on other issues that affect the Medical Benefits Division as a whole. This component of the work will not be cost recovered.
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Table 3: Estimated costs for 2012–13

Type of CostWhat the cost represents and what is included in the costRationale for inclusion
Estimate of the total annual cost ($)
PLAC, CAGs, PoCE, committee costsIncludes sitting fees, preparation fees, committee member travel and accommodation, venue hire and incidental expenses.Direct Costs
700,000
Staff and salary costs: PLAC, PoCEDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
1,372,192
Staff and salary costs: CAGsDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
1,372,193
Staff and salary costs: HTADepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
539,997
Staff and salary costs: corporate management and supportDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
93,000
Other corporate management and support costsCommittee support expenses, including Departmental staff member travel and accommodation. Excludes staffing and salary on-costs.Indirect Costs
391,000
Total
4,468,382

Table 3 (continued): Estimated costs for 2013–14

Type of CostWhat the cost represents and what is included in the costRationale for inclusion
Estimate of the total annual cost ($)
PLAC, CAGs, PoCE, committee costsIncludes sitting fees, preparation fees, committee member travel and accommodation, venue hire and incidental expenses.Direct Costs
700,000
Staff and salary costs: PLAC, PoCEDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
1,389,345
Staff and salary costs: CAGsDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
1,389,345
Staff and salary costs: HTADepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
546,747
Staff and salary costs: corporate management and supportDepartmental staffing and salary on-costs. Excludes travel and accommodation.Indirect Costs
93,000
Other corporate management and support costsCommittee support expenses, including Departmental staff member travel and accommodation. Excludes staffing and salary on-costs.Indirect Costs
461,000
Total
4,579,437

Table 4: Prostheses List cost recovery: distribution of costs across fees, 2012–13

Type of Cost
New Applications ($)
Approved Listings ($)
Ongoing Listings ($)
Internal reviews ($)
Total ($)
PLAC, CAGs, PoCE, committee costs
420,000
70,000
209,300
700
700,000
Staff and salary costs: PLAC, PoCE
823,315
137,219
410,286
1,372
1,372,192
Staff and salary costs: CAGs
823,316
137,219
410,286
1,372
1,372,193
Staff and salary costs: HTT
323,998
54,000
161,459
540
539,997
Staff and salary costs: corporate management and support
55,800
9,300
27,807
93
93,000
Other corporate management and support costs
234,600
39,100
116,909
391
391,000
Total
2,681,029
446,838
1,336,047
4,468
4,468,382

Table 4 (continued): distribution of costs across fees, 2013–14

Type of Cost
New Applications ($)
Approved Listings ($)
Ongoing Listings ($)
Internal reviews ($)
Total ($)
PLAC, CAGs, PoCE, committee costs
420,000
70,000
209,300
700
700,000
Staff and salary costs: PLAC, PoCE
833,607
138,935
415,414
1,389
1,389,345
Staff and salary costs: CAGs
833,607
138,935
415,414
1,389
1,389,345
Staff and salary costs: HTT
328,048
54,675
163,477
547
546,747
Staff and salary costs: corporate management and support
55,800
9,300
27,807
93
93,000
Other corporate management and support costs
276,600
46,100
137,839
461
461,000
Total
2,747,662
457,945
1,369,251
4,579
4,579,437
Notes: Cost of each activity is indicative only.

4.4 Outline of Charging Structure

Application fee

The application fee amount does not necessarily represent the full cost of processing an application. In setting the application fee, the Minister for Health or delegate considers the cost to sponsors to apply to list a product on the List and how this affects their incentive to make an application.

Initial listing fee

The initial listing fee amount does not necessarily represent the full cost of initial listing of products on the List. In setting the initial listing fee, the Minister for Health or delegate considers how the expenses involved in processing applications and internal reviews can be apportioned to the initial listing fee.

Ongoing listing fee

The costs included in the ongoing listing fee are as follows:
  • a portion of the costs of reviewing new applications and initially listing a prosthesis;
  • database development and maintenance costs;
  • production costs of the Private Health Insurance (Prostheses) Rules;
  • processing amendments;
  • reviewing grouping structures and benefits as part of the HTA Review; and
  • processing duplications, expansions, compressions and transfers.
A significant proportion of all costs associated with prostheses listing activities is recovered through the ongoing listing fee. Full cost recovery fees for applications, initial listing and internal reviews are considered to be market distorting.
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Internal review fee

The internal review fee amount does not necessarily represent the full cost of processing an internal review. In setting the internal review fee, the Minister for Health, or delegate, considers the cost to sponsors to apply for an internal review and how this affects their incentive to make an application.

The internal review process also provides an additional opportunity for internal audit of processes involved in the prostheses listing activities and can highlight areas requiring administrative improvement.

Table 5: Estimated expenses and revenue for 2012–13 and 2013-14

Activity
Method of Recovery
Volume of Activity
Current Price ($)
Expense for Activity ($)
Total Cost Recovered for Activity ($)
Estimate: 2012–13
1.1New Applications received for AssessmentFee for service
850
600
2,681,029
510,000
1.2Number of Approved Listings Fee for service
650
200
446,838
130,000
1.3Ongoing Listing FeesFee for service
19,500
200
1,336,047
3,900,000
1.4Internal ReviewsFee for service
1
1,000
4,468
1,000
Total
4,468,382
4,541,000
Estimate: 2013–14
1.1New Applications received for AssessmentFee for service
850
600
2,747,662
510,000
1.2Number of Approved Listings Fee for service
650
200
457,945
130,000
1.3Ongoing Listing FeesFee for service
20,000
200
1,369,251
4,000,000
1.4Internal ReviewsFee for service
1
1,000
4,579
1,000
Total
4,579,437
4,641,000

5. Ongoing Monitoring

5.1 Monitoring Mechanisms

Ongoing monitoring mechanisms include:
  • Over-recoveries and under-recoveries for the prostheses cost recovery arrangements are monitored by DoHA in accordance with its responsibilities under the Private Health Insurance (Prostheses Application and Listing Fees) Act 2007 on a List-by-List basis;
  • DoHA reviews the prostheses cost recovery arrangements and budget actuals and estimates on a monthly basis. A major review of the Departmental budget is done bi-annually;
  • A delegate approves expenditure for each PLAC and CAG meeting for justification of costs associated with travel, accommodation and any other expenses. Teleconferences are undertaken when face-to-face meetings are not required;
  • DoHA continues to focus on a fair and equitable prostheses reimbursement framework to ensure private health insurance expenditure is directed to clinically appropriate and cost-effective prostheses. DoHA implemented recommendations from the Doyle Review4 and recommendations from the HTA Review that are relevant to the prostheses listing arrangements; and,
  • Cost recovery revenue is reported in the Financial Statements of the DoHAs Annual Report, in accordance with the Finance Minister’s Orders.

5.2 Stakeholder Consultation

It is noted that the setting of fees may put pressure on smaller businesses to withdraw products from the market where these products are no longer commercially viable. In particular, sponsors noted that fees would apply uniformly across all products, including to low value and/or low volume products. Sponsor decisions on continuing to offer these items on the List need to be subject to rational commercial decision-making. It was noted that this is a commercial decision to be made by individual sponsors.

In addition to face-to-face consultation sessions, DoHA releases regular circulars containing up-to-date information on procedural arrangements and cost recovery arrangements.

The circulars are available on DoHA’s website.

DoHA will continue discussions with sponsor representatives to ensure that:
  • Costs are monitored to match fees with the actual costs incurred;
  • List services provided under cost recovery arrangements are clearly identified and refined to maintain an efficient delivery of regulatory services; and
  • Equitable fee arrangements exist for the continuation of clinically effective assessment for prostheses. Should there be a significant change in the number of products listed or the number of new applications, charges will need to be revised to account for the difference between expected and actual revenue.
To assist sponsors with the application process and to provide information about the prostheses arrangements, DoHA publishes the Prostheses List: Guide to listing and setting benefits for prostheses, a guide to listing prostheses. Sponsors are encouraged to provide feedback on the Guide and the application forms. The forms are reviewed regularly and updated where needed, for instance, to accommodate legislative changes, to reflect a new fee structure, or to incorporate input from stakeholders.

5.3 Periodic Review

The first financial year in which sponsors were charged mandatory fees for the prostheses listing arrangements coincided with the requirement to undertake an independent review of provisions in the National Health Amendment (Prostheses) Act 2005, the legislation in place prior to the introduction of the Private Health Insurance Act 2007 and its subordinate legislation.

After the Doyle Review in 2007, the then Minister for Health and Ageing and the then Minister for Finance and Deregulation released the HTA Review in February 2010 with 13 of the 16 recommendations to be implemented within 24 months. Recommendations affecting prostheses listing arrangements are due for completion by the August 2012 List.

Ongoing review of prostheses cost recovery arrangements forms part of the regular monitoring of the prostheses arrangements. Financial reports are produced quarterly to enable DoHA to match expenditure on the prostheses arrangements with the recovery of revenue from fees.

Prostheses cost recovery arrangements are subject to a review of the fees and imposition dates.

The Guidelines require all significant cost recovery arrangements to be reviewed periodically, but no less frequently than every five years. The next periodic review of the prostheses listing cost recovery arrangements is expected to be aligned with the Health and Ageing portfolio review of cost recovery arrangements. Should there be a material change to the prostheses listing cost recovery arrangements during the period of validity of this CRIS, DoHA may need to amend the current CRIS or prepare a new CRIS. Subject to no material changes, a new CRIS will be prepared for commencement on 1 July 2014.

6. Certification

I certify that this CRIS complies with the Australian Government Cost Recovery Guidelines.

This document was signed by the Secretary of the Australian Government Department of Health and Ageing on 9 July 2012.

7 .Cost Recovery Links

The Australian Government Cost Recovery Guidelines and the accompanying Finance Circular.

For proposals that involve regulation or amendment to regulation that affects business, a Regulation Impact Statement is required. Contact the Office of Best Practice Regulation for further information.

1The HTA Review was conducted in 2009, as a Better Regulation Ministerial Partnership between the Minister for Health and Ageing and the Minister for Finance and Deregulation. The final report is available on the Department's website.

2After implementation of recommendation 11 of the HTA Review, this committee was restructured and is now known as the Prostheses List Advisory Committee (PLAC).

3Throughout this document, where Ministerial approval is referred to, this should be taken to mean “the Minister or delegate”.

4A review of private health insurance prostheses listing arrangements was completed by Mr Robert Doyle in 2007 in accordance with the National Health Amendment (Prostheses) Act 2005, the legislation that covered the prostheses arrangements at the time. The Review report is available at the Department's circular page.

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