This cost recovery impact statement (CRIS) is being prepared because the Australian Government announced on 12 May 2009 that cost recovery would be introduced to fund the National Joint Replacement Registry (NJRR). These costs will be recovered from the suppliers of orthopaedic devices which currently have joint replacement prostheses listed on the Private Health Insurance (Prostheses) Rules (the Prostheses List).

The introduction of a levy will provide sustainable funding for the NJRR to continue its work in collecting and providing information on the performance and safety of joint replacement devices to a range of interested stakeholders, including suppliers of joint replacement devices, surgeons, public and private hospitals, the Therapeutic Goods Administration (TGA), private health insurers, the Prostheses and Devices Committee (PDC) and consumers.

This CRIS fulfils a commitment by the Department of Health and Ageing (the Department) to transparently account for NJRR cost recovery activities. The purpose of a CRIS is to transparently demonstrate compliance with the Australian Government Cost Recovery Guidelines (the Guidelines). The CRIS reports on cost recovery activities as required under the Guidelines.

The Department administers the NJRR cost recovery arrangements.

1.2 Background

The NJRR facilitates the collection of data that provides a prospective case series on all joint replacement surgery undertaken in Australia. Currently 100 per cent of orthopaedic surgeons voluntarily submit data to the NJRR.

The NJRR was established by the Australian Orthopaedic Association (AOA) in 1998 to collect information about hip and knee replacement surgeries. The purpose of the NJRR is to define, improve and maintain the quality of care for individuals receiving joint replacement surgery. It achieves this by collecting a defined minimum data set from all hospitals (public and private) undertaking joint replacement surgery. This enables outcomes to be determined on the basis of patient characteristics, prosthesis type and features, method of prosthesis fixation and surgical technique used. The principal measure of outcome is revision surgery, which is recognised as an unambiguous measure of the need for further intervention.

This informs device manufacturers, surgeons, other health care professionals, governments, and the community of the quality and performance of joint replacement procedures in Australia, a relatively common form of surgery that is increasing substantially each year.
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The NJRR estimates that the information it has provided has improved surgical practice and changed the use of particular devices, reducing the number of unnecessary revision surgeries by 1,200 cases per year. This has resulted in savings to the health sector and consumers of around $44.6 million. ¹These estimates are based on an analysis of the reductions in the proportion of revised hip and knee procedures since the commencement of the NJRR over a decade ago. The average cost for revision procedures are much higher than standard procedures.

The Australian Government has funded the NJRR’s activities in collecting information about joint replacement surgeries since 1998 through successive funding agreements with the AOA. Initially, the NJRR collected information about hip and knee replacement surgeries. From 2007-08, it was granted an additional $200,000 per year to expand its data collection to other types of joint replacement surgeries including replacement ankles, wrists, elbows and spinal discs. The most recent funding agreement with the Commonwealth was signed in late September 2009 with an expected completion date of 30 June 2010.

In accordance with the successive annual funding agreements with the AOA, all data management work is subcontracted currently to the Data Management and Analysis Centre (DMAC). The DMAC is located within the University of Adelaide, and is responsible for developing software for the NJRR, and to undertake data entry, validation and analysis. The costs of DMAC’s activities reflect the tasks they are contractually required to undertake.

The purpose of the NJRR levy is to recover the Australian Government’s costs associated with maintaining the NJRR. The levy will be imposed on sponsors of joint replacement prostheses, which directly benefit from the continued operation of the registry.

The NJRR is recognised for the valuable contribution it makes to the health sector. Operational funding has been provided by Australian taxpayers who have borne the costs of the NJRR since its inception. These costs will now be recovered from industry.

Key Elements of the NJRR

Acronyms

The following list provides a description of acronyms and abbreviations used in this paper:

AOA – Australian Orthopaedic Association
CAG – Clinical Advisory Group
CRIS – Cost Recovery Impact Statement
DMAC – Data Management and Analysis Centre
DoFD – Department of Finance and Deregulation
MBD – Medicare Benefits Division
MBS – Medicare Benefits Schedule
NJRR – National Joint Replacement Registry
PDC – Prostheses and Devices Committee
PLAC – Prostheses List Advisory Committee
PoCE – Panel of Clinical Experts
_{1. Graves S. Outcomes of Revision Arthroplasty, NJRR Presentation, Nordic Orthopaedic Federation, 10-13 June 2008}

Joint Replacement Prostheses
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The Prostheses List includes surgically implantable prostheses (singular is a ‘prosthesis’) such as cardiac defibrillators, vascular implantable stents, internal hip and knee replacements, other orthopaedic and trauma injury devices such as plates, screws, spinal rods and other general surgically implantable devices.

In almost all instances these devices are implanted by a specialist surgeon or clinician and the procedure must have a corresponding Medicare Benefits Schedule (MBS) item number, except in the case of prostheses implanted by podiatric surgeons. Health insurers are required to pay benefits to their insured patients for a prosthesis listed on the Prostheses List, at the benefit listed where their insurance policy includes coverage of the surgery.

Section 5 of the Private Health Insurance (National Joint Replacement Registry Levy) Act 2009 (NJRR Levy Act) defines a joint replacement prosthesis as a prosthesis that:

is listed in the Private Health Insurance (Prostheses) Rules; and
is used in joint replacement.

The NJRR levy will only apply to joint replacement prostheses that are listed on the Prostheses List. However it will not apply to hand and foot articulations, as these items are not tracked by the NJRR.

Prostheses and Devices Committee (PDC)

The PDC was a ministerially appointed expert advisory Committee that provided recommendations to the Minister for Health and Ageing about devices to be listed on the Prostheses List and appropriate private health insurance benefits for listed devices. The recently established Prostheses List Advisory Committee (PLAC) has replaced the PDC. The PLAC will consider applications for new listings and amendments to existing listings for the February 2011 Prostheses List.

The PDC considered advice from nine Clinical Advisory Groups and the Panel of Clinical Experts. These groups consist of clinicians from a range of specialities and sub-specialities with expertise in the use of the types of prostheses on the list. The PDC also considered advice from its
sub-committee, the Prostheses and Devices Negotiating Group, about benefits for listed devices.

Prostheses List

The Prostheses List is a list of prosthetic devices together with their associated benefits recommended by the PDC and determined by the Minister for Health and Ageing, through a Ministerial Determination. The List is updated every six months and published each February and August.

Health insurers must pay the minimum benefit accorded to each device appearing on the List where a policy holder is covered for surgery involving the implanted device. Applications for listing devices on the Prostheses List are assessed using a clinical evidence based approach.

Sponsors of Joint Replacement Prostheses

This refers to companies or individuals that have a joint replacement prosthesis listed on the Prostheses List. A sponsor may be the manufacturer, the supplier or the distributor of a medical device. Within the context of cost recovery, sponsors are charged to cover the costs of operating the NJRR in respect of each joint replacement prosthesis they sponsor on the Prostheses List.
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Sponsors have a vested interest in listing their devices to secure market share in the privately insured health sector.

1.3 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 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 (DoFD) 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.

The Guidelines provide that all cost recovery arrangements must have the following elements:

A clear legal authority;
Revenue from cost recovery to be transparently identified;
The fees and charges are to reflect the cost of providing the device or service and should generally be imposed on a fee-for-service basis or, where efficient, as a levy; and
Cost recovery is to be undertaken on an activity basis.

2 Policy Review – Analysis of Activities

Description of information activities

The Guidelines establish that cost recovery arrangements may apply to two categories of activities undertaken by agencies in the provision of goods and services, including regulatory and information activities.

The collection of data on joint replacements undertaken across Australia is primarily an information based activity.² Information based activities are defined in the Guidelines as those involved in collecting, compiling and disseminating information, and any other activities of a non-regulatory nature.

The NJRR monitors the outcome of all hip, knee, ankle, wrist, shoulder, elbow joint and spinal disc replacement surgery undertaken in Australia. The eight primary objectives of the NJRR are to:

Determine demographic and diagnostic characteristics of patients undergoing joint replacement surgery throughout Australia;
Provide accurate information to surgeons, other health care professionals, government bodies, device manufacturers and the community on the use of different types of prostheses in both primary and revision joint replacements;
Evaluate the effectiveness of different types of joint replacement prostheses and surgical techniques at a national level;
Compare the Australian joint replacement experience to that of other countries;
Provide confidential data to individual surgeons and hospitals, to enable them to audit their joint replacement surgery;
Provide data to device manufacturers, to enable them to monitor the performance of their own prostheses;
Educate Australian orthopaedic surgeons in the most effective joint replacement prostheses and surgical techniques to achieve successful outcomes; and
Assist in the clinical assessment of joint replacement prostheses seeking listing, or listed, on the Prostheses List for the purpose of the payment of benefits by private health insurers.

The NJRR is therefore an information activity and not a regulatory activity.

_{2 The TGA does use the NJRR for regulatory purposes related to monitoring ongoing safety ad quality issues with devices. However, information obtained through the NJRR is not thesole post marketing tool used by the TGA for regulatory purposes. Additional post marketing activities undertaken by the TGA include investigating reports of problems, laboratory testing of products on the market and monitoring to ensure compliance with the legislation.}

Outcomes
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The NJRR Levy seeks to achieve nine primary outcomes, which are set out below.

Develop, maintain and administer the NJRR; which includes but is not limited to the following:
- create quality demographic information on the practice of hip, knee, ankle, shoulder, wrist, elbow joint and spinal disc replacement surgery;
- develop and manage effective systems to monitor hip, knee, ankle, shoulder, wrist, elbow joint and spinal disc replacement prostheses outcomes both generally and in relation to specific surgical techniques;
- maintain a system to assess new implantable device technologies used following introduction into Australian clinical practice;
- maintain a system for tracking of implanted joint replacement prostheses and a system for regular reporting to the PDC, the TGA, clinicians, hospitals and medical device companies;
- monitor joint replacement prostheses which have been subject to recall;
- develop and provide an audit system for hospitals or surgeons;
- maintain an algorithm to identify any joint replacement prosthesis not performing to the level of others in its class and provide this advice to suppliers, the TGA, the PDC, the CAGs and the PoCE; and
- provide data to the PDC to help inform it in the clinical assessment of joint replacement devices on, or seeking listing on, the Prostheses List.
Develop a standard suite of reports to provide to medical device companies on the performance of their joint replacement prostheses via a secure portal on the NJRR Website following orthopaedic sponsors supplying information to enable the linkage of billing codes and catalogue numbers.
Provide performance reports to clinicians and hospitals on the outcomes of hip, knee, ankle, shoulder, wrist, elbow joint and spinal disc replacement surgery and the performance of prostheses.
Produce an NJRR Annual Report and provide a printed copy to orthopaedic companies, clinicians and hospitals.
Publish the Annual report on the NJRR Website concurrent with the release of the printed report.
Continue and maintain a formal reporting system between the AOA, NJRR and the TGA for joint replacement prostheses identified as having possible safety issues.
Continue the collaborative approach with the Neurosurgical Society of Australasia, to ensure quality of data and analysis in regards to spinal disc replacement.
Provide Reports to the PDC regarding joint replacement prostheses data in relation to the performance of listed joint replacement prostheses.
Provide data to the Department on utilisation for the joint replacement prostheses.

The NJRR Levy Act and the Private Health Insurance (National Joint Replacement Register Levy) Rules (the NJRR Levy Rules) establish the mechanisms to enable the costs of the NJRR to be recovered through a levy imposed on each joint replacement prosthesis sponsor for each relevant item on the Prostheses List. The levy will apply on each national joint replacement register levy day (levy day), which is specified in the NJRR Levy Rules. A levy may also be imposed on each day determined by the Minister for Health and Ageing, by legislative instrument, as a supplementary national joint replacement register levy day (supplementary levy day). There can be no more than four levy days in a financial year and the Minister cannot specify more than two supplementary levy days in a financial year. Accordingly, the NJRR Levy restricts the number of times a levy may be imposed to a maximum of six levies in a financial year.

Section 8(2) of the NJRR Levy Act provides that different rates may be set for different kinds of joint replacement prostheses. The rate may be set at zero but must not exceed $5,000 for a financial year.

The NJRR Levy Rules specify that two levy days will occur in 2010, with the first to apply on 30 April 2010 and the second on 31 October 2010. The NJRR Levy Rules also specify that the two census days are on 15 March 2010 and 15 September 2010 respectively. No supplementary levy days have been determined. The dates for the levy and census days are expected to remain the same in future years. Invoices will be delivered to sponsors following levy days.

The NJRR is a public good.³ The information collected and stored in the NJRR is made available to the industry, particularly sponsors, and to the public. Sponsors can access both general and specific information about their products which enables them to assess the effectiveness and usage of their products. While sponsors have access to this information, other stakeholders may continue to access information, subject to privacy constraints.

The Government took the decision that a cost recovery model for funding the NJRR was appropriate because of the value of the Registry to sponsors of joint replacement prosthetic devices in ensuring the safety and quality of their devices. Consistent with the Guidelines, the levy will ensure that the costs of maintaining the NJRR will be met by sponsors, as sponsors are the stakeholders who derive the greatest financial benefit from the arrangements. The NJRR identifies substandard devices as it shows which procedures are revision surgeries, which are far more costly than other types of prosthetic surgeries and are a key indicator of prosthetic device failure.

_{3. According to the Guidelines, a public good exists where provision for one person means the good or service is available to all people at no additional goods. Public goods possess two economic characteristics. First, they are non-rivalrous and secondly, they are non-excludable – Australian Government Cost Recovery Guidelines, page 30.}

The NJRR provides valuable post-market surveillance of joint replacement prostheses, and this monitoring of the safety and quality of devices provides considerable benefit to the industry by improving consumer confidence in the safety and efficacy of joint replacement devices. Devices which show high failure rates may be quickly identified and removed from the market. The NJRR also monitors mortality rates.

The data produced by the NJRR also assists the industry by informing the development of new prostheses, allowing manufacturers to draw on reliable performance information for existing devices and designs.

Revenue for NJRR arrangements collected through the levy will match the activity-based costs of the NJRR as they are incurred each year. Any changes to costs for NJRR arrangements will be reflected in the levy arrangements set out in the legislation, including the NJRR Levy Act and the NJRR Levy Rules. Fees charged will continue to reflect the minimum cost base necessary to cover NJRR operating costs.
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Stakeholders

The key stakeholders relevant to the imposition of the NJRR levy are the sponsors of prosthetic devices listed on the Prostheses List which will be subject to the levy. At present there are approximately 37 such sponsors. The levy is to be imposed on each sponsor for each joint replacement prosthesis as set out in the relevant legislation (see the NJRR Levy Act and the associated NJRR Levy Rules).

The levy arrangements will result in additional costs to sponsors of joint replacement prostheses. These costs may be passed on to purchasers of devices including public hospitals and consumers receiving private services. In the case of consumers covered by private health insurance, this would require consequential changes to be made to the benefits set by the Prostheses List. Although the levy will result in extra costs for sponsors, they obtain substantial benefits from the continued operation of the NJRR, including commercial benefits.

Other stakeholders include surgeons who perform joint replacement surgery, public and private hospitals, the TGA, private health insurers and the PDC (and in future, the PLAC). Most stakeholders derive benefits from the NJRR.

It is possible that the introduction of the NJRR Levy will lead to a small increase in costs to public hospitals, if additional costs are passed on to the public sector.

If the increased costs are passed on through negotiated increases in price on the Prostheses List arrangements, this is unlikely to result in significant increases in the costs of PHI premiums. If the full $1.6 million a year was passed on to the private sector through health insurance premiums, this would result in an additional $0.20 per singles policy and $0.40 per couples/family policy each year.⁴

_{4. These figures have been calculated by dividing 1,600,000 by 7,937,810 ‘single equivalent units’ (SEU). The Private Health Insurance Administration Council has determined that a total of 7,937,810 SEUs existed in Australia in 2008-09 – see the Private Health Insurance Administration Council’s Annual Report (2008-09), Operations of the Private Health Insurers, p 52.}

Conclusion

Having regard to:

the assessment of the Department’s activities in maintaining the NJRR for information purposes and the application of the Guidelines;
the need to secure an ongoing source of funding for the NJRR that is less reliant on taxpayer funding;
the need to ensure that those who benefit most from maintaining the NJRR financially, ie, sponsors of joint replacement prostheses, meet the costs of supporting it; and
the relatively minor impacts of the levy on other key stakeholders;

it is clear that the introduction of a levy to fund the NJRR is reasonable, necessary and it is appropriate that it be cost recovered through an industry levy on sponsors of joint replacement prostheses tracked by the NJRR.

3 Design and Implementation

3.1 Basis of charging – Fee or Levy

The basis for charging sponsors for the costs of maintaining the NJRR is a levy imposed under the NJRR Levy Act on all sponsors of joint replacement prostheses with devices included on the Prostheses List. It is intended that sponsors will be levied according to the number of joint replacement prostheses they sponsor at a consistent rate for each prosthesis under the NJRR Levy Rules.
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Sponsors will be levied according to the number of joint replacement prostheses they sponsor. The rate at which each sponsor will be levied is based on the formula set out in paragraph 7 of the NJRR Levy Rules for 2009-10 and paragraph 5 for all subsequent years.

In 2009-10, one levy day has been set aside. Therefore, the figure of 1,600,000 specified in the formula for the transitional rate in paragraph 7 of the NJRR Levy Rules will enable the total amount of $1.6 million to be collected through cost recovery in 2009-10. Paragraph 7 establishes that the levy rate to be imposed on 30 April 2010 will be calculated by dividing 1,600,000 by the total number of joint replacement prostheses sponsored by all sponsors as at 15 March 2010, less the total number of hand articulation prostheses and foot articulation prostheses sponsored.

In subsequent years, two levy days will be set aside unless a supplementary levy day is imposed. The primary rate specified in paragraph 5 of the NJRR Levy Rules will apply. Paragraph 5 establishes that the levy rate will be calculated by dividing 800,000 by the total number of joint replacement prostheses listed on the Prostheses List on the most recent census day, less the total number of hand articulation prostheses and foot articulation prostheses sponsored.⁵

At present, there are 2,685 relevant items listed. Accordingly, each sponsor will be levied $595.90 in accordance with paragraph 7 of the Levy Rules. The sum of all levies collected from all prostheses sponsors will be commensurate with the costs of maintaining the NJRR, which amounts to $1.6 million under the present funding agreement with the AOA. This includes expenditure on AOA personnel, activities undertaken by subcontracted providers, information technology and equipment support, the costs associated with the activities of the NJRR in collecting data on joint replacement prostheses in accordance with the funding agreement, and administrative costs.

The levy is the most appropriate method of charging as it relates directly to the activities being undertaken by the NJRR. In particular, the levy will be closely linked to costs and focussed on recovering costs from sponsors, which are the primary users of the data captured on the NJRR. This is a requirement for establishing a levy under the Guidelines.

3.2 Legal Requirements for the Imposition of Charges

The legal authority for the imposition of National Joint Replacement Registry fees is the NJRR Levy Act, cited as “A Bill for an Act to impose, as a tax, fees in relation to applications for listing, and listing, of prostheses and for related purposes.” This Act commenced operation on 1 July 2009.

_{5. The days which are specified as NJRR levy census days are set out in paragraph 6 of the NJRR Levy Rules}

The Parliament also passed the Private Health Insurance Legislation Amendment Act 2009 (the PHILA Bill) during the Budget session. This Act is also required for the cost recovery model to be implemented. It contains consequential amendments to the Private Health Insurance Act 2009 (the PHI Act) concerning the imposition of the levy. These consequential amendments have the effect of making the levy a private health insurance levy under the PHI Act.

Section 8 of the NJRR Levy Act enables the Minister to make Private Health Insurance (National Joint Replacement Levy) Rules 2009 (the NJRR Levy Rules) providing for matters required or permitted, or where it is necessary or convenient to carry out or give effect to the Act. The NJRR Rules specify which days are ‘national joint replacement levy days’ (levy days), which days are levy census days, and details of the levy rates to be applied. The Rules are now in force.

The NJRR Levy Act also provides that the Governor-General may make regulations prescribing matters required or permitted by the Act, or necessary or convenient to carry out or give effect to the Act.

To assist sponsors to meet payment arrangements, the Department will dispatch invoices for joint replacement prostheses listings based on the Prostheses List on the levy days.

3.3 Costs to be included in charges

The purpose of the NJRR levy is to meet the costs of maintaining the NJRR. The costs recovered are therefore commensurate with the operating costs of the Registry.

In accordance with the Guidelines, levies have been set to recover all relevant costs identified with the operations of the NJRR arrangements. The Guidelines provide for revenue from levies to be transparently identified. This will be identified through the annual Funding Agreement between the AOA and the Commonwealth.
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Revenue from NJRR cost recovery arrangements will cover the costs and expenses to maintain the registry. In 2009-10, it has been determined that these costs amount to $1.6 million through negotiations with the AOA, which has been agreed to by the Department of Finance and Deregulation. Continued funding will ensure that stakeholders continue to have access to the information contained in the NJRR, and will remove the need to rely on taxpayer funding to support its continued operation.

Revenue from NJRR arrangements will be separately identified in financial statements and published in portfolio budget statements and annual reports in accordance with the Finance Minister’s Orders to all Departmental Agencies.

The following table (Table 1) shows a break down of the cost components of the NJRR Cost Recovery arrangements, including forward estimates.

Table 1 – Summary of cost components

Summary of NJRR Cost Recovery - Cost Components
Type of cost	Description of cost	Direct or Indirect Cost	Estimate of Total Cost
NJRR operations	Cost component		2009-10	2010-11	2011-12	2012-13
	Operational and staffing costs	Direct cost	$1,366,154	$1,366,154	$1,451,539	$1,451,539
	Total		$1,366,154	$1,366,154	$1,451,539	$1,451,539
AOA expenses	Operational expenses	Direct cost	$150,346	$150,346	$159,743	$159,743
	Reporting		$43,000	$43,000	$45,688	$45,688
	ICT, equipment and software		$22,500	$22,500	$23,906	$23,906
	Other		$18,000	$18,000	$19,125	$19,125
	Total		$233,846	$233,846	$248,461	$248,461
TOTAL COSTS			$1,600,000	$1,600,000	$1,700,000	$1,700,000

The following table describes the estimated funds which will be recovered for forward years. Only those costs which are listed under ‘Revenue (Administered)’ will be cost recovered. Costs which are described as ‘Other administered funding (not cost recovered)’ and ‘Expense (Departmental – not cost recovered)’ will not be subject to the cost recovery arrangements.
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Table 2: Estimated Funds to be Recovered from Industry - NJRR

$M	2009 – 10 forecast	2010 – 11 forecast	2011 – 12 forecast	2012 – 13 forecast
Revenue (Administered)	$1.6 million	$1.6 million	$1.7 million	$1.7 million
Other administered funding (not cost recovered)	$147,000	$21,000	$84,000	$22,000
Expense (Departmental – not cost recovered)	$336,000	$140,000	$141,000	$142,000

The increase in expenditure for 2011-12 and 2012-13, as indicated in tables 1 and 2, reflect the amounts agreed to by the Australian Government.

3.4 Outline of charging Structure

The total levy amount to be collected will be calculated to match the total amount necessary for maintaining the NJRR of $1.6 million for the 2009-10 period. The amount that each sponsor will be levied for each relevant item listed will be determined in accordance with the following formula, which is set out in paragraph 7 of the NJRR Levy Rules:

1,600,000
n

where:
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n is equal to the total number of joint replacement prostheses sponsored by all sponsors as at the most recent census day, less the total number of hand articulation prostheses and foot articulation prostheses sponsored.

According to this formula, each sponsor will be levied $595.90 for 2009-10 based on the fact that there are 2,685 relevant items listed to date. As noted above in section 3.1, this levy will not apply to all joint replacement prostheses, as hand and foot articulation prostheses are excluded on the basis that the NJRR does not track these items given their low levels of utilisation compared with other joint replacement prostheses.

Review of the cost recovery arrangements will depend on the outcome of regular ongoing monitoring of costs, whereby it is anticipated that cost recovery reviews will occur within two years from commencement

3.5 Summary of charging arrangements

The total cost of the levy will be determined according to the amount of funding required to maintain the NJRR, which will be reflected in annual funding agreements with the AOA. For the 2009-10 financial year, the total amount to be recovered will be $1.6 million. The amount of levy that will be imposed on individual sponsors will be calculated according to the formula set out in the NJRR Levy Rules. This amount will vary from census date to census date, depending on the number of joint replacement prostheses each sponsor has listed on the Prostheses List.

However, the amount imposed under the NJRR Levy Rules states that the amount of the levy imposed on a sponsor for the same prosthesis for a financial year will not exceed $5,000.

The Department does not anticipate substantial fluctuations to the number of joint replacement prostheses listed on the Prostheses List which will be subject to the levy. As a result, the charges that sponsors will be liable for is expected to remain relatively static. This conclusion is consistent with historical trends in relation to the numbers of items listed on Schedule A (which includes joint replacement prostheses) of the Prostheses List, which has only ranged from between 9,500 to 9,700 since 2005. In addition, the Department consulted widely with sponsors on the levy arrangements prior to finalising the February 2010 Prostheses List, and only 61 deletions were made from a total of 2,685 joint replacement prostheses. This represents a variation of just under 2.3 percent, which has a corresponding impact on the levy paid by sponsors. A change in the levy amount paid by sponsors that is greater than the consumer price index is considered material and should be treated accordingly in the context of the Australian Government’s Cost Recovery Policy.

However, the number of joint replacement prostheses listed will vary slightly each year. Some of the variables which will impact on the numbers of items listed include decisions by sponsors to list new items or delete existing items based on commercial considerations. In accordance with the Australian Government’s Cost Recovery Guidelines, any change in the level of the levy greater than that of the Consumer Price Index would be considered material and would trigger the preparation of a new Cost Recovery Impact Statement.
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Summary of Fees and Charges 2009-10
Activity		Method of Recovery	Volume of Activity	Current Price	Cost Recovery Price ($,000)	Total Cost Recovered for Activity ($,000)
1.1	Processing levy amount.	Levy Funded	Collection of levy amounts from 37 sponsors of a total of 2,685 joint replacement prostheses listed on the NJRR.	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 1,600,000 total prostheses sponsored Therefore, each sponsor will be levied $595.90.	1,600	1,600
Total Levy Recovered					1,600	1,600
Summary of Fees and Charges 2010-11
1.1	Processing first levy amount.	Levy Funded	Collection of levy amounts from 37 sponsors of an anticipated total of 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 800,000 total prostheses sponsored Therefore, each sponsor will be levied $297.95.	800	800
1.2	Processing second levy amount.	Levy Funded	Collection of levy amounts from 37 sponsors of an anticipated total of 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 800,000 total prostheses sponsored Therefore, each sponsor will be levied $297.95.	800	800
Total Levy Recovered					1,600	1,600
Summary of Fees and Charges 2011-12
1.1	Processing first levy amount.	Levy Funded	Collection of levy amounts from 37 sponsors of an estimated 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 850,000 total prostheses sponsored Therefore, each sponsor will be levied $316.57.	850	850
1.2	Processing second levy amount	Levy Funded	Collection of levy amounts from 37 sponsors of an estimated 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 850,000 total prostheses sponsored Therefore, each sponsor will be levied $316.57.	850	850
Total Levy Recovered					1,700	1,700
Summary of Fees and Charges 2012-13
1.1	Processing first levy amount.	Levy Funded	Collection of levy amounts from 37 sponsors of an estimated 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 850,000 total prostheses sponsored Therefore, each sponsor will be levied $316.57.	850	850
1.2	Processing second levy amount	Levy Funded	Collection of levy amounts from 37 sponsors of an estimated 2,685 joint replacement prostheses listed on the NJRR. (Note: the number of sponsors and of joint replacement prostheses listed are projected and variable).	The rate of levy imposed on a sponsor for each prosthesis will be calculated using the following formula: 850,000 total prostheses sponsored Therefore, each sponsor will be levied $316.57.	850	850
Total Levy Recovered					1,700	1,700

4 Ongoing Monitoring

4.1 Monitoring mechanisms

Funding agreement between the Commonwealth and the AOA
The Department has entered into one year funding agreements with the AOA on behalf of the Commonwealth since 1998 to fund the administration of the NJRR. All funding agreements have included several monitoring mechanisms. These include requirements for the AOA to produce reports outlining the AOA’s ability to achieve the objectives of the NJRR in accordance with the standards set out in the funding agreement. Regular reports enable the Department to review the income, expenditure, and performance of the NJRR, and make adjustments to the funding requirements if necessary.
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The Commonwealth will continue to enter into funding agreements with the NJRR once the new levy arrangements commence, and funds collected through the levy will continue to be delivered through funding agreements. Future funding agreements will continue to have monitoring mechanisms which will allow the Department to review the effectiveness of the cost recovery arrangements.

4.2 Stakeholder consultation

In 2006, the Department consulted with industry and sponsors on the introduction of mandatory cost recovery for the production of the Prostheses List. Device manufacturers and suppliers indicated that they supported Commonwealth funding for the NJRR, but only if orthopaedic sponsors were levied, not sponsors of other devices listed on the Prostheses List.

The Department held a series of consultation meetings in Sydney, Melbourne and Brisbane from 6 – 8 July 2009 to discuss the new legislation (the Private Health Insurance (National Joint Replacement Registry Levy) Act 2009), and to obtain feedback on models for developing the levy under the NJRR Rules. The Department also released a draft CRIS for comment at the stakeholder consultation meetings. A copy of the CRIS is available at:
http://www.health.gov.au/internet/main/publishing.nsf/Content/health-phicirculars2007-08_07.htm

The Department asked stakeholders to provide feedback on four levy model options:

apply a consistent levy to all listed prostheses used in joint replacement surgery;
levy all listed prostheses used in joint replacement surgery, with the levy based on a range of minimum benefits;
levy selected joint replacement components that are used in every joint replacement procedure at a consistent levy per device; or
levy based on benefit ranges for the components identified in Option 3.

Submissions received dealt mainly with sponsor perception of funding inequities. These submissions and discussions at the stakeholder consultation meetings informed the development of the rules, which set out the levy amounts and operational arrangements.

During consultations, sponsors expressed a preference that a utilisation based levy be adopted, which is viewed as the most equitable way to levy sponsors. However, it is not currently possible to impose a levy based on utilisation, as the data set linking utilisation to items listed on the Prostheses List is not complete. This is due to the fact that the unique billing codes issued by the Department for each prosthesis listed on the Prostheses List, do not match current utilisation data stored on the NJRR, which is based on suppliers’ catalogue numbers rather than billing codes. Also, in many instances there is more than one catalogue number per billing code.

The Department is currently developing a database which will offer enhanced capabilities for data linkage between billing codes held by the Department and catalogue numbers. This will improve the quality of the Department’s data collection.

New legislation will also need to be drafted for the NJRR levy to be based on utilisation rates.

In mid-August, the Department met with the Medical Technology Association of Australia (MTAA), the peak representative body for sponsors, to discuss the levy. The MTAA indicated that if utilisation cannot be used, a consistent levy should be applied to each device. This approach has been adopted in the NJRR Levy Rules.

Comments provided during stakeholder consultation sessions and subsequent written submissions have been taken into account in the development of the draft NJRR Levy Rules. The Department provided an exposure draft of the NJRR Levy Rules to stakeholders on 30 October 2009 for comment (see Private Health Insurance Circular 75/09). Ongoing consultations on the Rules have taken place with key stakeholders to support the legislation requiring the recovery of costs to maintain the NJRR and to implement the Government’s policy on cost recovery.

In addition to direct consultations, regular circulars are released to sponsors with up to date information on procedural arrangements for the commencement of the legislation and cost recovery arrangements. These circulars are available on the Department’s website at:
http://www.health.gov.au/internet/main/publishing.nsf/Content/health-privatehealth-providers-circulars.htm

Discussions will continue with sponsor representatives to ensure that costs are monitored to match fees with the actual costs incurred.

In addition, future consultations with sponsors with respect to the amounts that they will be charged through the levy will take place prior to finalising the Prostheses List, which occurs in February and August of each year. At this time, sponsors will be provided with an opportunity to remove items from the Prostheses List where the utilisation of those devices is low or commercial factors do not warrant their listing. Such items will no longer be subject to the levy.
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NJRR Consultative Committee

The Department is currently establishing an NJRR Consultative Committee (the Committee), which will be chaired by the Commonwealth. The purpose of the Committee is to provide a forum for industry, government and consumer representatives to provide guidance on the overall strategic direction of the functions and operations of the NJRR. The Committee will have a broad range of objectives, including providing guidance on the strategic direction of the NJRR, and issues impacting on the core activities of the NJRR.

4.3 Periodic Review of Fees

Reviews of the NJRR cost recovery arrangements will depend on the results of regular ongoing monitoring of costs. The levy amount that sponsors will have to meet as part of the NJRR cost recovery arrangements will vary from year to year in accordance with the costs of operating the NJRR, but will not exceed $5,000. Accordingly, the levy amounts will be reviewed each year. Should there be any material change to the charging structure, a new CRIS will be prepared in line with the Guidelines. It is anticipated that a review of cost recovery arrangements will occur within two years from commencement, unless otherwise directed. However, for the purposes of meeting the Guidelines, the period of review for cost recovery arrangements will not exceed five years.

5 Certification

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

Jane Halton PSM
Secretary
Department of Health and Ageing

Date:

6 Cost Recovery Links

The Australian Government Cost Recovery Guidelines and the accompanying Finance Circular can be found at;

http://www.finance.gov.au/financial-framework/financial-management-policy-guidance/cost-recovery.html

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 below;

http://www.finance.gov.au/obpr/index.html

Department of Health and Ageing Portfolio Budget Statements – Section 4.2 Other Reporting Requirements – Cost Recovery Arrangements, Private Health Insurance Prostheses;

http://www.health.gov.au/internet/budget/publishing.nsf/Content/2007-2008_Health_PBS

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National Joint Replacement Registry: Cost Recovery Impact Statement - December 2010

In this section:

Table of Contents

1. Overview

2 Policy Review – Analysis of Activities

3. Design and Implementation

4. Ongoing Monitoring

5 Certification

6 Cost Recovery Links

1. Overview

1.1 Purpose

1.2 Background

1.3 Australian Government Cost Recovery Policy

2 Policy Review – Analysis of Activities

3 Design and Implementation

3.1 Basis of charging – Fee or Levy

3.2 Legal Requirements for the Imposition of Charges

3.3 Costs to be included in charges

3.4 Outline of charging Structure

3.5 Summary of charging arrangements

4 Ongoing Monitoring

4.1 Monitoring mechanisms

4.2 Stakeholder consultation

4.3 Periodic Review of Fees

5 Certification

6 Cost Recovery Links

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