Proposed privatisation of Medicare billing

Mid 2014 The Health Department asked for expressions of interest to deliver Medicare, PBS and Veterans Affairs payments.
Then in February 2016 The West Australian said that planning was well advanced on the $50 billion plus outsourcing”.
A Freedom Of Information request for details of their studies was refused: external link FOI The Australian. After the 2016 election, external link, the Government Disbanded the Medicare Outsourcing Unit

The risks were many.

  • Administering claims and payments while overseeing eligibility criteria means the public’s private information would be handed to profit driven private companies, possibly ending up overseas outside Australia’s legal jurisdiction. Big Pharmaceutical companies and private health insurers would be interested in joining consortiums if they potentially gave access to private health data.
  • Rural Australians have much worse health outcomes than their city cousins. Local rural Medicare offices provide service and are a source of employment in poorer rural areas but may be cut under profit driven private operation.
  • Private operators extract profit before funding service potentially leading to overall lower service.
  • Medicare’s information processing is due for an upgrade.  This may also be handed to the private company. The NSW government’s problem plagued TAFE processing system relied heavily on private resources.
  • This may be be a two phase privatisation with the complex customer interface moved first to Australia Post and then Australia Post would be privatised.

Why Australia is a magnet for multinationals

In today’s Western societies, multinational and large companies:

  • are finding few opportunities to expand investment profitably and are accumulating money, at times using it to buy back their own shares rather than invest.
  • are finding consumers reluctant to spend generously
  • together with governments, are spreading overly optimistic tales that new prosperity and new growth is just around the corner.

While desperate western governments drive interest rates toward zero and sometimes below zero to stimulate economies, American economist, Professor Lawrence Summers of Harvard, a former US Treasury secretary, argues that …(low interest rates, less investment, slower technological advance)…  could last at least for the next quarter of a century (Ross Gittens, 21/3/2015).

Professor Summers does not see any significant recovery just over the horizon.

However a golden investment opportunity still exists, Australia is the fourth largest asset pool in the world. Privatising key government services potentially offers golden profits with low risk.  No matter how impoverished some Australians may become, they can not avoid sickness, ageing and, consumption of energy and water, they cant avoid contributing to company profits.

Australia is a low tax country offering a web of tax treaties that help multinationals siphon profits out of Australia while paying minnimal or no tax.

Multinationals and their lobbyists, are

  • applying pressure and money to political parties,
  • supplying the media with spin to suit their own interests,
  • aggressively negotiating to have representatives appointed to bodies that advise Australian governments.

A Detailed Independent Study of a Partially Privatised Government Service – Electricity.

The Electricity industry study below provides a nuts and bolts view into privatisation.  While promoters of privatisation argue that steep electricity price rises are the fault of the Federal regulator, Professor Quiggan’s findings on service levels and staffing structures indicate much deeper problems flow from Australia’s partially privatised electricity system and you have to ask, why should privatised health care be any different.

For an insight into privatisation of a key government service, Professor Quiggan’s report, Electricity Privatisation in Australia, a Record of Failure, includes a confronting summary reproduced below (with my bold emphasis).

Failure of the National Electricity Market
– have reversed their declining trend, and are highest in privatised States. Since the NEM was introduced, prices from 2005 have risen sharply.
customer dissatisfaction has risen markedly since the NEM, profoundly for privatised States, where complaints to the relevant energy ombudsmen have grown from 500 per year to over 50,000.
has declined across a wide range of measures in Victoria, notwithstanding increased ‘physical audits’ and expensive financial ‘market incentive’ programs.
Efficient investment
– has not occurred, as the pricing mechanisms have not delivered coherent signals for optimal investment.
Efficient operation
resources have been diverted away from operational functions to management and marketing, resulting in higher costs and poorer service.
Labour costs and productivity
The NEM and privatisation have reduced real labour productivity, as employment and training of tradespeople have been gutted and the numbers of less productive managerial and sales staff have exploded.
Private rates of return
The high rates of return to private owners for the low investment risk is unjustifiable and irresponsible. The private owners of price- regulated distribution assets have outperformed almost all investment classes, by making post-tax real rates of returns close to 10% annually since 2006.
Private cost of capital
In privatised States, customers’ bills include the cost of almost 10% per annum interest on the corporate owners’ debt on the electricity assets. This compares to government borrowing costs of closer to 3%. The NEM has mimicked these exorbitant borrowing costs to all customers.

Professor John Quiggan is an ARC Laureate Fellow in Economics at the University of Queensland and has written on privatisation for 20 years.  Professor Quiggan spoke at a Forum in October 2014 and said:

  • he had looked at many privatisations and found it hard to find any that are in the taxpayer’s interests
  • governments promoting privatisations don’t explain how they are going to replace the lost revenue.

Action group Stop the NSW Power Sell Off stated (June 2014):

” The budget also revealed that the ongoing income from the four publicly owned poles and wires businesses …………..delivered a greater windfall than all other state owned corporations combined……….paid dividends of $874 million, along with income tax equivalents of $546 million.”

The group also state that blackouts in Victoria increased by 32% after privatisation.

Penalties for the broader economy

In general, privatisation can erode job opportunities in the wider economy due in part to the explosion of tax haven dealings by large companies and multinationals. Unlike governments reinvesting in Australia, funds transferred offshore do not support the local economy, see Profit Siphoning.

Low taxes and privatisation ie small government, were key planks in Ronald Reagan’s restructuring of the US government which history shows seriously eroded  American middle class wealth.

Penalties for basic health care include

Duplication of administrative functions and hence increased costs.  Australia already has an operational  health care administration system and operating a dual public private system simply duplicates existing functions.

Introducing marketing diverts even more funding away from service provision.

Hospital  Public Private Partnerships

 Hospitals have two significant differences to the other key industries
  • lower service levels delay resolution of health issues with consequences for Australians. Potentially lost productivity, lower quality of life, long term disabilities and death.
  • privatised hospitals often have a mix of public and private beds causing a conflict of interest for private hospital managers who have an obligation to maximise shareholder profits.

At least three states have tried public private partnerships and suffered contract failure, for example La Trobe hospital in VIC, Robina hospital in QLD and Port Macquarie Base hospital in NSW.

We can only guess at the human suffering that accompanied these and other private hospital financial failures.  In 1988, before the government was forced to buy the hospital back,  waiting times at privatised Port Macquarie Base hospital were double the state average and it was the state’s worst performing hospital.

Sale of Medibank Private

Sydney Morning Herald 30th January 2015, Richard Deniss conveniently summarised the finances of Medibank Private.

“The Abbott government recently sold Medibank Private for $5.9 billion. In the four years since the Rudd government converted Medibank Private into a profit-making insurer, the Commonwealth collected from it $1.366 billion in dividends and taxes. As far as productive assets go, the government had a cash cow. Medibank Private earned the Commonwealth a 16-fold return on the $85 million investment they put into it”

Medibank Private was one of the government’s most profitable entities delivering $1.366 billion over four years BUT it also used competition to constrain price rises by private insurers.

The privatisation of Medibank Private not only got rid of a rich stream of income for the government, it significantly reduced the share of non private insurers in the market.

Former PM Malcolm Fraser has said

“When Medibank Private was introduced we believed that, if the government were actively involved in the business, we would have a better handle on costs and outcomes than if they were all done by private enterprise,”

“I believe it would be a great pity if Medibank Private were sold and that it would lead to escalating fees.”

Six Important Questions

The NSW Nurses and Midwives Association  provide their answers to six questions:

  • Is the growth in public spending on health making Medicare unaffordable?
  • We have an ageing population. Don’t we need to privatise more of Medicare so we don’t bankrupt the government?
  • Wont privatisation and competition lead to greater efficiency?
  • Why shouldn’t wealthy [people buy better health care if they can afford it?
  • We already have a mixed public/private system. What is the big deal if the balance shifts a bit further to privatisation?
  • What is the solution to the funding of health?

Australia’s Future Prosperity

The United Nations, International Monetary fund and OECD amongst others have published statements on the reduced national growth that results from increasing inequality.

The way health care is provided can either boost or reduce Australia’s future growth.

A December 2014 OECD publication identifies the inequality of the bottom 40% of income earners as a brake on growth  see Key OECD findings and relevance to Australian health care.

Short term Political Expediency and Long Term Penalties

Privatisation provides a burst of capital enabling headline grabbing projects that enhance politician’s short term  images.

Longer term penalties are hard for the public to evaluate and with future responsibility diffused between private and public stakeholders, even harder to track. Once a service has been privatised it seems almost impossible to “undo” the privatisation if issues arise.

Governments are limited in their ability to predict society’s future needs and to predict geographically where the needs will arise.

  • Where governments are providing key services they can reallocate resources and change direction as society’s needs change.
  • Where services have been privatised, the new owners are quick to claim compensation when governments change direction. So called “commercially confidential” contract clauses mean taxpayers may never know what compensation they have paid.
  • In some cases governments are unable to provide needed new services because the anticipated compensation claim is so large.


This web page outlines only some of the many risks that are associated with privatisation of key government services which have long term risks for the Australian nation.

“Far from producing lean, innovative and customer focused organisations, privatisation and corporatisation have given us bloated and overpaid management, higher prices, and customer service that ranges from limited to appalling.”
Professor John Quiggan, Economist, University of Queensland.

There are substantial risks demonstrated by past experience. Who benefits from privatisation?

  • the company that gains control of the service’s cash stream.
  • the politicians who gain some extra cash to splash about.

Privatisation is a one way street and with Professor Lawrence Summers believing the West will have twenty five years of lacklustre growth, we will be living with the negative impacts for a long time.