The Rub with Fixed Fees

Lego doctor image

Anyone paying the slightest attention to either of the last two General Elections could not fail to notice that the cost of visiting the GP was a key policy issue for pretty much every political party.  Each tried to outbid the other in offering lower costs, but is that actually A Good Thing?


If we look across the Pacific to the United States we can see a country where the cost of healthcare leads to massive inequality.  Despite spending twice as much as NZ in relation to GDP (Gross Domestic Product - the total of new goods and services produced in an economy every year) and almost three times as much per head in real dollars, the USA has some of the worst health inequality in the world, with the rich getting almost everything and the poor getting almost nothing.  44 million Americans have no health insurance and struggle to meet the cost of a visit to a doctor.  The average cost of seeing a family doctor in the USA is USD 200 today (NZD 307 as at October 2018) with even insured patients paying on average USD 50 (NZD 77)  The cost of medication is also very high, with much higher prices than are seen in the rest of the world.  The price of a common inhaler (Advair in the USA, Seretide in NZ) is about USD 12 per month, or NZD 55 for a 3 month supply.

In the USA, almost all money for family doctors comes from user-pays 'item-of-service' charges - if the doctor does not see you, they make no money.  This is similar to NZ about 15 years ago.  This means that doctors have a big incentive to set up shop in areas where people can afford to pay or are more likely to have health insurance.  This means that there are more doctors in wealthier areas and fewer in poor areas.  Poor people therefore have to travel further to see a doctor and still pay a high fee for care.

Going back to the 'Old Country' shows that people in the UK pay nothing at all to see the GP.  The NHS provides care 'free at the point of use' so pretty much everyone has access to a GP and to the public hospitals at no charge.  The UK spend on healthcare is broadly similar to NZ, both in terms of percentage of GDP and in real terms, though the cost being spread over more people makes it easier to provide care that would otherwise be very difficult to obtain.  Prescription charges are relatively high at NZD17.10 per item though most users (over 60 or under 18) are able to get prescriptions free.  Many items that can be bought over the counter (such as paracetamol) are no longer funded though prices do tend to be lower in UK supermarkets than in NZ.

In the UK, all of a doctor's pay comes from a 'capitated subsidy' which is a payment the doctor receives whether they see you or not.  Doctors are forbidden to charge you for general medical services so have to provide care for free.  This means that to increase their income (say when subsidies do not keep pace with inflation) the doctor has to take on more patients.  More patients per doctor means shorter appointments and longer waits to see the doctor.  At an average of 10 minutes for a booked appointment and less for emergencies, the UK has the shortest appointments in the developed world.  Most UK doctors insist on dealing with only one problem per consultation so if you are a busy person this can mean a lot of time taken dealing with even quite minor issues.  What is worse is that poor people are often sicker.  They are more likely to be injured at work, to fall sick due to the consequences of poverty or lifestyle problems or to have chronic medical conditions (it is hard to be rich if you are sick all the time) This means that poor people see the doctor more often compared with richer people and need longer consultations both to discuss the problems and to explain the solutions.  In a richer area, doctors do not need to see their patients quite as often and so can take on more patients, receiving more subsidy, which means that doctors in wealthy areas earn more and so there are more doctors in richer areas and poor people have to travel further, wait longer to see a doctor and get shorter consultations than rich people (even though they are more likely to be sicker)  Free consultations also means that there is no reason not to make an appointment as it costs nothing to do so, and large numbers of patients per doctor makes consultations hard to get so if you are not on the phone the moment the surgery opens you will be likely to miss out.  This is further exacerbated by fixed allocations of funding meaning that there is a limited number of doctors and surgeries so supply cannot rise to meet demand.

Clearly neither system works very well.  In the USA people cannot see a doctor because it is simply too expensive and in the UK, even though it is free at the point of use, poor people still end up missing out on the care they need.

In NZ GPs are paid in a hybrid system - we receive a fixed capitated payment per patient and most patients also pay a fee.  When the fee is set by the doctor, the fees do tend to rise above inflation because the real cost of providing the service rises a fair bit faster than CPI (Consumer Price Index - a measure of the rate prices are rising in the country).  This allows the practice to provide a quality service and also to indicate to the government when there is a need to increase subsidies - if fees are becoming unaffordable then the subsidy clearly needs to rise.  Until recently this has been a good model, allowing quality, innovative healthcare and a high level of affordability.  Doctors can increase fees whenever they wish but if the rise is more than a centrally set 'expectation of reasonable fee increase' then they may be required to justify their fee and can be required to reverse the change.

Recently it has become popular for politicians to promise a fixed fee "Zero fees for under 6" was the first, then 13, then 14 and now fixed fees for Community Services Card holders have been proposed.  These are seen as a good thing generally because it removes a barrier to healthcare access, but as we see from the UK experience in actual fact over time, unless the subsidy keeps pace with medical costs, they simply become a different barrier and communities again begin to miss out. 

It is a hard thing indeed to say to someone who has very little that a low fixed fee is a bad thing.  It is easy to understand 'free' and hard to see how in the long term that means 'rubbish' but the UK experience is very clear that the same people miss out on healthcare - it's just that there they say they have no transport or no childcare rather than they have no money.  It is perhaps most telling of all that in the three healthcare surveys conducted after zero fees for under 13s were introduced,16% of people still reported they could not afford to take an under 13 to the doctor,  exactly the same as before the zero fees came in.  In the UK this figure is 5% despite the fee being zero.  Although the latest NZ health survey has shown a significant downturn in complaints of inability to afford to take a child to the doctor, the figure remains well above that which might be expected if the answers being given were accurately reflecting the price paid at the GP.  It is quite clear that not only is the policy to fix fees not wise in the long term, it is based on flawed information.

So what is the way forward?man on puzzle piece in gold

There is no doubt that if fees are too high then many people miss out on healthcare and so some form of subsidy is necessary.  It is also clear that if fees are zero, there is much abuse of the system - the NHS is often said to be 'free at the point of abuse' after all.  If doctors set the fees the government gets upset because they want low fees AND low taxes to aid re-election and if the government sets the fees then the same issues lead to poor quality healthcare.

We need a system that provides affordable access to healthcare but that does not stifle innovation and that encourages doctors to set up in areas that are hard to service due to location or other issues.  Some people need more help than others  Equity does not mean everyone gets the same support, rather it means that those in greatest need get the greatest support.

We have put our heads together and come up with a suggestion for the best way to manage primary care.  We'd love to know what you think of it:

Our proposal:

The fee for those under 2 years of age should remain at zero.  This is because children under 2 change very fast and there is a lot to be said for there being no valid excuse to keep a small child away from the doctor.  They also make up a very small proportion of the population so zero fees do not risk the viability of general practice

All other patients should pay a fee which needs to be high enough to incentivise people to care for themselves, but low enough that there is no real impediment to access.

The fees should be kept low by the government providing a capitated subsidy to doctors, the level being set such that the median price charged by doctors is equal to or less than the level considered not to represent a significant impediment to care. 

Fees for Community Services Card holders could be lower, perhaps by offering a discount compared with the regular fee.  This could be capitated to make it easy to administer but should be a discount, not a fixed fee.

Doctors in the highest fee quartile should be required to provide an annual report which explains why their fees are higher than average.  Doctors should, however, be free to set their fees at whatever level they wish.

As today, doctors should be expected to have to justify fee increases which are higher than a reasonable expectation.

After-hours care should be subsidised to ensure that the costs of providng the service are met properly.  Fees should be subsidised to a level three times that of the median regular fee.  This provides an incentive to seek care in normal hours but does not provide an insurmountable barrier to access to care.  ED visits should be charged at the same rate.

This will ensure that all practices can be viable and that patients can get great medical care at reasonable cost.


Do you agree with this proposal?  Is it the right way to provide care? Would you do it another way?  Why not let us know using the contact form?



Link to 2015 prices for USA Primary Care from Johns Hopkins University



Doctor and Inmate Image:  Philip Choi

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