Do doctors charge what they think their service is worth? Or do they sometimes take an opportunity to charge what they think they can get? It’s a critical question for Australia’s health policy makers, given that doctors’ fees are not capped in this country, and yet a portion is reimbursed by the government. Doctors can vary their fees depending on how much their patient is reimbursed, which means that policy changes to reimbursements can have unintended consequences.

A clever piece of research using data from the Sax Institute’s 45 and Up Study shows that the way medical specialists price their services is indeed influenced by their knowledge of a patient’s eligibility for healthcare benefits.

Researchers from the Centre for Health Economics Research and Evaluation at UTS and the UNSW Business School looked at the Extended Medicare Safety Net (EMSN), a federal scheme designed to protect patients from high out-of-pocket expenses for out-of-hospital services. Once patients pass a yearly threshold (currently set at $2133 for general patients, or $680.70 for concession card holders), the EMSN covers 80% of their out-of-pocket expenses, regardless of the doctor’s consultation fee.

From the 45 and Up Study data, the researchers identified a group of general (non concession-card) patients who had racked up out-of-pocket expenses with a single doctor that approached the EMSN threshold. The doctors for this group knew perfectly well that their patients were about to reach the point where their government subsidies would increase. And they knew their patients might tolerate higher fees in order to push them over the threshold.

How did the doctors respond? They put up their fees, by an average of 12%. And the closer the patient was to the EMSN threshold, the more the doctors put up their fees. The researchers checked their findings against a number of control groups where patients were unaffected by the threshold points under analysis or whose doctors didn’t know they were close to their threshold. For these groups, there was no spike in consultation fees.

“Physicians with knowledge of a patient’s eligibility for public benefits are able to charge higher fees, knowing that these will be absorbed largely by the government instead of the patient,” the authors write.

Introduced in 2004, the EMSN has proven more expensive than the government had anticipated. On various occasions the government has capped benefits for certain services and in 2015 it raised the threshold significantly, from $1221 to $2000.

But the researchers, led by Dr Serena Yu, say raising the threshold might not work as well as the government had hoped. While it may in the short term reduce the number of patients eligible for the EMSN, this may be offset by increases in doctors’ fees, which in any case will eventually put more people over the threshold.

“As policy makers consider whether optimal channels for limiting growth in healthcare expenditure lie on the supply or demand side, our research strongly suggests that physician behaviour must be considered in order to mitigate unintended consequences,” the authors conclude.

You can access the study here.