Australia's Surgical Surcharge

Australia pays some of the highest prices in the world for medical devices through the Prescribed List of Medical Devices (PL).

Australia’s spending on medical devices through the PL since 2006 has grown three times faster than inflation. Prices of medical devices on the PL are much higher in Australia compared to an aggregate of eight peer countries, including the United Kingdom, New Zealand, and France.

Australia pays 70 per cent more through the PL than New Zealand for a hip replacement stem, for example, and 30 per cent more for a drug eluting stent.

Australia pays two to four times more than peers abroad for a selection of frequently-used devices.

The cost for a selection of 46 frequently-used devices is twice as much in Australia compared to the average of these eight overseas markets. Compared to the lowest prices from these markets, prices on Australia’s PL are four times higher.

Germany pays the least for these 46 devices: just a quarter of what Australia does through the PL.

These high prices persist despite the fact that the medical device market is mature with a diverse range of suppliers. Instead, the PL’s lack of bundling and price adjustment mechanisms to consider cost effectiveness, international benchmarking, and other settings to boost competition have seen costs grow.

Consumers foot the bill. The total cost of medical devices on the PL is an estimated $967 million higher than in similar countries per year. This is a direct value transfer to device companies, most of whom are based overseas.

$619 million of these additional costs are paid by consumers through their private health insurance premiums, $77 million paid by consumers through self-insurance, and $271 million paid by the federal government through the Private Health Insurance Rebate, veterans’ care, and workers’ compensation.

The government must also fund the administration of the PL, despite the fact that this centrally-managed system does not result in lower costs and isolates prices from the downward pressure of market forces. This is estimated at approximately $14 million per year.

Rising costs that contribute to premium growth leads to lower participation in private health insurance, especially when cost-of-living pressures are high. In turn, lower insurance participation mean that a larger share of Australians must rely on the public system.
Higher premiums also reduce consumer spending and are an additional drag on other sectors of the economy.

There is an opportunity to further reform the pricing framework of medical devices in Australia to lower prices and boost patient outcomes by embracing a more open and competitive system.

An ageing population will mean demand for medical devices will keep growing. Ensuring prices are sustainable in the long term while prioritising patient outcomes is a critical challenge facing Australian healthcare.
Aligning prices to those abroad is unlikely to impact supply or require co-payments. Countries such as Germany, Sweden, and Austria pay a quarter of Australia’s prices and still enjoy plentiful supply, without charging patients co-payments.

Australia’s relatively small market size and distant geography should not be a barrier to lower prices. New Zealand’s prices are 1.7 times lower.

There are greater opportunities to better align price signals with clinical effectiveness through a reformed PL. As an example, our hip and knee replacement revision rates through the PL are 3 percentage points higher compared to in the United Kingdom, New Zealand, and Sweden.

Read the full report here.