Reforming fee-for-service medicine in Australia

Reforming fee-for-service medicine in Australia – how do we implement change?

By Professor Stephen Jan, Head of the Health Economics Program at The George Institute

There is a strong perception that fee-for-service medicine in Australia is a sacred cow. Entrenched over many years by strong interests it is easy to see it as an immovable part of the Australian health care system. Since its inception more than 30 years ago, the existence of Medicare - which almost exclusively makes payments using a price schedule for individual services and procedures - has reinforced this notion.

However, in the past few years there has been a growing chorus of voices highlighting the need for reform - implicating fee-for service medicine in the problems of fragmented care particularly experienced by people with chronic conditions as well as in the long-term escalation in costs in the health system (1-3).  Invariably, the solution posited has been that of ‘blended’ funding models with a focus on capitation-based payments for chronic and complex conditions. These remunerate providers according to patients enrolled in their practice rather than by individual consultation. This is seen to enable better co-ordinated management of such patients than a system which pays simply by individual items of service.  

At a recently convened roundtable meeting in Sydney, the George Institute for Global Health brought together a diverse group of participants representing organisations and interests across the health sector to discuss options for reforming the predominantly fee-for-service system in Australia. At the roundtable meeting, there was strong reinforcement of the need to shift toward blended payment models including capitated funding for chronic disease.

However, where much of the progress in this policy debate was made is that the meeting identified key features of a reform process to address barriers to change.  This is important because  a re-design of the way in which we pay doctors and other health providers may well look good on paper but is doomed to go nowhere without a workable plan for implementation that has strong support from key stakeholders.

At the very least, broad based consultations such as the roundtable represent key elements of an implementation strategy needed to bring on board the various interests that surround this issue. However consultation alone is not enough.  As important as the task of designing reform is the need to formulate appropriate change management strategies.  At the roundtable, we came up with a strategy with the following features:

  • Recognising potential winners and losers and measures to ensure individual providers are not significantly disadvantaged. 
  • Significant investment in the change management process to cover in particular the infrastructure costs incurred by individual practices/providers in transitioning to new payment systems. 
  • Identifying sources of investment to adequately support this process. The recent freezes in Medicare rebates for instance has potentially created some fiscal capacity to enable such investment.
  • An initial focus on programs of reform targeting populations of greatest need such as individuals with chronic conditions and disability including those with mental illness, Aboriginal and Torres Strait Islander populations, socioeconomically disadvantaged groups and rural and remote communities. Detailed involvement by these groups in planning and implementation is required.
  • Staged implementation of individual programs of reform, building on existing programs such as the Medicare practice incentive payments, accompanied from the outset by rigorous evaluation and routine collection of data. These are likely to entail expansion of existing IT capacities, including data linkage   
  • In the longer term, the roll-out of such reforms across the wider community

A key ‘take-home message’ from the workshop echoing various commentators who have previously looked at this issue is that current payment models which reward activity over outcomes need to be fixed. To bring about these recommended changes, overcoming potential implementation barriers through investment in change management is an important, if under-recognised, aspect of reforming this sensitive area of public policy in Australia.


  1. Australian Government, Productivity Commission. Efficiency in Health. Commonwealth of Australia, Canberra April 2015. 
  2. Fitzgerald J. Options for Finance in Primary Care in Australia. Deeble Institute Health Policy Issues Brief No 11. 6 July 2015 
  3. Sivey P. New funding models are a long-term alternative to Medicare co-payments. Croakey, 21 Jan 2015