Sonic Healthcare asks for 30% pathology test fee increase from Bupa and MediBank

In Australia, reduced funding for pathology testing by government health programs is being blamed as one factor contributing to a contract spat between the nation’s largest clinical laboratory and its major private health insurance companies. Pathologists across the globe will recognize several familiar issues, as Australia’s health institutions struggle to cope with increased utilization of pathology testing and higher healthcare costs.

By asking for a price increase of 30% for pathology testing, Sonic Healthcare Ltd (ASX: SHL) has put itself at loggerheads with several of the nation’s largest private health insurance companies. As contracts between Sonic Healthcare and these private insurance companies expire, Sonic then sends bills directly to the patients insured by those health plans for the costs of the pathology testing performed during their stay at private hospitals. The amount of the bill reflects the “gap” fee difference between government reimbursement and the actual charge for laboratory tests.

Photo of a MediBank office in Australia. MediBank’s pathology testing contract with Sonich Healthcare will expire on December 31, 2009. (Photo by Brendan Esposito © Sydney Morning Herald)

Photo of a MediBank office in Australia. MediBank’s pathology testing contract with Sonich Healthcare will expire on December 31, 2009. (Photo by Brendan Esposito © Sydney Morning Herald)

Major newspapers are reporting regularly on this story because up to 200,000 Australians are affected by the contract dispute. For non-Australians, “medical gap insurance” is a policy designed to cover the difference between what the government’s Medicare Benefit Schedule (MBS)  will reimburse and the higher charge assessed by a physician or other provider. The MBS is a payment schedule for those Medicare services subsidized by the Australian Government.

On December 25, The Sidney Morning Herald wrote that Richard Bowden, Managing Director of Bupa Australia, a major private health insurance company, was claiming that Sonic’s price increases were at a level that was twice the amount specified in the Medicare Benefit Schedule. “We’re extremely concerned that Sonic are forcing private health insurance members to pay excessive costs for pathology services, which in the worst-case scenario can be up to several hundred dollars,” stated Bowden.

December 31 is the expiration date for the contract between Sonic Healthcare and MediBank, another private medical gap insurance. If the two companies do not execute a new contract, MediBank beneficiaries will begin getting bills for pathology testing done during their visits to private hospitals.

Herald reporter Mark Metherell noted that one reason why Sonic Healthcare is asking for higher pathology testing fees is because the federal government instituted an 8% reduction in the fees it pays for pathology tests. Metherall next wrote that “The chief executive of Sonic, Colin Goldschmidt, stood by the fee rises, saying they followed years of inadequate payments from Medicare, which reimburses 75% of the official schedule fee, and Medibank, which had covered part of the remaining costs.”

Goldschmidt noted that the increased prices were necessary to sustain the financial viability of the private hospital pathology laboratories—operated by Sonic Healthcare—which he says currently run at a loss. Several other gap insurance health plans have already accepted the terms offered by Sonic Healthcare. About 10 million Australians are covered by these types of private health insurance policies.

For pathologists and clinical laboratory managers in the United States, several elements of this dispute in Australia will sound familiar. It is widely-acknowledged that the American Medicare and Medicaid programs often reimburse providers at a level that is below their cost to provide the service. Moreover, private health insurers continually want to use the Medicare fee schedule as the basis of what they pay providers, including clinical laboratories and pathologists. This arrangement pits pathology laboratories in the United States companies in a financial tug-of-war with private health insurance that is similar to what is unfolding between Sonic Healthcare and private health insurance firms down under.

In Australia, this contract wrangle between the nation’s largest pathology laboratory and several of the biggest private health insurance companies may be an important early sign of further struggles to come. Like other developed countries, the Australian health system does not have enough money to cover the increased pathology test utilization driven by aging demographics and useful new diagnostic testing technologies, as well as the higher cost of labor, reagents, and materials required to perform those tests.

Related Information:

Health fees soar in row over gap payments

Symptom of ailing system

Soaring pathology tests costing taxpayers

Pathology in Australia by the Australasian Association of Pathology Practices