Health Minister Sussan Ley has pledged to review claims of exorbitant medical device prices, with up to $800 million a year wasted, to halt surging health insurance premiums.
The minister said on Friday reform of prostheses, which includes hip and knee replacements, plates and pacemakers, had been made a "priority" to complement the federal review of private health insurance.
"When it comes to medical devices, the first priority always needs to be ensuring they are accessible to patients and safe. But a key part of making sure they are accessible is also making sure they are affordable," she said.
"It doesn't matter whether it's the hospital or the insurer purchasing these devices, the cost will always ultimately fall to the consumer and I want to take unnecessary pressure off premiums."
A working group comprising health funds, medical device makers, hospitals, clinicians and consumers will be established.
Ms Ley said there were examples where a pacemaker cost double the price, or $26,000 more, if it was delivered in a private hospital rather than a public hospital. Similarly, a common hip replacement cost $2000 more in a private hospital.
Reference pricing system
Medibank Private, the nation's biggest private health insurer, has estimated that up to $800 million could be saved if a reference pricing system with Australian and international benchmarks was introduced to prostheses.
"We've been advocating for change to the Prostheses List for some time because of the unfair, excessive cost it places on our members," Medibank managing director George Savvides said.
"The current system benefits manufacturers and private hospitals at the expense of patients."
Medibank said prices for identical products could be 45 per cent lower in the public system.
The insurer said prices in France, Japan, New Zealand, the United States, Italy and Spain were about 50 per cent lower than those set for Australian private hospitals on the Prostheses List.
In 2013-14, health funds paid $1.75 billion for prostheses, 14 per cent of total insurer benefits paid to private hospitals.
Matthew Koce, chief executive of non-profit health fund lobby Hirmaa, said everyday Australians were being "ripped off" and paying the price through their insurance premiums.
Being taken advantage of
"All the evidence points to privately insured individuals being taken advantage of when it comes to medical devices," he said.
Device maker lobby Medical Technology Association of Australia said prostheses could not be blamed for rising insurance premiums because prostheses price had not changed in five years.
MTAA chief executive Susi Tegen said the review needed to consider use of new technology, reimbursement rules, and clinician choice.
"Getting rid of the list or just cutting it is not the answer. It would be chaos for everyone. Secondly, doctor choice should never be questioned. Why should a private health fund decide what a patient should or shouldn't have?" she said.
The move on prostheses comes after Ms Ley wrote to health funds asking them to resubmit lower annual insurance premium increases or justify their initial requested increases.
In response, NIB managing director Mark Fitzgibbon said Ms Ley had to tackle cost pressures driving up the cost of care and premiums.
Mr Fitzgibbon said on Friday this "is a welcome and timely move by the minister".
Consumers will benefit
"Consumers stand to benefit by as much as $800 million a year and there'll be no impact upon the high quality of care consumers rightfully expect in the private system," he said.
Non-profit health funds warned that refusing premium increases threatened the viability of smaller funds and might help big players such as Medibank and Bupa take over their smaller competitors.
On average, health insurance premiums have risen 6 per cent a year since 2010, significantly outstripping inflation.
About 500,000 Australians downgraded or cancelled their private health insurance cover in 2015, sending a strong signal that affordability has hit a critical point.
Western Australian Senator Dean Smith has likened the prostheses price-setting system to a "post war, Soviet-style" economic mechanism.
Under the current system, the federal government sets a fixed-price benefit that private health insurers must pay on behalf of their members for more than 10,000 internal medical devices.
In the public system, there is no set price and much greater competition around pricing.