A Temporal and Spatial Analysis of Relative Prices for General Practitioner and Specialist Services in Australia, 1984-1996

Australia's health care financing arrangements under Medicare involve Commonwealth subsidisation of private fee-for-service (FFS) medical services produced both in- and out-of-hospital. The Medicare institution, including those subsidy arrangements, operates in a uniform manner across geographical space. From time to time, since the introduction of Medicare on 1 February 1984, ad hoc reviews of the Medicare subsidy arrangements have been undertaken. This empirical study present the first examination of the price relativities of various specialist and general practitioner services that have arisen under Medicare over time, and across geographical space. The empirical work involves estimating and testing time-series relative price equations for ten groups of medical practitioner services, for each state and territory in Australia, on quarterly Health insurance Commission (HC) data. Seventy-two equations are estimated in total, on 49 quarterly observations from September, 1984 to September, 1996. The important conclusions of the work are that price outcomes under Medicare are characterised by spatial non-uniformity, despite the uniformity of the subsidy mechanism. A related conclusion is that institutional reforms to the subsidy arrangements under Medicare may, in some cases, prove blunt instruments if prices and their relativities are the relevant policy targets. The results inform a presently informed medico-legal debate about price relativities in the health sector under Medicare and service to caution the applications of institutional change as a tool for effecting relative price change.