The paradox of health and wealth: practice sustainability and the fees review process

In early June a 3 per cent increase in capitation funding was announced, against a backdrop of inflation at 6.9 per cent for the March 2022 quarter. This week news headlines have confirmed annual inflation at 7.3 per cent for the June 2022 quarter, a 32-year high.

This week you will have received the Annual Statement Calculator tool, which is based on the Sapere report: Annual statement of reasonable GP fee increases - 2022/23 update. This use of the annual statement report dates back to 2006, when a research group was commissioned to develop a methodology for setting ‘reasonable GP fee increases’. The report linked above explains the methodology if you would like more information about how the figure is calculated.

Funding and fee increases for 2022-2023: a recap

• Capitation funding increased by 3 per cent from 1 July 2022. (VLCA practices will receive a slightly higher top up to maintain the co-payment at $19.50.)
• Immunisation funding increased by 20 per cent from 1 July 2022.
• The ‘reasonable’ patient co-payment increase for 2022/23 is 2.38 per cent. (Note - practices that didn’t increase their fees last year, or didn’t fully utilise last year’s increase, will have a historical percentage available to carry forward as well.) 

The Interim Government Policy Statement on Health 2022-2024 (GPS) was published on 1 July 2022, outlining six priorities.

1. Achieving equity in health outcomes.
2. Embedding Te Tiriti o Waitangi across the health sector.
3. Keeping people well in their communities.
4. Developing the health workforce of the future.
5. Ensuring a financially sustainable health sector.
6. Laying the foundations for the ongoing success of the health sector.

The fundamental sustainability challenges the health sector faces are acknowledged, including COVID-19, an aging population, the growing burden of chronic and complex conditions and increasing expectations of health consumers. 

Treasury’s Statement on the Long-Term Fiscal Position of the government makes it clear that New Zealand cannot continue to do things in the same way.

Health system reform calls for more collaboration within and across sectors to address the social determinants of health. Reform goals also include reducing complexity and duplication and embedding a population health focus which will reduce the need for health services over time. 

Objective 5.4 of the interim GPS is to continue to grow investment in mental health and addiction, public health and primary and community care. While the system is tasked to ‘live within its means’ the interim GPS makes it clear this isn’t allowed to be at the expense of priority investment areas, and progress will be measured by checking the proportion of total expenditure directed to services and initiatives in these priority areas.

These priority directions from the interim GPS and system reform might help, but they will take time. 

As employers it’s only right to want to offer salary increases to your staff to help them bear the highest cost of living seen in years – and to keep them with you. Plus, we need to demonstrate that working in primary care is a great career option and way to earn a living – how else can we help build the health workforce of the future? Even more so, without sustainable general practice we question how it will be possible to keep people well close to their home, or to address equity gaps that ultimately contribute to a flourishing and well community?

Our short- and long-term priority remains clear. We need to ensure the health services that are available to people right now can survive while this new future takes its first gentle steps. Because that is the paradox, how can we expect flourishing health in this constrained funding environment?

If you believe the sustainability of your practice is at risk based on the level of 2022-2023 funding and fee increases, one avenue available to you is to increase your fees by more than the allowable percentage. We need to explicitly know if you are going to do this, and we are required to let the district branch of Te Whatu Ora – Health New Zealand know. They have discretion to accept your fee increase, or instigate the fees review process. HNZ have one month from when they are notified to decide if a review is required.

The process is fairly detailed, as explained in the PHO Service Agreement Fees Review Process Referenced Document on the TAS website. Applications are referred to the Midland Fees Review Committee, who make a recommendation as to whether the proposed increase is fair and reasonable to patients and providers. 

The range of information considered in support of a fees increase application is broad. I’ve worked on a couple of these before and it is a confronting task to prepare for. While the information in your application is handled with utmost confidentiality, you are required to disclose information that would normally be between you and your accountant only. (And on that note, we thoroughly recommend involving your professional financial advisors in preparing your application.) 

The full list is given in clause 4.3 of the document linked above, but the main points I’d like to make you aware of are:

• evidence the sustainability of viability of the practice is at risk (usually relates to surplus/deficit)
• evidence of unusual cost increases
• evidence of changes in utilisation rates
• evidence of change in mix of services and fees
• evidence of plans to invest in the business in a way that will advance the ends of the primary health care strategy
• evidence of how the provider’s health workers’ income relates to income of other health workers in the region
• practice fees in a range of comparable practices in the locality
• measures of general inflation
• measures of the cost of health-related labour as identified in the labour cost index
• the level of the adjustment of Government funding to maintain its value
• any other national factors that, given efficient practice behaviour, could lead to increases or reduction in costs of over the next year (for example legislative or tax changes, increased or reduced compliance costs, etc)
• other relevant matters.

Ultimately, a fees review is about business sustainability so looking at expenses is one aspect, but the bottom-line surplus is a critical component.

While demonstrating differences in utilisation, the mix of services and fees, cost increases and the disparities your clinicians have with their hospital counterparts will be relatively easy to do, the surplus/deficit of the business is a significant piece of information the Fees Review Committee will consider. COVID may present an unusual challenge to practices in this respect. While the burden of work in general practice resulting from the pandemic can’t be underestimated, the funding your practice has received could potentially skew the overall financial position and will need to be carefully documented and explained for the purposes of a fees review.

While the pandemic isn’t anywhere near over, it will pay to model in differing levels of COVID activity when compiling your evidence. For example, if your practice played a significant part in the COVID vaccination campaign during 2021 it should be detailed – including work that you may have pivoted away from in order to vaccinate your community. Care in the community funding is another factor. Practices who were involved with significant case management during the Delta outbreak, who were then again significantly impacted by the first wave of Omicron will again need to show how this changed usual income levels.

Practices have also faced increased costs since 2020 with regards to things such as triage, virtual care, red and green streaming, connectivity/telephony systems to support remote working, and even physical changes to buildings like alterations to reception areas, new entranceways and hiring portable cabins. If you were not actively managing patients in your practice until the early months of 2022 (the first Omicron wave) expenses had still been incurred for months – maybe years – before any substantial COVID-related income began to flow.

While we know there are a lot of pain points and pressures that can’t be ignored, during times of high change it is a risky strategy to only be the ‘squeaky wheel’, citing the doom and gloom. Pinnacle plays an important role in ensuring we promote and celebrate the capacity and capability that exists in our primary care network. If we don’t effectively demonstrate this, we risk new services being designed around and away from general practice. We are constantly on the lookout for good stories to share to help demonstrate the value the Pinnacle network is adding to our health system.

That said, we’re also not afraid to make some noise around cost pressures (and all that comes with that) on your behalf. Please reach out to the practice systems support team (updated 23.11.23) or locality lead – or me – if you want to discuss a fees review. As mentioned in my previous blog, we can also work with you on easing some of the issues you face by supporting you with the uptake or improved use of things like virtual care, telephone triage, patient portal, the roles that make up your practice care team, or how you use your practice data to identify and target the patients who need you most.

We’re here to help and we want to hear from you.