Surgeons blame Medicare and insurers for unaffordable care as critics challenge specialist fees

The Royal Australasian College of Surgeons (RACS) is attributing the lack of affordability for specialist care to a funding model that has failed to keep pace with the cost of modern care. But the College’s argument faces a pointed counterclaim, with rising specialist fees and high practice profitability suggesting the problem may not lie with Medicare and private insurers alone.

More than 700 surgeons have told RACS that inadequate Medicare rebates, private health insurance settings, public hospital capacity and workforce distribution are major barriers to affordable surgical care.

The RACS survey, conducted among Fellows across Australia, is informing the College’s submission to the House of Representatives Inquiry into Access to and Affordability of Medical Specialists.

Chair of the Committee, Dr Mike Freelander MP, said the inquiry is considering the growing challenges Australians face in accessing timely and affordable specialist care.

“Access to medical specialists is critical to early diagnosis, effective treatment and better health outcomes. However, many Australians are experiencing long waiting times, high out‑of‑pocket costs and difficulties navigating referral pathways, particularly outside major cities,” Dr Freelander said. “This inquiry will examine how the system is working in practice, where barriers exist, and what reforms or new models of care could improve access and affordability for patients.”

RACS President, Dr Philip Morreau, argued the focus should not be on the surgeon’s fee alone, but on the much broader funding system behind the final bill.

“When a patient faces out-of-pocket costs, we need to understand what has created that gap,” said Dr Morreau. “A specialist sets their professional fee, but they don’t set the Medicare rebate or the benefit a patient’s private health insurer will pay.”

“When Medicare and insurer contributions don’t keep pace with the cost and complexity of delivering care, more of that cost can fall to the patient. Focusing only on the most visible part of the patient’s bill risks treating the symptom rather than the underlying problem,” he added.

The argument is sharply contested.

The Australia Institute said rising costs cannot simply be attributed to the increasing expense of running a surgical practice. GPs and other providers also face rent, wages, indemnity, administration and technology costs, yet specialist out-of-pocket costs have increased more rapidly. The think tank also pointed to the profitability of private specialist clinics, which have higher gross operating profits at 49% compared to GPs at 36%, finance at 43%, legal practices and accounting at 34%, and construction at 26%.

“Specialists and sub-specialists also consistently rank among the highest-income occupations in Australia. High practice profitability and incomes weaken the argument that rising fees are primarily a response to unavoidable operating cost pressures,” noted The Australia Institute in its submission to the Inquiry.

The health insurer ecosystem has also evolved. The number of Australians with private health insurance has increased in recent years, from around 11.2 million in 2019 to just over 12.6 million today, or more than 45% of the population. Yet the quality and comprehensiveness of that cover has declined. In 2019, the year ‘tiering’ was introduced, Gold-tier policies providing comprehensive coverage accounted for 50% of health insurance policies issued in Australia. Today, they account for only a third.

Meanwhile, private health funds have continued to collect and distribute significantly more money. Total benefits paid by private health funds grew by around 60%, or $7.3 billion, between 2015-16 and 2024-25. Medical benefits payments, however, increased by only 9%, while the benefits-to-payout ratio fell from 86.4% to 85.1%.

The percentage of health fund revenue spent on management expenses increased to 11%, while industry net profit after tax increased by 48% over the five years to June 2024. The fixed salary remuneration of the Medibank CEO increased by 24%, while total remuneration increased by 50% to approximately $3.8 million since 2019.

But RACS is also facing scrutiny over the fees charged by the specialists it represents. The College’s own position is that a surgeon’s professional fee is only one component of the final bill, alongside Medicare rebates, private health insurance contributions, hospital charges and other healthcare costs.

Medical indemnity insurance was identified by 66% per cent of Fellows as a major contributor to private practice costs, followed by administrative staffing at 64% and practice infrastructure and consulting rooms at 60%.

More than 70% of RACS Fellows identified inadequate public hospital funding as another major barrier to accessing surgical services. Theatre closures, limited operating lists and private health insurance settings were each identified by 51% of Fellows, while 46.5% identified a lack of hospital beds.

Dr Morreau said Australia’s public and private surgical systems cannot be treated as separate markets.

“If capacity is lost from the private system, the need for surgery doesn’t disappear. It moves elsewhere, including into already stretched public hospitals,” he explained.

RACS Fellows overwhelmingly identified Medicare reform as the most important solution.

When asked which reform would most improve access to surgical care, 67% nominated modernising Medicare rebates so they better reflect the time, complexity, expertise and resources required to provide contemporary surgical services. This was followed by increased public hospital investment at 55.4% and reform of private health funding mechanisms at 36.2%.

RACS supports informed financial consent and appropriate transparency so patients have clear information about the expected costs of their care. But transparency alone is insufficient when patients have limited information, limited capacity to delay treatment, few substitutes and weak bargaining power.

For hip or knee replacement, the lowest and highest 10% of out-of-pocket costs vary by about $5,000, a 17-fold difference. This can mean one Australian pays several thousand dollars more than another for the same operation. For other procedures, including grommets and tonsil removal, the variation is about five-fold.

“But genuine transparency means understanding the whole equation – the specialist’s fee, the Medicare rebate and what the insurer will actually contribute,” Dr Morreau said. “Transparency alone won’t increase a Medicare rebate, improve an insurance benefit or create additional hospital capacity. If we want to make surgical care more affordable and accessible, we need to address the system that sits behind the patient’s bill.”

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