The medical system can be a little bit of a mystery to people, especially as for most of us we’re not involved with it all the time.

Hi, I’m Doctor Joe.

It doesn’t really come as a surprise to us if different services or different goods we purchase have different prices. We sort of expect that. Somehow though in medicine we sometimes wonder why might different doctors have different charges.

Whilst the Medicare system sets a certain amount of insurance rebate, one of the things that isn’t widely recognised even though it is quite clear is that Medicare is an insurance system. It’s not actually a medical system. So it’s a little bit like, if everybody’s car was insured with the same insurer, under Medicare everybody’s health is insured with the same insurer.

But the other difference, probably apart from the obvious ones, between Medicare and say car insurance is that in car insurance, you set the amount of coverage you want to pay for, in Medicare, the amount paid for is set by the insurer.

Okay, so let’s simplify things. Every medical practice is a small business. Some practices are a bit bigger but they’re all still small businesses. Therefore the prices that they may charge for the services they provide is a function of their cost base, how much they have to pay in rent, they have to pay staff, obviously medical equipment, there are a whole lot of costs involved in opening the doors and keeping a medical practice running and to that extent to provide services then obviously there is a cost involved and that cost is paid by the patient.

That is not different to any other business, whether it’s an architect’s firm a law firm, whether you go to the chemist, it’s the same principle that applies.

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Now in medicine doctors may choose to accept what Medicare offers as a full payment. But it is important to note that there are different views on what constitutes a fair price for a medical service. The AMA [Australian Medical Association] sets a schedule of fees, the government through Medicare sets what it determines as a schedule of fees but none of these things are actually binding on anybody. Each individual doctor under the law in Australia is able to set their fees, much like any other business or service provider, in a manner that they feel is appropriate and I suppose makes sure they are able to keep their doors open and continue to provide a service.

In a lot of instances doctors because by their nature often wanting to help people may discount their fees so you often find even practices where a charge is levied they may offer a discount to children or to concession card holders or pensioners. Again there is no law that requires them to do this, it is generally something they do for the benefit of their patients. In that instance, again, if you look at what the normal charge might be and what the doctor then receives under Medicare, it is a discount.

Alright, so hopefully that’s simplified things a little bit. Medicare is an insurance system and as an insurer it sets the amount of money that it rebates to you for seeing the doctor. If the doctor agrees to direct bill Medicare then you in some respects are out of the loop, you have assigned what you would normally get back from your insurer to the doctor. In other instances you’ll pay the doctor directly and you will receive your insurance rebate.

Like with any other service or goods provided within the economy, medical practices have different cost bases and prices may and do vary. And that I suppose is the medical market place, the same as any other market place.

More information

Gavel and Stethoscope on Reflective Wooden Table. For more information on how the Medical System works, visit The Medical system – the difference between public and private.

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