at NSW GOVERNMENT

Health

Draft Health Insurance Levies Regulation 2017

Regulatory Impact Statement

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REGULATORY IMPACT STATEMENT

TITLE OF REGULATORY PROPOSAL: Draft Health Insurance Levies Regulation

PROPONENTS: Ministry of Health

RESPONSIBLE MINISTERS: Treasurer and Minister for Finance and Services

RELEVANT_ ACT: Health Insurance Levies Act 1982

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1. Purpose of this regulatory impact statement

This regulatory impact statement serves two purposes associated with the draft Health

Insurance Levies Regulation 2017 (Draft Regulation):

1) to meet the requirements of the Subordinate Legislation Act 1989 in terms of a regulatory impact statement (RIS); and

2) to serve as a Better Regulation Statement (BRS) in accordance with the requirements of the Government's Guide to Better Regulation.

The Subordinate Legislation Act intends to ensure that regulations benefit the community and are reviewed periodically. To demonstrate that, the proponent agency must prepare and publish a RIS that articulates the objectives of the proposed regulation and considers options to achieve those objectives. A RIS must also consider the economic and social costs of the proposed regulation.

The Guide to Better Regulation identifies seven principles that characterise good Regulation. The principles are:

1) the need for government action should be established, 2) the objective of government action should be clear, 3) the impact of government action should be properly understood by considering the

costs and benefits of a range of options, including non-regulatory options, 4) government action should be effective and proportional, 5) consultation with business and the community should inform regulatory development 6) the simplification, repeal, reform or consolidation of existing regulation should be

considered, and 7) regulation should be periodically reviewed, and if necessary reformed to ensure its

continued efficiency and effectiveness.

To demonstrate adherence to these principles when proposing a new regulation, the proponent agency must prepare a BRS. A BRS must identify and justify compliance costs and show the action taken to minimise these costs. This RIS also serves as a BRS.

2. Consultation and Submissions on the RIS and Draft Regulation

The RIS and Draft Regulation is being provided to stakeholders and released for public consultation. The Ministry of Health as well as Treasury/the Department of Finance, Services and Innovation are keen to hear submissions on issues raised in this RIS as well as any other matter contained in the Draft Regulation.

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Submissions on the proposed RIS and Draft Regulation can be made to:

NSW Ministry of Health 73 Miller Street NORTH SYDNEY NSW 2060 Attention: Melanie Shea, Legal Officer

Submissions may also be made via email to legalmail@doh.health.nsw.gov.au

Submissions must be received by 10 February 2017.

Individuals and organisations should be aware that generally submissions made in respect of the RIS and Draft Regulation may be made publically available under the Government Information (Public Access) Act 2009. The Ministry of Health together with Treasury/the Department of Finance, Services and Innovation may also circulate submissions for further comment to other interested parties or to publish parts of the submissions. If you wish your submission (or any part of it) to remain confidential (subject to the Government Information (Public Access) Act), this should be clearly stated.

3. Background to Draft Regulation

The Health Insurance Levies Act 1982 is longstanding legislation under which private health insurers operating in NSW pay a levy to the NSW Government in accordance with a formula set out in the Act, based on the number of members of the fund resident in NSW who hold hospital cover, in lieu of paying benefits for ambulance services provided to fund members. The Act provides that members of such funds who hold hospital cover are exempt from paying a fee for ambulance services provided to them.

The objective of the Levies Act was to provide, by way of the imposition of the levy, a more efficient mechanism for the NSW Government to collect revenue for ambulance services provided by NSW Government to patients with hospital cover insurance. Instead of NSW Ambulance being required to separately invoice each insured patient every time an ambulance service is provided, and for the patient to pay NSW Ambulance and obtain reimbursement from their insurer, the Levies Act provided a means for the Government to effectively collect the revenue directly from funds via the health insurance levy.

At the time the Levies Act was enacted, NSW Ambulance operated only emergency "red fleet vehicles" and did not operate a separate non-emergency patient transport fleet. It was therefore not contemplated at the time the Levies Act commenced that it may apply to dedicated non-emergency patient transport. Since that time, the demand for non-emergency patient transport has greatly increased. Since 1996 NSW Ambulance has provided the bulk of non-emergency patient transport on behalf of the Health Secretary through its "green fleet" and over time some local health districts implemented patient transport fleets for patient transfers between hospitals or private residences.

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In early 2016 all NSW Health non-emergency patient transport functions transferred from NSW Ambulance and Local Health Districts to HealthShare NSW, a division of the Health Administration Corporation.'

Under the Levies Act, a person who is a contributor to a "health benefits fund" is exempt from payment of any fee for an "ambulance service" provided to that person. 2

The Levies Act defines "health benefits fund' to mean "a fund out of which an organisation makes payments to contributors for periods of accommodation and maintenance in hospitals, and for surgical, therapeutic or other medical or health treatment, service or procedure in hospitals".

The Levies Act defines "ambulance service" to mean "a service related to the work of rendering first aid to, and the transport of, sick and injured persons, but does not include a service of a class prescribed for the purposes of this definition".

Historically both health funds and NSW Ambulance have regarded non-emergency patient transport services provided by NSW Ambulance (and more recently HealthShare NSW) as falling within the definition of "ambulance service" for the purposes of the Levies Act.

This has meant that where persons holding hospital cover (i.e. persons who contribute to a "health benefits fund" within the meaning of the Levies Act) have been transported using non-emergency patient transport, the patients have been treated as exempt from payment.

These arrangements will be modified, however, upon commencement of the operation of the Health Services Amendment (Ambulance Services) Act 2015 (the Ambulance Services Act). The Ambulance Services Act has not yet commenced. It is proposed that the Ambulance Services Act will be commenced at the same time as the Draft Regulation.

The Ambulance Services Act will amend the Health Services Act 1997 to delineate better between emergency ambulance services and non-emergency transport, and to recognise a role for private sector and non-government organisations in providing non-emergency transport for patients.

1 Under section 9(1) of the Health Administration Act 1982, the Health Secretary is, for the purpose of exercising the functions expressed to be conferred or imposed on the Corporation by or under that Act or any other Act, incorporated as a corporation sole with the corporate name "Health Administration Corporation". Accordingly, services provided by HealthShare NSW are provided by the Health Secretary constituted as the Health Administration Corporation. 2 Part 3A of the Levies Act contains provisions for a State Ambulance Insurance Plan, where by funds are appointed as authorised agents to collect contributions under the Plan and make payment of contributions to the Chief Commissioner of State Revenue based on the number of members. There is currently no active membership of the Plan, and accordingly no contributions are being made under the provisions. Instead, many health funds offer "ambulance only" insurance cover products, which provide insurance cover for ambulance transport (depending on the terms of such products, this may also include non-emergency patient transport services). As these products do not meet the definition of "health benefits fund' (as they do not provide hospital cover) contributors are not exempt from payment. Further, funds offering such products do not pay any levy or contribution based on the number of members with such products under Part 3A of the Levies Act. Instead, where members holding such products are provided with ambulance transport and are invoiced for the service, the fund will pay benefits in accordance with the terms and conditions of the insurance cover. The proposed Draft Regulation will not impact on persons holding such products, or health funds that offer such products.

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To achieve these objectives, the Ambulance Services Act amends the Health Services Act to introduce new definitions of "emergency ambulance services" and "supported non-emergency transport".

The Ambulance Services Act follows on from the 2012 Ambulance Reform Plan, which included as a new strategic direction the utilisation of private providers for existing and future non-emergency transportation and, therefore, revision of the current legislative prohibition on transport of sick or injured for fee or reward without Health Secretary consent. Two of the key objectives of the Plan were to establish non-emergency patient transport as a separate service from the urgent, emergency service provided by NSW Ambulance, and to engage a range of providers, including community transport services, the existing ambulance green fleet, local health district transport services and private operators to provide existing and future non-emergency patient transport services. The Ambulance Services Act makes changes to support these important objectives.

The Health Services Act presently contains no definition of "emergency" or "supported non-emergency transport". It simply imposes a prohibition on any operator other than NSW Ambulance providing transport for sick or injured persons for fee or reward. Providers can do so only if they are recognised in the Act or in regulations under the Act, or where the Secretary of the Ministry of Health has given a specific consent. The amendments in the Ambulance Services Act retain this prohibition but confine it to emergency ambulance services. To this end, the Ambulance Services Act contains a new definition of "emergency ambulance services", which focuses on urgent situations where immediate medical attention is required.

The Ambulance Services Act will also introduce a definition of "supported non-emergency • transport" as follows:

"supported non-emergency transport means a service (other than an emergency ambulance service (also defined)) that provides transport to sick and injured persons to or from hospitals or other places where those persons can obtain medical services:

a) Using a stretcher or other method of transportation that has been designed or adapted to carry a stretcher; or

b) Using staff who provide clinical care or monitoring during the transportation; or c) In circumstances prescribed by the Regulations."

The Ambulance Services Act makes a consequential amendment to the Levies Act to provide that the exemption from payment of a fee for an ambulance service will only apply in respect of ambulance services provided "by or on behalf of the Health Secretary'. This amendment will preserve the historical application of the Levies Act to ambulance services provided by the NSW Government.

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3. The objectives of the Draft Health Insurance Levies Regulation (Draft Regulation)

The Draft Regulation proposes to exclude supported non-emergency transport (as defined in the Ambulance Services Act) as a class of transport from the definition of "ambulance service" under the Levies Act. The Draft Regulation is necessary to support the objectives of the Ambulance Services Act.

The Draft Regulation restricts the application of the exemption from payment of a fee, by a person who has contributed to a health benefits fund, for an ambulance service under the Levies Act to emergency ambulance services only.

Under the Draft Regulation the exemption from payment of a fee, by a person who has contributed to a health benefits fund, for an ambulance service will no longer apply to a supported non-emergency transport service, whether that service is provided by the NSW Government or by a private operator.

The objective of the Draft Regulation is to ensure a "level playing field" between HealthShare NSW (which will continue to provide non-emergency patient transport services on behalf of the NSW Government) and for private sector providers of supported non-emergency services who, as a result of the amendments contained in the Ambulance Services Act, will now be able to provide supported non-emergency services in NSW without the requirement for consent of the Health Secretary.

3.1 The costs and benefits of the proposed statutory rule

Under the Draft Regulation, persons who are members of a health benefits fund and who use supported non-emergency transport services (whether provided by HealthShare NSW or a private operator) will no longer be exempt from payment of fees for such services.

In terms of the assessment of the impact on users of non-emergency patient transport services provided by HealthShare NSW, based on data provided by HealthShare NSW it is expected the vast majority of such users will not be affected by the change, for the reasons set out below.

HealthShare NSW charges fees for non-emergency patient transport services in accordance with a scale of fees determined by the Minister for Health under the Health Services Act 1997. The provisions of Parts 3 to 6 of Chapter 5A of the Act applies to fees charged by HealthShare NSW for non-emergency patient transport services, and these will continue to apply after that Ambulance Services Act commences.

Under these provisions, there are a range of exemptions from payment of fees for ambulance services provided for or on behalf of the Health Secretary (including non-emergency patient transport provided by HealthShare NSW). These exemptions include:

• A person who holds a pensioner concession card

• A person who holds a Commonwealth Health Care Card

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• A person who holds a Commonwealth Seniors Health Care Card • Eligible DVA cardholders

Further, pursuant to payment rules made by the Health Secretary under the Act, there are a range of categories of persons who can apply to the Health Secretary to waive fees (or reduce or extend time for payment of fees) on a number of grounds, including that the person is experiencing financial hardship or non-financial hardship, that the person has suffered domestic violence, sexual assault or child abuse.

Finally, as a matter of longstanding practice, HealthShare NSW does not charge patients for inter-hospital transfers of patients between NSW public hospitals.

Advice from HealthShare NSW is that in the 2014-15 financial year approximately 194,000 non-emergency patient transports were provided by HealthShare NSW. Of those transports, the vast majority were for pensioners (115,000) and inter-public hospital transfers (56,000), which were not chargeable. Only 6,000 of the total non-emergency transports conducted by HealthShare in 2014-15 (approximately 3.1% of transports) were exempt from payment by reason of the operation of the Levies Act.

Accordingly, it is expected that only a very small proportion of users of non-emergency patient transports services delivered by HealthShare NSW that are currently entitled to the exemption will be affected by the change.

It is also noted that the change will not affect coverage of persons for emergency ambulance services, which are not impacted by the Draft Regulation.

In terms of those users of services who are members of a health benefits fund and therefore currently are exempt from fees for supported non-emergency transport, but who will no longer be exempt from payment of fees after the commencement of the Draft Regulation, it is understood that such individuals may be able to obtain alternative coverage for supported non-emergency transport from health insurance funds, for example by taking out coverage under an "ambulance only" product if that product provides coverage for supported non-emergency transport. It is understood that numerous funds already offer such products at the present time, and that they may provide coverage for non-emergency patient transport services provided by HealthShare NSW.

It will ultimately be a matter for the private health insurance sector to determine what products are available, and the cost of those products.

In addition to the impact on persons who are members of a health benefits fund, the Draft Regulation may also have a cost impact on private health insurance funds. In particular, the Draft Regulation will potentially make some funds liable to pay benefits to patients who require non-emergency patient transport services in circumstances where those services are currently exempt. However, it is understood this potential impact will depend on the terms and conditions of coverage of existing products.

The main benefit of the Draft Regulation is that it will ensure a "level playing field" for private sector providers of supported non-emergency services by removing the exemption from

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payment of fees that would otherwise only apply to services provided by or on behalf of the Health Secretary (HealthShare NSW).

This will in turn ensure that private sector operators are not at a competitive disadvantage compared with HealthShare NSW in the market for supported non-emergency transport in New South Wales, which has previously been largely monopolised by the NSW Government. It will support the objectives of the 2012 Ambulance Reform Plan by supporting the creation of a viable market in which a range of providers of supported non-emergency transport operators can operate. Once a market is established and as it matures, this will offer scope for supported non-emergency transport services to be provided with greater efficiency and at a lower cost to users.

At present other users of supported non-emergency transport, including private hospitals and other private health facilities, have limited or no choice in the provider of supported non-emergency transport that they use. Following the commencement of the Ambulance Services Act and the development of competitor services in NSW, such private sector health service providers will have greater choice of non-emergency transport providers. The Draft Regulation is necessary to support these benefits to private hospitals and other private health facilities.

Finally, an indirect benefit of an increase in private sector supported non-emergency transport capacity will also be to decrease the use of NSW Ambulance "red fleet" vehicles for supported non-emergency transport. At present, where HealthShare NSW does not have capacity to meet demand for non-emergency patient transport services, including for private sector clients and/or in rural or remote areas, then NSW Ambulance "red fleet" vehicles may be required. The use of such high cost, specialised vehicles and their crew is more expensive than dedicated non-emergency transport vehicles.

NSW Health has already put in place a number of reforms to reduce this risk, including the establishment of the Greater Metropolitan Hub and the centralisation of non-emergency patient transport booking/dispatch and service delivery functions in HealthShare NSW. In July 2015, for example, 15.7% of NEPT transports were undertaken by NSW Ambulance 'red fleet'. By September 2016, this was down to 1.6%. At the same time demand for non-emergency patient transport services has continued to grow rapidly. HealthShare NSW's non-emergency patient transport activity increased by 21.3% in winter 2016 compared to 2015. These figures reinforce the strategic direction contained in the Ambulance Reform Plan of building the capacity of the private supported non-emergency transport sector to supplement services provided by HealthShare NSW to manage the increasing pressure on both HealthShare NSW non-emergency patient transport services and NSW Ambulance 'red fleet' resources.

4. Identification of alternative options

Alternative options to the Draft Regulation have been considered, with the only feasible alternative being not to make the Regulation, noting that the Ambulance Services Act has already been passed by NSW Parliament. Under this option, there would be no change to the current definition of "ambulance service" in the Levies Act.

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As there is only one feasible alternative option identified, this paper does not include any comparative assessment of the benefits and costs to the community of alternative options.

4.1 The costs and benefits of the "no regulation" option

The main cost of "no regulation" option is that it will undermine the objectives of the Ambulance Services Act. Under this option, patients transported by non-emergency patient transport services provided by the Health Secretary (HealthShare NSW) would continue to be exempt from payment under the Levies Act where such persons are a member of a health benefits fund. As noted above, the Ambulance Services Act amends the Levies Act to provide that the exemption from payment of a fee for an ambulance service will only apply in respect of ambulance services provided "by or on behalf of the Health Secretary'. Accordingly, if the regulation is not made a patient who is a member of a health benefits fund who is transported by non-emergency patient transport services provided by a private operator would not be exempt from paying fees charged by the operator.

This would create an incentive for individuals and health facilities to continue to engage HealthShare NSW non-emergency patient transport services, and provide a disincentive to use of services provided by private operators. In turn, this would create a market barrier to private operators entering the supported non-emergency transport market in New South Wales.

This impediment to the use of private sector operators is likely to impede the development of an effective private sector market in such services, with flow on adverse effects in terms of the objectives of greater choice, competition, efficiency and lower cost described above.

If the Draft Regulation is not made, there will be benefits for private health insurers and for their members, to the extent members of health benefits funds will continue to be exempt from payment of fees for non-emergency patient transport services provided by the Health Secretary.

In summary, without the Draft Regulation, the achievement of the objectives of the Ambulance Services Act would be adversely impacted. These objectives include recognising a role for private sector and non-government organisations in providing non-emergency transport for patients.

5. Evaluation of the options

The analysis in this RIS shows how the Draft Regulation is necessary to support the overall reform to patient transport in NSW embedded in the Ambulance Services Act. Most importantly it will enable a level playing field for government and private sector supported non-emergency transport operators by removing the exemption from payment of fees that would otherwise apply to services provided by or on behalf of the Health Secretary, and support the development of private sector operators of supported non-emergency transport in circumstances where such services have historically been provided by a monopoly, or near monopoly, government provider.

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A viable supported non-emergency transport private sector is necessary to support the strategic direction contained in the 2012 Ambulance Reform Plan which called for a range of providers of supported non-emergency transport. A number of benefits are expected to flow from this reform, including overall greater capacity in the market for supported non-emergency transport, greater choice for private hospitals and other purchasers of such services, and the flow on positive impacts on both HealthShare NSW and NSW Ambulance.

There will be a cost to health funds and possibly their members. However the analysis above shows that the vast majority of users of supported non-emergency transport will not be affected by the change, and that those who will be affected will be likely to be able to purchase other products in the market (such as "ambulance only" cover) should they wish to do so to insure against the costs of supported non-emergency transport.

The changes will not affect coverage of persons for emergency ambulance services, which are not impacted by the Draft Regulation.

The costs imposed through the Draft Regulation will ultimately be outweighed by the benefits to the community that arise from a more equitable and competitive market and more responsive supported non-emergency transport. The Draft Regulation is considered to be the best method to achieve the Government's objectives.

6. Statement of the consultation program to be undertaken

In addition to the publication of this RIS on the Ministry of Health website, the Government will also be writing directly to a range of stakeholders for the purpose of consulting on the Draft Regulation. The stakeholders include: private hospital operators, private health insurance industry peak body and funds, health consumer representatives, private supported non-emergency patient operators.

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