QUEENSLAND HEALTH Review of the Business Ownership • Queensland Health -LegislativeProjectsUnil Library REVIEWS - QLD HEALTH LEGISLATI"E/~OLlCY Projects - Health Practitioner Registration Acts (HPRA) Location: Shelf 15, HPRA Box 4: Other Papers .~ 8 SEP 1999 Contents Executive Summary Public Benefit Test Summary and Conclusions 1. Introduction and Background 1.1 Introduction 1.2 Scope of the Public Benefit Test 1.3 Objectives of the Legislation 1.4 Ownership and Associated Business Restrictions in the Act 1.5 Clinical Practice Restrictions 1.6 The Selling and Fitting of Optical Applicances 1.7 Submissions 1.8 Value Management Workshop 2. Methodology 2.1 Introduction 2.2 Data Compilation Process 2.2.1 Stakeholder Identification 2.2.2 Consultation with Stakeholders 2.2.3 Review of available literature 2.2.4 Other Datasources 2.3 Analytical Framework 3. Industry Analysis 3.1 Overviewof the Optometry Industry 3.1.1 Scope of Clinical Practice 3.1.2 Funding of Optometry Services 3.1.3 Control of Optometry Practice 3.1.4 Number of Participants 3.1.5 Number of Consumers and Value of Industry 3.1.6 Entry Requirements 3.1.7 Ownership Structure of Optometry Practices in Queensland 3.1.8 Other Vision Care Professions 3.1.9 Trends in the Provision of Optometry Services in Queensland 3.2 RegulatoryApproach in Other Jurisdictions 3.2.1 Tasmanian Ownership Restrictions and Reviews 3.2.2 South Australian Ownership Restrictions and Reviews 3.2.3 Victorian Ownership Restrictions and Reviews 3.2.4 New South Wales Ownership Restrictions and Reviews 3.2.5 ACT Ownership Restrictions and Reviews 3.2.6 WA Ownership Restrictions and Reviews 3.2.7 Summary 3.2.8 United States 3.3 Industry Profile - Australian States and Territories 3.3.1 Operational Profile 3.3.2 Business Ownership v 1 1 1 2 2 3 3 5 5 6 6 6 6 6 7 7 7 10 10 10 10 11 11 11 12 13 14 14 15 15 16 16 16 16 16 17 17 19 19 20 4. Specification of the Base Case and Options to be Assessed 4.1 Base Case Specification 4.2 O~oos 21 21 24 5. Impact Identification and Matrix Analysis 26 5.1 Impact Groups 26 5.2 Stakeholder Groups 26 5.3 Impact Description and Analysis 26 5,4 Protection of the Public and Provision of Safe. Competent and Up To Date Health Care 27 5,4.1 Effect of the Ownership of Optometry Practices on the Length of Patient Sessions 28 5.4.2 Health Implications of Shorter Sessions 29 5.4.3 Effect of Ownership of Optometry Practices on the Number of Prescriptions Issued 31 5,4,4 Health Implications of Over Prescribing Optical Appliances 32 5,4.5 Impact of the Ownership of Optometry Practices on the Take Up of New Technologies 33 5.4.6 Health Implications of Changes in the Take Up of New Technologies 33 5,4.7 Ownership Structure and Quality of Health Care 34 5.5 Other Impacts on Consumers 36 5.5.1 Competition Benefits (Economies of Scale) 36 37 5.5.2 Prices of Optometry Consultations and Cost of Appliances 5.5.3 Consumer Choice 38 5.5,4 One Stop Shopping 39 5.5.5 Regional and Rural Impacts 39 45 5.6 Impacts on Service Providers 5,6,1 Compliance Costs 45 5.6,2 Small Business Impacts 46 5.6.3 Employment Impacts 48 5,7 Impacts on Government/Regulators 50 5,8 Impact Matrix - Summary 52 6. Conclusions 6.1 Key Results 6.2 Summary and Conclusions Appendix A - Value Management Workshop Participants Appendix B - Major Information Sources Appendix C - Definition of Optometry Terms Appendix D - Business Register Classifications 54 54 56 58 59 60 61 -"""'''''''''''''''''''-........",~--- Executive Summary ..... _''''''''''--"'"''"''~_ ..__ .--""'~--.....;.--_.~"._~~-="'-=-"'.. ,.~~""""""-- ..._ - This is a report of a Public Benefit Test of the Business OwnerslJip Restrictions of the Optometrists Act 1974 This report presents the results of a Public Benefit Test review of the business ownership and associated restrictions of the Queensland Optometrists Act t914, as required to meet the Government's obligations under National Competition Policy (NCP). The Competition Principles Agreement, states that legislation should not restrict competition unless it can be demonstrated that: 5(1 )(a) ihe benefits of the restriction to the community as a whole outweigh the costs; and 5(1)(b) the objectives of the legislation can only be achieved by restricting competition. The Optometrists Act 1914 imposes various business restrictions relating to optometry practices. The most significant restriction is that optometry practices may only be owned by optometrists or bodies comprised exclusively of optometrists. The scope of the review also included the Optometrists Act 1914 restrictions on the fitting of optical appliances although in practice these restrictions are not enforced. Stakeholder feedback on this issue strongly suggested there would be no impact on the level of protection or quality of service provided to the public if the restriction on the selling and fitting of optical appliances were removed. Moreover, it is expected that the removal of the existing restrictions will provide some positive impacts on the industry, notably through the simplification of the existing legislation and removal of anti-competitive barriers. Given that there would be some benefits from the removal of the optical appliance restrictions and no negative impacts on the Queensland public were identified, it is possible to recommend that the restrictions on selling and fitting be repealed. This Public Benefit Test then focused on the ownership provisions of the Optometrists Act 1914. The key objectives of the proposed health practitioner registration legislation are to protect the public and ensure that health care is delivered in a safe, competent and up-to-date manner. It is against these objectives that the business ownership and associated restrictions have been assessed. Restrictions on clinical practice are an issue for a number of registered health professions and are being dealt with in the Core Restricted Practices Review. This is a separate review that is being undertaken on all restrictions on clinical practices. The Public Benefit Test involves a full assessment of the costs imposed on, and the benefits to, all affected groups. This report outlines both the qualitative and quantitative information regarding who will be affected and how they will be affected under various Options with respect to ownership. SKM Economics RE02018: OPTPBTFINALl.DOC Five regulatory Options have been considered in the Public Benefit Test: Option 1: Option 2: Option 3: Option 4: Option 5: No restrictions on ownership of optometry practices or businesses; No restrictions with Statutory Offence - no restrictions but with a statutory offence clause for undue influence'; Base Case - existing situation continues, including current legal circumvention: Controlling interest in the ownership of optometry businesses is held by registered optometrists; and 100% ownership and control of optometry practices by optometrists. The methodology followed in undertaking this Public Benefit Test is derived from the Public Benefit Test Guidelines prepared by Queensland Treasury. The lack of suitable data and the polarised views on certain issues has led to a focus on a qualitative assessment, using a combination of descriptive analysis and significance rankings, rather than a purely numerical analysis. The following analyticalstaqes have been applied: o construction of an Impact Matrix: o comparison of Options using the Impact Matrix; and o indicative quantification of a small number of impacts. The impact matrix is summarised in section 5.8. Three broad groupings of impacts have been adopted, namely: o impacts on consumers; o impacts on existing and potential service providers; and o impacts on administrators/regulators. For the purposes of this evaluation, the stakeholders have been divided as follows: o consumers (as both consumers of products and services and the wider community); o optometrists; o optical dispensers, and potential new entrant non optometrist owners; and o administrators/regulators - the Queensland Government, the Optometrists Board of Queensland and the Health Right Commission (HRC). Undue influence refers to pressure an owner could place on an optometrist to operate inan unprofessional manner. 1 SKM Economics RE020 18: OPTPBTFINAll.DOC ii Key Results Key results otthe Public Benetit Test are summarised The key results of the Public Benefit Test assessment of ownership restrictions contained in the Oueensland Optometrists Act 1974 are now summarised, Impacts on Consumers o Stakeholders consulted in the review agree that the level of eye care currently being delivered in Oueensland is at the required standard, Very few complaints (fewer than 10 per year) are made about optometrists to the HRC, o There is some evidence that there is a marginal difference between the way in which optometrists undertake their consultations in a corporate environment, compared to an owner-operator practice, but there is no evidence that this has an impact on eye health care, o Under the 'no ownership restrictions' Options (1 and 2), no adverse effects on the quality of health care is expected relative to the Base Case, No adverse impacts have been reported in jurisdictions where ownership restrictions have been lifted, o Secular changes in rural and regional areas are likely to dwarf the impacts of changes in ownership restrictions on the quality of optometry services provided to these communities across all the Options, o No major change in the price of optometry services is expected under any of the options although marginally higher prices are expected under options 4 and 5, Medicare establishes benchmark prices for optometry consultations, and there is already a competitive market for optical appliances, In the long term, however, a marginal reduction in the underlying costs associated with running an optometry practice is expected under Options 1 and 2, This reduction in underlying costs may help reduce any increase in consultation costs in the future and may also flow on to reduce the cost of optical appliances, o Under Options 1 and 2 it is expected that a slight increase in access to economies of scale in the industry, may also work to reduce the price to consumers of optometrical goods and services under these Options, o Options 4 and 5 could lead to a restriction of consumer choice, This would result from reduced corporate participation in the market, lessening access to non-price choice benefits currently enjoyed by consumers, such as access to national networks and the ability to exchange optical appliances at different geographic locations, SKM Economics RE02018: OPTPBTFINAll ,DOC iii Impacts on Service Providers o Despite the existing ownership restrictions, commercial incentives currently apply to all service providers. This is due to the reliance on the retail side of business for a significant proportion of total income generated by a typical optometry practice. o Small businesses dominate the industry at present and this is expected to remain if ownership restrictions are removed. o The existing ownership restrictions are, in fact, circumvented by corporate arrangements whereby optometrists act as the nominees of nonoptometrist owners. Thus the current situation could be described as a "defacto" or constrained form of ownership deregulation. o Under Options 1 and 2 there are more significant impacts on service providers than on consumers. These include the trade-off between higher profits through scale economies and avoided operational costs achieved by corporate groups, as compared to sole operators. o No net change in terms of total employment in the industry is expected under any of the Options as total demand for optometry services will be unchanged. o Options 4 and 5 are expected to result in some dislocation of the 20% 25% of the optometry workforce who are presently employed under arrangements that would no longer be legal. This dislocation is likely to be disruptive and stressful to some members of the profession. o Options 4 and 5 are expected to result in a slight decrease in the flexibility of work conditions in the industry in the longer term. For example, there could be a decrease in the number of part time positions available. Impact on Administrators / Regulators o Ownership restrictions represent a small share of the administrative burden of the legislation. o Removal of ownership restrictions may see some reduction in administration, but little overall change is expected if administrative and monitoring processes rely more on supporting legislation (eg the statutory offence clause under Option 2). o Under the more restrictive Options (4 and 5), there may be an increase in the cost of administering the ownership restrictions and some potential for compensatory issues associated with restricting or eliminating existing companies, which can operate in other jurisdictions. These costs would appear to exceed the potential benefits of these Options that are marginal at best. Public Benefit Test Summary and Conclusions The Public Benefit Test guidelines require that the results for the Options be judged against the following criteria: o the objectives of the legislation - that is, protection of public health and provision of safe, competent and up-to-date health care; o the overall net benefit of each Option (Clause 5(1 )(a) of the Competition Principles Agreement); and o the objectives of the legislation can only be achieved by restricting competition (Clause 5(1 )(b) of the Competition Principles Agreement). Table E.1 summarises the overall net benefit of each Option. The conclusions thereafter provide a summary of the results of this Public Benefit Test in the context of these criteria. Table E t: Net benefit - Summary by Option Option 1: No Restriction Net Benefit Some avoided costs Some competition benefits Slight increase in the flexibility of employment options in the industry Same quality of eyecare as base Positive net benefit (lower than Optlon 2\ Some avoided costs (less avoided costs than Option 1) Some competition benefits Slight increase in the flexibility of employment options in the industry Potential marginal improvement in quality of health care Positive net benefit (hlnher than Option 1) Base - for comparison purposes Higher costs than Base Some dislocation of existing workforce Long term decrease in the flexibility of employment options in the industry Potential marginal improvement in quality of health care No net benefit Higher costs than Base Some dislocation of existing workforce Long term decrease in the flexibility of emptoyment options in the industry Potential marginal improvement in quality of health care No net benefit *Ranklngs reflect each Option's ability to meet the review criteria, Option 2 best meets these cntena. Ranking* 2 2- Statutory Offence 1 (Highest) 3 - Existinq (Base) 4 - Controlling Interest 3 4 5 - 100% Ownership/Control 4 SKM Economics RE02018: OPTP8TFINAll.DOC v In explanation the following conclusions are made: Option 2 - No ownersllip restrictions, witll a statutory oftence clause is tile preferred Option under tile Public Benefit Test. D Under Option 1 (no ownership restrictions) a minor potential health risk is identified that undue pressure could be applied by an owner on the clinical practice of an optometrist. This minor risk also exists under the Base Case. This risk can be effectively mitigated, by implementation of supporting statutory offence legislation (Option 2) or a tightening of the ownership restrictions (Options 4 and 5). Option 2 (statutory offence model) prohibits optometry owners from exerting undue commercial pressure on employee optometrists, and is expected to provide the same quality of health care as would be expected under either Options 4 or 5, and a marginal improvement over the Base Case and Option 1. Options 1 and 2 are expected to lead to marginal cost savings and some competition benefits compared to the Base Case. The cost savings under Option 2 will be slightly lower than Option 1, due to the additional costs of administering the statutory offence legislation. The slightly lower costs of Option 1, compared to Option 2 are not expected to be large enough to offset the potential additional health risk of Option 1. Option 2 will therefore be expected to result in higher net benefit than Option 1 (and the Base Case). The tightening of ownership restrictions (Options 4 and 5) are expected to have higher administration and compliance costs than the Base Case and some negative impacts on employment conditions in the industry. Removal of ownership restrictions, under Options 1 or 2, is expected to create marginal net benefits compared to the existing situation, with Option 2 expected to provide marginally higher benefits than Option 1. In accordance with Clause 5 (1 )(b) of the Competition Principles Agreement, the objectives of the legislation can be achieved under Option 2, without a restriction on ownership being in place. Overall, Option 2 (No Ownership Restrictions with a statutory offence clause) is the preferred Option because under this Option: the optometry industry is expected to be able to provide at least the same quality of health care that would be provided under any of the alternative Options and potentially a higher quality of health care than would be provided under the Base Case or Option 1: the net benefits are expected to be higher than the net benefits of the alternative Options; and the objectives of the legislation can be achieved without restricting competition. D D D D D D SKM Economics RE02018: OPTPBTFINAll.DOC vi 1. Introduction and Background 1.1 Introduction The most significant business restriction imposed on the optometry industry is the restriction IIlat optometry practices can only be owned by optometrIsts This report presents the results of a Public Benefit Test review of the business ownership and associated restrictions of the Queensland Optometrists Act 1974, as required to meet the Government's obligations under National Competition Policy (NCP). The guiding principle of NCP, as set out in Clause 5(1) of the Competition Principles Agreement (CPA). states that legislation should not restrict competition unless it can be demonstrated that: o o the benefits of the restriction to the community as a whole outweigh the costs; and the objectives of the legislation can only be achieved by restricting competition. The Optometrists Act 1974 imposes various business restrictions relating to optometry practices (see section 1.4). The most significant restriction is that optometry practices may only be owned by optometrists or bodies comprised exclusively of optometrists. As these restrictions are deemed to be anticompetitive. a Public Benefit Test assessment is required to be undertaken using the methodology outlined in the Public Benefit Test guidelines published by the Queensland Treasury. The Public Benefit Test involves a full assessment of the costs imposed on, and the benefits to, all affected groups. This report outlines both the qualitative and quantitative information that is available regarding who will be affected and how they will be affected under various Options with respect to ownership. 1.2 Scope of the Public Benefit Test The scope focuses on the need for statutory testrictions on the ownerstlip of optometry practices in Queensfand The purpose of the review process is for recommendations to be made to Government on the need for statutory restrictions on the ownership of optometry practices in Queensland. The Terms of Reference for this Public Benefit Test include specific examination of those matters specified in Clause 5(9) of the CPA: o o o o o clarification of the objectives of the legislation; identification of the nature of restrictions on competition; analysis of the likely effect of the restriction on competition and on the economy generally; assessment and balancing of the costs and benefits of the restrictions; and consideration of alternative means for achieving the objectives, including non-legislative approaches. SKM Economics RE02016: OPTP6TFINAll.DOC 1 1,3 Objectives of the Legislation Tile key objectives are to protect tile public and ensure II/atlIealtll care is provided in a sate, competent and up-todate manner The Optometrists Act 1974 does not specify its objectives. However, the Second Reading Speech for the introduction of the legislation indicates that the regulation of optometrists was to protect the public against unqualified persons practising optometry. The objectives of the legislation regulating optometrists and other health practitioners have recently been examined in the context of the review of the Health Practitioner Registration Acts. The 1996 Draft Policy Paper proposed that the objectives of new health care practitioner legislation are to protect the public and ensure that health care is provided in a safe, competent and up-to-date manner. It is understood that these objectives have subsequently been endorsed by the Queensland Government and therefore, it is in accordance with these objectives that any restrictions on the ownership and operation of optometry businesses have been assessed. The review has also been conducted within the context of the Queensland Government's wider objectives, which include: o o o o o o o more jobs for Queenslanders; building regions; skilling Queensland; safer / supportive communities; better quality of life; valuing the environment; and strong Government leadership. 1.4 Ownership and Associated Business Restrictions in the Act This review evaluates the impact of the following sections of the Optometrists Act 1974on all stakeholders: Section 29(1) which prohibits an individual who is not an optometrist from supplying any optical appliance. o Section 32 which prohibits a body or association of persons from engaging in the practice of optometry unless: - the body or association is comprised exclusively of optometrists; or - the fitting and supply of any optical appliance is undertaken by an optometrist employed by (or acting as agent for) the body or association, on a prescription of a medical practitioner or optometrist who is not employed by (or acting as agent for) the body or association. o Section 33(1) which prohibits any person who is not an optometrist from owning an optometry practice or business. o Section 33(4) which prevents a body or association from owning an optometrist practice or business unless the membership of that body or association is comprised exclusively of optometrists. SKM Economics RE020 18: OPTPBTFINAl1.DOC o Tllis review examines three sections of tile Optometrists Act 1974 2 - 1.5 Clinical Practice Restrictions Restrictions on clinical practice are an issue for a number of registered health professions and are being dealt with in the Core Restricted Practices Review. This is a separate review that is being undertaken on all restrictions on clinical practices, As outlined in section 1.4, this Public Benefit Test is restricted to business ownership and associated restrictions, However, there may be a link between ownership of optometry practices and clinical practice issues". While the outcome of the Core Restricted Practices Review has not yet been determined, the assumption made for the purposes of this review is that the preferred position regarding the core practice of optometry, is as given in the Health Practitioner Registration Acts Review Draft Policy Paper. That is, core practices for optometry (restricted to registered optometrists) are 'prescribing optical appliances for the correction or relief of visual defects and the fitting of contact lenses", 1.6 The Selling and Fitting of Optical Applicances The scope of this NCP review also extends to the restrictions on the fitting and supply of optical appliances, In a national context, the legislative regimes covering this activity differs amongst the other States and Territories, The relevant provisions in Oueensland's legislation (Sections 29(1) and 32(3)(b)(ii)) effectively restrict competition by prohibiting non-optometrists from undertaking the activity of fitting and supplying optical appliances, These restrictions therefore need to be considered against Clause 5(1) of the CPA. Clause 5(1)(a) states that 'Iegislation ... should not restrict competition unless it can be demonstrated that the benefits of the restriction to community as a whole outweigh the costs', The restrictions do not appear to generate any benefits for stakeholders, The Optometrists Association noted that their removal might result in a slight reduction in job opportunities for optometrists because they will no longer be required to supervise optical dispensing, however, there is no evidence to support this argument. 2 3 For example. it is proposed that new Health Practitioner Registration Acts will include an offence provision for the owner of a practice to use 'undue influence' on clinical practice. Queensland Health, September 1996. Review 01Medical and Heallh Praclilioner Regislralion Acts. Draft Policy Paper. p57, RE0201 B: OP1PBTFINAL i.ooc SKM Economics 3 It has been suggested, however, that removing these restrictions would provide some positive impacts, notably through the: o removal of potentially anti-competitive barriers; o the simplification of the administration of the legislation; and o releasing of optical dispensers from the current requirement for dispensing to be supervised by optometrists (this requirement is not, in practice, widely complied with or enforced) Clause 5(1)(b) states that 'legislation ... should not restrict competition unless it can be demonstrated that "the objectives of the legislation can only be achieved by restricting competition'. As stated in section 1.3 of this report the objectives of the legislation are to protect the public and ensure that health care is provided is a safe, competent and up-to-date manner. Although the restrictions are neither adhered to nor enforced, an acceptable standard of eye health care is nevertheless provided in Queensland. Stakeholder feedback concerning the ineffectiveness of the restrictions strongly suggests that the current operating environment is effectively the same as would exist if the restrictions were removed, For example, the Optometrists Association submission states that unqualified and unsupervised persons are already dispensing and 'the Optical Dispensers Registration Committee receives very few complaints regarding the practice of optical dispensing and can cite no evidence of physical harm resultant from the practice of optical dispensing performed by optical dispensers with or without the benefit of formal training". The submission also notes that 'there is no danger to public in incorrectly dispensed spectacles' and 'existing consumer laws provide the public with adequate protection against poor optical dispensing and special regulation of optical dispensing is unnecessary to protect the public's, The restrictions are therefore having no effective impact in achieving the objectives and are considered to be unnecessary. Therefore, considering that the restrictions are neither adhered to nor enforced, and eye health care is not diminished, the objectives of the legislation can be achieved without restricting competition. Furthermore, the restrictions do not currently generate any benefits for stakeholders and there may be a small net benefit in removing the restrictions, It is concluded, therefore, that the provisions restricting the fitting and supply of optical appliances be repealed, On this basis, it is not necessary to address these particular restrictions in the remainder of this report. 4 Source: Optometrists Association of Australia - Submission to the review 5 Source: Optometrists Association of Australia ~ Submission to the review RE02018: OPTPBTFINAll.DOC SKM Economics 4 1.7 Submissions Five detailed submissions were received As part of the Public Benefit Test process. Queensland Health invited submissions to the review process. Detailed submissions were received from: o o o o o OPSM; Optometrists Board of Queensland: Optometrists Association of Australia (Queensland Division): Now Group: and an independent practitioner, The issues raised in these submissions have been included in the discussion and analysis of the impacts of the restrictions and the potential removal of restrictions. 1.8 Value Management Workshop A Value Management Workshop was held in Brisbane on 19 April 1999, The attendees are listed in Appendix A. I I The workshop focussed on issues raised in submissions to the review. As a result of polarised views amongst the participants, it was not possible to progress towards determination of criteria weights and impact scores for a numerical assessment of the impacts. The Public Benefit Test therefore focuses on a descriptive qualitative assessment of the impacts. The range of issues discussed and opinions expressed have been distilled into the analysis undertaken in this report. A summary of the workshop has already been presented in the Value Management Workshop Report. I I I I I I I SKM Economics RE02018: OPTP8TFINAL i.ooc 5 I 2. Methodology 2,1 Introduction The review of the Business Ownership and Associated Restrictions of the Optometrists Act 1914 has involved two complementary processes, First, the collection of data relevant to the review process and discussions with key stakeholders and second, the analysis of this data within the Public Benefit Test Framework, 2.2 Data Compilation Process I I I The first stage of the project included: o o o o the identification of stakeholders; consultation with stakeholders: identification of key data sources; and a review of available literature, I I I 2.2.1 Stakeholder Identification Seven major stakeholder groups were identified using information provided in the Public Benefit Test Plan and discussions with industry representatives: o o o o o o o optometrists; optical dispensers; consumers of optometry appliances and services in Queensland; Optometrists Board of Queensland; Health Insurance Commission; potential suppliers of optometry appliances and services; and Queensland Government as represented by Queensland Treasury, Queensland Health and the Health Rights Commission. I I I I I I I I 2.2.2 Consultation with Stakeholders Consultation with stakeholders included a 'Value Management Workshop', as well as individual discussions with: o o o o o o o the Optometrists Association of Australia, Queensland Division; the Optometrists Board; representatives from OPSM; the Now Group the Health Rights Commission: the Health Insurance Commission; and representatives from Queensland Health. An independent academic from the Queensland University of Technology's Optometry School was also employed to provide advice on any major health issues associated with the review, SKM Economics RE02018: OPTPBTflNAll ,DOC 6 I 2.2.3 Review of available literature The ownership provisions of professional health care practices have come under a significant level of scrutiny in recent years. both in Australia and overseas. Four major sources of literature were used as the basis for this analysis, namely: o submissions from key stakeholders; o review processes undertaken in other States, notably Victoria, NSW, WA and Tasmania; o discussion papers from work undertaken by the Federal Trade Commission in the United States; and o the Zifcak Report, 'A Detailed Inquiry into Issues Affecting the Optometrical Profession' conducted for the Victorian government in 1988, This report is the most detailed analysis of the optometry industry in Australia available (although it is based primarily on anecdotal evidence). The findings of this report have been referred to in Section 5.4, 2.2.4 Other Datasources A number of additional data sources were also identified including: o o o the Australian Bureau of Statistics Business Register Consultancy; the register of complaints regarding optometry practice in Queensland and other interstate jurisdictions; the databases of both the Optometrists Association of Australia (Queensland Division); and the Optometrists Board of Queensland. 2.3 Analytical Framework Tile epproect: follows . Treasury Guidelines, using a qualitative assessment metilodology The analytical framework used in undertaking this Public Benefit Test is derived from the Public Benefit Test Guidelines prepared by Queensland Treasury', These guidelines outline a six step process: Step1: Identification and description of a realistic 'without change' or 'Base' state; Step 2: Identification of a realistic 'with change' or 'alternative' state; Step 3: Identification of all major impacts; Step 4: Valuation of impacts; Step 5: Assessment and quantification of non-valued impacts; and Step 6: Timing, aggregation and presentation of results. The methodology has been tailored to the needs of this review through the approach used in the assessment of impacts, 6 Queensland Treasury, Public Benefil Test Guidelines, National Competition Policy Unit. Issued April 1997, RE02018: OPTPBTFlNAll. DOC SKMEconomics 7 A Public Benefit Test, like any cost benefit evaluation, should consider all relevant impacts. Where possible, impacts should be quantified in monetary terms. The quantified impacts need then to be assessed together with the unquantified impacts to determine which Option provides greatest net benefit to the community. Quantification of impacts in Public Benefit Tests, however, often needs to be based on assumptions which, whilst determined from available literature and input from key stakeholders, are often subject to a high degree of subjectivity. The lack of available data is often a significant constraint on valuation of impacts. However, it is important that the Options are compared against each other on an equal footing, ensuring that all impacts are considered. In other words, the quantified impacts should not be given a higher priority than the unquantified impacts if that is not the correct weighting that society would attach to them. Against this background, a methodology has been adopted which analyses impacts in a way which does not give unrepresentative weight to the quantified impacts. Furthermore, the lack of quantitative data enabled only indicative estimates to be attempted for a small number of impacts. The following analytical stages have been applied: o Construction of an Impact Matrix. This identifies the impacts by impact groups. The differences in the impacts are described for each Option and across the different stakeholder groups (see Table 5.12) o Comparison of Options using Impact Matrix This can be undertaken at different degrees of sophistication depending on the available information. The different methods include: descriptive analysis; significance rankings; and numerical analysis, which requires impact group weights and scores for individual impacts for each stakeholder group to be determined. I I I I I As already mentioned, the lack of suitable data and the polarised views on certain issues led to the use of a combination of the descriptive analysis and significance rankings rather than a purely numerical analysis. In describing the potential impacts on the quality of health care in Queensland, a two-stage approach has been adopted. In Stage 1, the evidence is presented on how a removal of the ownership restrictions could affect the way in which optometry services are carried out. In Stage 2, the impact of any changes in service delivery on public health is examined. I I I SKM Economics RE02018: OPTPBTFINAll,DOC 8 I o Quantification of impacts where possible Given the polarised nature of some of the issues in this review, it was not possible to undertake a comprehensive numerical analysis for each of the impacts. In developing the impact matrix analysis, which covers all impacts, attempts have been made, where possible, to value some impacts. This has been undertaken by using data collected for the industry analysis, available literature and assumptions deemed 'reasonable' in consultation with key stakeholders. SKM Economics RE020 18: OPTPBTFINAl1.DOC 9 _ _~._,"",~_",,,,,,,~"'_~"'_'_w,,~_.,,,"·"_~=.·~·, 3. Industry Analysis ' ~'.~'~~-·"'=M·""""_'~-"""""~"'''''''''''''''"''''''«=~' "'" .=,p _~~~-""'""~~""'.""'-""'_'~""~'""'"""",,,,"=~,-.. ........,,,,,,_, ...,,, 3.1 Overview of the Optometry Industry Optometrists in Queensland are engaged in bolf! tne provision of professional optometric services and the sale of optical appliances The optometry industry in Queensland includes both the provision of professional optometry services and the sale of optical appliances, Registered optometrists provide optometry services, Optometrists assess and prescribe the need for prescription lenses to assist vision. They also provide preventative and continuing ocular health services, Also active in the market are: o o optical dispensers, who make and provide lenses for glasses and contact lenses but do not have a clinical role in ocular care: and ophthalmologists, who are medical practitioners whose field of expertise is the treatment of diseases of the eye, using therapeutic drugs or surgery, 3.1.1 Scope of Clinical Practice Queensland optometrists' basic range of clinical skills and procedures include: o o o o o o refraction; binocular vision tests: ophthalmoscopy: slit lamp biomicroscopy; tonometry; and supply and management of spectacles and contact lens to patients'. I I I Optometry is the only health profession ot!ler t!lan medicine fhat is within the Medicare system Optometrists employ ophthalmic drugs to facilitate diagnostic procedures, using anaesthetics in performing tonometry, mydriatics where required for intemal examinations and cyclopleqics. Optometrists in Queensland are not currently permitted to use other drugs to treat patients, 3.1.2 Funding of Optometry Services The Commonwealth Govemment included optometry in the Medicare program in 1975, Optometry is the only profession, other than medicine, to have its consultation services covered by Medicare benefits, Almost all optometrists in Queensland have agreed to participate as providers of optometric care within the Medicare system. Participation in this scheme requires adherence to standards of practice and a schedule of consultation fees that are set out each year in, 'Medicare Beneftts for Consultation by I I I Optomettists'" I I 7 B Source: Optometrists Association of Australia (these terms are defined in Appendix C), Health Insurance Commission - Medicare Benefils for Consultation by Optometrists RE0201B: OPTPBTFINALl.DOC SKM Economics 10 The Medicare fee structure is such that it sets a minimum and maximum fee that a patient may pay. The majority of optometrists in Queensland and across Australia 'bulk bill' their professional fees; that is, they do not receive any payment from the patient. 3.1.3 Control of Optometry Practice The control of optometry practice is currently undertaken through the Optometrists Board of Queensland. The functions of the Board include: maintaining professional standards; maintaining the register of practitioners and assisting in the control of the practice of the optometry profession in Queensland. The Board may initiate proceedings against a practitioner for professional misconduct. The Health Insurance Commission (HIe) regularly monitors the payments to optometrists to guard against potential misuses of the system. For example, optometrists are flagged for further investigation against over servicing if they are in the group that receives the top 5% of payments from Medicare in a financial year. While this data is useful for the management of the Medicare system it has only limited value in the analysis of the quality of health provided by optometrists. For example, over servicing could be caused by fraudulent claims rather than rushed appointments. 3.1.4 Number of Participants There were 636 optometrists registered with the Optometrists Board of Queensland in 1998. Of these, 419 each billed at least $1 ,000 in fees in each quarter of 1998 and were considered active by the Health Insurance Commission. Tile Optometrists Board of Queensland determines professional standards in tile industry and maintains a register of practilioners I I I 3,1.5 Number of Consumers and Value of Industry The Health Insurance Commission has provided details of the number of consultations carried out in Queensland by optometrists in 1997/98 and the Medicare fees that were paid to optometrists. This data is summarised in Table 3.1 along with data from the ABS Household Expenditure Survey. This survey includes an estimate of expenditure on optical appliances as well as the fees for optometrists' professional services. I I [ I I SKM Economics RE02018: OPTP8TFINAll.DOC 11 Table 3.1: Industry Participation and Expenditure, Queensland 1997/98 Queensland Optometry Patients Services (Consultations) Medicare fees Total spending on optician fees (including spectacles) Percentage of earnings from professional fees Number of employees 660,000 730,000 $28.2 Million $68.7 Million 41% 1,636 Source: Health Insurance Commission. ABS Household Expenditure Survey, 1997/98, ABS Business Register. September 1998. Note: number of employees includes all employees of optometry businesses as defined by the ABS Business Register; expenditure on opticians' fees includes expenditure on both optometry services and appliances. Optometrists differ from most other heaith professionals in that they derive a significant proportion of their income from the goods (optical appliances) that are required to fulfil the prescriptions that they write. The Optometrists Association estimates that approximately 70% of optometrists have a retail side to their business which is involved with the sale of spectacles, lenses etc." Tile major requirement for entry is that all practitioners tnus! have completed a bachelor degree in optometry 3.1.6 Entry Requirements The major barrier to entry into the optometry industry in Queensland is the requirement that persons can only practise optometry if they have compieted the relevant tertiary education and are on the Board's register of optometrists. In Australia, optometrists are educated to degree level at one of the three institutes conducting optometry courses: the University of New South Wales, the University of Melbourne and the Queensland University of Technology. Each course is of four years' duration and leads to a bachelor degree in optometry. A typical new optometrist's practice can be established with a capital investment of approximately $90,000'°. This would include the fitting and stocking of a dispensing area as well as the capital cost of the optometrist's equipment including items such as: o a slit lamp biomicroscope; o an applanation tonometre; o retinoscope; and o vision charts. 9 10 Optometrist Association of Australia. personal communication, April 1999 Estimated by the Optometrists Association of Australia (Queensland Division). RE0201B; OPTPBTFINAL i.ooc SKM Economics 12 3.1.7 Ownership Structure of Optometry Practices in Queensland Table 3.2 provides the ownership structure of optometry and optical dispensing businesses as extracted from the ABS Business Register. Publicly-owned companies optometry practice, fall into These companies account businesses in Queensland. industry. such as OPSM which have an interest in the 'Other Registered Organisation' category. for 84 of the 503, (or 17%), of optometry They account for 25% of employment in the Table 3.2: Structure of Oueensland Optometry and Optical Appliance Businesses, September 1998 Employees! Management Business business Units Locations Employees Proprietary Limited" Other Registered Organisation Sole Proprietor Family Partnership Other Partnership Trust 136 3' 70 8 16 78 194 84 88 8 24 105 622 415 201 29 74 295 3.2 4.9 2.3 3.6 3.1 2.8 Total 311 503 1,636 3.3 * Two of the companies inthis category are registered interstate but operate in Oueenstand. Source: ABS. Business Register, September 1998. Note: number of emptoyees includes alt employees of optometry businesses as defined bythe ABS Business Register; Management Units are individual businesses that may operate in more than one location. " See Appendix D for definition of business classifications. SKM Economics RE02018: OPTPBTFINAll.DOC 13 Overall, this data suggests that the industry is characterised by a large number of participants. However, many of these businesses do not compete directly with one another because consumers generally do not have the incentive to travel significant distances to an alternative supplier. For example, an optometrist in Townsville competes only indirectly (if at all) with an optometrist in Cairns or Mackay. Moreover, because the majority of optometrists bulk bill using Medicare, there is little or no price competition on the provision of optometry consulting services, as opposed to competition for the supply of optical appliances. 3.1.8 Other Vision Care Professions Ophthalmologists and optical dispensers (spectacle makers) are the other major groups that provide vision care services or products to the Queensland community. Ophthalmologists are medical practitioners who have completed a specialist course in the treatment of eye diseases. They also have the authority to write prescriptions for optical appliances. There were 102 practising ophthalmologists in Queensland in 1998' 2 . While these practitioners compete with optometrists to some extent, their primary role is in the treatment of eye disease through either drugs or surgery. Ophthalmologists' fees are significantly higher than those for optometrists and a referral from a medical practitioner or an optometrist is required before visiting an ophthalmologist. Optical dispensers may only make up spectacles to a prescription written by an optometrist or medical practitioner. In Queensland, there is no legislative control over optical dispensers or the training which dispensers must have. No record of the number of people employed in this occupation is currently available. 3.1.9 Trends in the Provision of Optometry Services in Queensland The practice of optometry in Queensland and Australia has changed over the past thirty years with the development of new health care procedures and diagnostic techniques. Over time, optometrists have come to regard their major role as being that of primary health care providers. This is in contrast to earlier this century, when they promoted themselves primarily as sellers and suppliers of spectacles 13. Optometrists now write over 70% of optical prescriptions compared to around 30% of prescriptions thirty years ago 14. The increasing importance of optometrists in the writing of optical prescriptions, combined with the optometrist's traditional retail role has led to a greater integration between the provision of optometric services and the sale of optical appliances. Optometrists /lOW regard theirrole as primary eye health care providers 12 Health 13 14 Insurance Commission. Source: Optometrists Association of Australia. Source: Optometrists Association of Australia ~ Submission to the review RE02018: OPTPBTFINAl1.DOC SKM Economics 14 Historically, a person with an optical prescription would be likely to have received a prescription from a medical practitioner and then sought a dispensing store, in much the same way as a prescription is taken to a chemist. As optometrists began to write more of the optical prescriptions, they also began to dominate the sale of optical appliances. In response to this trend, specialist optical appliance stores such as OPSM, began to develop alliances with optometrists to enable them to provide a similar level of 'one stop' shopping service to consumers. Optical dispensers in Queensland have allied themselves with optometrists to provide one stop shopping to consumers In Queensland there are now over 80 businesses that are owned by optical dispensing companies. The majority of these stores have an alliance with an optometrist who operates a practice that is physically part of, or adjacent to, the dispensing store. Optometrists working in this environment do not dispense optical appliances and therefore tend to spend most of their time consulting with patients than do optometrists who also manage the retail side of a business. This trend in optometric practice, away from the retail work associated with the dispensing of optical appliances, is evident across Australia. The trend has been accompanied by an increase in the scope of the health care provision aspects of an optometrist's work. For example, optometrists in Victoria have recently been given the authority to use and prescribe a limited range of therapeutic drugs for use in the treatment of eye-related conditions. 3.2 Regulatory Approach in Other Jurisdictions I I I I Each of the States and Territories of Australia operates the same broad regutatory approach to the optometry industry Each of the States and Territories of Australia operates the same broad regulatory approach to the practice of optometry. Optometrists are registered with an optometrists board which is empowered by legislation to control the practice of optometry. A similar regulatory approach is used in the United States where each of the States has its own optometry registration board. However, ownership restrictions vary across the States, as described below and summarised in Table 3.3. 3.2.1 Tasmanian Ownership Restrictions and Reviews The legislation conceming the ownership of optometry practices was redrafted in 1994, before NCP. This legislation upheld the existing ownership restrictions, which, in practice, allow optical dispensing stores to operate in association with optometrists through nominee structures. A NCP review of these restrictions is currently being undertaken. I I I I SKM Economics RE02018: OPTPBTFINAll.DOC 15 South Australia, the ACT, Western Australia and Victoria presently neve no ownership restriclions on optometry practices 3.2.2 South Australian Ownership Restrictions and Reviews The restrictions concerning the ownership of optometry practices in South Australia were removed in 1992. It is currently possible for non optometrists to employ optometrists in South Australia. South Australia is considering including some form of statutory offence provision against undue influence15 over an optometrist in their legislation. 3.2.3 Victorian Ownership Restrictions and Reviews A review of the ownership provisions in the relevant Act, undertaken in Victoria, resulted in a lifting of the ownership restrictions in 1996. Victoria is also considering imposing statutory offence provisions against undue influence over an optometrist. 3.2.4 New South Wales Ownership Restrictions and Reviews NSW currently has similar ownership restrictions to those that exist in Queensland. A review of these restrictions under NCP guidelines is currently being undertaken. 3.2.5 ACT Ownership Restrictions and Reviews The ACT Optometrists Act 1956does not include ownership restrictions. 3.2.6 WA Ownership Restrictions and Reviews The Western Australian Optometrists Act 1940 does not incorporate controls on the ownership of optometry practices. A 1998 discussion paper16 found that there is no evidence to the effect that this arrangement in Western Australia has: o o o o led to excessive commercialisation and lower quality service; resulted in over-servicing or other unethical practices; rendered the disciplinary process difficult to administer; or led to any other undesirable result. Western Australia has had limited ownership restrictions for the past fifty years Furthermore, the discussion paper recommends that: o health practitioners be permitted to work in partnership, or in corporations or in other associations with other persons, including other types of health practitioners; and a practice may be owned by registrants or non-registrants or a combination of such parties. o 15 Undue influence refers to pressure an owner could place on an optometrist to operate in an unprofessional manner. 16 Discussion Paper, Review of Western Australian, Health Practitioner Legislation Health Department of Western Australia. October 1998 SKM Economics RE02018: OPTPBTFINAll.DOC 16 3.2.7 Summary Table 3.3 summarises the ownership restrictions in the other Australian states. There has been a move away from ownership restrictions in the optometry industry in the past ten years and the restrictions remain in only two states, New South Wales and Tasmania. Table 3.3: Ownership Restrictions in Other Australian States No Restrictions Restriction under Review Tasmania South Australia Victoria New South Wales Western Australia Australian Capital Territory 3.2.8 United States The Federal Trade Commission in the United States is charged by statute with preventing unfair methods of competition, and unfair or deceptive practices which affect commerce. Under this mandate, the Commission has undertaken three major studies of the impact of restrictions imposed on business practices of optometrists. The first study, conducted in 1975, investigated the impact of advertising restrictions. It led to the 1978 trade regulation rule, Advertising of Ophthalmic Goods and Services" which allowed non-deceptive advertising of optometry services. The study also identified that advertising restrictions were not the only restraints that appeared to limit competition. Other commercial restraints included the prohibition of optometrists from forming business relationships with non optometrists (for the purpose of offering eye care to the public) and from locating in mercantile locations (e.g. shopping malls). To examine the effects of these other restraints, two studies were undertaken. The first, published in 198018, compared the price and quality of optometric goods and services in markets with differing degrees of regulation. The second, published in 1982 19 , compared the price and quality of contact lens fitting services, for commercial optometrists and other provider groups. 17 18 16 CFR Part 456 (Eyeglasses Rule). Bureau of Economics, Federal Trade Commission, Restrictions on Advertising and Commercial Practice In the Professions: The Case of Optomeliy(1980). 19 Bureaus of Consumer Protection and Economics, Federal Trade Commission, A Comparative Analysis of Cosmetic Lens Filling by Ophthalmotogists, Optometrists and 2E!.icians (1983). SKM Economics RE02018: OPTPBTFINAll.DOC 17 Reporting on these studies to the New Mexico Board of Optometry, it was stated that Federal Trade Commission 'studies provided evidence that restrictions on optometrists' cornmercial'" practices raise prices but do not improve the quality of care':". In particular, it was noted that the study data showed that prices were 18% higher in the markets that barred commercial chain firms. During the 1980s, the Federal Trade Commission conducted an extensive rule making process to address state imposed restraints on the business practices of optometrists. In the statement to the New Mexico Board of Optometry, it was noted: 'The rule making record establishes that the presence of commercial optometric firms lowers the cost of eye care to patients of both commercial and non commercial optometrists. The evidence also indicates that these restrictions do not provide offsetting quality related benefits'". As a consequence, the Commission adopted a rule to prohibit state-imposed restrictions on: o o o o affiliating with non optometrists; locating in a commercial setting; opening branch offices; and using non-deceptive trade names. This rule is not in effect because the US Court of Appeal found that the Commission does not have the statutory powers to make rules declaring state statutes unfair. The results of the Federal Trade Commission's research are, however, presented to decision-makers when changes to the regulation of optometry in the various States of America are debated. Commercial practitioners in the US Federal Trade Commission study are loosely defined as those with links to optical dispensing companies " Statement of Gary Kennedy, Attorney, Dallas Regional Office, Federal Trade Commission before the New Mexico Board of Optometry, Santa Fe, New Mexico, August 23,1997, "Ibid 20 SKM Economics RE020 18: OPTPBTFINALl.DOC 18 3.3 Industry Profile - Australian States and Territories 3.3.1 Operational Profile Table 3.4 summarises the operational profile of optometrists, while Chart 3,1 illustrates the average population per optometrist in the States and Territories of Australia. Table 3.4: Operational Profile, 1997/98 Active optometrists Population per - optometrist Average services per optometrist Average $ billed to Medicare per optometrist $67,238 $81,481 $62,141 $64,474 $75,881 $64,971 $68,324 $65,298 State Queensland ACT New South Wales Victoria South Australia Western Australia Tasmania Total/Average 419 30 809 541 151 206 57 2,213 8,117 10,327 7,755 8,512 9,800 8,728 8,307 8,288 1,748 2,085 1,603 1,661 1,966 1,648 1,789 1,685 Source: Health Insurance Commission Nole: Optometrists are considered active when they have billed at least $1 ,000 in fees in each quarter of a year. Chart 3.1: Population per Optometrist Business Location, 1997/98 10000 r-----------------~ 8000 t - - - - - - - - - - - - E 6000 4000 2000 o "5", o '" (/)00 s: ,!,/ z ~S '" ,"! c co E Source: Health Insurance Commission and Australian 8ureau of Statistics, Business Register Counts, September 1998 SKM Economics RE02018: OPTPBTFINAll.DOC 19 A key feature of this data is the variation in the number of optometrists per person I business in each State. Those States with the highest percentage of population in the capital city (SA and ACT) have the highest population per optometrist. This variation within each State appears to be the major factor explaining differences between the average number of services per optometrist and the average income received from Medicare per optometrist. 3.3.2 Business Ownership Despite the differences in ownership restrictions that presently exist across the States, the optometry practices in each of the States exhibit the same six basic forms of ownership structure. There are, however, some differences across the States in the proportions of businesses that are classified within each category, as highlighted in Table 3.5. Table 3.5: Optometry & Optical Dispensing Businesses by ownership type, September 1998 SA Vic Old NSW Tas WA Aust % Sole Proprietor Family Partnership Other Partnership Trust Proprietary Limited Other Registered Organisation to % % % % % % 4 4 17 38 27 9 5 5 32 31 19 16 2 4 22 47 10 17 2 5 21 39 17 33 4 7 11 35 9 28 4 12 16 28 11 22 3 6 18 38 13 Source: ABS. Business Register Counts, September 1998 Tasmania and NSW have the highest proportion of the traditional businesses (sole traders and family partnerships) while South Australia and Western Australia, the two States with the longest history of no restrictions on ownership, have the lowest proportion of these business types. This suggests that Western Australia and South Australia have a stronger corporate involvernent in the provision of optometry services than the other States. Although NSW and Queensland have sirnilar ownership restrictions. Queensland appears to have rnoved further away from the traditional ownership model than NSW. The ownership profile of optornetry businesses in Queensland is closest to that of South Australia and Western Australia, the States that have no ownership restriction. Ownership restrictions do not appear to be the dorninant factor influencing the ownership structure of the industry. SKM Economics RE0201 B: OPTPBTFINAll. DOC 20 4. Specification of the Base Case and Options to be Assessed In this Public Benefit Test of the business ownership and associated restrictions under the Act, five Options have been considered as alternative ways of achieving the objectives of the proposed health practitioner registration legislation. These Options have been derived from a range of sources: o the three Options from the Public Benefit Test Plan (attached to the Terms of Reference); o an Option, to include a statutory offence provision against 'undue influence' (in accordance with- proposed health practitioner registration legislation); and o an Option which was proposed by the Optometrists Board of Queensland that ensures 100% ownership and control of optometry practices by optometrists. In summary, the five Options can be described as: Five Options have been considered in the Public Benefit Test Option 1: Option 2: Option 3: Option 4: Option 5: No restrictions on ownership of optometry practices or businesses; No restrictions with Statutory Offence - no restrictions but with a statutory offence clause for undue influence": Base Case - existing situation continues, including current legal circumvention; Controlling interest in the ownership of optometry practices is held by registered optometrists; and 100% ownership and control of optometry practices by optometrists. The Base Case and alternatives are now described in detail. 4.1 Base Case Specification The existing situation involves circumvention of legistation tlJrougll use of nominee arrangements The Base Case (Option 3) represents the status quo. Although the current legislation seeks to restrict the ownership of optometry businesses to optometrists, the legislation is being circumvented. This circumvention involves the use of a 'nominee' ownership structure, whereby registered optometrists are nominee directors on behalf of non optometrists. Under the current restrictions non optometrists are able to, in effect, operate and control optometry businesses under nominee arrangements, whilst the ownership of the practice meets legislative requirements. Therefore, in practice, the current situation can be described as either defacto deregulated or operating with only a semi constrained ownership restriction. 23 Undue influence refers to pressure an owner could place on an optometrist 10 operale in an unprofessional manner. SI '" a => co z ~ 5: '" ro '" '> ~ ro s: 0 ,!,! "5 (/) => « ~ '" ~ 5: ;jl * E ,!,! Source: Health Insurance Commission. 5.4.4 Health Implications of Over Prescribing Optical Appliances As noted in section 5.4,3, there is no evidence of over prescribing in either corporate or non corporate practices in Australia, In researching the health implications of over prescribing of optical appliances, through discussions with stakeholders, no major health impacts were identified, This evidence indicates that there are no health implications related to this issue, SKM Economics RE02016: OPTPBTFINAll.DOC 32 5.4.5 Impact of the Ownership of Optometry Practices on the Take Up of New Technologies The OPSM submission states: 'Commercial ownership of optometry practices can bring major benefits in the form of improved access to the latest and often expensive technology".' No specific examples of how this would occur were provided. Discussion with stakeholders identified equipment that would fall into this category as including: D D auto-refracting machines that provide initial diagnosis for spectacle prescriptions; and digital cameras that are used to record changes occurring in the eye. Larger corporations that are involved in the provision of optometry services would be expected to have a greater capacity to purchase expensive equipment because of improved access to capital. They would also have the capacity to provide a specialist piece of equipment at one store and where necessary, refer patients from their other stores to the equipment. 5.4.6 Health Implications of Changes in the Take Up of New Technologies The health implications of improved access to more expensive equipment appear to be negligible. The majority of difficult to detect eye diseases can be detected through an examination of the eyes with the standard equipment noted in section 3.1,6. Expensive new technologies are typically justified on the grounds that they enable more speedy diagnosis of some conditions and therefore enable an optometrist to see more patients per day, Auto-refracting machines, for example, are useful tools for helping with quick diagnosis of a patient's focusing abilities, but it is understood that they have almost no role in the more complex diagnostic processes of optometry. 34 OPSM, (1999), Submission to Review of the Business Ownership and Associated £!~!!~ns under the Optometrists Act 19::!.:.J!:j;.;..;_ _=::: SKM Economics RE02018: OPTPBTFINAll 33 5.4.7 Ownership Structure and Quality of Health Care In further considering the issue of ownership structure and its potential impact on the quality of eye health care, consideration was given to the Report of the National Advisory Group on Safety and Quality in Australian Health Care. This Report noted that, while the safety and quality of health services in Australia is high, there are some areas of the health system that require improvement. The Report outlined five key action areas to improve quality and safety in health services but, significantly, it did not identify the ownership structure of health practices as having any impact on the delivery of safe health services. Furthermore, as outlined at section 3.2.7, the majority of Statesrrerritories in Australia do not have ownership restrictions, and, as noted at section (5.4.2), the level of eye health care appears to be similar in all jurisdictions. Summary of Health Risk Impacts associated with the Ownership of Optometry Practices There is some suggestion that in a more commercial environment (such as that which is more likely to exist in a corporately owned practice) there may be the potential for a marginal increase in the risk of an optometrist missing a diagnosis over time. To date, however, the involvement of corporate optometry practices in the provision of optometry services in Queensland has had no noticeable effect of the quality of optometry services. This factor, combined with: o o o o o a low incidence rate of eye disease in Australia; high standards of optometry care throughout Australia; low levels of consumer complaint about optometrists throughout Australia; the relatively small proportion of businesses which would be affected by a change the removal of the ownership restrictions: and the ineffectiveness of the existing ownership restrictions. suggests that there will be no adverse impact on eye health care, relative to the Base Case if the current ownership restrictions are removed as per Option 1. The statutory offence Option should mitigate any long run marginal health risk of full deregulation Option 2 provides a means by which employers are prohibited from exerting 'undue influence' over the clinical practice of optometrists. It therefore provides an increased level of assurance that optometrists are not pressured into practices that could have a negative impact on the quality of health services provided to the Queensland public. While it is acknowledged that the health implications of a poor quality operator entering the market appear to be very low, the additional safety net provided by this Option suggests that it will produce a higher level of protection to the Queensland public than Option 1 and the Base Case. SKM Economics RE0201B: OPTPBTFINAL i.occ 34 Under Option 4, optometrists would be required to own a minimum of 51 % of any corporately owned optometry business, with the balance of 49% able to be owned by non-optometrists. The Optometrists Board could take disciplinary action against the optometrist owners, but it could not do so in respect of non-optometrist owners. However, it could be expected that potential disciplinary action against 51 % of owners of a business would be a deterrent against owners placing undue influence on employees' clinical practices. Option 5 is intended to achieve 100% ownership of optometry businesses, therefore the Optometrists Board would be able to take disciplinary action in respect of each individual optometrist owner in respect of undue influence on employees. However, the extent to which the 100% requirement could be enforced is unknown, and it is possible that "nominee" arrangements (for non-optometrist owners) may continue under this option. In summary, the Optometrists Board would have powers under both Options 4 and 5 to take disciplinary action (for professional misconduct) against optometrist owners who exert undue influence on employee optometrists. These powers may provide a deterrent effect against undue influence by owners. These options therefore provide some assurance that employed optometrists would not be pressured into practices that could have a negative impact on the quality of health services provided to the Queensland public. Table 5.3 summarises the health impacts of the various Options. Ta bl e 5.3: Sate Health Care Option 3: Base Current . s ummary Hea II h Irnpacts 0 f 0ionons Option 2: Statutory Ollence Minimises the potential low risk of Base and Option 1 by providing a Option 4: Controlling Interest Alleviates potential low risk of Base and Option 1 through the Optometrists Board's capacity to act against optometrist owners of optometry practices. Potenlial marginal improvement in quality of eye care over Base. (same as Option 2) Option 5: 100% control Alleviates potential low risk of Base and Option 1 through the Optometrists Board's capacity to act against optometrist owners of optometry practices. Potential marginai improvement in quality of eye care over Base. (same as Option 2) situation is seento give a satisfactory level of eye care despite Ihe iack of effective Option 1: No Restriction No demonstrated evidence that impact is significant where deregulation mechanism to prosecute owners who influence clinical practice. Potential marginal improvement in quality exists, same quality of ownership restrictions. eyecare as Base. of eye care over Base. SKM Economics RE02018: OPTPBTFINAL t.ooc 35 5.5 Other Impacts on Consumers 5.5.1 Competition Benefits (Economies of Scale) Under the existing system, access to economies of scale is provided by two means: o the fact that nominee ownership allows corporalions to operate in the industry; and o the existence of the Optometrists Association of Australia, which facilitates activities such as bulk purchasing from suppliers by combining the purchasing power of smaller optometry businesses. Access to economies of scale is partly related to the degree of restriction Thus both the corporate operating structure and the more traditional ownership structure provide some access to economies of scale. It would be expected, however. that the economies of scale associated with the corporate structures would be more powerful than those provided by the traditional ownership model. Large scale operators allow scope for vertical integration and the development of management expertise in the provision of optometry services. They are also able to share accounting. legal and other administrative costs across a larger number of stores and this would be expected to generate some costs savings. The cost savings associated with an increase in access to economies of scale could result in a marginal reduction in the price of optometry services and appliances, if operators pass some of their cost savings on to consumers. For the Options under consideration the following access to economies of scale is anticipated: o Under Options 1 and 2, current operators in the market expect that there will be a slight expansion of corporate ownership and involvement, thereby increasing the average size of the operations and implying the potential for increased access to economies of scale. o Under Options 4 and 5, there is expected to be a slight decline in corporate involvement in the industry, potentially implying a lower access to economies of scale. SKM Economics RE020 18: OPTPBTFINALl.DOC 36 These impacts are summarised in Table 5.4. Table 5.4: Access to Economies of Scale, Impact of Options Access to Economies of Scale Option 3: Base Some economies of scale are currenlly being realised by large and small operators in Queensland. Option 1: No Restriction Some potential for increased access to economies of scale. Option 2: Statutory Offence Some potential for increased access to economies of scale (same as Option 1). - Option 4: Controllino Interest A reduction in access to economies of scale. Option 5: 100% control A reduction in access to economies of scale (same as Option 4). 5.5.2 Prices of Optometry Consultations and Cost of Appliances Whilst the fee paid to providers of optometry consultations is fixed under the Medicare system, these fees are related to underlying costs. This review therefore had to examine how underlying costs may change under the different Options. These changes in underlying costs would also be expected to flow through to the cost of optometry appliances for which there is a competitive market. As discussed in section 5.6.1, there are provider compliance costs that can be avoided under Options 1 and 2. These will be a direct cost saving for providers. In addition, the higher access to economies of scale under these Options would also be expected to reduce underlying costs. This could have two impacts: o reducing the need for any potential increase in the Medicare service provider fee for consultations; and o potential reductions (only marginal) in product prices to the consumer. Removal of ownership restrictions could result in marginal price benefits 10 the consumer In an environment where Medicare sets service prices to consumers (for optometry consultations), these direct cost savings are likely to be initially a benefit for service providers. The strength of any impact on consumers depends on how much of such cost savings filters through to consumers in the longer term. Under the more restricted Options (4 and 5) the opposite marginal impacts can be expected to occur. The higher compliance costs, noted in Section 5.6.1, would be expected to marginally increase the underlying costs of service provision. This marginal increase in costs would be expected to flow through to the consumer in the long term. A dramatic increase in prices, such as the 18% increase referred in US Federal Trade Commission study (noted in section 3.3.7) would not be expected because the competitive provision of optical appliance is expected to continue under all Options. The relative impacts are summarised in Table 5.5. SKM Economics RE0201B: OPTPBTFINAL l.DOC 37 Table 5,5: Cost of Optometry Consultations and Appliances, Impact of Options Costs / Prices Option 3: Base Consulting prices set under Medicare, competitive provision of appliances. Option 1: No Restriction Possibly marginally lower than Base. Option 2: Statutory Offence Possibly marginally lower prices than Base, (same as Option 1). Option 4: Controlling Interest Marginally higher prices than Base due to higher compliance costs and reduced access to economies oi scale. Option 5: 100% control Marginally higher prices than Base due to higher compliance costs and reduced access to economies of scale (same as Option 4). - 5,5,3 Consumer Choice The impact of the deregulation of ownership on consumer choice is not c1earcut. A range of different impacts needs to be taken into account, such as the potentially wider choice which will be offered if different organisations provide a service in a given location, where there is currently only a single supplier. From the consultations undertaken, it has been concluded that the level of consumer choice for optometry services and products is generally seen as acceptable at present. The more traditional owner-operators and the larger corporate groups are providing sometimes different non price benefits to consumers. In the case of the larger groups, these non price benefits include a 'branded' reputation, national network and interchangeability ie the ability to exchange products at more than one location. In the case of owner-operators, non price benefits include access to goods and services that are provided by independent suppliers of optical appliances. The current acceptable level of choice is nol expected to alter significantly under deregulated Options The continued existence of both owner operators and corporate service providers under Options 1, 2 and the Base Case implies little change in consumer choice under these Options. In the longer term, however, the removal of ownership restrictions could lead to the development of more innovative forms of service delivery in the industry. Corporate owners of health centres would, for example, be able to employ optometrists in their multi-disciplinary practices perhaps on a part time basis or by rotating them between different locations. Under Options 4 and 5, however, the lower level of corporate involvement could reduce the non-price benefits available to consumers. Service provision in regional! rural areas also impacts on consumer choice. See Section 5.5.5 regarding these impacts. SKM Economics RE02018: OPTPBTFINAll.DOC 38 The consumer choice impacts are summarised in Table 5.6. . ipttons Tabl e 5.6 Consumer Ch oice, mpaet 0 f a ' Consumer Choice Option 3: Base Current choice generally seen as acceptable. Option 1: No Restriction Potential for more innovative forms of service delivery to be developed. Option 2: Statutorv Offence Potential for more innovativeforms of service delivery to be developed (same as Option1). Option 4: Controllina interest Possible reduction in non- price choice factors due to restrictions in ownership structures. Option 5: 100% control Possible reduction in non" price choice factors due to restrictions in ownership structures (same as Option 4). 5.5.4 One Stop Shopping Optometry business ownership restrictions in some United States jurisdictions have previously led to a situation where 'one stop' shops were not permitted. That is, whilst an optical dispenser and an optometrist appeared to be operating at the same location, they had to have separate entrances to the separate businesses. Where this restriction has been removed, there has been significant benefits. For example, an Industry Commission report" estimated that annual operating costs would fall by A$10,OOO per dispensary (based on data from the United States) if restrictions against being able to operate a single practice covering both optometry and optical dispensing were removed. Acominueuo» of the availability of one stop sllOpping is expected under all Options This is not the current situation in Queensland, however, where one-stop shopping can be provided by all operations whether they have a corporate or traditional ownership structure. Stakeholders consulted did not believe that changes in ownership restrictions under any of the Options would alter the operation of practices as one-stop shops. The difference between the Options in the provision of one stop shopping would be in the underlying business structures. Under Options 4 and 5, optometrists could provide one stop shopping either as part of their own business, or in association with optical dispensers (ie by being located adjacent to, or within, an optical dispensing store). Therefore no change is expected in the availability of one stop shopping to consumers under any of the Options. 35 Industry Commission. The Growth andRevenue Implications 01Hilmer andRelated Reforms: RE02018: OPTPBTFINAll.DOC ,1I.FI'!e~~!J::~(~$/,?c/uE(rrC.'!f!,-'!!!s.s.i'!(}l~J!l~Eou'2'i.!-,.!LlluS.II.EI~EI'2g'3""'!£'2fT1e'!is.:.IY'~ch~1~~~,_~, SKM Economics 39 I 5,5.5 Regional and Rural Impacts A key issue in the analysis of the impacts of changes in the ownership restrictions is an assessment of the impact on regional communities. The submissions of both the Optometrists Board and the Optometrists Association suggest that deregulation of the ownership restrictions has the potential to diminish the level of service provided to people in rural communities. The Optometrists Association submission asserts: o there are approximately 50 rural and remote towns in Queensland that are visited regularly by optometrists but do not have permanent optometry practices within them; the economics of optometric practices are such that these visiting locations are unprofitable or of marginal profitability; optometrists provide services to these communities because of traditional or family ties to the towns; and large corporations are unlikely to cross subsidise unprofitable rural practices with profits generated by their city practices in a similar manner to non-corporate optometry businesses. o o o Specific evidence for this assessment of the impact of the removal of ownership restrictions is not presented. Discussions with optometrists provided anecdotal evidence that confirmed the overall picture presented by the Optometrists Association. Many rural communities are served by optometrists from regional centres that have a long-standing relationship with those communities. These optometrists stated that the returns from these trips were relatively low and because of the general decline in rural population, becoming lower: This evidence suggests that if such practices were run on a purely commercial basis, there would be a reduction in the level of service provided to some rural communities. Accepting that this is the case, the impact of a removal of the ownership restrictions is dependent on any changes that will occur in the ownership of optometry practices in rural and regional Queensland. Corporate practices have already established a significant presence in Queensland and their expansion has not been significantly slowed by the existing ownership restrictions. Therefore, if a move towards more corporately run practices was going to have an impact on rural communities, it would be expected that this would have already occurred. As can be seen from Figures 5.1 and 5.2, corporate optometry practices have spread to the larger towns of regional Queensland, but many of the smaller communities are served primarily by smaller optometry businesses. SKM Economics RE02018: OPTPBTFINAL i.ooc 40 The location of corporate optometry practices in regional Queensland would be expected to have already made the provision of optometry services more competitive and affected the ability of non-corporate optometrists in these towns to cross subsidise visits to more remote rural communities. It appears unlikely that a loosening of ownership restrictions under either Option 1 or 2 would have the effect of worsening this situation. OPSM note in their submission that corporate optometry businesses are likely to be the first to set up in new areas and provide optometry services. The available evidence does not support this claim. A new area would be expected to be typified by a relatively small population and strong population growth. Typically corporate optometry practices are located in major shopping centres where there is a relatively high turnover and large surrounding populations. It would be expected that emerging populations would continue to be initially served by smaller optometry practices under all Options. There is, however, some scope for more innovative forms of service delivery to be developed under Options 1 and 2 (as noted in section 5.5.3) which may influence the level of service delivery in rural communities. A tightening of the ownership restrictions under either Option 4 or 5 would be expected to slightly reduce the coverage provided by corporate optometry practices. This reduction may reduce competition in some regional centres and result in a slight increase in the ability of rural optometry practices to cross subsidise visits to the more remote areas of Queensland in the longer term. However, there are other factors contributing to the decline in the level of service provided in rural communities notably: Secular decline in rural service provision will far outweigh any ownersl7ip impacts o o o a well documented decline in the population associated with changing agricultural techniques and low commodity prices; the difficulties associated with attracting young professionals to rural communities; and the influence of enhanced transport networks which has led to the increased concentration of services in regional centres. Any diminisiling service in rural areas will be dominated by other factors These factors are likely to far outweigh any long term effects associated with changes to the ownership provisions. There may be a continued decline in the level of service provided to remote communities under all scenarios, particularly to the aged, who are less able to take advantage of improvements in the transport networks. The preferred approach to this potential problem would be to examine ways of allowing remote communities to be serviced by optometrists without requiring the optometrists to cross subsidise the service. SKM Economics RE02018: OPTPBTFINAll.DOC 41 Section 129A of the Health Insurance Act 1973 (Cth) already provides for special arrangements to be made with participating optometrists for the purpose of ensuring that adequate optometrical services are available to people living in isolated areas, The current arrangements are set out in a Ministerial Guideline'" and provide for payment of travel and other associated expenses to optometrists that deliver service to remote areas, Under these arrangements, it should be possible for rural and regional communities to have access to adequate optometry services under all scenarios, Table 5,7 summarises the impact of the various Options on the provision of optometry services in rural and regional Queensland, Table 5.7: Regional and Rural Effects, Impact of Options Regionai Impacts Option 3: Base Secular trends in rural areas may see a decline in service provision. Option 1: No Restriction Same as Base but some scope for innovations in service delivery. Option 2: Statutory Offence Same as Base bul some scope for innovations in service delivery. Option 4: Contrcllinq Interest Same as Base, Option 5: 100% control Same as Base. Visiting Optometrists, Guidelines for Assessing and Paying Appficatians for Assistance Under Section 129A of the Heafth tnsurance Act 1973. SKM Economics RE02018: OPTPBTFINAL1.DOC 42 36 Regional Brisbane Area LEGEND • Corporate Business Locations SI(M ECONOMICS Source: Postcode boundaries have beenobtained from the 1996AusllgPostcode layer. "Corporate" Business Locations by Postcode Figure 5.1 --t. • Regional Brisbane Area Optometrist Density - ECONOMICS -SI:;::::;:i'.";'r:\::Y:J' I,~:/,L:::t',:";\:'·>' :.:'.'1': . '."'.:. . .' ..'.,,':- ..- ,,',::Y::;t,.V!;f;l~l·i,'\I'f·i·: liJi~(~\f?£ No demonstrated impact is significant where deregulation exists (same quality of eyecare as Base) Quality of eye care Current situation is seen to give a satisfactory level of eye care despite the lack on any effective ownership restrictions. " ,:. .<:-.' .' .1\ .',.".- .' . 'lif:\:I>ii ',' .:· eVid;e~~~'that Mini~ises potential low risk of 1~lIeviales potential low risk of Alleviates potential low risk of ':,·'··.c··"· c.·. . .•. . .' . Base and Option 1 by providing a mechanism for prosecuting owners unduly who inHuence clinicat practice. Potential marginal improvement in quality at eye care over Base. Base and Oplion 1 through the Optometrists Board's capacity to act against owners of optometry practices. Potential marginal improvement in quality of eye care over Base. Base and Option 1 through the Optometrists Board's capacity to act against owners of optometry practices. Potential marginal improvement in quality 01 eye care over Base. Cost of Service / appliances Access to economies of scale Some economies of scale are currently being realised by large , and small operators in Queensland. Consulting prices set under Medicare, competitive provision of appliances. Some potential for increased access to economies of scale. Some potential for increased access to economies of scale (same as Option 1). Possibly marginally lower prices than Base (same as Option 1). (same as Ootion 2) A reduction in access to economies of scale. (same as Ootion 2) A reduction in access to economies of scale (same as Option 4). Marginally higher prices than Base due to higher compliance costs and reduced access to economies of scale (same as Option 4). Possible reduction in non- price choice factors due to restrictions in ownership structures (same as Option 4). No change - continued access to one stop shopping. Price of service / apptiances Possibly marginally lower prices than Base. Marginally higher prices than Base due to higher compliance costs and reduced access to economies of scale. Possible reduction in non- price choice factors due to restrictions in ownership structures. No change - continued access to one stop shopping. Consumer Choice Current choice generally seen as acceptable. Potential for more innovative forms of service delivery to be developed. No change - continued access to one stop shopping. Potential for more innovative forms of service delivery to be developed (same as Option1). No change - continued access to one stop shopping. One stop shopping Currently no barriers to existence. Secular trends in rural areas may see a decline in service provision. Regional/Rural areas Service provision Same as Base but some scope for Ihe development of new forms of service delivery. Same as Base but some scope tor the development of new forms of service delivery. . Same as Base. Same as Base. Impacts on Service Providers Cost of Service Compliance costs Some businesses incur compliance costs to conform with the current legislation. These costs amount to approximately $1/2 million (PV). Majority of business are expected to remain as traditionat small businesses but the gradual shift to more corporate ownership is expected to continue. There are currently approximately 1,600 people employed in Queensland's optometry industry. Avoided costs of approximately $1/2 million (PV). Avoided costs of approximately $1/2 million (PV). Small Business Impacts Industry concentration Same as Base. Same as Base. Increased compliance costs lor service providers and a one off cost of restructuring some businesses to ensure that they conform with ownership restrictions. Shift away lrom corporate ownership due to restrictions on certain business structures. Increased compliance costs lor service providers and a one all cost of restructuring some businesses to ensure that they conform wilh ownership restrictions (same as Ootion 4). Shift away Irorn corporate ownership due to prohibition of certain business structures (possibly higher than Option 4). Employment Impacts Employment levels and conditions Slight increase in the flexibility of employment options for optometrists. No net change in employment levets expected. Slight increase in flexibility of employment options for optometrists. No net change in employment levels expected (same as Option 1). Long term reduction in employment flexibility. Dislocation of some existing employee optometrists No long term change in employment levels expected. Long term reduction in employmentflexibilily. Dislocation of some existing employee optometrists (same as Option 4). No long term change in employment levels expected. Impact on Regulators Cost of Regulation Administration costs Existing costs, plus ongoing NCP review costs. Lower than Base, and no NCP review costs. Little change and no NCP review costs. Higher than Base, due to higher enforcement costs associated with assessing legally comptex ownership structures. On going NCP review costs and potential for compensufion claims by adversely auected businesses. Higher than Base. due to higher enforcementcosts associated with assessing legally complex ownership structures (possibly lower than Option 4). On going NCP review costs and potential for compensation claims by adversely affected businesses. 6. Conclusions 6.1 Key Results Key results of the Public Benefit Test are summarised The key results of the Public Benefit Test assessment of ownership restrictions contained in the Queensland Optometrists Act 1974 are now summarised. lrnpacts on Consumers o Stakeholders consulted in the review agree that the level of eye care currently being delivered in Queensland is at the required standard. Very few complaints (fewer than 1a-per year) are made about optometrists to the HRC. o There is some evidence that there is a marginal difference between the way in which optometrists undertake their consultations in a corporate environment, compared to an owner-operator practice, but there is no evidence that this has an impact on eye health care. o Under the 'no ownership restrictions' Options (1 and 2), no adverse effects on the quality of health care is expected relative to the Base Case. No adverse impacts have been reported in jurisdictions where ownership restrictions have been lifted. o Secular changes in rural and regional areas are likely to dwarf the impacts of changes in ownership restrictions on the quality of optometry services provided to these communities across all the Options. o No major change in the price of optometry services is expected under any of the options, although marginally higher prices are expected under Options 4 and 5. Medicare establishes benchmark prices for optometry consultations, and there is already a competitive market for optical appliances. In the long term, however, a marginal reduction in the underlying costs associated with running an optometry practice is expected under Options 1 and 2. This reduction in underlying costs may help reduce any increase in consultation costs in the future and may also flow on to reduce the cost of optical appliances. o Under Options 1 and 2 it is expected that a slight increase in access to economies of scale in the industry, may also work to reduce the price to consumers of optometrical goods and services under these Options. o Options 4 and 5 could lead to a restriction of consumer choice. This would result from reduced corporate participation in the market, lessening access to non-price choice benefits currently enjoyed by consumers, such as access to national networks and the ability to exchange optical appliances at different geographic locations. SKM Economics RE02018: OPTPBTFINAll,DOC 54 Impacts on Service Providers o Despite the existing ownership restrictions, commercial incentives currently apply to all service providers, This is due to the reliance on the retail side of business for a significant proportion of total income generated by a typical optometry practice, o Small businesses dominate the industry at present and this is expected to remain if ownership restrictions are removed, o The existing ownership restrictions are, in fact, circumvented by corporate arrangements whereby optometrists act as the nominees of nonoptometrist owners, Thus the current situation could be described as a "defacto" or constrained form of ownership deregulation, o Under Options 1 and 2 there are more significant impacts on service providers than on consumers, These include the trade-off between higher profits through scale economies and avoided operational costs achieved by corporate groups, as compared to sole operators, o No net change in terms of total employment in the industry is expected under any of the Options, o Options 4 and 5 are expected to result in some dislocation of the 20% 25% of the optometry workforce who are presently employed under arrangements that would no longer be legal. This dislocation is likely to be disruptive and stressful to some members of the profession, o Options 4 and 5 are expected to result in a slight decrease in the flexibility of work conditions in the industry in the longer term, For example, there could be a decrease in the number of part time positions available, Impact on Administrators / Regulators o Ownership restrictions represent a small share of the administrative burden of the legislation, o Removal of ownership restrictions may see some reduction in administration, but little overall change is expected if administrative and monitoring processes rely more on supporting legislation (eg the statutory offence clause under Option 2), o Under the more restrictive Options (4 and 5), there may be an increase in the cost of administering the ownership restrictions and some potential for compensatory issues associated with restricting or eliminating existing companies, which can operate in other jurisdictions, These costs would appear to exceed the potential benefits of these Options that are marginal at best. SKM Economics RE02018: OPTPBTFINAll,DOC 55 6.2 Summary and Conclusions The Public Benefit Test guidelines require that the results for the Options be judged against the following criteria: o the objectives of the legislation - that is. protection of public health and provision of safe. competent and up-to-date health care; o the overall net benefit of each Option (Clause 5(1 )(a) of the Competition Principles Agreement); and o the objectives of the legislation can only be achieved by restricting competition (Clause 5(1)(b) of the Competition Principles Agreement). Table E.1 summarises the overall net benefit of each Option. The conclusions thereafter provide a summary of the results of this Public Benefit Test in the context of these criteria. Table E.1: Net benefit - Summary by Option Net Benefit Option Some avoided costs 1: No Restriction Some competition benefits Siight increasein the fiexibility of employment options in the industry Same quality of eyecare as base Positive net benefit (lower than Option 2) Some avoided costs (less avoided costs than Option 1) Some competition benefits Slight increase in the t1exibility 01 employmentoptions in the industry Potential marginal improvementin qualityof health care Positive net benefit (higher than Ootion 1) Base- for comparison purposes Highercosts than Base Some dislocation of existing workforce Long term decrease in the t1exibility of employment options in the industry Potential marginal improvement in qualityof health care No net benefit Highercosts than Base Some dislocation of existing workforce Long term decrease in the t1exibility of employment options in the industry Potential marginal improvement in qualityof health care Ranking* 2 2- Statutory Offence 1 (Highest) 3 - Existing (Base) 4 - Controlling interest 3 4 5 - 100% Ownership/Control 4 No net benefit .. *Ranklngs reflect each Option's ability to meet the review criteria, Option 2 best meets these criteria. SKM Economics RE02018: OPTPBTFINAll.DOC 56 In explanation the following conclusions are made: Option 2 - No ownership restrictions, with a statutory offence clause is the preferred Option under the Public Benefit Test. o Under Option 1 (no ownership restrictions) a minor potential health risk is identified that undue pressure could be applied by an owner on the clinical practice of an optometrist. This minor risk also exists under the Base Case, This risk can be effectively mitigated. by implementation of supporting statutory offence legislation (Option 2) or a tightening of the ownership restrictions (Options 4 and 5), o Option 2 (statutory offence model) prohibits optometry owners from exerting undue commercial pressure on employee optometrists, and is expected to provide the same quality of health care as would be expected under either Options 4 or 5. and a marginal improvement over the Base Case and Option 1. o Options 1 and 2 are expected to lead to marginal cost savings and some competition benefits compared to the Base Case, The cost savings under Option 2 will be slightly lower than Option 1, due to the additional costs of administering the statutory offence legislation, o The slightly lower costs of Option 1, compared to Option 2 are not expected to be large enough to offset the potential additional health risk of Option 1. Option 2 will therefore be expected to result in higher net benefit than Option 1 (and the Base Case), o The tightening of ownership restrictions (Options 4 and 5) are expected to have higher administration and compliance costs than the Base Case and some negative impacts on employment conditions in the industry, o Removal of ownership restrictions, under Options 1 or 2, is expected to create marginal net benefits compared to the existing situation, with Option 2 expected to provide marginally higher benefits than Option 1, In accordance with Clause 5 (1 )(b) of the Competition Principles Agreement, the objectives of the legislation can be achieved under Option 2, without a restriction on ownership being in place, o Overall, Option 2 (No Ownership Restrictions with a statutory offence clause) is the preferred Option because under this Option: the optometry industry is expected to be able to provide at least the same quality of health care that would be provided under any of the alternative Options and potentially a higher quality of health care than would be provided under the Base Case and Option 1; the net benefits are expected to be higher than the net benefits of the alternative Options; and the objectives of the legislation can be achieved without restricting competition, SKM Economics RE02018: OPTPBTFINAll.DOC 57 Appendix A - Value Management Workshop Participants· Thirteen participants attended the workshop, namely: o o o o o o o o o o o o o Peter Lenehan, Group General Manager - Optics, OPSM; Ann Webber, President, Optometrists Association of Australia (Queensland Division); Ron Bowden, Executive Officer, Optometrists Association of Australia (Queensland Division); Ian Kent, Chairman, Optometrists Board of Queensland; Carolyn Evans, Member, Optometrists Board of Queensland; Greg Smith, Managing Director, The Now Group; John Gimpel, Operations Manager, Laubman and Pank; Karla MacDonald, Queensland Health; Angela Handley, Queensland Health; Steve Kanowski, SKM Economics; Barry Nicholls, SKM Economics; Tom Frost, SKM Economics; and Dr Jan Lovie - Kitchin, Associate Professor, School of Optometry, Queensland University of Technology was also in attendance to provide independent assessment of any health and safety issues that were brought up during the discussion process. SKM Economics RE02018: OPTPBTFINAll.DOC 58 Appendix B - Major Information Sources ~ ~ ~ 1. Australian Bureau of Statistics 2. Commissioner for Health Complaints - Australian Capital Territory 3. Department of Health - New South Wales 4. Department of Health - Victoria 5. Department of Health and Aged Care - Tasmania 6. Department of Health and Community Services - Australian Capital Territory 7. Department of Human Services - South Australia 8. Health Care Complaints Commission - New South Wales 9. Health Rights Commission - Queensland 10. Health Services Commission - Victoria 11. Laubman and Pank 12. Office of Health Review - Western Australia 13. Ombudsman Office - Tasmania 14 OPSM 15. Optometrists Association of the Australian Capital Territory 16. Optometrists Association of Australia (Queensland Division) 17. Optometrists Association of Western Australia 18. Optometrists Board of Queensland 19. Optometrists Board of the Northern Territory 20. Optometrists Board of Victoria 21. Queensland Health 22. The Now Group 23 Health Insurance Commission 24. Office of Rural Communities --,,---------_.---,,-:=---==.,..,.,----59 SKM Economics RE020 18: OPTPBTFINAll.DOC AppendixC - Definition of Optometry Terms REFRACTION is a basic eye test to assess the power and degree of the required spectacle correction. Measurements are taken for both far and near vision. Combinations of computer and manual techniques can be used. BINOCULAR VISION tests analyse the ability of the eyes to coordinate the separate images seen by each eye into a single image. SLIT LAMP BIOMICROSCOPY is a diagnostic procedure for comprehensive evaluation of the front of the eye. OPHTHALMOSCOPY - examination of the retina or the area inside the eyes. TONOMETRY - a measurement of the pressure inside the eyes. SKM Economics RE0201B: OPTPBTFINAll.DOC 60 Appendix D· Business Register Classifications .. - ,. . Proprietary Limited: A Proprietary Limited company is one that is not allowed to invite the public to subscribe for shares. The company ending is 'PTY LTD'. Sole Proprietor: This classification is used when individuals set up and carry on business without the need to notify corporate registration authorities. Even where registration for business purposes is required by other government authorities, the strict Legal Entity under the common law is still the individual the business having no separate legal recognition. For this reason an individual proprietorship covers all of the business interests of the owner or proprietor, irrespective of how many different businesses are carried on by that single individual. Family Partnership: A Family Partnership is the relationship which exists between family members carrying on business in common with a view to profit. The persons who have entered into partnership with one another are sometimes called collectively a firm, but the firm name, as such, is only a short way of expressing the names of all the partners. Although the partners may sue and be sued in the firm name, this sort of firm has no legal existence separate from its individual family members. Other Partnership: This classification is used for all other partnerships that exist between persons who are not members of the same family. It should also be noted that partnerships could exist between unincorporated and/or incorporated entities. Trust: A Trust is an obligation binding a trustee to manage assets on behalf of beneficiaries. Generally a trust is as an Enterprise Group with the trust as a Principal Legal Entity of the Management Unit and the trustee as a NonPrincipal Legal Entity of that Management Unit. The major types of trusts are: FAMIL Y TRUST - Where beneficiaries of the trust fund are members of the same family. UNIT TRUST - The entitlement of the unit holders (beneficiaries) to participate in the benefits of the trust (income distribution) is proportional to the number of units held. This trust is very similar to the holding of shares by shareholders in a company. DISCRETIONARY TRUST - The trustee has the discretion to determine from all beneficiaries, which beneficiaries should receive a particular benefit. For example, 'the wife and present and future children of John Citizen'. SKM Economics RE02018: OPTPBTFINAL i.ooc 61 SERVICE TRUST - Service trust operations are established for the supply of office equipment, personnel etc. The actual trust operation could be either a unit trust or an ordinary trust and could have either discretionary or fixed activities specified by the trust deed, MOTHER TRUST - This term is applied to the 'head' trust when more than one trust is used in a structured business operation. In such an operation there is a 'head' trust, then several subsidiary trusts which are either the beneficiaries or unit holders of the 'head' trust. Separate trustees are required for the 'head' trust and the subsidiary trusts, The trustees may either be a sole proprietor or a company. Other Registered Organisation: This classification is used for any other registered companies that cannot be classified, SKM Economics RE020 18: OPTPBTfINAl' .DOC 62