Announcing the ill-fated 2014 budget initiative to introduce a consumer co-payment for general practice visits, the then health minister, Peter Dutton, lamented that annual Commonwealth health costs had increased from A$8 billion to A$19 billion over a decade. He described the increase as “unsustainable” and used it to justify the budget’s bitter pill.

The implication of his announcement was that consumers were driving the increase in costs and that action to change consumer behaviour was necessary to rein them in.

The growth numbers were presented as part of the government’s then mantra of a “debt and deficit disaster”, and massaged to create maximum shock and awe. The minister’s numbers did not adjust either for population growth or inflation.

Nonetheless, a more legitimate set of growth numbers would still show Medicare Benefits Schedule (MBS) payments growing at an annual rate of 2.3% in real per-head terms, faster than growth in government expenditure overall (1.8%).

But this still leaves open the question of whether consumer behaviour is driving rising costs or whether there may be other causes.

A report released last week by the Parliamentary Budget Office shows that government policy has driven a significant proportion of the growth in MBS costs. In fact, of the A$325 real increase in MBS spending per head since 1993-94, all but A$74 has been the result of explicit government decisions.

MBS spending per head is the product of the rebate for each MBS item and the per head use of those items. Both elements of this calculation have been tinkered with as part of policy change over the last two decades.

Governments have increased rebates for some items faster than inflation. This has been done, for example, to encourage an increased rate of bulk billing. New item numbers have also been added as part of major policy reviews.

(Each MBS service involves one or more item numbers and an associated description. For example, an ordinary consultation with a general practitioner is item number 24.)

The single largest cost impact (A$51 per head) came from changes to diagnostic imaging items, including new items for magnetic resonance imaging (MRI). But implementation of policies to expand magnetic resonance imaging and reform diagnostic imaging items more generally has been poor.

It is questionable whether consumers are getting value for money from this investment. Also, some diagnostic imaging tests appear to be overused.

Policies designed to increase bulk billing accounted for an extra A$70 per head: increasing the GP rebate from 85% of the schedule fee to 100% accounted for A$42 per head; targeted increases in the rebate to increase bulk billing rates accounted for the rest.

When did Medicare spending soar?

In the decade to 2003-4, Medicare spending grew by A$53 per head. Just over half of that was attributable to the addition of new diagnostic imaging items to the schedule. In the next decade, spending grew at five times that rate – by A$272 per head.

Most of the growth was due to decisions taken when Tony Abbott was health minister, between 2003 and 2007. In fact, almost half (47%) of the growth in Medicare spending over the last two decades is the result of policy decisions taken when he was running the health portfolio.

The changes were introduced over the years for a mix of policy and political reasons. The decline in bulk billing was associated with public dissatisfaction with Medicare and was clearly having political impacts. This led to new bulk billing incentives and increases to the rebates for general practitioner fees.

The increasing prevalence of chronic diseases, such as diabetes and heart disease, led to new assessment and care planning items.

A decline in the proportion of GPs providing after-hours care led to new items to redress that as well.

General practitioners got more rebate income (in real terms) for seeing the same number of patients, so it was actually changes initiated by government that led to the increase in spending.

What does this mean for Medicare reform?

Two main lessons can be drawn from the Parliamentary Budget Office report.

First, the government must be clear about what is driving growth in expenditure. The co-payment proposal sank like a lead balloon partly because it was seen as inefficient and unfair, but also because the public didn’t have any ownership of the “problem” the changes sought to address.

The way the problem was initially presented was wrong, causing confusion between Medicare services (which include diagnostic tests) and GP visits. The vast majority of the population, who have few visits, refused to accept that per-head use was going up.

Second, the report shows how much governments have relied on tinkering with the Medicare Benefits Schedule to drive system change in the last decade. “Here a new item, there a new item, everywhere a new item” became the Canberra policy song sheet.

Health Minister Sussan Ley wiped the slate clean when she was appointed in December, setting up a raft of reviews to look at everything from primary care to disinvestment. Importantly, reviews must consider whether the Medicare schedule is still “fit for purpose” in the context of the increase in chronic disease and the impact this is having on clinical practice.

It must be hoped new policies developed in response will be both more sophisticated and less profligate than we have seen over recent decades.