Are private hospitals in Australia really facing a cash crisis and could some close?
Economists and policy experts have called out “murkiness” about the cost of private health care as the department of health prepares to deliver findings from its review into the financial viability of the sector.
The department’s review began in May following contract disputes between private hospital companies and health insurers that risked leaving patients paying higher out-of-pocket expenses, and as hospitals raise ongoing concerns about rising costs of providing care.
Patients are being told there is a risk of private hospitals closing – but are these claims overblown?
Who’s saying what about private hospitals?
Private hospitals have in part blamed the private health insurers – which have seen growing memberships and profits – for failing to allocate a large enough portion of funds collected from members towards hospitals.
Private Healthcare Australia, representing insurers, has said it is responsibly returning money to policyholders, and that hospitals shouldn’t have to “raid health funds to solve their problems”.
The stoush between private hospitals and insurers has prompted the federal health department to ask hospitals and other stakeholders to hand over their financial information to assess the performance, pressures and profitability of the sector.
The report is now overdue – on Monday, a department of health spokesperson told Guardian Australia it was “still being finalised”.
“Reports about the sustainability of some private hospitals are concerning, particularly those in regional areas and where they play an important role in the local community,” the health minister, Mark Butler, said.
“It’s appropriate that the health department undertakes some work to better understand the situation.”
What do we know about hospital/insurer finances?
Charles Maskell-Knight, a former senior health department official, says he does not expect the department to “get the full picture” of how private hospitals are spending – and potentially wasting – money.
In previous years, the Australian Bureau of Statistics produced an annual report on private hospitals, including financial data. Funded by the department of health, it was discontinued after the 2016-17 edition.
“There is no independent source of data on the financial position of the private hospital sector,” Maskell-Knight said.
“Call me cynical, but if I was running a profitable private hospital why would I provide data to a review premised on the notion that private hospitals are doing it tough?
“If the review recommends measures to improve the financial position of private hospitals I will benefit – so why would I provide data that suggests such measures are not necessary?”.
Maskell-Knight said in the meantime, private health insurers had “done very well from the pandemic”.
“They are handing money back to members, but they are doing so because they applied for unnecessary premium increases, rather than drawing on reserves,” he said.
“Their reserves continue to increase, and in a number of cases represent more than a year’s worth of premium revenue.”
The government should stop subsidising private health insurance premiums, he said, and subsidise private hospitals based on the type and amount of care they provide, similar to how public hospitals are funded (known as activity-based funding).
Are private hospitals on the verge of collapse?
The private hospital sector has said hospitals may close without more support from the insurers, which reported a more than doubling of net profit after tax to $2.2bn in the year to June 2023.
While the private hospital sector says 71 hospitals have closed since 2019, there has been a net loss of about a dozen private hospitals because new hospitals have also opened, Maskell-Knight says.
Private Healthcare Australia’s chief executive, Dr Rachel David, said on Wednesday amid a stand-off between Healthscope, Australia’s second-largest hospital provider, and the insurers: “I want to reassure the 12 million Australians with hospital cover that health funds will not let hospitals in genuine areas of need close.”
Should the government intervene?
Related: Australian health insurers earn $1.3bn more in surplus than two years ago, report shows
The activity-based funding model has already led to efficiency improvements in the public sector and could benefit private hospitals, Maskell-Knight said.
He maintained that the government should not intervene in contract disputes between insurers and hospitals.
“Insurers and hospitals are consenting adults, and should be left alone to negotiate mutually agreed contracts,” he said. “The private health insurance promise is quicker access to hospital treatment, and if an insurer cannot deliver on that promise they will face problems.”
The health and aged care program director at the Grattan Institute, Peter Breadon, said: “Sunlight could be a good disinfectant for this toxic stoush”.
He agreed that activity-based funding, managed by an independent pricing authority, “would be the ultimate transparency”, clarifying the financial situation of private hospitals. It would require collecting data and analysing costs across the sector to determine the average cost of care, making it harder for hospitals to charge more than necessary.
“Clearly, it’s currently a very murky situation where you’ve got the players contradicting each other and fighting over the real basics about financial viability,” Breadon said.
“More transparency would help a lot.”
Breadon said normally, the government wouldn’t need to get involved in negotiations between hospitals and insurers by conducting a review.
“But this is far from a normal industry, right? It’s got huge public subsidies. And clearly the players are at each other’s throats, so they’re calling in the department to be a bit of an umpire on costs.”
He said improving transparency through activity-based funding would ensure that the focus remains on providing quality care at reasonable costs, removing the need for the government to mediate in future.
“Consumers should be able to hope that private hospitals and insurers are at least on the same page about the very basics of financial viability,” Breadon said.
“This kind of fighting is a real distraction from what should be the focus of contracting in the sector.”
