Are Private Hospitals Really in Trouble? And Is More Public Funding the Answer?

AND battle between private hospitals and private health insurers is played out publicly.

A key issue is how much health insurers pay hospitals for their services and whether this is enough for private hospitals to stay in business.

Concerns about the profitability of the private healthcare system have caught the attention of the federal government, which has launched review to private hospitals that have not yet been made public.

But are private hospitals really in trouble? And if so, is more public funding the answer?

Private Hospitals vs. Private Health Insurers

Many private hospitals have reported significant pressures since the start of the COVID pandemic, including Staff shortages.

Inflationary pressures have increased the costs of materials and equipment, raising costs providing hospital care.

Now, private hospitals have gone public with their complex negotiations with private health insurers in an attempt to gain support and assist their cause.

Healthscope, a company that manages 38 private for-profit hospitals in Australia, dangerous terminate contracts with private health insurers.

St Vincent’s, which runs ten private, non-profit hospitals, announced would end its contract with nib (one of australia’s largest for-profit health insurers), but then we reached an agreement.

UnitingCare Queensland, which manages four private hospitals, announced would end the agreement with the Australian Health Service Alliance, which represents more than 20 compact and medium-sized non-profit private health insurers. Both parties have since also kissed and made up.

Why should we care?

There are three reasons why the profitability of the private healthcare sector affects all of us, whether we have private health insurance or apply private hospitals.

1. Taxpayers subsidize the private healthcare system

Australian taxpayers contributed to private health insurance premiums AUD 6.3 billion
(in the form of premium rebates) in 2021-2022. A vast part of this goes to private hospitals. Medicare also subsidized fees for medical services provided to private patients in private and public hospitals at a rate of $3.81 billion in 2023–2024.

But as the going gets tough, the private healthcare sector (both hospitals and health insurers) is asking the government for more information materials.

That’s why we should worry about it value how much do we currently receive from public investment in the private healthcare system, and if greater public investment is justified.

2. Public hospitals may suffer if private hospitals close

Calls for greater government support for private healthcare have long argued that a larger private hospital sector would assist reduce pressure on the public system.

In fact, this was the justification for the series encouragement introduced in the slow 1990s to support private health insurance in Australia.

However, the extent of this is hotly debated. The last evidence shows that higher levels of private health insurance result in only a compact reduction in waiting times in public hospitals.

While it is likely that the closure of some private hospitals will prompt some patients to seek care in public hospitals, this change will not be significant and will not result in significantly longer waiting times.

3. Fewer private beds, but is that a bad thing?

If unprofitable private hospitals are closed or merged, we can expect the number of beds in private hospitals overall to be smaller.

Fewer private hospital beds are not necessarily bad news. Mergers of compact private day hospitals, in particular, could make them more proficient and lead to lower costs, which in turn would lower health insurance premiums.

We may need fewer private beds. This is due to policies that try to move healthcare out of hospitals and into the community, or to hospital-at-home schemes (where patients receive hospital care at home with support from medical staff and/or telemedicine). Private health insurers support both of these approaches.

If a few compact private hospitals close, it reflects the market adjusting to lower demand for hospital care. Some closures have involved maternity wards, but falling birth rateThis also appears to be an appropriate market correction.

What do we know?

Any objective data on what is happening in the private hospital sector is scarce. This is mainly because the Australian Bureau of Statistics has Compulsory testing has been suspended all private hospitals. The latest data we have is from 2016–17.

Health insurers are the largest payers of private hospitals and therefore have significant negotiating power. In 2016–2017, almost 80% private hospital revenues came from private health insurers. Health insurers also increasingly became “busy” purchasers of health care—not just passively paying insurance claims, but wanting to strike a good deal with private hospitals so that their members could keep their premiums (and costs) low and their profits high.

Hospital reports close ignore hospitals that open at the same time. But since 2016-17, there is no publicly available data on the total number of private hospitals in Australia or changes over time.

The latest data we have shows that half all hospitals in Australia are private, and of these 62% are for-profit, the rest are run by non-profit organisations (such as St Vincent’s).

The main for-profit suppliers are Ramsay Health Care and Healthscope. Both have operations overseas and have been troubles before the COVID pandemic.

Quick forward to 2024, and recent contract negotiation problems suggest that the financial situation of for-profit private hospitals may not have improved. This may therefore reflect a longer-term problem with the stability of the private hospital sector.

What are the options?

The private healthcare system already receives vast public subsidies. So the heart of the current debate is whether the government should intervene Again to support the private sector. Here are some options:

• do nothing and let the situation play itself out Closing and merging private hospitals could be a good solution if smaller hospitals and departments are no longer needed and patients have other alternatives

• introduce more regulations Negotiations between compact private hospital groups and very vast, dominant private health insurers may not be proficient. If insurers have significant market power, they can force compact private hospital groups into submission. Some private hospital groups may negotiate with many different health insurers at the same time, which can be costly. Regulating exactly how these negotiations are conducted could make the process more proficient and create a more level playing field.

• change the way we pay private hospitals Public hospitals are essentially paid the same national price for every procedure they provide. This provides incentives for efficiency because the price is fixed, so if their costs are below the price, they can make a surplus. Private hospitals could also be financed in this way, which could remove much of the cost of contract negotiations with private hospitals. Instead, private hospitals could focus on other issues, such as the number and quality of procedures and the provision of high-value healthcare.

What’s next?

Reconsidering price regulation and contract negotiations between private hospitals and private health insurers could potentially assist the private hospital sector become more proficient.

Private health insurers rightly seek to encourage such efficiency, but the tools they have to do so through contractual negotiations are quite restricted.

While we await the results of the private hospital sector review, the most essential thing is value for money for taxpayers. We all subsidise the private hospital sector.