Government rejects funding lifeline as private hospitals’ future hinges on complex negotiations: Health check report released

The federal government’s release of its Private Hospital Sector Financial Viability Health Check raises alarm bells about the sector’s viability. Yet, there are no immediate actions being taken to address these pressing concerns that continue to impact patient care.

Federal Minister for Health and Aged Care, Mark Butler, announced the government’s response today, confirming the establishment of the Private Health CEO Forum.

“There will be no silver bullet from Canberra or funding solution from taxpayers to deal with what are essentially private pressures in this system,” Minister Butler stated.

Brett Heffernan, CEO of the Australian Private Hospitals Association (APHA), said “We’ve all been waiting a very long time for this report only to find out what we already know. We recognise that long-term systemic reforms will be needed, but there is no escaping immediate action is essential to prevent more private hospitals from going to the wall.”

In Australia, private hospitals manage more than 40% of all hospital admissions and perform around 70% of elective surgeries. The report highlights a shift from overnight stays to same-day separations, with overnight hospitals absorbing much of this trend.

Catholic Health Australia (CHA) Director of Health Policy, Dr Katharine Bassett, expressed concern, saying “This report confirms what we have been saying for a long time – that the private health sector is under severe and unprecedented funding pressure, especially in mental health and maternity care.”

The report shows profitability has declined as costs outpaced revenue. Specifically, private hospitals that provided financial data saw their average Earnings Before Interest, Tax and Depreciation (EBITDA) margins fall from 8.7% in 2018-19 to 4.4% in 2022-23. However, when considering publicly available data, the Department of Health estimates that the sector’s EBITDA margin was likely between 7% and 8% for 2022-23.

The CEO Forum aims to bring together leaders from private hospitals, private health insurers, medical groups and independent experts to develop short term options for government consideration and to commence work on long-term reforms to strengthen the sector’s financial viability.

CHA has proposed several short-term measures, such as government-funded initiatives to reduce public hospital waiting lists, financial support for wage growth, and adjustments to capital reserve requirements for insurers to improve funding flows. Other suggestions include premium adjustments to reflect rising hospital costs and incentives to reduce maternity care expenses.

Dr Bassett emphasised the urgency of action, saying “Now we know the extent and seriousness of the problem facing private healthcare, the whole sector needs to move quickly and cooperatively to implement solutions in the national interest. The establishment of the Private Health CEO Forum is a welcomed step to achieving this.”

However, the APHA is demanding urgent action. Heffernan stated, “The government response is to say, ‘yes the numbers show you’re in a lot of trouble, let’s have a chat about it’. APHA has been banging on the door of government saying’ this is a problem for a year, and in that time more hospitals have closed their doors. Inaction will see more services close or hospitals fold.

“We weren’t anticipating that this report would provide a panacea, but all this suggests is continuing a conversation. We are long past the need for answers, not more discussion.”

The report cautions that the future will involve challenging funding negotiations between hospitals and insurers, along with market adjustments that will need continuous monitoring. It stressed, “Critically, all market participants who have a long-term financial interest in the sustainability of the sector must work together to ensure the private hospital sector remains financially viable in the short term but also continues to adapt and innovate to deliver efficient and contemporary acute care into the future.”

Heffernan warned, “Structural reform of the relationship between funders and providers of private health care is needed, but it won’t come quick. In the meantime, if health insurance companies can’t be forced to meet the costs of their members in hospitals, then the government will have to fill the void with temporary co-payments just to keep private hospital doors open and the health care system afloat.

“If not, for the first time in decades private hospitals will have no choice but to charge patients gap fees to meet the shortfall left by derelict health insurers.”

With the next federal election looming and other pending healthcare reforms, the timing and implementation of the CEO Forum or any meaningful measures remain uncertain.

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