Medibank’s ‘no-gap’ private hospital: A push for vertical integration – but at what cost to patients?

Medibank’s move to establish Australia’s first no-gap private hospital in Melbourne has ignited strong opposition from the Australian Private Hospitals Association (APHA).

APHA CEO Brett Heffernan did not mince words, warning that the vertical integration model “seeks to eliminate patient choice, break the sacrosanct relationship between doctor and patient, and have the insurance companies weasel their way into clinical decisions based on what they are prepared to pay.”

At the centre of the debate is Adeney Private Hospital, a newly developed $100 million facility boasting 60 beds and five operating theatres. The hospital is owned by Centuria Prime Partnerships, a joint venture between Centuria (REIT) and Morgan Stanley. It is under a 20-year lease to Adeney Private Hospital – a partnership between a trust owned by 42 medical specialists and Medibank’s health service delivery company, Amplar Health. 

This raises a critical question: If a doctor admitting a patient is also a shareholder in the trust, are they obligated to disclose that financial interest?

Defending the model, Amplar Health CEO Robert Read stated, “This hospital was designed to provide value and choice to patients. With the rising cost of living, we know how crucial it is to make healthcare more accessible.”

Yet, the Australian Medical Association (AMA) has long cautioned against private health insurers aggressively pursuing vertical integration “in an attempt to gain greater control of treatment costs.”

A recent study led by Soroush Saghafian from Harvard University found that vertical integration is leading to higher costs and worse health outcomes.

“Analysing more than 2.6 million patient visits, we found that physicians significantly alter their care process after they vertically integrate. Although integration improves operational efficiency measured by physicians’ throughput, it negatively affects quality and overall spending. What is more, this results in a substantial increase in patients’ post-procedure complications,” Saghafian stated.

He further explained, “We provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behaviour, since it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures.”

Despite repeated lobbying efforts by the AMA, APHA, and the Australian Society of Ophthalmologists (ASO) to prevent the rise of US-style managed care in Australia, the trend continues. In 2021, the ACCC authorised Honeysuckle Health and nib private health insurer to form a health services buying group.

Heffernan issued a stark warning about the broader implications of Medibank’s latest move.

“The disturbing trend is that health insurers are refusing to pay the actual cost of care in private hospitals but taking those ill-gotten profits to run their own hospitals in the name of cost-cutting,” he said.

“When insurance companies seek to justify their forays into clinical service provision based on cost-savings, it’s time to worry. It’s a direct bid to bust the value proposition of private healthcare in their favour, not patients.”

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