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News & Trends - MedTech & Diagnostics

Private health insurer looking to invest in Australian private hospitals

Health Industry Hub | July 15, 2020 |

MedTech News: In a recent opinion piece Dr Bill Coote, former AMA Secretary General and former Director of the Medicare ‘watchdog’ Professional Services Review, shared his views on the investment of private health funds in private hospitals.

Recent media reports suggest private health insurer Medibank is looking to invest in private hospitals. This development should concern the Australian public, private health insurance policy-holders and doctors.

In the USA there has been substantial health industry consolidation over the last decade with insurers buying up hospitals and medical practices. Many regional markets are now dominated by a single hospital/insurer conglomerate.

Dr Coote told the Australian Private Hospitals Association (APHA) that Australia should resist such consolidation with its risk of ‘managed care’ whereby insurers seek to influence clinical practice, dictating where and how patients will be treated – for example, by referring patients for surgery to facilities the health insurer owns and to post-hospitalisation services such as rehabilitation units the insurer also owns.

Australians are well served by our established arrangements whereby medical and surgical treatment that best meets the diverse needs of each individual patient is decided by the patient on the advice of their GP and their specialist. The care provided should not be determined by private insurance companies beholden to shareholders.

Health funds argue their reason for vertically integrating and owning hospitals and out-of-hospital services is to lower costs. Allowing such models to go unchecked, and without regulation of quality, may not necessarily lead to lower costs let alone better outcomes for consumers.

As the Royal Commission into banking discovered, while vertical integration promises the “virtue of efficiency which should then be passed on to consumers in the form of lower costs and greater access”, this is not what happens in an oligopoly where the industry is dominated by a few big players. Banks acquired wealth management businesses: the Hayne report concluded that “this ‘one-stop-shop’ model creates a bias towards promoting the owner’s products above others, even where they may not be ideal for the consumer”.

Paul Starr from Princeton University, the doyen of academic commentators on the history of the US health system, has recently suggested that when the “corporate behemoths” now dominating the US health sector have monopoly power they “do not pass on savings to buyers of health insurance”.  

In the Australian context, private insurers cannot actually purchase and own medical practices. However, vertically integrated arrangements involving insurers and hospitals open the way for incentive schemes for doctors that seek to influence clinical practice. Conflicts of interest arise if a doctor, entrusted with acting in the interests of a patient, is offered financial incentives by health insurers which may affect the care of their patient.

Such arrangements undermine in very fundamental ways core professional roles and responsibilities of doctors to act as advocates for their patients. Australians have been well served by arrangements whereby patients rely on the independence, trustworthiness and advice of their GPs and specialists.

Health insurance occupies an important position in the Australian healthcare system, built on complex Government legislation and very substantial Government financial subsidies. Proposals by the larger health insurers to leverage their position and move into areas traditionally the domain of the patient’s medical practitioners need to be considered very carefully.

Medibank’s proposals could be viewed as a normal part of the competitive process. However, when it comes at the expense of patient choice and clinical independence, there is a real risk that US-style managed care will come to Australia and patients will be worse off.


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