Private hospitals at breaking point: Will strategic shifts be enough to rescue the sector?

MedTech & Diagnostics News: Australia’s private hospitals are grappling with unprecedented challenges, as stagnant patient volumes and rising costs have driven profits to a 15-year low. Yet, a recent BCG report offers a cautiously optimistic outlook for the sector’s long-term prospects.

The report underscores that the core drivers of demand remain robust. Australia is facing a demographic shift, with its ageing population set to nearly double by 2042, reaching 6.7 million people aged over 65.

The prevalence of chronic diseases is also high, with nearly half of Australians reporting at least one chronic condition. Furthermore, private health insurance uptake continues to rise, with 1 million more Australians covered compared to pre-pandemic levels.

In a positive turn, private hospital admissions are showing signs of sustained recovery. After a 5% increase in admissions the previous year, FY24 saw a 4% rise, marking consistent growth across each quarter for the first time since the pandemic began.

However, the landscape is shifting, with recent closures predominantly affecting smaller, independent, and specialised hospitals, especially in rural and regional areas. BCG’s analysis highlights 28 hospital closures since early 2023, with 20 of these being small day hospitals or located in regional areas. These facilities have struggled with staff retention and patient referrals, leaving them particularly vulnerable in the current environment.

Looking ahead, the public system faces significant hurdles in regaining the growth rates of the 2010s. Acute labour shortages and construction delays are expected to peak by late 2026, according to Infrastructure Partnerships Australia. Meeting the demand for hospital infrastructure would necessitate a 2.5-fold increase in workforce capacity, compounded by rising construction costs, salary commitments, and debt reduction pressures.

The public sector’s shortfall is already evident, with a growing number of elective surgeries being outsourced to private facilities. In FY23, 175,000 patients were treated at private facilities, up from 75,000 in FY19, according to the Private Hospital Data Bureau.

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Another notable trend is the shift towards day surgery, with same-day admissions rising 2.6% annually since FY19, while multi-day admissions have grown only 0.1% annually.

Unlike many other markets, Australia’s shift towards day surgeries has not led to significant growth in Ambulatory Surgery Centres (ASCs), which have undermined the financial viability of many private and not-for-profit hospitals elsewhere. In Australia, day surgeries are more frequently performed in multi-day facilities rather than standalone day-only centres.

Day surgeries in day-only facilities have grown at 1.9% since FY19, compared to 2.9% in multi-day facilities. This trend reflects a preference for maintaining access to multi-day facilities for more complex cases and limited investor interest in ASCs due to differential private health insurance rebates.

Private hospital operators are focusing on enhancing operational discipline. Engaging doctors in the design and implementation of improvement programs, rather than working around them, could lead to better outcomes. Unlike many businesses, hospitals see cost-driving decisions made at the front line, often by doctors. Thus, involving doctors in investment control and operational improvements is crucial.

This approach represents a shift from the traditional customer-provider dynamic in Australian private hospitals. While involving doctors would require compensating their time, it would also leverage their deep interest in operational efficiency and patient outcomes. A collaborative process could enhance operating room utilisation, reduce average length of stay, and achieve procurement savings.

According to the report, as hospitals reassess their strategies to maintain profitability and fulfil their missions, considering the broader healthcare sector’s strength is vital. Evaluating growth potential in strong healthcare precincts and scrutinising standalone facilities in weaker locations will be key.

Hospitals that innovate in productivity and build robust healthcare precincts are poised not only to weather the current challenges but to thrive in the future.

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