Private hospitals to cut ties with major insurer in dispute, undermining value in private health insurance

MedTech & Diagnostics News: St Vincent’s, Australia’s largest not-for-profit health and aged care services provider and a member of Catholic Health Australia, has notified private health fund nib that it will terminate their contract within 65 business days unless a fairer funding agreement is reached.

The Australian Medical Association (AMA) is urging both parties to return to the negotiating table to prioritise patients’ needs. This situation echoes previous disputes, such as the one between Ramsay Health Care and Bupa, where patients were caught in the middle of funding agreement breakdowns.

St Vincent’s, which operates 10 private hospitals across NSW, Victoria, and Queensland, is seeking a funding agreement from nib that acknowledges the rising costs of providing private hospital care.

Dr Katharine Bassett, Director of Health Policy CHA, stated, “This year nib had one of the highest premium increases at 4.1%, yet in 2022–23 only returned 79% of premiums back to patients – well short of the industry’s 90% gold standard and the lowest of the major insurers.”

She continued, “It is totally unacceptable for insurers to put the squeeze on patients and hospitals while increasing their large profit margins and bank balances. Our not-for-profit hospitals are at breaking point, with funding from insurers failing to keep up with the soaring cost of things like food, energy, and equipment.”

If no new agreement is reached by the deadline, St Vincent’s will end its contract with nib on October 3. Consequently, patients using nib insurance may face higher costs when seeking care at St Vincent’s hospitals.

“These disputes undermine the confidence that Australians have in private health insurance arrangements, particularly as we continue to see significant premium increases at a time people are facing significant cost-of-living pressures,” emphasised AMA President Professor Steve Robson.

St Vincent’s CEO, Chris Blake, criticised nib’s negotiation tactics, stating, “There is a crisis in private healthcare in Australia. Over the last five years, more than 70 private hospital services have closed.”

A new review of private hospitals viability was announced by Federal Health Minister, Mark Butler, last month.

“[The Department of Health] is obviously convinced by the data and they acted very quickly. They are undertaking their own data collection and analysis, and at the same time, looking at possible government policy responses,” Michael Roff, departing CEO of the Australian Private Hospitals Association (APHA) told Health Industry Hub in an interview.

Blake noted that St Vincent’s recently negotiated major agreements with Medibank, HCF, and the Alliance group of health funds, achieving fair results through robust negotiations. However, nib’s stance left them with no choice but to terminate the agreement.

“Just as inflation has driven up the cost of living for individuals and households, it has dramatically increased the costs of providing hospital care. These rising costs include wages, food, energy, personal protective equipment (PPE), IT, and maintenance.

“For example, in 2023, St Vincent’s electricity costs were $6.5 million. In 2024, we expect them to end up closer to $12 million – almost double. nib can’t isolate itself from the rising costs that are affecting the entire private health sector. It must shoulder its fair share,” Blake explained.

The private health industry reported a net profit of $2.1 billion for the year ending June 2023, double the previous year. Yet, 71 private hospital services closed during the same period due to financial difficulties from insurers returning less to patients and hospitals.

Dr Bassett commented, “Health insurers are making record profits while hospitals around the country are being forced to close their doors because they can’t meet soaring costs. The private sector, which conducts two-thirds of elective surgeries, plays a crucial role in alleviating pressure on public hospitals and providing choice and access to patients.”

Blake added, “As a not-for-profit social enterprise, St Vincent’s needs to be able to cover its basic costs when we provide care to nib members in our hospitals. We still hope that nib sees sense and comes to the table during the notice period and puts a fair and constructive proposal forward.

“But for the sustainability of our organization – and to provide certainty for our people and patients in an incredibly difficult operating environment – we have no choice but to plan for a future where they don’t.”

Professor Robson highlighted the AMA’s call for an independent Private Health System Authority (PHSA) to ensure proper regulation and value for money in private health insurance.

“A PHSA can be a vehicle for meaningful reform, while helping to solve disputes like the one we are seeing with nib and St Vincent’s,” he stated.

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