Researchers turn spotlight on private hospital viability

The University of Sydney is launching a new qualitative research study into the financial viability of the nation’s private hospital sector under the supervision of Professor Andrew Wilson and Professor Shaun Larkin.

The project follows closely on the heels of a systemic review published by the same two academics at the end of last year, which sought to synthesise Australian evidence on what determines private hospital financial viability and what those dynamics mean for the broader health system.

Now, the timing of the new study is sharpening scrutiny further. The Federal Government’s long-trailed effort to stabilise the private health sector is closing out with more uncertainty than resolution, as the largely opaque Private Health CEO Forum concludes its final scheduled meeting under its current terms of reference. Critics within the sector point to what they describe as no real appetite from government to fix the private health sector.

The earlier systematic review led by Professors Wilson and Larkin examined 23 studies conducted over two decades, exposing a private hospital system defined less by stability than by contradiction.

A central fault line identified in the evidence is ownership structure, particularly the accelerating role of private equity investment. The review highlights that reliable data on private equity shareholdings, and their downstream effects on clinical quality and organisational performance, remain limited. That opacity complicates any serious assessment of long-term risk. Where private equity is present, the sector often exhibits high debt-to-equity ratios and short investment horizons, dynamics that intensify financial fragility rather than mitigate it.

That fragility becomes most visible in for-profit hospitals dependent on high-margin elective procedures. The COVID-19 pandemic, which triggered widespread elective surgery shutdowns, revealed just how exposed these business models are to external shocks.

Beyond ownership, the interaction between health policy design and private health insurance (PHI) incentives further complicates sector stability. The review argues that fragmentation in funding streams continues to undermine coherence, and that risk adjustment mechanisms remain insufficient. Conceptual frameworks for integrating public and private insurance under a “managed competition” model have been proposed to navigate this complexity.

Adjusting PHI incentives may generate short-term fiscal savings for government, but often comes at the cost of reduced insurance coverage. That, in turn, shrinks the pool of insured patients that private hospitals rely on for revenue. While rising PHI enrolment is associated with modest reductions in public hospital waiting times, the evidence base suggests its cost-effectiveness as a policy lever remains highly questionable.

The system also produces a persistent substitution effect. Privately insured patients do shift away from public hospitals toward private providers, but not entirely and not consistently. Many still rely on public hospitals for complex or high-acuity care. This undermines the assumption that PHI functions as a clean demand-transfer mechanism. Instead, private hospital viability remains tightly bound to patient flows shaped by clinical need and perceived service value, not insurance status alone.

Among those who are insured, hospital choice is far from straightforward. Cost considerations and clinical complexity continue to push many patients toward public hospitals. Public performance reporting appears to have limited influence on patient decision-making, with specialist referrals remaining the dominant driver. At the same time, constrained access to private emergency services further limits the private system’s ability to function as a full-service alternative.

Taken together, the review’s most pointed conclusion is that current policy levers, particularly PHI incentives, are insufficient to resolve the sector’s underlying viability and equity challenges. The evidence suggests that simply increasing PHI uptake does little to materially reduce public hospital waiting lists, raising questions about whether these policies represent an efficient use of public funds when assessed from a whole-of-system perspective.

What is required, the authors argue, is a more sophisticated structural redesign, moving beyond blunt demand-side incentives toward mechanisms that address fee transparency, value-based payment systems, and a more sustainable balance of service mix across public and private providers.

Against this backdrop, the new qualitative phase of the research is targeting senior stakeholders with at least three years of experience in roles connected to private hospital operations, governance, finance, or policy. Participation involves a 30–60 minute interview and participation is confidential with responses de-identified in any resulting publication.

The study is ethics approved (2025/HE001437). Expressions of interest can be directed to Gerg at the University of Sydney.

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