I found this a useful summary of the current situation.
Productivity link a solution to private hospital red ink
John Durie
1:52PM April 26, 2024
The first two rules of insurance are don’t pay and don’t rush. But if you are a private hospital and your financial survival depends on insurance payments, the tensions are somewhat greater.
Covid-19 flipped the balance between private hospitals and insurance, and the latter enjoyed a resurgence in profit margins – it seems at the expense of the hospitals.
Patient numbers crashed during Covid-19 and are still to return, while insurers with high reserves were able to return funds to members.
Conversely NIB chief executive Mark Fitzgibbon is also clear, telling The Weekend Australian that “without private hospitals there is no private health insurance”.
Worse, if private hospitals fail, the pressure increases on the public sector; and in the past five years 71 private hospitals have closed as health costs increase, to take more than 10 per cent of the national income.
Federal Health Minister Mark Butler and some state colleagues are acutely aware of the problems and Butler is considering some sort of inquiry by the ACCC or Senate to look at the plight of the sector.
Insurers like Fitzgibbon says there is no need as “there is no evidence of market failure”.
The private hospitals would welcome an inquiry to prove their case but are also aware that government inquiries are a delaying mechanism by politicians wanting to be seen to be doing something without actually doing anything.
The fact is the market has long failed and governments have been knee-deep in the mess as they attempt to resurrect the private hospital sector over recent decades, moving from crisis to crisis – with the latest spots mental health and pregnancy.
Private health insurance is now relatively healthy. About 55 per cent of the population has some sort of insurance, up from 29 per cent in the mid 1990s.
The industry has lifted its game but government regulations were the key to the market share increase, including rebates and rules imposing penalties on those who don’t join at a set age.
Insurers naturally would prefer us to all stay healthy and out of hospital as they pocket your premiums, but few people would credit their insurer as the reason for their good health. Ultimately it’s the doctors who call the shots and direct the flow of funds.
They have proved unreliable sources of supply, in part because they may be linked to multiple hospitals, are increasingly building their own hospitals and, post Covid-19, have also learned the lifestyle benefits of working less.
Doctors, just like Qantas learned, understand the laws of economics when it comes to restricting supply to drive prices higher.
Insurer Medibank is in the same game with its own day hospitals.
The solution is for the insurers to pay the hospitals more but it’s way more complex than that simple metric and much of it is out of the hospitals’ control.
For a start neither the hospital nor the insurer owns the patient and while everyone talks about consumer benefits at the end of the day it’s the doctor who controls the supply chain.
The doctor decides when surgery will happen and at what facility.
The increasing financial plight of the sector means it is looking to insolvency practitioners for assistance, such as Arnold Bloch’s Leon Zwier.
Two out of five hospital admissions are to private hospitals which do two out of three elective surgeries.
State and federal governments pay $5.6bn a year to the sector and the other $11.5bn comes from private health funds.
Governments spend in total $60bn on public health services, but less than 10 per cent of which goes to private hospitals that account for 40 per cent of admissions.
The insurers say they have rationalised and it’s time for the hospitals to do likewise.
NIB, by way of example, used to have 80 retail shopfronts. It now has zero.
They have also invested in technology while the hospitals lag on this score.
The health funds tend to compare themselves to general insurers and claim to return 86 per cent of premiums against 65 per cent for general insurers.
They claim an average management expense ratio of 10.8 per cent against general insurers at 22.6 per cent.
They also say are now paying for two thirds of all elective surgery procedures in Australia, including more than 80 per cent of hip and knee replacements and more than 70 per cent of cataract surgery in the private sector.
These claims depend on which side of the fence you sit.
Their premiums are set by government which this year approved a 3.03 per cent increase compared with sector increases of 16 per cent.
No one disputes the financial pain, and the big five hospital groups last year lost $553m on $11.2bn in revenues.
By way of example, the Bermudan-based fund Brookfield paid $4.4bn for Healthscope in 2019 with $1.6bn in debt.
It collects about $2.3bn in revenues against which staff costs total $1.1bn, medical and consumables $290m, prosthetics $302m, occupancy costs of $195mn and debt service of $230mn.
The industry like everyone else has had to cope with higher energy costs, a rising wages bill and staff shortages.
The big trend in the industry is shorter stays, more day surgeries and more care from home, which everyone supports.
But obviously a private hospital geared to longer stays is going to need to change its cost base.
Estimates put savings in hospital from home at $1.3bn.
The debate is over how much is covered by the insurer and the hospitals want a default benefit which is a multiple of what the insurers say they should pay. The default is based on a set amount depending on the procedure.
Prosthetics is another perennial but the immediate debate is not over tungsten or ceramic hips but the long list of what are called general use items like gauze and staples.
The prosthetic list has long been debated about the hefty cost differential paid for replacement hips in Australia compared with offshore.
The everyday list is a bit more basic and arguably important but the insurers oppose the inclusion of some items.
They are due to drop off what is known as the “prescribed list” in July, subject to what the government says.
This debate highlights what happens between the two as the insurers are trying to exclude some items and the hospitals want more covered.
This is at the centre of the hospital-at-home debate whereby insurers and hospitals are at opposite ends of the spectrum on the cost of the procedure and hence amount of funds to pay for the service.
The list is much longer and, given the size of the sector, the solutions hold many of the keys to the drive for productivity reform in Australia.
Here is the link:
Well worth a read to catch up on what has been going on!
David.
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