This appeared last week:
Health insurance shouldn’t be private hospitals’ field of dreams
Instead of protecting private hospitals from predatory insurers, an obsolete contract framework protects hospital operators from full accountability for avoidable inefficiencies and commercial misjudgments.
Terry Barnes Contributor
Aug 25, 2024 – 12.23pm
Yet again, Australia’s private hospitals and health insurers are at each other’s throats. As The Australian Financial Review has reported, Catholic Health Australia, representing 63 Catholic hospitals, seeks Australian Competition and Consumer Commission authorisation effectively to represent member hospitals in contract renegotiations with insurers, while blocking five big insurers, including listed companies Medibank Private and Nib, from entering contracts with individual Catholic hospitals as “collective” discussions take place.
Private hospital operators, and even big for-profit ones such as Ramsay and Healthscope, routinely claim they are saints in the dysfunctional relationship between hospital operators and insurers, and that insurers are rapacious sinners.
The truth, however, is that both payers and providers play the contract game hard. Hospital operators know that, without them, insurers have no product. On the other hand, without private insurance, only the wealthiest could afford to go private and hospital operators would collapse. The federal and state governments, already strained to the limit in funding and running public hospitals, need them both.
Catholic Health’s ACCC case reinvents history by presuming the hospital contracting deck is stacked for insurers against providers. In fact, the contracting regime it complains about now is what the private hospital industry (PHI) demanded and got when the current legislative framework was legislated in 1995.
In the dying days of the Keating government, just before the internet transformed the healthcare business, PHI participation was at a record low, and then-unsubsidised premium increases were killing the sector, Labor health minister Carmen Lawrence reluctantly agreed to make the industry more commercial by allowing insurers to negotiate and enter into contracts with hospitals and doctors.
The resulting regulatory framework was established only with acrimonious negotiations and political gamesmanship involving the then government and opposition, hospitals, insurers and the Australian Medical Association. The AMA and hospital lobbies shamelessly invoked the spectre of “US-style managed care” – with insurers telling members who would treat them and where they could be treated.
Lawrence’s resulting settlement, still fundamentally in place today, bent over backwards to guarantee providers’ clinical and commercial autonomy, and to restrain insurers’ ability to play negotiating hardball by denying hospitals contracts altogether.
If operators ... sink their own money into unprofitable white elephants, insurers and the insured shouldn’t carry the can.
The regulatory compromise underwriting this is the second-tier default benefit. This mechanism guarantees accredited private hospitals at least 85 per cent of an insurer’s average charge for equivalent treatments in negotiated agreements with “comparable private hospitals”. In other words, hospitals receive a guaranteed floor price from any insurer, whether or not they are in contract.
Thirty years on, however, default benefit revenue protection for providers arguably has contributed to a Field of Dreams “if we build it, they (the insurers) will come” mindset for at least some private hospital and day procedure centre operators, entrepreneurs and investors. If operators and their backers run inefficient facilities or sink their own money into costly and unprofitable white elephants, insurers and the insured shouldn’t carry the can for operators’ poor management decisions, through inflated premiums and out-of-contract patient costs.
To that end, second-tier default is obsolete and counterproductive, and should be abolished. Instead of protecting private hospitals from predatory insurers as intended, it actually protects hospital operators from full accountability for avoidable inefficiencies and commercial misjudgments.
But insurers need to accept that private hospitals cannot control all unavoidable expenses in providing vital services, and do their best to contain costs. The Victorian government’s profligate 25 per cent enterprise bargaining agreement with nurses and midwives, for example, sets a new benchmark, which all other hospital operations, private and public, will be forced to follow to retain vital nurses, and those huge extra unavoidable costs will be passed on.
Meanwhile, the AMA plays all sides, knowing its political leverage with the government, insurers and hospitals gives it power without responsibility.
The real problem
Federal Health Minister Mark Butler is reviewing the financial health of private hospitals, testing operators’ claims of being dudded by insurers. The real problem, however, is that the industry’s contracting framework, established by Labor three decades ago, is no longer fit for purpose in a radically different healthcare environment.
What’s really needed is wide-scale policy reform that understands current and future market and provision cost pressures. It should ensure purchaser-provider regulation adopts current and emerging clinical and technological best practice, including better funding for out-of-hospital and preventive care; anticipates future demographic and demand pressures; and ensures better resolution of contracting disputes between private hospitals and insurers.
Such needed reform involves political courage, especially in an election year, for none of the insurers, private hospitals and, especially, the AMA, will ever be satisfied.
Although Butler has missed the main private health reform game, providers and insurers can’t just run to mummy – whether the government or the ACCC – to resolve their differences. They must work together in the common interest. Yet, by constantly battling each other, each side inflicts collateral damage on those who should matter most: long-suffering private healthcare consumers.
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This problem is obviously in the
too hard basket as neither patients, doctors, private hospitals, Governments or
insurers are fully happy with the status quo! If they were there would be much
less in the way of political noise and complaint! Sadly to fix things is a 'wicked' problem, that may be near to insoluble!
How to fix things is well above my pay-grade so I guess we will just keep paying the premiums It would be nice to be sure everyone was getting value for money out of the system!
In my dreams I guess…
David.
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