If This Is True We Are Looking At Radical Change In The Hospital Sector

This appeared last week:

Health Department review finds private hospitals ‘uninvestable’

Michael Smith Health editor

Sep 2, 2024 – 5.00am

Health Department officials have conceded that private hospitals are uninvestable and more will close, with Labor MPs increasingly concerned that the government is failing to fix a funding crisis that threatens to spill into the public system.

The preliminary findings of a review ordered into a growing crisis within the health care system by Health Minister Mark Butler, obtained by The Australian Financial Review, warn that private hospitals will close in the next 12 months. The findings also say a shift from overnight stays to same-day procedures is harming profit margins.

The findings, which have not been released publicly, note that private hospital closures will put more pressure on public hospitals. “Decline in investability of the sector risks the contribution it, and the hospital sector as a whole, makes to meeting health needs,” documents summarising the review circulated by Health Department officials read.

“While there is substantial variability in earnings, profitability of the sector has declined over recent years. Average returns in the Hospital Sample may not support continued investment,” the review, led by Health Department secretary Blair Comley, finds.

The concerns raised by the review are similar to those from major private hospital operators such as Ramsay Health Care, which said on Friday that it could not build new facilities because the returns were not high enough.

The pressure building on the health system comes amid an increasingly bitter stoush between private hospitals and insurers over who should shoulder rapidly increasing medical costs. Private hospital providers say profitability has swung too far to insurers. Insurers say private hospitals need to operate more efficiently.

The outcome of that dispute, and Labor’s review, will most affect the 12 million people who are covered by private health insurance. Their fees are regulated by the government, with increases approved once a year.

Patients flooding to public system

The Financial Review reported last week that the government had told key industry participants that it was willing to let facilities close rather than prop them up.

Some Labor MPs, however, are concerned that a flood of patients who were using private hospitals would stretch the public system, in particular in regional areas.

“I know [hospitals] are hoping for some concrete action, but I’m not sure that is going to happen. We need to get these systems working together. If the private hospitals go under, we are in big trouble,” Labor MP Mike Freelander, who chairs a parliamentary committee on health policy, said.

Dr Freelander, a paediatrician, met Ramsay and Healthscope representatives last month and said he had proposed using federal and state funds to pay private hospitals to take on public patients, which would help clear record waiting lists. This does already happen in some states, including South Australia, but health insurers do not like the practice, saying it threatens the quality of care for paying private patients.

If you need a hip replacement and then told you will be slugged X thousands of dollars, it does make sense that people will defer that.

— Dr Michelle Ananda-Raja, Labor MP

“I, personally, have views that may not match the government’s view. We do need to see how we can use the private system to take the pressure off the public system,” Dr Freelander said.

Another Labor MP, Michelle Ananda-Rajah, said she was concerned about people deferring elective surgery because of rising out-of-pocket expenses, an issue she had raised with Mr Butler.

“I know for a fact that private patients are complaining about out-of-pocket costs. It is an issue and maybe affecting throughput [into] private hospitals,” Dr Ananda-Rajah said.

“If you need a hip replacement and then told you will be slugged X thousands of dollars, it does make sense that people will defer that. The problem is that no-one has visibility over what doctors charge. I suspect all of this is feeding into this and causing problems at a systemic level.”

Dr Ananda-Rajah said she had raised with Mr Butler her concerns about the lack of transparency around doctors’ fees and what this meant for out-of-pocket expenses. But the government should not bail out unprofitable private hospitals, she added.

“It is not up to the government to bail them out. Every corporate comes to government searching for a bailout. It is not our task to prop up an unprofitable business model. They need to go away and do some thinking about what their priorities are.”

Reduced maternity, psychiatric services

Mr Comley’s preliminary findings say larger hospital groups have more bargaining power when they negotiate funding from insurers, but he also admits that the outcome of those funding deals do not reflect the higher cost of providing services in hospitals.

The findings also note reduced activity for maternity and psychiatric services in hospitals which are putting pressure on hospitals.

The review says the proportion of private hospitals offering maternity care has declined by 3 percentage points from 13 per cent in 2016 to 10 per cent in 2023. It says nine private hospitals closed maternity wards in that time.

Though the number of people receiving Medicare-subsidised psychiatric services increased 18.9 per cent between 2019 and 2022, the number of services delivered in a hospital declined by 15 per cent in the same period.

The chief executive of a large private hospital group who spoke on condition of anonymity said on Sunday that two facilities his company ran could potentially close, blaming the huge variances in the amount health insurers paid for procedures at different hospitals for shutting down some services.

Here is the link:

https://www.afr.com/companies/healthcare-and-fitness/health-department-review-finds-private-hospitals-uninvestable-20240830-p5k6nz

I suspect we are in a period of transition and change with both the private and public hospital systems working out just where they fit and how best to play to their various strengths. It is clear change is coming - only the depth and speed is up for discussion....

We are really living in interesting times I believe...

David.