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Government report fails to deliver private health solutions

Tuesday 5th November, 2024

The Federal Government's long-awaited Private Hospital Financial Health Check has failed to deliver any clear solutions to the problems the sector is facing, says the head of its peak industry body.

Australian Private Hospitals Association (APHA) CEO Brett Heffernan said the country's entire healthcare system would be in trouble if there was no resolution to the current slump in profitability and disproportionate rise in health insurers'' profits.

"We've all been waiting a very long time for this report only to find out what we already know," Mr Heffernan said.

"We recognise that long-term systemic reforms will be needed, but there is no escaping immediate action is essential to prevent more private hospitals from going to the wall."

The Albanese government began its investigation in July 2024 and released the results at the start of November.

It acknowledged private hospitals' importance to the Australian healthcare system – 647 facilities nationwide deliver more than 70 percent of all elective surgeries and cover 40 percent of admissions – but said it would not intervene to help the sector financially.

"There will be no silver bullet from Canberra or funding solution from taxpayers to deal with what are essentially private pressures in this system," Health Minister Mark Butler said.

He said he would instead set up a Private Health CEO Forum to bring together leaders from private hospitals, private health insurers, medical groups and independent experts to develop short-term options and start work on long-term reforms to strengthen the sector's financial viability.

Mr Heffernan said the situation was "long past the need for answers, not more discussion".

"We weren't anticipating that this report would provide a panacea, but all this suggests is continuing a conversation," he said.

"Private hospitals are willing and able to come to the party and work with the Government on solutions for the healthcare system – because make no mistake, this is an issue for the public hospital sector as much as the private one – but there needs to be a short-term fix alongside medium and long-term reforms.

"The Government's own report paints a bleak picture for the private hospital sector. Expenditure has increased 4.1 percent, while revenue has only gone up 2.9 percent. You don't have to be very good at maths to see that doesn't add up to a profitable sector, let alone one that will be able to keep surgery doors open."

<figure class="wp-block-image aligncenter size-full is-resized"><img src="phnews.org.au/wp-content/uploads/Brett-Heffernan-blank-background-1.jpg" alt="APHA CEO Brett Heffernan" class="wp-image-17203" style="width:339px;height:auto"/><figcaption class="wp-element-caption">APHA CEO Brett Heffernan</figcaption></figure>

Australia's private hospitals have been hit particularly hard in the areas of obstetrics – several have had to close maternity departments – and mental health services, where the weighted average out-of-pocket gap that psychiatrists charge for telehealth and rooms‑based services has been rising.

"The report also shows private hospitals are operating at Earnings Before Interest, Tax and Depreciation of 4.4 percent in 2022-23, down from 8.7 percent in 2018-19 – this is significantly below the five percent threshold that represents the required free cash to reinvest in hospital services," Mr Heffernan said.

"So we have a situation where in 2021-22 health insurers racked up $1.1 billion in after-tax profits. It doubled in 2022-23 to $2.2 billion. The latter was on the back of an average three percent premium hike.

"In just the first quarter of 2024 the insurers pocketed $800 million in profit. Now it is being suggested some insurers may be seeking a five-to-six percent premium hike in 2025, and private hospitals are going backwards.

"And the Government response is to say, 'Yes the numbers show you're in a lot of trouble, let's have a chat about it'. APHA has been banging on the door of Government saying this is a problem for a year, and in that time more hospitals have closed their doors. Inaction will see more services close or hospitals fold."

Patients will suffer if that trend continues, Mr Heffernan said, because the workload will be moved to the public health system, which is already struggling to tackle huge waiting lists.

"Structural reform of the relationship between funders and providers of private health care is needed, but it won't come quick," he added.

"In the meantime, if health insurance companies can't be forced to meet the costs of their members in hospitals, then the government will have to fill the void with temporary co-payments just to keep private hospital doors open and the healthcare system afloat.

"If not, for the first time in decades private hospitals will have no choice but to charge patients gap fees to meet the shortfall left by derelict health insurers."