2025 Federal Budget Submission

The private hospital sector is at a critical juncture. It is experiencing significant threats to viability, sustainability and investability. If the trends illustrated in this Budget Submission continue, they will have a greater adverse impact on private hospitals and force the sector to write off capacity to serve privately insured patients. It may become unviable for many hospitals to continue operating.

The significance, to the healthcare system in Australia, of such loss of capacity
cannot be overstated. Patient access and quality in healthcare is central to our case for increased funding and support. Indifference to crippling disparity between revenue and costs in the private health sector would only hurt the welfare of privately insured people who currently make up nearly 45 percent of the Australian population.

This proposal demonstrates ways the Australian Government can constructively intervene through the federal budget for FY 2025-26. Firstly, by making insurers meet their obligations to pay for the healthcare their members receive.

Failing that, secondly, by providing a temporary two-year co-payment to ensure hospitals remain viable while the government, private hospitals and insurers progress systemic reforms via the newly announced CEO Roundtable. In this regard, the APHA has taken great care to be reasonable and seek
forward-looking bare minimum solutions that have minimal or no impact on the Federal Budget.

Thirdly, if the measures detailed in this document are not actioned, the sector will be forced to charge patient gap fees in the order detailed in this paper to cover the shortfall left by insurance contracts. In the situation, where the government is unable or unwilling to support the sector, the Commonwealth needs to immediately allow private hospitals to charge gap fees, a nuclear option that the sector will only consider when no other viable alternatives exist.

Without this, private hospitals will be forced to terminate contracts, and default to second tier funding arrangements with health insurers, which would see the out-of-pocket fees to patients rise well beyond the gap charges detailed in this proposal.

The analysis by the Australian Private Hospitals Association highlights a critical financial shortfall in the private hospital sector, with quarterly deficits exceeding $200 million since December 2022 and nearing $250 million in June 2024.

Despite a total income increase of $906 million between 2021-22 and 2022-23, rising operational costs and minimal employment growth have strained the sector. The operating profit margin has plummeted from 9.6 percent in June 2018 to just 1.4 percent in June 2023, underscoring the urgent need for government intervention.

Private hospitals play a vital role in Australia's healthcare system, contributing significantly to the economy and ensuring access to quality care. However, the current financial trajectory threatens their viability. At least $250 million per quarter would be required to eliminate the ongoing shortfalls and stabilise the sector to continue to serve the nation and invest in the future of Australia's healthcare. However, APHA recognises this is likely cost-prohibitive for government.

Instead, the APHA proposes a partial achievement of that requirement via a temporary two-year co-payment of between $450 and $650 million per year, to stem the collapse of private hospital capacity in Australia. This would allow government, private hospitals and insurers to work on longer term structural reforms.

This immediate solution is the bare minimum and critical to safeguarding the health and welfare of Australians. Furthermore, ensuring a robust private healthcare sector is critical for Australia's overall hospital system and economic stability. Government action is necessary to address these financial challenges and support the sustainable operation of private hospitals in Australia.

The APHA's full Budget Submission is available here

Next Submissions:
28/1/2025 Private Hospital Data Collection Framework – Consultation Paper