Private Health Reforms positive... if right options get up

PRIVATE hospitals are optimistic about measures under the Federal Government's Private Health Sector Reform consultation driving positive change for patients, value for 12.8 million Aussies with private hospital cover, and support for the 640 hospitals that treat them.

In lodging its submission to the Private Health Sector Reforms: Consultation Paper 1, the Australian Private Hospitals Association (APHA) backs the overall direction of the proposed reforms, but emphasises those needed to deliver real, enforceable change for good.

It was the APHA that raised these reform areas four years ago. While we note that these changes do not address the viability crisis caused by contracting abuses that see health insurers underpay hospitals for treatment and services, they can benefit patients and hospitals.

"We strongly support getting more psychiatrists into private hospitals, along with making maternity cover more accessible. We support Hospital-in-the-Home as a natural extension of hospital activity and echo the need for simpler health insurance for consumers," APHA CEO Brett Heffernan said.

"The alarming lack of psychiatrists across the country has for too long undermined patient access to the acute mental health care they need when they need it. Currently, there are 300 psychiatrists in Australia prevented from practising in private hospitals due to antiquated bureaucratic red tape.

"This situation, during a recognised and prolonged acute mental health crisis, is tragic for sufferers and their families. We are aware of stranded, would-be patients who have suicided while awaiting much-needed care, unable to secure a consult with a psychiatrist, while many acute private mental health hospitals have 40-60% vacancy rates.

"So it is disturbing that this consultation includes an inexplicable option that would deny those 300 psychiatrists already in Australia from working in private hospitals, but instead allow psychiatrists from overseas countries to migrate to Australia to fill positions. We reject this proposal outright.

"It is illogical, would be costly, time-consuming and possibly face legal challenge akin to the previous government's discriminatory Backpacker Tax fiasco. It would distort the labour market in favour of only the largest and best-capitalised hospital operators, with the ability to recruit and sponsor from overseas. Smaller hospitals psychiatric hospitals would, effectively, be excluded.

"At some point the government must address the Medical Benefits Schedule (MBS). It currently pays a psychiatrist less to treat acute patients in hospital than to provide lesser services in consulting rooms. Out-of-hospital care attracts 85% of the schedule fee, while the more severe and complex mental disorders needed to be treated via in-hospital attendances attract just 75%.

"These settings direct the workforce away from the sickest, most acute patients, who end up in public hospital EDs. The government should apply a positive loading to MBS items for in-hospital psychiatrist attendances, to reflect acuity, travel and after-hours demands.

"Maternity reforms are long overdue. We have lost 18 private maternity units in the past decade, 13 of them in just the past three years. The APHA supports changing waiting periods for insurance cover from the current 12-month to six-to-nine months.

"We also support making maternity cover available at cover less than just Gold only. However, we urge caution in patients' interests. Over the last 12 months the health insurance lobby has positioned and called for 'midwife-led' births as a way of reducing insurance costs.

"This may have some prima facie appeal. But with the majority of births in Australia requiring an obstetrician – i.e. via caesarean or instrument deliveries, as well as for complications during birth – reduced patient wellbeing and unexpected out-of-pocket costs could be the perverse result. 

"The APHA warns the government to be careful and alert to health insurers seeking to reform policy tiers. Their desire is to cover less but be paid the same or more. We've seen this playout via the appalling phoenixing loophole and insurers proactively canvassing members to downgrade their cover.

"So consolidating health insurance tiers must lift the floor of what remains, otherwise it will reduce participation and transfer patients onto public waiting lists. We also back excess and co-payment standardisation so consumers can compare products easily.

"Private hospitals seeking to deliver contemporary models, such as Hospital-in-the-Home (HITH), face establishment costs, workforce constraints, unclear MBS arrangements and the absence of a minimum benefits' framework to see them funded. These need to be positively addressed.

"While APHA is generally supportive of the inclusion of IV chemotherapy in HITH treatment services, we urge the Department to engage with private hospitals and the relevant colleges to develop guidelines and guardrails, noting the clinical requirements and associated risks.

"The APHA strongly supports lifting second-tier default benefits to 100%, permanently, for regional private hospitals. Regional private hospitals make workforce, service mix and capital decisions on horizons of five-to-10 years. A temporary uplift is insufficient to make a difference.

"Anything less does not underwrite recruitment of an anaesthetist, refurbishment of a maternity unit, or replacement of a theatre, because a benefit that lapses causes uncertainty and undermines the guarantee of a secure investment at a time when viability is a major, ongoing concern."

The reform focus on contemporary models of care and value for consumers is welcomed. But consumer value cannot be assessed only by reference to product simplicity or nominal benefit design. A private health insurance product has little real value if the hospital service it purports to cover is no longer viable, unavailable in a patient's region, or only accessible with hefty out-of-pocket costs."

You can redesign insurance products, change waiting periods and create new models of care, but none of that keeps a hospital services open if the funding doesn't cover the cost of providing it. That is the elephant in the room.

"The APHA renews its call for the government to legislate a minimum 90% payout ratio," Mr Heffernan said. "The single most effective value-for-consumers reform is a guarantee that, at least, 90 cents in every hospital premium dollar goes to patients as benefits.

"In the last year, ABS data shows private hospitals suffered an operating loss of $756 million, while the health insurance industry reaped operating profits of $2.7 billion, as well as taking $3.4 billion in so-called 'management expenses'. The funding system is broken and being abused by insurers to the detriment of patient needs and the viability of the hospitals who serve those needs.

"The ratio was 90% before the pandemic. It fell to 83% in 2022-23, sat at 85.5% in 2024-25, and stood at 85% in the March 2026 quarter. Restoring a 90% ratio would cost government and patients nothing, but it would close the widening gap between hospital revenue and costs.

"We are pleased our call for a Mandatory Code of Conduct for hospital and insurer contracting; with an arbitration model, price transparency and oversight by the ACCC, is slated for Tranche 2. A mandatory Code has been recommended ever since the voluntary code fell into disuse in the early 2000s. It was recommended by the ACCC itself in 2006-07 and, again, in 2010-11.

"These benefits ratio and contracting reforms in tandem are essential to correcting the funding mismatch and restoring hospital viability."

-ENDS-

The APHA's full submission on the Private Health Sector Reforms: Consultation 1 is available at: Private Health Sector Reforms: Consultation Paper 1.

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