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Private hospitals open books for urgent ‘health check’Tom...

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    Private hospitals open books for urgent ‘health check’

    Tom McIlroy
    Tom McIlroyPolitical correspondent
    Jun 12, 2024 – 6.59pm




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    Health Minister Mark Butler has launched an urgent review into the $22 billion private hospital system, as it faces intense financial stress driven by rising labour and input costs and constrained revenue.

    Private hospital players including Ramsay Health Care, Healthscope and St John of God will be required to hand over detailed revenue and profit margin information under the guise of a “financial health check” being run by the Department of Health.

    Health Minister Mark Butler’s department will finish its “health check” in August.

    The review has been tasked with assessing “profitability including breakeven points for viability and investability” and identifying market challenges. The findings will inform advice to Mr Butler by late August.

    The department’s work follows reports in The Australian Financial Review in March that at least 16 facilities had shut or had their declaration as a private hospital revoked since 2023. That number has risen to 18, according to industry peak body the Australian Private Hospitals Association.

    Closures in maternity services and delays for mental health care are limiting the take-up of private health cover, industry experts said, while revenue is constrained as more care is pushed into cheaper home settings.

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    “High-level evidence and stakeholder feedback has raised financial viability concerns that potentially impact the health system and patient outcomes,” the department says in a document explaining the review’s scope last week.

    “To better understand the sector’s operating environment the department has commenced a focused project to collect revenue, cost, and other data to assess the financial performance, pressures and profitability of the sector.”

    In March, NIB chief executive Mark Fitzgibbon warned the system was facing further intense stress following the COVID-19 pandemic, as more patients opt for day surgery over longer hospital stays, in turn reducing some revenue for hospital operators.

    He said insurers had to pay their share to ensure the sector’s ongoing viability, warning if one part of the system fails, “we all fail”.

    Average premiums rose 3.03 per cent on April 1, the largest annual increase in private health costs since 2019. But the increase signed off by Mr Butler was relatively modest by historical standards and less than the amount private health funds had initially pushed for.

    Private health insurance coverage has grown strongly out of the pandemic with 54.6 per cent of Australians having some sort of coverage in March this year. That amounts to about 14.8 million people, slightly down from record highs of 55 per cent in early 2023.


    In the year to March 2024, hospital benefits increased 9.7 per cent, or about $17.7 billion.

    Australian Private Hospitals Association president Christine Gee said the review followed “intense advocacy” by sector players, because of the significant gap between cost increases experienced by private hospitals and fees from insurers.

    “The private hospital sector is facing unprecedented financial and sustainability challenges,” she said.

    “For many years costs experienced by private hospitals have risen faster than the indexation applied to benefits paid by private health insurers.

    “Private hospitals have responded by delivering increased efficiencies and savings year-on-year. These savings have delivered restrained growth in private health insurance premiums even though demand for services has increased, but in the last two years in particular, the private hospital sector has encountered sharp cost increases, well in excess of the indexation offered by payers.


    “On top of these the private hospitals sector is experiencing various forms of disruption including supply and demand shifts and dramatic changes within the health workforce.”

    Shares in Ramsay Health Care – the country’s largest private operator – are down 17 per cent in the past year.

    Private Healthcare Australia chief executive Rachel David welcomed the review, saying the sector was committed to providing quality care.

    “The caveat from the health insurance perspective is that in a cost-of-living crisis, we cannot afford to put more of a financial burden on households with private health insurance.

    “We are doing everything within our power to keep premiums as low as possible, and we are not in a position where we could agree to anything that would cause a big spike in premiums next year.

    “Whatever the review comes up with, it will inevitably be limited by the capacity of households to pay.”


    Australian Medical Association president Steve Robson said the review was overdue, noting two-thirds of all planned operations take place in private settings.

    “We are seeing extraordinary cost and viability pressures on private hospitals around and the country. We’re seeing private maternity hospitals closing at a rapid rate, and we’re seeing it become very, very difficult to get a private stay at a mental health hospital.

    “One of the things that keeps private health going is making sure you have lots of young healthy people who are policyholders. The things that drive uptake are having a baby or a mental health issue, so the value proposition is significantly affected if you take out a policy but you just can’t use it.”


 
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