Private hospitals in Australia are facing an uphill battle against the power of huge health insurance funds. They contend that these insurers are exercising their market power inappropriately, to the detriment of patients. This claim is made against a backdrop of increasing financial pressures on the private hospital sector, exacerbated by the impact of the COVID-19 pandemic. More than 45% of the Australian population is currently covered by private health insurance. This shift has exacerbated the concern about quality patient care and hospital sustainability.
Australian Private Hospitals Association (APHA) recently joined this battle, calling out the big four insurers. They condemned these companies for using “unfair and unconscionable practices” which would compromise the quality of care for all Australians. The recent collapse of private hospital operator Healthscope underlines a key issue. More than 70 smaller private hospital operations have gone under since 2020 due to the same financial distress.
Activity-Based Funding Model Proposal
As Peter Breadon of the Grattan Institute recently pointed out, we face some big challenges. He recommends that private hospitals move to an activity based funding model like that being implemented under public hospitals. This model distributes money according to the volume and complexity of patients served. Most notably, it could improve overall financial viability for privately-owned facilities.
Breadon painted a dire picture of the current insurer–hospital dynamics on the ground. “When you’ve got these two parts of the system tearing each other apart, fighting over what care should cost, it’s clearly not resulting in good outcomes for the system or for patients,” he stated.
Along with their call for a reimagined funding model, Brett Heffernan, CEO of APHA, asserted that increased regulatory oversight is critical. Further, he suggested that the recently released voluntary Code of Conduct should be made mandatory. The Australian Competition and Consumer Commission (ACCC) would then oversee it. In my view, that’s unconscionable conduct. It may well amount to anti-competitive conduct as well,” condemned Heffernan.
Insurers’ Contracts and Financial Distress
Insurers, too, are facing increased scrutiny for burdening private hospitals with “take it or leave it” contracts. This latest move leaves little to no space for artistic compromise. Heffernan condemned this practice as further increasing the financial strain on hospitals and endangering patients in the process. The money picture for private hospitals has gotten very bad lately. As a result, the federal government stepped in and demanded that the hospitals bleed their financial books bare to determine whether they could continue serving their communities.
Private Healthcare Australia CEO Rachel David rejected attempts to place the blame for the sector’s problems at the feet of insurers. “There’s tough behaviour on both sides and that level of friction I’d argue is necessary to keep downward pressure on premiums,” she noted. David further noted that consumers are already protected and patients are safe under existing law, rejecting calls for more regulation.
Despite her defense of the current system, David acknowledged that bundled payments could help provide consistency in care and improve patient outcomes. Some insurers select bundled payments as a means of promoting continuity of care. This method provides hospitals with uniform direction on which services they refer their patients to. Until then, she said.
The Need for Regulatory Reform
The growing hostility between private hospitals and health insurers has led to concerns that existing regulations may no longer be sufficient. As Heffernan explains in the article, without a formal Code of Conduct, insurers will still have far too much power over hospitals. According to Sen. “If the health insurers have nothing to hide, I don’t understand why they wouldn’t sign up,” he said.
David continues to be outspokenly opposed to any new regulations. We’re held to a standard that’s much, much more strict in this area than private hospitals,” she claimed. This opposition brings to light a long-standing conflict within the industry. It’s all about settling on an appropriate middle ground between the needs of patients, hospitals—and yes—even insurers.
Further, Dr. Roger Brighton of the Australian Society of Orthopaedic Surgeons has reiterated fears that insurers would be allowed to undermine clinical care. “It’s interfering with our clinical care and we’re the experts in this field,” he argued. Heffernan added a cautionary note regarding the trajectory of current practices: “This is the slippery slope we’re on. This is US-style managed care in the most pejorative sense where care is dictated beforehand by your insurance company.”
