Trap for private hospitals in cost squeeze
PUBLIC hospitals aren’t the only ones facing a crisis. Private hospitals are in trouble too. Serious trouble.
Some top executives are now seriously questioning whether, unless the funding situation changes, they will still be in business in five years’ time. Certainly, they say, we will see individual hospitals shutting down at an everincreasing rate.
As costs have continued to rise beyond the capacity of patients to pay, private hospitals have been caught in an impossible squeeze between doctors and insurers.
A very senior executive in one of Australia’s biggest private hospital chains once observed to me that patients were not their customers. Doctors were.
It’s the surgeons and other doctors who bring the patients — and the money stream — into the hospitals. If doctors are unhappy with one hospital, they will go to another and take their patients with them.
The main priority of private hospitals is to organise their processes so doctors will make the most money. And unlike in public hospitals, private doctors do not have to spend unpaid time training juniors or supervising clinical departments.
They bill the patient, not the hospital and not the insurer. As a patient, you have almost no market power at all. You just pay the bill.
Doctors will not sign a nogap contract with an insurer if the payout is not high enough.
On the other side, private health insurers are able to protect their profits by increasing premiums, decreasing the quality of coverage and pushing hospitals to cut costs. But that process cannot continue forever.
Policyholders, now dealing with almost 20 years of premium rises at two or three times the rate of wage increase, are dropping out or downgrading their cover. That means more patients will rely on the stretched public system.
Elective surgery, the staple of private hospital businesses in Tasmania, will become even more difficult to get for everyone.
Private hospitals are an essential part of the health system. Nationally, they account for one bed in three. And an exhaustive study by the Productivity Commission has shown little difference in safety and efficiency between the public and private sectors.
The problem is not the hospitals but how we pay for them. If we are to avoid an entirely predictable crisis, that must change.
Individuals — patients and policyholders — can no longer bear the cost of private health insurance.
The federal government pays for 27 per cent of all premiums but even this cost, now well over $6 billion a year, has failed to turn the tide. And the insurers cream off 14 cents in every dollar of premiums as overheads, fees and profits.
We need to find a better way.
Although individuals cannot bear the cost, the Australian economy as a whole is robust enough to do so now and into the future. If we spread the cost over the whole economy — as we do with most essential services — the system will be secure.
This would involve the Commonwealth funding the purchase of services, in collaboration with the states, directly from private hospitals and making them available to everyone, not just those who can afford it.
That way, we would have a single, integrated hospital system with private and public components.
Insurance would still be available for people who want special treatment. But we can no longer rely on it to do a job for which the nation as a whole should be responsible.