Is the DoHAC flagging a bail-out of the private hospital sector?
A DoHAC financial review of the private hospital sector due to report in late August will require operators and other stakeholders to cough up detailed revenue and profit information.
The review was quietly launched by the department on 4 June, but according to DoHAC work began in May.
Private hospitals have been struggling of late. According to HSD‘s sources, at least 79 facilities — including day surgeries, endoscopy centres, private hospitals, wound care centres, cosmetic surgery centres, dental centres, respiratory and sleep disorder clinics, dialysis clinics, and mental health centres — have either closed or revoked their declaration as a private hospital since 2019, including 17 in 2023 alone, and eight so far this year.
HSD has reported previously on troubles at Sunshine Private Hospital, St John of God, Healthscope, and The Toowoomba Clinic.
An EY report which came to light in March said private hospitals’ energy and utilities bills were up 13.8% compared with a year earlier, insurance was up 10-15%, interest rate-driven debt costs were up 6% while workforce costs were up by 3.5% to 4.5%.
The report found private hospitals’ revenue streams were not matching operating costs, with private health insurance indexation rising about 1.5-2.5% per year. Industry sources told the outlet off the record that “about 30% of private hospitals and clinics were forecast to shut down if the government failed to act”.
In a document explaining the DoHAC financial review’s scope, the department said:
“High level evidence and stakeholder feedback have raised financial viability concerns that potentially impact the health system and patient outcomes.
“The analysis will inform the advice the department provides government.”
What that advice comes to is yet to be seen but the prospect of a bail-out of the sector would certainly throw the cat amongst the pigeons.
The financial review will assess:
- the components and operation of the market;
- costs and revenues of operators;
- profitability including breakeven points for viability and investability; and
- key market challenges, data gaps and broad directions for further consideration.
It will take into account:
- the heterogeneity of the sector, given the variety in hospital capacities, business models, locations and the communities served, case mix and models of care; and
- the different interactions with patients, insurers and other funders, workforce, suppliers and the public hospital system.
Christine Gee, president of the Australian Private Hospitals Association, said in a statement to HSD, that the review followed “intense advocacy” by sector players, because of the significant gap between cost increases experienced by private hospitals and fees from insurers.
“APHA has particularly welcomed three important announcements made by the federal government in the last couple of weeks,” she said.
“First, APHA welcomes [the DoHAC review as] crucial in directly informing the Federal Government’s response to the urgent issues raised by APHA.
“Second, the commitment to a two-year trial of MBS-funded video in-patient consultations for psychiatrists, a specific measure called for by APHA in response to the crisis in access for in-patient care in psychiatry.
“Third, the reversal of the decision to remove general use items from the Prescribed List of Medical Devices and Human Tissue Product meaning these products will remain on the list following 1 July 2024.”
In terms of any government bail-out, Ms Gee said the APHA called on the government to “consider targeted support for investment in infrastructure, systems and people to prevent further closures”.
“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 PHI premiums even though demand for services has increased, but in the last two years in particular, the private hospital sector (and the public 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.
“There are particular and significant issues affecting the provision of private obstetric and inpatient psychiatric services.
“It is more important than ever that private health insurers and other funders of services, partner with private hospitals to ensure that the vital role private hospitals play in the delivery of hospital services within the Australian healthcare system.”
The AMA said it was “looking forward to engaging with the review team”.
“The AMA has previously outlined proposals to make private health insurance more affordable for those who currently cannot afford it; improve its value proposition for consumers, and the wider health system; and to position our private health system into the future,” it said in a statement.
“One of the AMA’s key proposals is a new independent body — a Private Health System Authority – which if established could ensure we have a cohesive regulatory model that safeguards patient choice.”
Private Healthcare Australia chief executive Rachel David welcomed the review, telling the AFR that 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,” she was quoted as saying.
“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.”