Insurers and private hospitals may hate each other but they need each other to make good music. Meanwhile, is Mark Butler ‘chasing a pot of gold’?
Federal health minister Mark Butler surprised a few people in the audience of the Australian Financial Review’s Health Summit yesterday by departing from the government’s previous position of letting the market play out in terms of the profitability dilemma facing the private hospital sector and saying that if Labor wins the upcoming election it would look at intervening somehow to lift the percentage premium the private insurers pay to private hospitals upwards from its current 85%.
“There needs to be a lift in the benefits payments ratio from insurers to hospitals,” Mr Butler bluntly announced.
“I want them working on that urgently.”
Probably not urgently enough to create some much-needed guardrails around the potential damage that the imminent collapse of Healthscope might wreak on the system.
In one scenario Healthscope’s owner has been contemplating with lenders is whether to split the Healthscope assets into profitable and non-profitable hospitals and setting the non-profitable assets adrift.
That some of the non-profitable hospitals represent very important pieces of health community infrastructure might be what is pushing Mr Butler to nudge the insurers to play ball a bit more.
While Mr Butler didn’t give an indication of what sort of upwards lift he was looking for in benefit ratios, Ramsay Health Care’s new CEO Natalie Davis told the summit’s audience that a 3% lift would deliver about $1 billion to the private hospital sector.
Private health insurance lobby boss Dr Rachel David, CEO of Private Healthcare Australia, who was on a panel not long after Mr Butler, wasn’t buying what the minister had just started selling. She made the odd good point.
She opened with “focusing on the claims ratio as a solution to something is a little bit like the private health equivalent of chasing the pot of gold at the end of the rainbow”.
She then explained that it would be ignoring the very obvious structural issues faced by private hospitals and do nothing to help them transition their suddenly dated business models, which was what was needed.
Which of course, it is.
Not that some near-term monetary relief wouldn’t help the problem if the private hospital sector could be made somehow to spend the money on bridging some structural trends breaking hard against them, like the significant shift to a much greater need for and use of, day surgery, or some of the many efficient emerging virtual models of care that cloud technology is starting to make feasible.
And that’s not even mentioning the term AI.
On the topic of AI, Ramsay CEO Ms Davis, fresh from the fresh food people (Woolworths) and with an enviable background in technology and transformation, did an interview which seemed to underline the structural problems that Dr David was suggesting we would be better to focus on if we want to fix private hospitals.
Ms Davis, who’s been touring Ramsay hospitals to check out the coalface issues for a strategy review, was surprised to find out that a lot of her hospitals were using faxes to share data.
We guess nobody told her that private hospitals are a lot more into beds and bricks and mortar – which is how the funding system pays them, so not entirely their fault – than pesky stuff like digital transformation.
Coming from a highly tech-savvy major retailer at the cutting edge of leveraging data, analytics, AI and technology, Ms Davis, who is no doubt a very smart and capable executive, must be starting to get the feeling that she’s moved to “the digital land that time forgot” – private hospitals and specialists.
“There has been a lack of digital transformation, there are a lot of fax machines in hospitals … I couldn’t believe it, but this is also how a lot of specialist doctors still admit patients, it is a systemwide issue,” Ms Davis said.
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She’s got a lot more problems than that which she must realise by now if she’s really thinking transformation. The private hospital sector doesn’t really have a proper EMR system in any of its hospitals around the country, which is first base if you want to leverage data, AI and analytics.
They don’t have EMRs because whenever they go to look at one they’ve come to the conclusion that they’re too expensive – no return on investment, apparently.
Again, maybe the funding paradigm is to blame here.
EMRs are notoriously expensive and hard to implement and the funding system sends no real signal to a hospital operator that sharing data and building out things like virtual technology using cloud-based EMRs will bring them a decent return on that pain and investment.
Which brings us back to Dr David’s point: lifting benefit ratios is a short-term BandAid that will probably send the wrong signals and certainly won’t do much to help private hospitals engage in their real problem of transitioning to new innovative models of care and sharing data properly.
And there is this, according to Dr David:
“If you were to wave a magic wand to do it [up the benefit ratio across the board], the first thing that would happen is you’d get inflation in the system and the funds that are already paying out over 90% would be the first to have their EBIT crash to zero.”
Dr David thinks that a potential outcome would be consolidation in the private health insurance sector favouring funds that some of the providers are least happy with.
She also reminded summit-goers that the operating expenses of health funds contain a number of non-claims health services which people in rural and regional Australia are completely dependent on.
Dr David is pretty good at coming up with sensible sounding arguments to defend her sector.
The problem is, as one person from the audience pointed out to her in a Q&A, the sector is making stupid (super) profits at the moment, and a big chunk of our private hospital sector looks like it could go under at any moment, potentially taking with it some irreplaceable community care infrastructure.
Mr Butler’s play to sound out the sector on increasing benefit ratios might be crude and ultimately ineffective as Dr David suggests – like a tariff perhaps – but he’s at least sending a very strong signal to the sector that they need to play together much better and soon.
“There is no question there’s been a structural shift of where the money is going in the system and there is a structural shift downwards for private hospitals. There has been a shift up in profitability and management expenses of insurers,” Mr Butler said.
The minister’s desire for a rebalancing is the good point, if how he is proposing doing it, isn’t.
The private health insurance sector might be wise to think more carefully about what Mr Butler wants and how he is prepared to do it and come to the middle to help the system do it in a better way.
As the AFR’s health reporter eloquently put it moderating a panel which had two private health insurance people and two private hospital people on it: private health insurers and private hospitals are like Liam and Noel Gallagher.
They may hate each other but they need each other to prosper and make good money moving forward. So, they had best make up and get on with the music.