Private hospitals say an Australia government review of the sector’s financial viability show there is a need for structural reform of the relationship between funders and providers, but experts question whether the voluntary data provided to the review proves there is a “crisis”.
The federal health department announced the review in June following contract disputes between private hospital companies and health insurers that risked leaving patients paying higher out-of-pocket expenses. It also came as hospitals raised ongoing concerns about rising costs of providing care.
The government on Friday released a summary of its Private Hospital Sector Financial Health Check, assessing private hospitals’ financial data for the period 2017–18 to 2023–24. The full report will not be made public as hospitals provided their data on the basis it would remain confidential.
Financial data was voluntarily provided by 243 out of 647 hospitals, which the report said represented 58% of private hospital discharges and 63% of hospital revenue in 2022–23.
Of private hospitals that submitted financial data to the Health Check, there was a decline in the weighted average earnings before interest, tax and depreciation (EBITDA) margins from 8.7% in 2018-19 to 4.4% in 2022-23.
However, the summary notes that “taking into account other publicly available financial data, the department estimates that the sector’s weighted average EBITDA margin is likely to have been between 7% and 8% in 2022-23”.
The report acknowledged its potential selection bias due to the incomplete submission of financial data across the private hospital sector. Charles Maskell-Knight, a former senior health department official, told Guardian Australia this was a “fundamental problem”.
Maskell-Knight said there are “strong reasons to suspect the sample is not representative” because more profitable hospitals would be incentivised to withhold their data so that “the overall profitability of the sector would appear to be lower, meaning that the likelihood of some sort of government support of the sector would increase”.
Maskell-Knight said “if the department’s estimate of a sector average EBITDA margin between 7% and 8% last year is right, then on average there isn’t a crisis compared with 2028-19”.
The report highlighted that obstetrics and mental health were “two particular services of concern” becoming “increasingly difficult to offer”.
The president of the Australian Medical Association, Dr Danielle McMullen, said critical areas, including maternity or mental health, have been impacted by many of the hospitals that have had to either close or restrict services in recent years.
In addition to the financial data voluntarily submitted, the report also used several administrative collections.
In assessing the National Hospital Cost Data Collection and Private Hospital Data Bureau, the summary said private hospital’s expenditures were increasing at a compound annual growth rate of 4.1% while revenues were falling behind at a compound annual growth rate of only 2.9% between 2018-19 to 2021-22.
Brett Heffernan, the CEO of the Australian Private Hospitals Association, said “you don’t have to be very good at maths to see that doesn’t add up to a profitable sector, let alone one that will be able to keep surgery doors open”.
Heffernan said private hospital finances were suffering at the same time as insurers’ profits and premium keep rising. “We have a situation where in 2021-22 health insurers racked up $1.1bn in after tax profits. It doubled in 2022-23 to $2.2bn. The latter was on the back of an average 3% premium hike,” Heffernan said.
A statement from the health minister, Mark Butler, said the results showed while parts of the sector have remained strong, the reduction in profitability meant there was “substantial work for private health insurers and private hospitals to do to ensure the sector’s long-term viability”.
Butler said in response to the review, the government will establish the Private Health CEO Forum to bring together leaders from private hospitals, private health insurers, medical groups and independent experts to develop short-term options for government consideration and to commence work on long-term reforms to strengthen the sector’s financial viability.
While Butler acknowledged private hospitals are “fundamentally important” to the broad operation of the entire healthcare system, he said “there will be no silver bullet from Canberra or funding solution from taxpayers to deal with what are essentially private pressures in this system”.
Heffernan said “if more private hospitals close, that workload moves immediately to the public system which is groaning under the weight of huge waiting lists”.
Hefferan said structural reform of the relationship between funders and providers of private healthcare is needed. “We weren’t anticipating that this report would provide a panacea, but all this suggests is continuing a conversation. We are long past the need for answers, not more discussion.”
The AMA welcomed the forum, highlighting it has long called for a stakeholder-led reform body as part of its advocacy for an independent Private Health System Authority.
