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Private Hospitals & the Private Health Insurance Conundrum
Greg Lewis
Social Policy Group
14 September 1998
The private hospital industry is a significant part of health care in
Australia. More than three in every ten hospital admissions and one in
every four days in hospital are in private hospitals. There are differences
between private and public hospitals in the services offered. Private
hospitals are significant players in same-day procedures and investigations,
particularly in relation to some investigative procedures, such as endoscopy
(the viewing of internal parts of the body)-around 51 per cent of admissions
are for same-day hospital care. Relative to public hospitals, private
hospitals have more patient admissions for musculo-skeletal and connective
tissue injury and breast and reproductive system surgery. In 1996-97,
private hospital beds comprised 29 per cent of all hospital beds.(1)
Ownership of private hospitals in Australia is diverse. Significant numbers
of hospitals are owned and managed by religious and charitable organisations.
The nine major private hospital groups control 117 of the 463 private
hospitals and 45 per cent of beds. The market leader, Health Care of Australia,
has a 13.4 per cent share of beds.(2)
Private hospital income is heavily reliant on private health insurance
funds-in 1996-97, 71 per cent of revenue was from this source.(3) Private
health insurance participation rates have been in decline since the introduction
of Medicare in 1984(4), but, somewhat ironically, the period of greatest
expansion of the private hospital industry has coincided with the more
marked decline in private health insurance participation of the last few
years.
Efficiency and innovation
Technical efficiency and treatment innovations have been crucial to the
private hospital industry in maintaining its competitive advantage since
Medicare made free public hospital care available to all. In particular,
the opportunities available from hospital management reform and from advances
in medical technology have been maximised to facilitate growth in insured
and non-insured patient episodes of care and industry profitability.
Through recent advances in medical technology, the industry has developed
a major competitive advantage in patient access to minor elective surgery.
The doubling of the number of private day hospitals since 1991-92 to around
153 is associated with the introduction of advanced technology for minor
surgical procedures. Patient self-funding of day hospital care serves
to reduce the industry's reliance on health insurance funds.(5) The larger
companies have been engaging in vertical integration activities by purchasing
pathology and radiology practices.(6) Companies have tapped the interest
of State Governments in cost sharing and improving patient access to expensive
medical technology through hospital co-location with public hospitals,
with the logical next step being public hospital purchasing of private
hospital services.(7) In future, private hospitals may be the leaders
in offering specialised health facilities in non-hospital environments
customised for specific health problems.(8)
For several years, private patient admissions to public hospitals have
been in decline. A number of market-related efficiency measures have been
introduced by the industry, and additional private hospital construction
planned, to maximise the market advantage of the drift of private patients
from public to private hospitals. Management and clinical service innovations
have included:
- management re-structuring and reduction of overheads through technology
and information management efficiencies and outsourcing of maintenance
and consumables(9), and
- introduction of new facilities and additional speciality services
and changing the services mix towards higher demand areas, including
rehabilitation and aged care.(10)
Declining private health insurance participation
The decline in private health insurance participation to the current
low of 30.6 per cent has been largely for two reasons-the cost of premiums
in relation to the marginal benefits of coverage and the conundrum that
the gap, which can be substantial, between the consultation fee and the
Medicare rebate remains mostly payable by the individual.(11)
The shift of insured persons to non-subsidised private hospitals has
been influential in the increasing costs of private health insurance premiums,
which since September 1996 have increased by an average of 20 per cent.(12)
Targeted rebates to ameliorate the cost of premiums under the Private
Health Insurance Incentives Scheme were introduced from 1 July 1997. Nonetheless,
the decline in participation is now affecting private hospital admissions-insured
episodes of care to March 1998 have declined by 3.3 per cent from the
peak of December 1997. Anecdotal advice is that the decline is continuing.
Private Hospital Utilisation
Change Between Quarters (a)
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September
1996 - 1997
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December
1996 - 1997 (b)
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March
1997 - 1998
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Episodes of care
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-7.8%
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-0.9%
|
0.8%
|
|
Days
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-2.1%
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-1.3%
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1.6%
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- Australian Private Hospitals Association, March quarter analysis
1998.
- December 1997 data subject to adjustment.
Private health insurance and public confidence
The contribution of the private hospital industry to the Australian economy
is considerable. In 1996-97, the industry employed 41 919 full-time equivalent
staff, generated revenue of $3 493 million (representing 0.7 per cent
of GNP) and invested $328 million in capital equipment.(13) It could be
argued that the importance of the private hospital industry extends beyond
the economic benefits it offers in private individual financing of health
to issues of innovation in marketing, quality of care and technical and
management efficiency. Survey research indicates that quality of care
is the key reason for a choice of private hospital care.(14)
Recent international trends in the reform of health systems have included
the transfer of health costs to the private sector and efficiency improvements
through enhanced patient choice.(15) Australia has one of the largest
private health sectors in the OECD, and private health insurance is mainly
used to 'cover treatment costs and for peace of mind'.(16) Nonetheless,
the option to switch back to Medicare and poor value for money perceptions
have weakened the coverage of private health insurance and are impacting
negatively on private hospital admissions and the capacity of public hospitals
in meeting demand. The current piecemeal approaches of subsidising private
health insurance participation rates through the Private Health Insurance
Incentives Scheme and the Medicare levy surcharge have not been successful
to date in re-gaining public confidence. The experience of the next six
months as the impact of the Medicare levy surcharge becomes known will
be instructive. Should the decline in private insurance participation
continue, more radical remedies may be necessary.
- Australian Institute of Health and Welfare, Australian hospital
statistics 1996-97,Canberra, 1998, Australian Bureau of Statistics,
Private hospitals Australia 1996-97, Canberra, 1998 and Australian
Private Hospitals Association, 'Activity of the private hospital industry',
APHA Information Paper no. 2, 1997 and no. 2, 1998.
- Australian Private Hospitals Association, 'Structure of the private
hospital industry', APHA Information Paper no. 1, 1998.
- Information supplied by the Australian Private Hospitals Association,
26 June 1998.
- Australian Institute of Health and Welfare, Australia's health
1998, Canberra, 1998, p. 177.
- Australian Private Hospitals Association, 'Economic contribution of
the private hospital industry', APHA Information Paper no. 3,
1997.
- D. Flecknoe-Brown, 'Day surgery', National Healthcare, February
1998, pp. 51-53.
- M. Russell, 'Cost concern over private hospital boom', The Sydney
Morning Herald, 6 January 1998, T. Dusevic, 'Private v public: the
great hospital', Australian Financial Review, 7-8 March 1998
and D. Bagnall, 'How to cure a sick system', The Bulletin, 31
March 1998, pp. 19-21.
- L. Jennings, 'Paying for tomorrow's health care', The Futurist,
April 1998, pp.7-8 and J. Grieber, 'New hospital follows American trend',
Courier Mail, 13 January 1998.
- Hodge, 'Healthscope up after abnormals extraction', The Australian,
25 February 1998 and N. Field, 'AHCL revises forecast', Australian
Financial Review, 5 June 1998 and M. Carr, 'HSA snares private hospital
supply contract', Australian Financial Review, 18 June 1998.
- J. Boyle, 'Ramsay investments look healthy', Australian Financial
Review, 3 March 1998 and N. Field, 'Illness puts AHCL in better
health', Australian Financial Review, 19 February 1998 and A.
Hodge, 'Healthscope flags move into aged care', The Australian,
24 April 1998.
- T. Dusevic, 'Private v public: the great hospital', Australian
Financial Review, 7-8 March 1998 and S. White, The silent majority
III: the everyday problems of the average Australia, Clemenger/BBDO
Ltd, 1997.
- Industry Commission, 'Private health insurance', Report no. 57,
AGPS, Canberra, 1997 and J. Kerin, 'PM's acute care fails private
health', The Australian, 17 June 1998.
- Australian Bureau of Statistics, op. cit.
- Australian Private Hospitals Association, 'What do people think about
private health?', APHA Information Paper no. 4, 1997.
- 'The reform of health systems: equity, efficiency and quality of care',
International Social Security Review, 1996, Vol. 50, no. 2, pp.
77-90.
- Australian Private Hospitals Association, 'How does private health
insurance work?', APHA Information Paper no. 5, 1997.
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