Chapter 6 - The interface between private and public
Australia has had a long tradition of provision of health services by private
providers to fee-paying private patients. There has also been provision of
services for public patients by not-for-profit religious/charitable
institutions. Until the late 1970s many private for-profit hospitals were
small, often owned and run by medical practitioners. However, developments over
recent times have seen an expansion of the operation of private for-profit
operators with corporations entering the market. There has also been an impact
on the private sector as new technologies emerge, more complex procedures are
undertaken in private hospitals and the population ages. In addition, the
private sector delivers services to some public patients under contract to
governments and also provides clinical and non-clinical services to many public
hospitals. This has resulted in a blurring of the boundaries between the public
sector and the private sector.
This chapter provides an
overview of the delivery of hospital services by the private sector and models
of ownership, management and financing now in place in Australia.
This is followed by a discussion of the impact of changes on private and public
hospitals. The Committee has drawn on two recent papers for its overview of the
private sector below: in December 1999, the Productivity Commission published a
research paper on private hospitals in Australia
and the Australian Competition & Consumer Commission (ACCC) reported to the
Senate on anti-competitive and other practices by health funds and providers in
relation to private health insurance.
Overview of the private sector
The private sector plays a
significant role in the provision of health services in Australia.
In 1998-99, there were 312 private hospitals providing treatment to both
overnight and day patients and 190 freestanding day facilities.
The services provided by
private hospitals have been growing, particularly in the provision of day
facilities. The following table provides an overview of activity and growth in
the private sector.
Table 6.1: Profile of the private hospital sector,
1993-94 and 1998-99
Private free standing day hospitals
Private hospitals and free standing day hospitals
Same days separations (‘000)
Same days separations as a % of total
Separations per 1000 population
Patient days (‘000)
Average length of stay, all
Average length of stay, excluding same
day separations (days)
recurrent expenditure ($'000)
2 225 893
3 613 591
Total revenue ($'000)
2 491 674
3 797 681
Private free standing day hospitals
recurrent expenditure ($'000)
Total revenue ($'000)
Source: Compiled from Australian
Institute of Health and Welfare,
Australian hospital statistics 1997-98, Canberra, AIHW, 1999, tables 3.1,
3.2 and 4.1 and Australian hospital
statistics 1998-99, Canberra, AIHW, 2000, tables 3.1, 3.2 and 4.1.
Private hospital revenue has
been increasing steadily over the last decade, with total revenue of more than
$3 959 million in 1998-99.
Private acute and psychiatric hospital revenue grew by more than 40 per cent
and free standing day hospital revenue grew in real terms by some 190 per cent
during the period 1991-92 and 1997-98.
The ACCC found that despite the
dramatic increase in revenue there had not been a corresponding increase in
private hospital profitability. Free standing day hospitals increased gross
profit (revenue minus recurrent expenditure) from $10.1 million in 1991-92
to $23 million in 1997-98. Gross profit from private acute and psychiatric
hospitals increased from $222 million to $285 million over the same period. It has been reported that a number
of private hospitals face a difficult financial position with pressure from
private health funds to provide beds and services.
The principle source of private
hospital revenue is received from payment for patient services - about 92 per
cent - while the remainder is derived from such things as investment income,
accommodation and facility fees paid by doctors. Patients in private hospitals may be
fee-paying private patients, both those with private health insurance (76 per
cent of separations) or self-funding (9 per cent); patients provided for by the
Department of Veterans’ Affairs (9 per cent); compensible patients (5 per
cent); and public patients being provided services (2 per cent).
In broad terms, in-hospital
services to fee-paying patients with private health insurance are generally
funded as follows:
Medical services - Commonwealth: Medicare benefit of 75
per cent of the MBS (including pathology/
diagnostic services) Health insurance fund: health
insurance benefit of 25 per cent of the MBS, although funds may pay more under
contract or gap cover schemes;
Patient: any gap due to the
difference between fee charged by doctor for in-hospital medical services and
combined Medicare and fund benefit;
services - Health insurance fund:
health fund benefit, often total cost depending on contractual arrangements;
Patient: any gap between fee
charged by hospital and fund benefit;
PBS Commonwealth: cost of
pharmaceutical less patient contribution;
Patient: contribution under the
PBS, although the fund may pay the copayment under some types of cover;
non-PBS Health insurance fund depending on
type of cover.
As well, there may be additional expenses to the patient due
to the type of cover purchased, including policies with front end deductibles,
policies which do not cover non-PBS drugs or the full hospital charge (eg only
cover private patients in public hospitals) and exclusionary policies.
There are four main ownership
types in the private sector: for-profit group; for-profit independent;
not-for-profit religious/charitable; and, other not-for-profit hospitals
(includes bush nursing, community and memorial hospitals). The for-profit group
and religious/charitable operators provide around 80 per cent of available beds
in private acute care and psychiatric hospitals. The size of individual
hospitals varies from very small (fewer than 25 beds) to major facilities with
several hundred beds. Large
private hospitals are mostly located within metropolitan areas. Those in
regional Australia are mostly very small and often not-for-profit hospitals.
Some private hospitals are
co-located with public facilities. They may form a joint medical facility or
precinct and may share some facilities. The co-located private hospitals vary
in size from very small (10 to 20 beds) to medium size hospitals of 200 or more
beds. However, the private hospital is not usually involved in the delivery of
any public hospital services and they operate at arm’s length.
Co-location has become
increasingly popular over the last decade. In 1999, there were approximately 32
co-located private hospitals operating in Australia. While there are some
co-located not-for-profit hospitals, most recent examples involve the establishment
of co-located for-profit hospitals. Expansion in this area is expected to
continue, for example, five new co-located private hospitals were due to open
in Queensland in 1999.
ensures that public hospitals that are co-located with private hospital
facilities continue to provide access to a comprehensive range of services for
public patients. The Minister for Health and Aged Care must consider a range of
criteria listed in Ministerial guidelines set out in a disallowable instrument
pursuant to subsection 23 EA(5) of the Health
Insurance Act 1973 before ‘declaring’ private hospital premises to enable
payment of health insurance benefits for private patients treated in the
facilities. Similar provisions under the National
Health Act 1953 apply to co-located day hospitals.
The services offered by the
private sector have changed significantly over the last decade, particularly
over the last five years. Although there are still differences in the casemix
profile of public and private hospitals, the range of services in private
hospitals has increased. Many more complex services are available with private
hospitals now offering intensive care services, cardiac and oncology units. In
1981, there were only two intensive care unit (ICU) facilities in private
hospitals. By 1997-98, there were 30 ICU, 21 coronary care units (CCU) and 33
combined ICU/CCUs. The number of private hospital accident and emergency units
increased from none in 1981 to 27 in 1999.
However, there is still limited provision of some services in the private
sector, for example, paediatric services, and no provision of some very
specialised services such as transplants and burns units.
The private sector dominates
some areas of elective surgery. For some surgical procedures, the private
sector is the primary provider:
The private sector has faced
some significant developments in the 1990s:
as noted above, with the growth of the private
sector has come a greater diversity and complexity of the services offered,
particularly for overnight patients;
same day procedures are accounting for an
increasing proportion of activity;
changes in the relationship between private
hospitals and health insurance funds, including contracting with hospitals by
funds for services required by their members (known as hospital purchaser
provider agreements (HPPAs)), have increased pressures on hospitals to deliver
their services efficiently; and
increasing delivery of services to public
patients under a variety of contractual arrangements with government.
The interface between the private and public hospital sector
The interface between the
private and public sectors arises through a variety of means:
informal links such as providers working across
outsourcing of clinical and non-clinical
services in public hospitals;
co-location of public and private hospitals;
private hospitals purchasing services from the
private provision of services for public
privatisation of public hospitals.
There are now many private
contractors providing various clinical and non-clinical services to public
hospitals. There is extensive contracting of services such as catering,
cleaning, maintenance, laundry, car parks and security.
Increasingly governments are
turning to the private sector for the provision of clinical services such as
radiology and pathology. For example, the Queensland Government has entered
into arrangements with private providers for services such as radiology and
surgical services. There are also
examples of privatisation of outpatients’ clinics, whereby hospital
outpatients’ clinics have been replaced by private clinics run by hospital
Services are contracted out for
a variety of reasons including opportunities to reduce costs, improve quality
of services provided and increase flexibility.
There are examples of public
facilities which have been sold to private operators and which continue to
provide some services to government under contract, for example the
Repatriation General Hospital, Hollywood, WA and the Repatriation General
Hospital, Greenslopes, Queensland. Access for veterans to these facilities
continues through specific Hospital Services Agreements between the Department
of Veterans’ Affairs and the hospitals.
The 1998-2003 Australian Health
Care Agreements allow for public hospital services to be provided in any
appropriate environment, provided that the patient continues to receive care
free of charge, on the basis of clinical need and within a clinically
appropriate time. (See also paras 6.81-85)
The interface between public
and private hospitals also occurs with the co-location of private facilities
with public hospitals. As stated above, co-location is increasingly occurring
in Australia with more than 30 co-located private hospitals now in operation.
(See also paras 6.88-95 )
Private provision of public
In Australia there are now a
number of arrangements which combine public and private sector involvement in
ownership, management, delivery of services and financing of hospitals.
Joint ventures with religious
There has been a long tradition
of private operators providing public hospital services. In the past, these
have generally been provided by religious/charitable institutions. The first
dates from 1857, when the Sisters of Charity established St Vincent’s
Hospital at Potts Point, Sydney, as a free hospital for all people. There are
now more than 20 religious/charitable hospitals, including seven major teaching
hospitals, providing about 3 000 beds for use by the public under
arrangements with State and Territory governments.
Under these arrangements the
institutions finance the construction and operation of facilities and the
government pays them for treating public patients. There may be one management
structure covering both the public and private components of the hospital and
staff may be shared. However, the private hospital component is operated and
licensed as a separate entity within the hospital complex.
Franchised public hospital services
Franchising of public hospitals
involves a state government contracting out the entire management of an
existing public hospital to a private health care company, for example, Mersey
Hospital in Tasmania was contracted to Health Care of Australia in 1995.
BOO and BOOT arrangements
involve private sector financing of the construction and operation of
facilities for treating public patients. These arrangements allow the private
sector to build and finance new public hospital facilities to treat public
patients in return for the right to operate the facilities and receive patient
payments from state governments.
the private sector Builds, Owns and Operates a hospital facility. The state
government purchases hospital services for a specified time (usually 20 to 25
years) after which ownership of the facility is retained by the private
operator. Private facilities are also provided. For example, Port Macquarie
Base Hospital, NSW, Latrobe Regional Hospital, Victoria, and Joondalup, WA;
arrangements: the same as a BOO arrangement, however, at the end of the
contract period ownership is transferred to the state government, for example,
Hawkesbury Hospital, NSW, Robina, Queensland, Noosa, Queensland;
arrangements: the private sector Builds, Owns and Leases Back a hospital
facility. The private operator constructs the hospital and leases it back to
the public sector which runs the facility, for example Mount Gambier Hospital,
The impact of the change in the delivery of public hospital services
The private sector has expanded
in all states and, as the Productivity Commission has stated, governments have
sought increasingly to involve the private sector with the provision of health
care. Factors contributing to this include (self imposed) funding constraints
on governments which have limited their capacity to invest in new or to expand
existing public hospital facilities and the perception that there would be cost
savings and improvements in quality of care through greater private sector
State Governments have used a
combination of the models described above in their commercial dealings with the
private sector. The Queensland Government stated that there were no privatised
public hospitals in Queensland. It has instead pursued a partnership approach
with the State retaining ultimate ownership of public health assets.
The Queensland Government saw
direct benefits of its joint ventures including:
reduction in duplication between private and
public sectors which allows government to take advantage of excess private
capacity and therefore meet unmet public sector demand;
increased flexibility in service provision which
allows the issue of unmet demand in the public sector to be addressed in a more
effective manner; and
sharing of infrastructure costs given the high
cost of health capital.
The West Australian Government
also indicated that it was satisfied with the quality of service provided
through a contract with a private hospital to provide services for public
patients and that the services were being provided at a price that ‘is more
than comparable with the rest of the metropolitan area’.
DHAC and the Productivity
Commission noted that those supporting the greater involvement of private
sector management of public hospitals claim the following benefits:
private sector operators have more ready access
to capital for the construction of infrastructure;
there is scope for private firms to exploit
synergies from bundling construction, financing and hospital operations;
the private sector can provide hospital services
more efficiently than the public sector and thus there are better outcomes for
limited public sector budgets;
the use of private sector operators allows
government to transfer risk of both capital expenditure and recurrent costs;
improvements in quality of care.
Many witnesses pointed out that
the Australian health care system was a blended one, with the private sector
seen as performing an important complementary role to the public health care
system. It was emphasised that the private sector should not be seen as a
replacement for the public system.
Arguments were put to the Committee by those opposing moves towards further
expansion of private sector provision of services for public patients,
particularly through privatisation. These arguments included the differing
motivation of each sector; uncertainty about the level of benefits; cost
increases; equity considerations; and lack of reliable research.
Many submissions supported a
continuation of the primacy of the public sector and argued that the ‘community
role, quality and non-profitable services currently provided in public
hospitals could be compromised or limited in the name of profit if public
hospitals were privatised’. Barwon
Health, for example, stated:
The other key point to emphasise in this topic is the distinctly
different ethos of private and public providers, the former motivated by profit
and dividends to shareholders, the latter serving the community stakeholder
through equity of access and efficiency.
This view was supported by AHA, WHA & AAPTC:
It should be acknowledged that the private sector, including
profit and not for profit organisations, will always seek a return on its
investment...Most importantly the public sector is motivated not by profit but by
access to care based on need...[The public sector] focus on equity is clearly
resonant with prevailing societal values and there appears little social or
economic justification for diminution of its role in delivery of health care..
Catholic Health stated that the
interface between public and private hospitals is changing to meet demand and
improve efficiency and that the Catholic health sector has participated in this
approach and would ‘ensure that issues of equity and access are monitored and
understood so that issues of community benefit are not sacrificed for the need
to ensure shareholder return’.
Some commentators have argued
that privatisation is an ‘ideology or a belief structure’. The RACP, ACA and
Health Issues Centre noted:
...a privatised system is based on a free market, in which market
forces determine supply and demand. A perfectly competitive market does not
feature interference with the laws of supply and demand, such as government
regulation. Such a system sees health as a commodity for which individuals must
make their own choices in relation to consumption. This is contrary to the belief
that health is a right, and that the community (and therefore government) has a
responsibility to ensure that all its members have access to health and social
services according to need.
Efficiency gains and access to
capital through privatisation
The major benefits claimed by
the supporters of privatisation are increases in efficiency and access to
capital. CHERE noted that the former is ‘the standard economic rationale for
privatisation in most industries, that is that the profit motive, assumed to be
a driving force in the private sector, and competition would increase technical
and allocative efficiency’.
Evidence received by the
Committee argued that this is in fact not the case, that costs in the private
sector were higher, as operators need to make a profit and the number of
services per patient are higher.
On the other hand, the RACP argued that it was not helpful to make blanket
statements about public or private hospitals being more or less efficient.
Rather, the key issues are about equity and access to quality care and
opportunities for teaching, training and research, something that is rarely
taken into account in arguments emphasising efficiency.
While it is acknowledged that
there has been little data on the comparative efficiency of the private and the
public sectors, some recent research may give an indication of a comparison of
the two sectors.
A study by Stephen Duckett and
Terri Jackson assessed the argument that the private sector is more efficient
than the public sector. They concluded
that in the case of provision of hospital services the public sector is in fact
more technically, allocatively and dynamically efficient than the private
sector. Duckett and Jackson argued that past efficiency comparisons of public
and private hospitals have been flawed because of the use of bed-day costs.
However, changes to data mean that differential casemix of each sector can now
be taken into account as well as costing discrepancies between the two sectors.
These differences relate to medical services including pathology and imaging
which in the private sector are not incorporated in hospital costs;
pharmaceutical costs which are borne by patients in the private sector
(reimbursed through the PBS); and, depreciation expenses which have not been
well attributed in the public sector. They provided cost differences as
Estimated average cost per weighted separation, public hospital casemix,
financial year 1996-97
Public hospital costs
Private hospital costs
Unadjusted average cost per separation
Average cost per separation
adjusted for discrepant elements*
elements removed are public medical, pathology, imaging and pharmacy costs
and depreciation costs for the private sector. Costings use national public
hospital DRG cost weights.
Source: Authors’ estimates using
National Cost Weight Study data
Duckett and Jackson concluded:
These deficiencies in the data have fostered a longstanding but
mistaken view that the private sector is more efficient than the public sector
in providing hospital care. Even casemix data give this misleading result if
costing discrepancies are not taken into account. Our analysis has shown that,
when appropriate adjustments are made to these cost estimates, the public
sector provides care at a lower cost per case, and thus there is no economic
basis for directing additional expenditure to the private sector.
The Centre for Health Program
Evaluation (CHPE) submitted that the impact of privatisation depends upon the
relative administrative efficiency of private and public hospitals when the
quality of care is similar; and the effect of private hospital status upon the
type of service provided to the patient.
In relation to administrative
efficiency, CHPE reported no reliable studies (to 1998) in the literature which
demonstrated significant differences in administrative efficiency between
public and private hospitals. It concluded ‘in the absence of empirical
evidence the case for the privatisation of public hospitals is weak and the
likelihood of significant health sector benefits from this activity are
In relation to the type of
service provided, two studies were noted. The first, by Professor J Richardson
and I Robertson, studied the likelihood of patients receiving a costly hi-tech
procedure after hospitalisation with an acute myocardial infarction (AMI). It
was found that those in private care were, at the end of eight weeks, 100 to
400 per cent more likely to receive a high technology, high cost procedure
(angiography or a revascularisation) than patients treated in public hospitals.
After 12 months a 100 per cent differential was preserved.
Professor Richardson stated
that there was no indication of differences in quality of life from the study
(or whether these results suggest overservicing in the private sector, or
underservicing in the public sector or a mix of both). However, ‘if there is no
difference there then that simply means we are doing more [in the private
sector] for the same outcomes. That is costly.’
CHPE noted that as the reason
for the difference ‘is associated with the more permissive environment in the
private sector (facilities being more readily available in order to attract
private doctors), it is highly probable that the same differential pattern of
service provision will occur in privatised public hospitals. Mechanisms have
not yet been developed and implemented to regulate the type of procedures
doctors choose to undertake in private hospitals.’
The second study by Harper at
the Monash Medical Centre examined the unit cost of coronary procedures in the
public and private wards. The study found that private expenditures
significantly exceeded public costs and ‘perversely, because of the public
reimbursement of medical and pharmaceutical costs, generated higher costs for
public Medicare than if the patient had been admitted to the public hospital’.
data suggests that private hospitals may be more
likely to employ costly procedures and that the unit cost of such procedures
may be significantly greater in the private sector;
private hospital care may cost the public more
than public care; and
these results imply that the expansion of
private hospitalisation and the privatisation of public hospitals may
significantly increase the cost of health care.
Similar research was cited by a
number of the midwifery submissions which indicated that the rate of Caesarean
section births is significantly higher in private hospitals. Excluding Victoria and the Northern
Territory, which did not have data on status in hospital, in 1995 the Caesarean
rate of 24.8 percent for women who had private status in hospital was 51
percent higher than the rate of 16.4 percent for those with public status. This
difference is partly attributable to a higher proportion of older women among
those with private status. The
Victorian Branch of the Australian College of Midwives stated that a rate of
Caesarean section births in excess of 15 per cent of all births in a region is
above the maximum acceptable level (UNICEF 1997), and is an indicator of
inappropriate use of obstetric services.
Barwon Health noted that in a
recent costing exercise, ‘public hospital costs were found to be about the same
after adjusting for competitive neutrality and comparing like with like. So
there is no evidence that the private sector can manage hospitals more
In its report on private
hospitals, the Productivity Commission looked at three non-financial indicators
of private hospital performance: hospital efficiency; service quality; and
appropriateness of services provided.
For hospital efficiency the
Commission evaluated cost efficiency, labour productivity and average length of
stay. Findings included that:
the casemix-adjusted costs per separation for
all private acute care hospitals between 1993-94 and 1996-97 have fallen by 3
per cent, due mainly to a reduction in unit labour costs;
total unit costs in religious/charitable
hospitals were considerably higher than in other ownership groups;
costs per casemix-adjusted separation increase
with hospital size, this may reflect the greater prominence of
religious/charitable hospitals in the larger size categories although the
Commission did not have access to data based on size;
the smallest hospitals have relatively high
labour costs. However, these are offset by lower non-labour costs; and
both unadjusted and case-mix adjusted average
length of stay (ALOS) fell during the 1990s, with ALOS for the top 15 DRGs in
for-profit hospitals on average 5 to 6 per cent lower than for other
The Productivity Commission
noted although for-profit hospitals may appear to be more efficient than the
not-for-profit hospitals, other factors may explain the variations in
efficiency. One reason is that the cost per separation and ALOS do not pick up
differences in the complexity of cases within DRGs. With larger hospitals,
often the religious/charitable hospitals, treating more complex cases within
individual DRGs, costs will be higher. Larger hospitals may also devote
proportionately more resources to non-clinical functions such as teaching and
research, leading to higher costs per separation. It was also noted that the
cost per separation and ALOS indicators do not make any allowance for
variations in the quality of service delivered to patients.
The Commission indicated that
there were broader influences on efficiency outcomes in the private sector.
These included the regulatory and policy environment and the market
relationships between the hospitals, doctors and health funds. In particular,
changes in the relationship between health funds and private hospitals have
strengthened the incentives for private hospitals to deliver their services
In relation to quality of
service, the Commission concluded that quality indicators ‘paint a reasonably
positive picture of quality in the private health industry’. However, the
Commission noted that there were concerns with the use of quality indicators
and the overall assessment of quality of care.
The Commission also addressed
the issue of appropriateness of care and noted that studies had found that
patients in private hospitals are more likely to receive a greater number of
in-hospital medical services than they would have as private patients in public
hospitals. The Commission noted the comments by Richardson that it is unknown
whether these measures indicate overservicing in the private sector or
underservicing in the public, or both.
The Queensland Government
provided the Committee with a comparison of the top 30 DRGs (by volume of
patients) in both public and private hospitals. It was stated that, in general,
the results indicate that:
overall, there was a zero difference between the
average costs of public and private hospitals on a simple unweighted DRG by DRG
for core costs (salaries etc), public hospital
costs were 14 per cent higher than private hospital costs;
for over head costs (administration etc) public
hospital costs were 31 per cent less than private hospital costs; and
the different proportions of core and non-core
costs in the total cost allow this outcome where the two components differ
markedly but the overall difference is zero.
It was noted that this was a simple comparison between two
groups of hospitals and did not entirely control for differences in factors
known to impact on costs such as teaching, tertiary or secondary status,
The other potential benefit of
privatisation was that private hospitals have greater access to capital. Some
submissions supported the involvement of the private sector in the development
of public infrastructure on the grounds that the private sector could provide
facilities at a time when governments were faced with tight fiscal
However, CHERE noted that it is
unclear whether this is a benefit, given governments can probably access
capital at a cheaper rate than individual or groups of private hospitals.
Collyer in her analysis of the privatisation of the Port Macquarie Base
Hospital noted that the objective behind the privatisation was, in part, to
address a shortage in available capital for the provision of public
infrastructure. It was said that public finance was unavailable, given the
constraints on global borrowing set by the Commonwealth. Collyer stated that this
was never tested and it is possible that a loan may have been approved under
Loans Council Guidelines.
Evidence pointed to the complex
nature of health services and the difficulties which that imposed on measuring
benefits for public patients of expanded involvement of the private sector. It
was argued that the public sector plays an important community role and as such
provides numerous services that may not be profitable. For example, it was
noted that the larger public teaching hospitals undertake many activities which
go beyond routine clinical care, such as education, research and audit. Other
services include many of the health services in rural and remote Australia.
Other concerns were raised about ensuring equity and access to high quality
The Queensland Government noted
that while private hospitals have extended the range and complexity of services
offered, public hospitals still treat more complex and costly patients than in
the private sector. Public hospitals also treat more medical cases and patients
with chronic and complex conditions.
AHA, WHA & AAPTC also noted that while the private sector did some things
very well, for example, ophthalmology, a range of services was not available in
the private sector, for example, in the field of paediatrics and women’s
health, ‘because they are not profitable services for the private sector’.
The Royal Australasian College
of Surgeons also stated that patients with complex or catastrophic illnesses
are treated in the larger public hospitals and under present casemix funding,
the costs usually result in a major loss. As a consequence, these patients
would likely to be avoided by a privately managed private hospital.
Education, training and research
Submissions noted that generally,
undergraduate teaching, postgraduate training and quality assurance activities
are not adequately funded in current hospital funding models and are often
cross subsidised from other activities.
As a result, where services are privatisated these activities may not be
recognised in contractual arrangements and therefore funded inadequately or not
Concern was expressed that the
private sector has generally failed to provide the same commitment to education
and training as the public sector.
The DRS stated that ‘despite claims of private institutions to be committed to
education, their commitment rarely extends to the employment of adequate
numbers of training registrars’.
It was argued that the failure
to provide adequate education opportunities is already causing difficulties and
will result in serious shortages of appropriately trained staff in the future. It was noted that privatisation of
some services, particularly pathology and radiology, is removing training
opportunities. The Royal Australasian College of Physicians stated that
privatisation of ambulatory care facilities (usually outpatients departments)
has reduced training opportunities for physicians ‘in a major way, leading to
the re-evaluation of ambulatory care training by the RACP’. Professor Roberton voiced concern
for the training of medical students in a private environment where
‘practitioners feel that they have a different responsibility and a greater
constraint on their ability to discuss, to intellectualise, to think broadly as
they are discussing matters with our trainees’.
The Australian Healthcare
Association also expressed concern over the future of research opportunities in
the private sector. AHA stated that virtually all clinical medical research is
conducted in the public sector:
Despite the fact that the same clinicians may care for patients
in the private and the public sector, it is much less common for research
activities to be based in the private sector. This presumably relates to the
nature of the reimbursement of clinicians in the private sector and the
relative lack of support for such initiatives by private hospitals, health
insurance funds and so forth.
Equity and access to quality care
The RACP, ACA and HIC noted
that ‘in health care, the public sector has a crucial role in ensuring equity,
that is ensuring access to good quality care for those in greatest need,
commonly those with the least capacity to pay. It is also critical in ensuring
Evidence was received that
following changes to management arrangements, ie moves to the private provision
of public services, difficulties had been experienced with services being
reduced or closed. For example, it was stated that services have been closed at
Latrobe Hospital ‘in an argument that they are not being funded adequately
through the private-public agreement’.
Concerns have also been expressed about the level, variety and quality of
services provided at Modbury Hospital, SA, where a private company manages the
public hospital. The hospital’s 24-hour emergency surgery service had been
reduced with some periods being covered by ‘on-call’ services.
The changes to the level of
service provision have significant implications for access to care. This is
particularly so when the hospital in question is the only provider for the
region. This is the case for the Latrobe Hospital which replaced two public
hospitals that were closed at Moe and Taralgon.
A further matter raised in
relation to access to quality care concerned the changes in the public health
sector workforce. Concerns were expressed that the supply of specialist medical
staff in public hospitals may decline as a result of co-locations and expansion
of the use of private hospitals. It was argued that this might lead to fewer
specialists available to provide services in the public sector and thereby
impact adversely on public sector waiting lists. The increased reliance on part-time
and casual hospital staff was also noted as an outcome of recent changes. It
was argued that this increased pressures on staff and was detrimental to the
quality of care.
Concerns were also raised in
evidence about the economic viability of some contracted out services and the
impact of financial instability on the standard of care provided. The AMA (Vic) pointed out that
private operators in Victoria are funded in the same way as traditional
Victorian public hospitals, which are the lowest cost providers of care in
Australia. The AMA (Vic) considered that given this and the need for the
private sector to deliver adequate returns on investment and that the
for-profit sector does not have access to input tax exemptions, there are
significant financial risks in the private sector operators, ‘which given the
nature of hospitals, cannot be quarantined to the operators. There would be
risks to patients, staff and Government, if these competing pressures were not
effectively managed’. The AMA (Vic) considered that the operating risks, in
terms of the range and quality of services, are of such a magnitude, that they
can only be safely borne by the public sector. (See Box 2 for a discussion of
Latrobe Regional Hospital.)
AHA, WHA & AAPTC also
Concerns now clearly exist as to whether these [co-locations]
were sound business investment decisions. The returns on the high capital
investment cost appear not to be sufficient to meet debt servicing and profit
expectations. There are clear signs of the private sector wanting to increase
its share of government funded work, arguably to improve its cash flow and
Catholic Health Australia also
voiced a note of warning, stating that ‘certainly a feature of more recent
contracts is a risk shift to the owners and operators of the projects which has
the potential to be unsustainable in the longer term. Competitive pressures may
have also resulted in operators offering discounts on benchmark prices that are
unsustainable in the long term’.
Concern was expressed about the
possible lack of accountability arising from greater contracting with the
private sector. It was argued that commercial-in-confidence contracts did not
allow for full transparency. Some
submissions cited the example of Port Macquarie Base Hospital and Modbury
Hospital where many details of the contracts entered into were unavailable due
to commercial-in-confidence claims.
The Australian Nursing Federation (SA) stated:
This cloak of secrecy is a major problem in an area of service
delivery that impacts very directly on the health and welfare of the community
and is paid through the public purse. It works to remove genuine public
accountability for both economic efficiency but also for achieving appropriate
standards of care and service to the community the hospital was intended to
Contracting and administration
DHAC noted that contracting
also brings with it specific costs, which need to be factored into any analysis
of potential savings. These costs include bargaining costs, opportunism costs,
and transaction and monitoring costs.
The RACP argued that in fact,
the complexity of the arrangements may increase administrative costs, often to
the detriment of clinical resources, and while the private sector may enjoy
financial gains, the government continues to have the overall responsibility
and financial risks.
Together with the specific
costs of contracts, there was also concern about the difficulties in defining
in contracts all the services currently undertaken by public hospitals. In
particular, submissions pointed to teaching and research activities and
Recent examples of private sector
involvement in provision of public hospital services
There have been a number of
reviews by State Parliamentary Committees and Auditors General of private
sector provision of public services. These include the Port Macquarie Base
Hospital (PMBH), the first arrangement whereby a private operator (Health Care
of Australia) was contracted to provide public hospital services, Modbury
Hospital in South Australia, Noosa and Robina Hospitals in Queensland, and
Joondalup Hospital in Western Australia.
The reviews identified a range
of deficiencies in the contractual arrangements entered into including problems
with data and modelling used to compare private and public options; lack of tangible
benefits to the state; limited government control over quality; cost overruns;
poor contracting management and increased risk for the state. In the case of
one parliamentary committee, it was found that commercial-confidence provisions
prevented it from concluding its inquiry.
While these reviews have
uncovered major problems with contracting, it was pointed out to the Committee
that more recent contracts have included improved arrangements for funding and
the types of services provided.
1: Modbury Hospital, South Australia
In 1995, the South
Australian Government signed a contract with Healthscope Ltd to manage the
Modbury Public Hospital for a period of 10 years with an option to extend the
term in addition to the construction of a private hospital on land close to the
public hospital. The hospital pays a service fee to Healthscope which is set
annually for the management of the public hospital.
In July 1996, the
Legislative Council Select Committee on the Proposed Privatization of Modbury
Hospital tabled an Interim Report. The Committee reported that it had been
unable to obtain information from Healthscope, the Health Commission and the
Modbury Hospital Board.
By 1997, Healthscope had
raised a number of matters of concern with the contract including continued
losses. It was alleged that the contract price was insufficient to enable it to
support the long term completion of the contract.
In 1997, Coopers &
Lybrand were engaged to report on matters concerning the contract and
identified a number of key deficiencies in the contract management process and
in the original management agreement.
In 1997 the contract was
substantially amended and re-executed after the Government decided that it
would be acting against the public interest in not proceeding to amend the
contract. It was estimated that the renegotiated contract reversed losses of
around $2 million in 1996-97.
The SA Auditor General,
in its audit of the Hospital contract in 1997, reported that difficulties had
arisen between 1995 and 1997 between the Government and Healthscope over a
number of ambiguities in the original management agreement. Further,
Healthscope considered that it should be funded on the basis of the same
principle as other public hospitals, but as the management agreement did not
provide for this, the SA Health Commission refused to provide funds on this
basis. Substantial problems also appeared to have occurred because the amount
of money the parties had agreed would be paid to Healthscope under the
management agreement was allegedly insufficient to allow Healthscope to make a
The Auditor General also
noted that the management agreement did not provide any guarantees from
Healthscope and there were deficiencies in the Government management of the
contract. The Auditor General concluded that the Modbury Hospital contract
provided an example of some of the difficulties associated with contracting out
and that the Government had a non-delegable duty of care in matters of the
provision of public health. The Auditor General also noted that the original
and amending contracts would be disclosed.
Concerns continue to be
expressed about the level, variety and quality of services provided at the
Hospital. For example, the ANF (SA) reported that the Hospital’s 24-hour
emergency surgery service had been reduced with some services being provided by
on-call services. The ANF (SA) stated that it believed that there was not a
drop in user rates of the service, but that Healthscope had sought this as a
Source: SA Auditor General, Report on Summary of Confidential
Government Contract under s41A of the Public Finance and Audit Act 1987 Modbury
Hospital: Audit Commentary and Recommendations, 1997-98; Submission No.65, p.13
(ANF (SA)); Submission No.16, p.12 (Queensland Nurses Union), Committee
Hansard, 23.2.00, p.183.
2: Latrobe Regional Hospital
Hospital was opened after the closure of public hospitals as Moe and Taralgon.
Australian Hospital Care (Latrobe) Pty Ltd, a wholly owned subsidiary of
Australian Hospital Care Pty Ltd, was contracted by the Department of Human
Services to build, own and operate the new hospital, with exclusive rights to
provide public hospital services in the region for a period of 20 years.
The contract was not
made public. In 1999, the Victorian Civil and Administrative Appeals Tribunal
ordered that the then Government release the contract. The Government appealed
to the Supreme Court.
In October 2000,
Australian Hospital Care announced that the Latrobe Hospital would be
transferred to the Victorian Government on 31 October. Australian Hospital Care
had reported a loss of $6.2 million in 1999 for the hospital and was forecast
to lose $2.7 million in the current year (until the transfer to the
Government). The company had written off its $17 million investment in the
hospital. The Victorian Minister for Health, The Hon John Thwaites, stated that
‘the losses incurred by Australian Hospital Care meant it could no longer
guarantee the hospital’s standard of care’.
Under the transfer
arrangement, Australian Hospital Care will be released from its contract in
return for dropping legal action against the Government, selling its $12.6
million stake in the hospital building for $6.6 million and giving the
Government a cash payment of about $1 million.
Australian Hospital Care
stated that under the terms of the contract signed with the previous Victorian
Government, the company had incurred heavy losses and were ‘unviable’.
Source: Rollings, A, ‘La Trobe hospital returns to public control’, The
Age, 24 October 2000; Victorian Legislative Assembly, Debates, 14.5.99, p.1111.
3: Port Macquarie Hospital, NSW
In 1990, the NSW Health
Department sought ways to provide a new hospital at Port Macquarie. The
Department compared the costs of a new public hospital with those of allowing
the private sector to build and operate a public hospital. Under the private
option it was expected that the new facility would cost $15 million less and
that operational costs over 20 year would also be $46 million less than
for public sector operation.
This assessment was
examined by the NSW Public Accounts Committee. It concluded that there was no
significant difference in operational costs of providing patient care either
through the private or the public sector. It recommended that the private
sector should be allowed to build the hospital, but that the NSW Government
should keep the delivery of hospital services in public hands by leasing the
hospital from the private sector.
The PAC recommendations
were not accepted. In 1992, the then NSW Government contracted Health Care of
Australia (HCOA) to construct and manage a new privately operated 161 bed
public hospital in Port Macquarie. Under the arrangement, the hospital is owned
by Port Macquarie Base Hospital Limited, which is leased to HCOA. The buildings
will revert to HCOA after 20 years. HCOA is contracted to provide public
hospital services to public patients under a 20 year contract. In exchange, the
NSW Health Department pays the private operator an annual service charge for
the treatment of public patients (the service charge is calculated on a set fee
per service, which is equivalent to the top cover private hospital rebate). In
addition, the Department pays an availability charge to ensure the hospital
remains available for public patients. This was the first such arrangement in
The NSW Auditor General
reported in 1996 that the final costs had increased significantly over those
contained in the tender documents. In addition, the Health Department did not
have accurate costing systems to identify reliably the costs of operating an
individual hospital at a particular level of service delivery. Thus the output
of the model of public sector operation it had used to compare with the private
sector was basically a ‘best guess’ estimate.
The Auditor General also
found that the cost of capital construction of the hospital would be totally
met by the State under the annual availability charge paid to the HCOA over the
20 year period, but that the State does not receive the hospital at the
end of the term, unless it purchases it at market value. The Auditor concluded
that the cost of financing the hospital through the private sector was
substantially higher than it would have been through the public sector.
In 1996, the then NSW
Minister for Health reported that the running costs of the Hospital were between $4.5 million to $6.5
million more than running a public hospital of the same size providing the same
Collyer concluded ‘the
privatisation strategy has transferred, and continues to transfer, significant
public funds from the public sector into the private sector. Private hospital
operators, previously relying on patient contributions and health insurance
company payments, can now rely more heavily on public funds for the financing
of profitable patient services’.
Sources: Collyer, F, Privatisation and the Public Purse: The Port
Macquarie Base Hospital, Just Policy, No. 10 June 1997; NSW Auditor, NSW
Auditor General’s Report for 1996, vol.1.; Radio National, Background Briefing,
20 October 1996.
Box 4: Joondalup Health Campus, Western Australia
In 1996, the Western
Australian Government contracted Mayne Nickless Ltd to provide public hospital
services at what had previously been known as Wanneroo Hospital. Under the
contract, Mayne Nickless was to rebuild, manage and operate a combined private
and public hospital (70 private beds and 265 public beds). It also provides
emergency facilities, operating theatres, a medical centre as well as providing
for the construction of new community health facilities which will be leased
and operated by the public sector.
The State pays the
operator service and availability charges for a period of 20 years, after which
time the public facilities will revert to the control of the State. The private
facilities revert to the State after 40 years.
The WA Government stated
that by transferring capital expenditure to the private sector, a net present
value saving of $21 million would be provided compared to public sector
provision. This was based on a benchmarking exercise which put the cost of
public provision of the new hospital at $51 million. However, by June 1997 the
operator’s costs had increased by 56 per cent on the original estimate of
capital costs of the project to $42.4 million.
In 1997, the WA Auditor
General conducted a performance examination and reported that:
were doubts about the validity of the benchmarking exercise that the
Department of Health had conducted and that ‘the benchmark figure used by
the Department to estimate the capital saving has a number of limitations
so that there is no reliable estimate of the extent of any savings’;
benchmarking exercise did not reflect costs savings that might have been
expected if a competitive public sector bid had been developed and did not
take into account the value and utility of the existing hospital
contract price did not provide any direct savings in service prices; and
contract resulted in additional risks to the State including reduced
flexibility and lack of competition for new services and facilities;
limited contractual control over the quality of services; financial
incentives for the operator to influence admission, treatment and
discharge patterns; and potential overpayments because of incorrect coding
The Auditor General
concluded that there was ‘not reliable information to establish that the
contract provides net tangible benefits to the State relative to the public
sector alternative from either services or facilities’.
Source: WA Office of the Auditor General, ‘Performance Examination -
Private Care for Public Patients - The Joondalup Health Campus’, Report No.9,
November 1997; Centre for Development and Innovation in Health at
www.cdih.org.au/marketpplace/case.htm; Submission No.45, p.29 (RACP, ACA, HIC).
Provision of services for public patients in private hospitals
The 1998-2003 Australian Health
Care Agreements allow for public hospital services to be provided in any
appropriate environment, provided the patient continues to receive care in line
with the AHCAs principles. That is, eligible persons must be given the choice
to receive public hospital services free of charge as public patients, on the
basis of clinical need regardless of geographical location.
DHAC stated that the
‘Commonwealth’s focus is on public hospital services rather than public
hospitals, provided that:
arrangements do not result in the transfer of
costs from State Budgets to other parties such as consumers, health funds or the
levels of public patient access to free hospital
services are not compromised’.
A number of arguments were put
to the Committee about the difficulties of placing public patients in private
hospitals as well as some unintended consequences of such a move. It was argued
that those taking out private health insurance did so because they wanted
choice of doctor, ready access to care and the quality of the private hospital
infrastructure. If public patients were treated in private hospitals, private
patients may question the need for health insurance, as public patients would
also have access to the benefits of the private system at no cost. As a
consequence, the Commonwealth Government policies aimed at improving private
health insurance uptake would be eroded.
It was also noted that the same
difficulties of demonstrating the benefits of private provision of public
hospital services arise in the case of a public patient in a private hospital.
The private provider would have to demonstrate a comparative advantage in the
provision of the service and the public sector would have to develop the means
to monitor services purchased.
The Australian Private
Hospitals Association (APHA) suggested that there was a need for contracting
guidelines to be developed where governments sought to contract services for
public patients in private hospitals. APHA pointed to a number of disincentives
to the expansion of services for public patients in private hospitals:
current financing arrangements: medical costs
are the major cost differences between private and public hospitals. For
private hospital services with large volumes, medical practitioners are often
willing to negotiate their fees but not to as low as the sessional rates
received in public hospitals. ‘For this reason, it is unlikely that large
numbers of public patients will be treated in private hospitals’;
‘discounting’: often under HPPAs a hospital
offering a price to a non-insured patient that is lower than the contracted
price with a health insurance fund, is required to offer the same price to the
contracting fund; and
transparency of contracts: contracts between a
hospital and a public health department ‘would essentially be on the public
record. This may discourage some hospitals, reliant on their contractual
arrangements with insurers, from accepting a contract with a public health
Competition between the private and public sectors
The Productivity Commission
considered the level of competition between the public and private sectors for
insured private patients. The Commission found that with many private hospitals
now offering services and treatments that were previously only available at
major teaching hospitals, there was competition for private patients. The
commonality in the leading DRG groups for insured patients treated in public
and private hospitals was a further indication of the scope for some
competition between the two sectors: four of the top 10 DRGs for insured
patients are common to public and private acute care hospitals.
The Commission found that in
competing for private patients public hospitals face both advantages and
disadvantages due to regulatory/policy arrangements:
private hospitals face costs from the bed licensing system; accommodation
charges for private patients in public hospitals are set at a default rate,
which have not generally covered costs;
the capacity of public hospitals to actively compete for private patients is
constrained as they do not have access to capital market funding for
refurbishment of facilities and they have not been able to give private
patients preference over public patients; the financial incentive for them to
treat more private patients or to seek to negotiate accommodation benefits with
health funds that more closely reflect costs may be limited as this might lead
to lower levels of Commonwealth funding.
As stated earlier, the number
of co-located facilities is increasing. It is argued that major benefits arise
from co-location of private facilities on public hospital sites through
complementary provision of services and economies of scale. These included
reduction in the duplication of services and
facilities between the private and public sectors;
increased flexibility in service provision;
increased efficiencies from sharing the
infrastructure costs given the high costs of health capital as well as
operating efficiencies by the sharing of facilities such as pathology,
radiology, laundry, catering and parking;
increased ability to recruit and/or retain
senior staff in co-located facilities who are able to work across the public
and private facilities. As well as contributing to the quality of patient care,
this may increase the viability of teaching services, allow public hospitals to
install better technology and assist in nursing recruitment;
increased competition among providers and
institutions by creating markets where none might have otherwise existed;
provision of revenue to the public sector
through the leasing and sharing of capital infrastructure and the contracting
of services into the private facility;
provision of backup for each sector.
Co-locations occur at major teaching hospitals and this can provide a degree of
comfort for the private sector in knowing that hi-tech tertiary care is
available on-site if difficult cases arise. In addition, specialists may prefer
to work in conditions that enable them to interact with their peers and to have
access to a wider range of cases; and
greater opportunities to provide additional
private services in rural locations which may be unable to support a separately
sited private hospital.
Barwon Health provided evidence
of the benefits of co-location of facilities in Geelong where a decease in
waiting lists and opportunities to purchase services for public patients has
example, in the emergency department if a person comes in with private health
insurance, they have got the option of being transferred immediately across
through the tunnel into the co-located hospital or remaining with the public
system...I think what we have been successful in doing is shifting the emphasis
of our facilities onto what I believe they are there for-that is, the proper
care of public patients. That has had an enormous impact on our ability to
admit public patients, to reduce our waiting list and to increase the turnover
of elective work.
have been many occasions over the last 18 months where, for patients that we
have had difficulties admitting in an acceptable time frame, we have actually
contracted with a co-located hospital to treat those patients...On many other
occasions where we have been faced with cancelling major surgery, we have been
able to buy intensive care beds from a co-located hospital and then bring the
patients back as quickly as we can. It has been an arrangement where it has
certainly assisted us in coping with peak workload pressures, and it has
obviously been of assistance to them in smoothing out their workload. There are
many other cases where we work to mutual advantage. They were able to access
our specialised medical staff and also our specialised facilities...
have approximately 18 to 20 pricing agreements for services that we have
between us. It has certainly worked to our mutual advantage in a whole range of
ways for us.
However, some concerns were
also expressed about the co-location of private facilities on public hospital
sites. In particular, the
opportunity to cost shift was raised. This could occur if services that were
accessed by public patients in a public hospital, at State Government expense,
were provided, after co-location, by the private hospital. In this case, the
Commonwealth would incur some of the expense for the medical services involved.
DHAC noted that legislative
provisions are in place to ensure that the public hospital involved continues
to provide access to a comprehensive range of services for public patients.
Before ‘declaring’ the private hospital premises to enable payment of health
insurance benefits for private patients treated in the facility, the Minister
for Health and Aged Care must also take into account the co-location’s effect
access to services for public patients and the
patient’s right to choose to be treated as a public patient;
whether the co-location would result in a
transfer of costs; and
whether the hospital will supply information in
order for the Commonwealth to monitor access, adequacy and costs of treatments.
The Productivity Commission
noted that these provisions ‘are principally designed to reduce the
Commonwealth’s exposure to cost shifting’.
While there may be cost savings
to State Governments through the co-location of facilities, there may also be
loss of private patient revenue in public hospitals. As noted in the previous
chapter, the fall in revenue from private patients in public hospitals has been
marked and has impacted adversely on hospitals’ ability to provide services.
Co-location of private and public facilities may exacerbate this trend.
DHAC noted the potential impact
on private patient revenue but stated:
However, the relationship between this marginal revenue and the
marginal cost of services to private patients is not clear. In some instances
the marginal revenue forgone as private patient numbers in public hospital
decline has been offset by non-patient revenue (such as lease payments) raised
from private hospital operators participating in co-location initiatives.
The Australian Nursing
Federation (SA) also offered a specific example of problems arising from the
co-location of a public and private hospital. The ANF (SA) stated that the
co-located private hospital at the Flinders Medical Centre was guaranteed a
significant volume of public day surgery, cardiac investigations and some other
work. As a result, limitations have been imposed on Flinders Medical Centre to
make decisions about managing its own budget and activity. When Flinders was
faced with a budget reduction, it had very little capacity for adjustment as
‘the contract with the private hospital meant that it was required to make
those payments regardless of whether the public sector had the services carried
out or not’.
Evaluation of changes to provision of services
While there has been a number
of reviews of specific cases of privatisation, the Committee heard that there
was no wide ranging evaluation of the increasing trend of private delivery of
public services. The Department of Health and Aged Care noted that the
arguments used by those supporting privatisation are still to be evaluated as
most of the initiatives ‘are very recent’.
However, other commentators
voiced stronger concerns about the lack of evaluation in the light of
government policy promoting greater private sector involvement. Professor J
public use of private hospitals, the broader issue here is whether or not we
get a better deal if the public uses private hospitals. The unknown factor here
is whether or not that is of any benefit at all. We simply do not know the
quality and the costs of the public versus the private hospitals. In fact,
because of the lack of research in this area we have engaged right around
Australia in privatisation with virtually no evidence to suggest that that will
actually give the benefits that are claimed.
The lack of research and
evaluation also has implications for government’s ability to assess the
benefits to the public of changes in service arrangements. The Productivity
The increasing role of the private sector in the delivery of
public patient services also puts a much greater premium on governments having
access to good information on the quality of services and clinical outcomes in
both public and private hospitals. In addition, further research and evaluation
of policy experimentation will be necessary to help determine which forms of
private sector involvement are best suited to particular circumstances.
The Productivity Commission
also noted that the Victorian Health Services Policy Review, in a comparison of
a number of approaches to increased private sector involvement in the delivery
of public services, had concluded that there was a need for further evaluation:
...we believe that there is insufficient evidence at this stage to
support the wholesale tendering of public patient services in Victoria...The next
few years should provide rich evidence of the success or otherwise of that
model of service delivery as privately operated hospitals are established and
placed under the social microscope. Further, tendering under that model should
await the outcome of rigorous evaluation.
In its analysis for the Committee of research
needs, CHERE stated that the following matters need to be examined in relation
to the interface between public and private sectors:
quality - development of performance measures
for ongoing monitoring of quality;
comparative performance - comparison of overall
performance and performance in particular areas; and
identification of potential relationships
between the two sectors and appraisal, demonstration projects and evaluation.
Recent initiatives by State and
Territory Governments have seen a blurring of the roles of private and public
sectors. Whilst there has been a long history of the provision of public
services by private providers, those providers have in the past been
religious/charitable institutions operating jointly with government. However,
governments are now pursuing a variety of other models of delivery of public
services. Many different services are involved ranging from the outsourcing of
certain clinical and non-clinical services to the total management and
provision of a large public hospital. For-profit organisations, including large
corporations, are now providing public services under a variety of contractual
The Committee received evidence
from those who supported the greater involvement of private operators and from
those who did not. Many of those who did not support the current trend
emphasised the lack of clear benefits for public patients and the lack of
research in this area.
It is this lack of research and
evidence of benefits that is of major concern to the Committee. It appears
governments have embarked on the path of increased privatisation without the
benefit of rigorous analysis of the benefits and costs. Individual examples of
privatisation have highlighted many problems which have resulted in costs
rather than savings to the public purse. In part, these may have been due to
problems arising from poor contracting arrangements. However, there is a
fundamental lack of data and research about the comparative merits of the
Some research was provided to
the Committee which may call into question the benefits put forward in support
of privatisation. For example, the analysis by Duckett and Jackson suggests
that one of the main arguments for privatisation - the greater efficiency of
the private sector - cannot be maintained.
The Committee also recognises
that the private sector is not homogeneous and that certain types of care may
well be more efficiently provided through the private sector. This adds to the
complexity of any comparative analysis as does difficulties of costing many of
the services provided in public hospitals. For example, a vigorous public
health system also provides many benefits to health care through training, education
and research. As well, public hospitals provide a range of community services.
These activities are difficult to cost and appear, on the evidence received,
more difficult to establish in a for-profit environment.
The Committee concludes that
research is required into the comparative performance of the public and private
sectors to appraise and evaluate measures of efficiency and effectiveness
before further privatisation takes place.
Recommendation 23: That independent research be commissioned by
the Department of Health and Aged Care to examine the strengths and weaknesses
of current examples of co-location and cooperative sharing of resources between
nearby public and private hospitals.
Recommendation 24: In view of the difficulties currently being experienced
at several privately managed public hospitals, the Committee recommends that no further
privatisation of public hospitals should occur until a thorough national
investigation is conducted and that some advantage for patients can be
demonstrated for this mode of delivery of services.