Dr Rachel David spoke to ABC Radio Adelaide about funding for private hospitals

Well look, like a lot of businesses around Australia, private hospitals have genuinely struggled with the circumstances of the pandemic and what happened afterwards with inflation and the rising costs of wages, power and food.

Health funds have actually, in the contractual process that they’re obliged to go through by regulation with hospitals, have given them an additional 7.7 per cent in funding since last year, and that’s been about standard throughout that time. So, every year seven, eight per cent on average they’ve got extra, which is about 4.3 per cent additional funding per person. Now as you can see, that’s well above inflation. But also, bear in mind that the Federal Government determines what premium increases the health funds are allowed to raise.

So, last year, the year before last that was three per cent. This year it was 3.73 per cent, because the New South Wales Government legislated for some extra money. And health funds are capped at that level. There is a limit to what people are avail- what people can pay out of their own pockets, particularly in a cost of living crisis.

So, Nikolai, we’re walking a tightrope between what people can afford to pay for their private health insurance and what we can give private hospitals over and above inflation.

Well look, the other thing that we’re seeing is that some private hospitals, if they’ve got scale, remain pretty profitable. So, a large group like Ramsey, it made $900 million in profit last year. And yes, we are aware that some private hospitals are struggling, but we’re also seeing a number of private hospitals open as well. So in fact, there are more private hospital beds open now than they were prior to the pandemic. The trouble is, most of them are clustered in urban areas and we’re not seeing enough open in regional and rural Australia. So, we have an excess of beds in and around cities.

What we’ve said as an industry to the Federal Government is that we know some private hospitals need support. And if we do- are in a situation, particularly after the collapse of Healthscope, where we find that there are hospitals providing essential services, where people have private health insurance and they have no other option, we as an industry will get together with them and work out a solution for our members. Because our priority is our members, people with private health insurance, not just to ensure that they can afford hospital care but that they get access to surgery when they want it.

Well, look, some not-for-profits are doing pretty well in the community, so- but there’s a huge range. There are some very big organisations like St Vincent’s and Calvary, and there are some smaller community hospitals. What we’re seeing is a whole sector going through a transition that has been hastened by the pandemic and some of the tough economic conditions. Overall technology and improvements in surgical techniques mean that people are staying in hospital for much shorter periods of time.

And some people are even getting a lot of their treatment at home, which means that those hospitals that are able to change their model of care to adapt to the way that surgery and mental health care are evolving, in particular, they will be very successful. So, we have, actually, a very positive outlook for the private hospital sector. There are more people joining private health than ever before, but it’s not going to look the same as it did in the 1980’s. So, some facilities might survive; some facilities might adapt to the new models of care; some won’t survive.

4.15 is the time. 891 ABC Radio Adelaide, Nikolai Beilharz with you for Drive, and you’re hearing from Dr Rachel David, the CEO of Private Healthcare Australia, the representative body for the private health insurance industry here in Australia.

When the news of Healthscope moving to receivership came through, the Federal Health Minister, Mark Butler, held a press conference pretty soon after that, and as part of that discussion, he was talking about the fact that he- using his words: a couple of months ago, I announced my expectation to insurers that they would lift the benefit payments ratios, the amount or the percentage of their income from private health insurance members that’s actually paid out to hospitals, rather than going into profits or management expenses. Do you feel, as an industry, somewhat on notice that the Federal Health Minister wants to see that change?

Look, I think that the Health Minister should be very satisfied with the data that was released today that showed that there’d been a 7.7 per cent increase in what health funds are paying to private hospitals over the last year, which represents the uplift in what their paying in their contracts with private hospitals. The amount- for every dollar that health funds raise from premiums, they pay back 85 cents. And that’s been stable for about the last 20 years, Nikolai, and it’s way higher than any other form of insurance. I think if that was to be forcibly increased to an even higher level, that means the operating expenses, particularly some of our smaller not-for-profit funds, would really be squeezed. Some of those funds are already paying out 90 cents in the dollar. And the inflation that that would cause in the system would really mean that they would have to cut into things like their IT programs and some of the cybersecurity measures they’ve had to put in place ever since we had those very big data breaches which affected Medibank and some of the other big financial institutions.

So, look, I think the Minister should be very happy that we are continuing to increase what we’re paying hospitals. But just in case, what we’ve said is that if any private hospital that is providing an essential service looks like it’s going to fall over and it’s in an area where our members don’t have other options, we are prepared to sit around the table with the Federal Government and work out a solution for that hospital. We want to make sure that none of our members, and that is people with private health insurance, fall through the cracks.

Well, and just finally on that, I know you were talking earlier about the need for the model that some operators use to change. There has been a bit of, I guess, concern about the state of the health of the private hospital system itself. Are you worried about that? I mean, is the reality that, in likelihood, some more private operators will close in coming months?