Dr Rachel David spoke with ABC Radio Adelaide on PHI and private hospitals

Station: ABC Radio Adelaide
Program: Mornings
Date: 5/7/2024
Time: 9:16AM
Compere: David Bevan
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


DAVID BEVAN: But let’s go to Dr Rachel David. She’s CEO of Private Healthcare Australia. Doctor David, how do you respond to that?
RACHEL DAVID: Morning, David. And look, I guess my first response is one of disappointment. I suppose that what should be a negotiation behind the scenes has been pushed into the public domain in a way that’s quite alarmist for people. This negotiation has got weeks to run. The funds are- or the fund that’s involved is still prepared to sit down with the hospital and negotiate. And even if the worse comes to worst and they can’t reach agreement, there are mediation processes that can take place at the end. So we’re a long way away from needing to alarm patients about charging co-payments or similar issues. The health fund’s prime interest is in their members, and they will do everything possible to ensure value for money for their members, including access to care, quality care and affordable care.
DAVID BEVAN: But in this particular case, NIB is saying: well, if you go along to a St Vincent’s hospital in Sydney, or maybe it’s- and this could well be repeated in a situation here in Adelaide, we’re only going to cover you up to a certain percentage. And beyond that, we’re not going to fund anything more at this hospital. And the hospital has turned around and said: well, that’s just ridiculous. We can’t cover this.
RACHEL DAVID: No, that’s not what’s happening. What’s happening is there’s an active negotiation taking place. This is part of the normal process by which hospitals and health funds arrive at an agreement. And it’s probably one of the only levers that health funds have in a highly regulated environment to ensure that value for money for their members and that premiums remain affordable. So the process is still open and active. No one is suggesting that there’s a hard cap on what any health fund is paying hospitals, but it has to be value for money. And in a cost of living crisis, we can’t just put up premiums to levels which people can’t afford, because if you do that and people start dropping out of private health insurance, then hospitals, as you can say, are not going to have the patients coming through and they’re going to be penalised anyway. So we’re walking a fine line between what people can afford and being able to assist hospitals with keeping up with some of the inflationary pressures that we know they’re facing.
DAVID BEVAN: Rather than talk about the abstract, let’s give an example. Is it the case that NIB are saying to St Vincent’s: oh, look, you’re charging, I don’t know, $10,000 for a hip replacement, and we know it only costs you 7000? You’re having it on, and we’re not going to pay that.
RACHEL DAVID: No. Look, what’s happening is that we’re all aware that inflation has hit hospitals hard, the same as it’s hit pretty much every other business in the whole economy. So they are facing some increased costs. And what NIB is doing is trying to meet those costs without penalising its own members to the extent that they can no longer pay the premium, because if that happens, there’ll be drop outs and downgrades, and the effect on the hospital will be the same.
DAVID BEVAN: Well, Dr Catherine Bassett is talking about insurer power and greed. They were her words.
RACHEL DAVID: Well, look, I’m not really sure where that’s coming from. I think where- you know, what the insurer’s predominant obligation is to their members. And if you recall, during the pandemic, we had three or four years of lockdowns and times when there was no elective surgery. And when cash accumulated for the health funds during that period, they immediately agreed to give it back to their members. $4.4 billion were returned to members, rather than being retained as profits, and no other sector in all of Australia made that commitment. It was monitored by the ACCC and it was validated. So I’m not sure where the greed issue is coming into this, and I’d prefer, I suppose, that kind of slur was not put on the table and that we stuck to the facts that we can demonstrate. So, you know, we talk about $0.79 being paid back for every premium dollar. Now, that was in a year where there were lockdowns – you can’t use that statistic.

In a normal year, as we’re coming up to the year ’24, ’25 when there will be normal levels of surgery that will be performed, the normal claims ratio or the normal amount of giveback is about $0.86 in the dollar that’s spent on premiums, and that’s far higher than any other insurance type. I think the next level is general insurance, where you probably get back about $0.65 in the dollar.

So we’re talking about, actually, one of- one of, if not the most generous, insurance type that exists in Australia. Premiums and profits are highly regulated by not one but two or three regulators that look at it every year. And furthermore, this was the only sector that gave back surplus profits accumulated during the pandemic to its members.
DAVID BEVAN: The private hospitals say they are operating, many of them, on a profit margin of just 1 per cent. What sort of profitability have the health insurers got at the moment?
RACHEL DAVID: Well, look, it’s variable, but if you want to have a look at it, it’s all published for every health fund on the AHPRA, ahpra.gov.au website.
DAVID BEVAN: [Talks over] Well, you’re the CEO of Private Healthcare Australia, I reckon you’d have a better idea than me. Are private health insurers profitable?
RACHEL DAVID: Absolutely, and the reason they’re profitable is because the way they are regulated means that it’s actually not possible to run a health fund in Australia that makes a loss. You are not permitted to run a health fund at a loss in Australia and have it registered as a health benefits organisation. So that’s the first thing.

It’s a circular argument. By definition, in Australia a health fund makes a profit. But it’s highly regulated. There is a premium round every year where the Minister for Health, AHPRA – the prudential regulator – and the Department of Health regulate the prices and they look at the margin in that process and management expenses to make sure that within an appropriate range.

The trouble with on the hospital side is we don’t actually know. Apart from the listed company, Ramsay, which makes a profit of 13.5 per cent, we don’t actually know whether the hospitals are profitable or not because the standard for reporting is nowhere near as high as it is for health insurance funds. And that’s why the Commonwealth Department of Health has organised- they’re doing a review and they’ve collected a lot of data in this review of private hospital viability because that information was simply not available.

DAVID BEVAN: What? Do you reckon the private hospitals are having it on?
RACHEL DAVID: No, I’m just saying that we don’t know the level to which they’re profitable or not, and that’s something that does need to be established by the regulators. Everyone understands that, after the pandemic in a period of inflation, they’re doing it tough, but we can’t act in a way that penalises health fund members for that without losing people and further penalising private hospitals in the process.
DAVID BEVAN: Okay, that’s Dr Rachel David. She’s Chief Executive Officer with the Private Healthcare Australia. If you’ve just joined us, there’s this almighty row that’s erupted between one of the big private health insurers and one of the big not-for-profit private hospitals on the east coast. And they’ve- basically, it’s just negotiations have broken down and they’re having a very public fight. What we’re trying to work out is, is that symptomatic of something that is a national problem? I think the answer is, yes. So, could it come to South Australia? And how did we get here?
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