Australia’s private hospitals: victims of the pandemic?

SEVERAL generations of Australians have enjoyed a health system that balances public and private medicine in a manner that is, in theory at least, fair, accessible and affordable.

However, in recent years, private models of hospital and outpatient care have come under considerable pressure, as commercial interests, regulation and population factors change. The COVID-19 pandemic of the past 2 years has amplified these pressures particularly on Australian private hospitals, due to costs for personal protective equipment, absenteeism, and reliance on telemedicine rather than face to face consultations.

This makes me wonder whether Australia’s private hospital system will become the unwitting casualty of the pandemic.

Importance of Australia’s private hospitals

Australian private hospitals number 639, meaning more than one-third of Australia’s hospitals are private. The private hospital sector employs more than 69 000 full-time equivalent (FTE) staff, including 38 000 FTE nurses, almost 10 000 FTE allied health and clinical support staff and nearly 20 000 FTE ancillary staff (private correspondence). In addition to these are thousands of doctors who hold visiting and staff contracts to private hospitals.

In a typical year, that is, pre-COVID-19, the private hospital sector accounted for 4.4 million hospitalisations (p 21).

Care that has been lost

In their 2022–23 Budget Submission, the Australian Private Hospitals Association (APHA) report that as at 30 June 2021, 290 000 fewer privately insured patients than expected were treated in private hospitals, since the start of the COVID-19 pandemic in March 2020.

Many of these missing episodes of care will never be recovered, and the consequential health outcomes have yet to be calculated (here and here).

Another effect of these missing episodes has been a spike in the public hospital waiting lists. There has been deliberate stopping of lists and delaying of lists. Ipso facto the waiting lists lengthen.

Emergency policies

In some states, governments restricted activity in private hospitals and sometimes have even sequestrated wards and operating theatres for public use (and here).

Pandemic-related regulations, such as mask wearing, social distancing, and polymerase chain reaction (PCR) testing, have been very strictly applied to hospital settings, with good reason.

The combined effect of the above-mentioned fall in activity and pandemic compliance issues has been a sudden, significant fall in private hospital revenue. According to the APHA:

“In 2019–20 total revenues (all sources) in the private hospital sector declined in real terms by 3.4% when compared with 2018–19. Although the contribution of the Australian Government increased in real terms by 14.5%, state/territory government contributions declined by 1.6% and non-government contributions declined by 9.2%. Although health expenditure data for 2020–21 is not yet available, data reported by [the Australian Prudential Regulation Authority] shows a second year of low revenues from the sector’s primary revenue source, private health insurance.”

At the same time, there was a significant increase in running costs. Again, according to APHA:

“Operational costs increased as a result of the pandemic as the price of items essential to the COVID-19 response suddenly rose and international supply chains came under pressure. These cost increases also impacted the cost of non-COVID activity as many of the same supplies are also essential for standard hospital services. Although most acute shortages have moderated with time, the vulnerabilities of supply chains have been exposed and many ongoing costs have increased because of sustained upward … pressure on price and changed operational requirements.”

Given that the private hospital sector runs on a profit margin of 4.5% (p8), a significant change of the status quo brought about by the pandemic will almost certainly render many hospitals unviable, with inevitable closure, in my opinion. The problems are ongoing – personal protective equipment supplies, COVID-19-leave provisions, social distancing, additional cleaning and sterilising – all take their toll on financial viability.

Private funds

And during this period of upheaval, private health insurance companies have kept receiving payments of premiums while patients have made far fewer claims.

The APHA reported to me in a personal correspondence that Australian health funds have made a $2 billion windfall during the pandemic.

The current inflationary cycle in our economy, with the rising cost of living without a matching growth in wages, may mean many Australians will jettison their private health funds in order to stay financially afloat, as many have already done, in my opinion.

Thus, a causal nexus is before us. Private health funds become more unaffordable while private hospitals close or offer fewer services to remain viable.

The result is a possible collapse of the private hospital sector. While it has clearly been a threat, the COVID-19 pandemic can also be seen as a catalyst for discussion and action as to how to preserve the duality of the Australian hospital system.

Dr Aniello Iannuzzi is Chair of the Australian Doctors’ Federation. He is a rural GP.

The statements or opinions expressed in this article reflect the views of the authors and do not represent the official policy of the AMA, the MJA or InSight+ unless so stated.