Surgery bans wipe tens of millions of dollars off private hospital earnings

Bans on elective surgery in the cause of freeing health staff for the pandemic have unintended consequences for patients and investors.

Plastic and reconstructive surgeon Jill Tomlinson, above, says bans on elective surgery take a heavy toll on patients. Picture: Arsineh Houspian

Cancer and elective surgery seem polar opposites. After all, cancer does not discriminate and survival rates are higher when it’s detected and treated early.

So when plastic and reconstructive surgeon, Jill Tomlinson, tells a patients that she can’t cut out their skin cancer because of Victoria’s ban on elective surgery, it doesn’t make sense.

Dr Tomlinson is one of the many surgeons who collectively perform about 70 per cent of Australia’s elective surgery in the private health sector.

“Elective is a term that needs to be rethought, given it suggests unnecessary – try telling that to a cancer patient.

It is also one of the first things jumpy governments ban when Covid-19 infections rise, under the guise of freeing up health staff and resources to combat the pandemic. It is a simple but misguided message, with the bans resulting in private hospital doctors and staff sitting in empty wards rather than treating patients, while private health operators are losing tens of millions of dollars each time elective surgery is paused.

Australia’s biggest private hospital operator, Ramsay Health Care, expects the bans and other pandemic-related costs to wipe $55m off its earnings this year.

About 20 per cent of its revenue comes from the 16 hospitals it operates in Victoria.

At the same time, private health insurers’ profit – which totalled $1.8bn last year – have surged because they are paying for fewer procedures, while waiting lists blow out, heaping more pressure on the public system.

“One of the narratives is that everybody who was stopped from doing elective surgery is able to help out with a pandemic response. And that’s a false narrative,” Dr Tomlinson said.

“There are certainly parts of the health system where people can be redeployed to help with the Covid response,” she said.

“But within elective surgery, there are multiple different facilities involved, and some of those facilities don’t have arrangements where staff can be transferred to Covid response when wards are not used in the Covid response, and so it actually has healthcare workers sitting idle.

“That’s particularly in the private sector, which does 70 per cent of elective surgery. Places, for example, that do day endoscopy, where people have colonoscopy and gastroscopy – diagnose cancers – are usually not deployed to a public setting. There’s not even the structures set up by government to take those staff to another facility.”

Elective surgery is the main revenue driver of private healthcare, which in recent years has been viewed as an attractive investment, given Australia’s ageing population and overburdened public system.

Canadian private equity giant Brookfield took over Australia’s second-biggest private hospital operator Healthscope in 2019 for $4.4bn after a bidding war with Ben Gray’s BGH Capital.

Now BGH is slugging it out again with London-based CapVest to secure Australia’s biggest IVF provider, Virtus.

But elective surgery suspensions limit the ability to gain a return on that investment, at least in the short term. Despite securing a viability guarantee from the federal government, that funding only covered the cost of treating patients, leaving no cash to reinvest in equipment, training or servicing debt.

While IVF procedures were initially part of Victoria’s latest ban on elective surgery, the Daniel Andrews-led government eased restrictions on fertility treatment late last month. But restrictions on other elective surgery remain in the southern state.

This is despite NSW – which has more than triple the number of Covid patients in its hospitals than Victoria – allowing 75 per cent of elective surgery to resume on Monday. Victoria has 752 Covid-19 patients in hospital, with 51 in intensive care. NSW has 2494 and 160 in intensive care.

Dr Tomlinson said Victorian surgeons and hospitals were effectively back in lockdown, and the costs are mounting.

“Despite there being 124 days of elective surgery restrictions (in Victoria), there are surgeons across Victoria, throughout that time, who have continued to need to pay their rent and their staff wages. They are a small business.

“And without a road map or guarantee by government, we’re in the same setting that Victorian businesses have been across 2020 and 2021. We are actually effectively locked down.

“As far as we know, government has the intention of bringing back those restrictions every single time Covid hospitalisations rise, and why the Victorian Government is doing that at a harsher level than other states is unclear. It’s arbitrary, and doesn’t give certainty to patients or to the small business owners performing 70 per cent of elective surgery under usual circumstances.”

Dr Tomlinson uses the term small business because most surgeons at private hospitals are not salaried staff, and rent space from a private hospital to run their practices. And this is what makes redeploying private doctors to a public setting difficult. “Where would the employment contract be and who would be paying that?

“Because government runs the public sector, they understand that well, but the different silos in the healthcare system are very important to understand if you are placing restrictions on them. If you don’t understand them, then you shouldn’t be placing restrictions on them that have unintended consequences that hurt patients.”

For Dr Tomlinson, those consequences include not removing skin cancers and completing reconstructive surgery.

“In my practice, I have not been able to do elective surgery, as all surgeons haven’t, throughout January and that means I’ve got many patients who are waiting for surgery who have diagnosed cancers and who have severe pain and disability who are unable to work.

“These are skin cancers large enough to require flap reconstruction or skin graft reconstruction. And the concern is that the longer a skin cancer is left, the larger it grows and the more complex the surgery to remove it is, and the more complex the surgery to reconstruct the area afterwards is.”

Barrenjoey Capital Partners equity analysts have revised their half-year earnings per share forecast for Ramsay to 20 per cent lower than consensus, citing the arrival of the latest Covid-19 variant, Omicron, and surgery bans.

“While the cancellation of non-urgent elective surgery does not appear to be creating issues for patients, it is likely that the true ramifications of these procedural delays are yet to be realised,” Barrenjoey’s analysts wrote in a note to investors.

“Osteoarthritis of the knee requiring joint surgery does not recover on its own accord. Prostatic hyperplasia requiring trans­urethral resection does not resolve with pharmaco­therapy.

“Gastric polyps that are yet to be biopsied under routine endoscopy can still be cancerous.

“Hence this backlogged volume, often thought of as low acuity/low risk procedural work, will certainly need to be done. This locks in a long tail of … work for private hospital providers.”

Data from the Australian Institute of Health and Welfare revealed the median wait time for elective surgery has increased by a week from 41 days pre-pandemic to 48 days in 2020-21.

Australian Private Hospitals Association chief executive Michael Roff said this was “a very big increase in waiting times” and restrictions on “necessary elective surgery should not last one day longer than they need to”.

“When you look at surgeries by category, the increases in median wait time are even more significant,” he said.