Crunch time in private health

Since 2019, The Australian has reported on an encroaching crisis in the private health insurance sector, with the potential to harm policy holders and those reliant on the overstretched public hospitals. As recently as 11 days ago, we warned that the problems were approaching a crunch point. It arrived on Thursday, when customers of one of the nation’s largest health funds, NIB, learned they may no longer be able to use their hospital cover for surgery at a host of leading private hospitals around the nation. The final straw came as St Vincent’s Health Australia, the nation’s biggest non-profit operator, notified NIB that it intends to let its contract with the insurer lapse in October after negotiations over a new agreement collapsed. The breakdown of the relationship would leave more than 1.3 million Australians with hospital cover with NIB unable to use their policy to cover the costs of surgery at 10 major private hospitals in NSW, Victoria and Queensland, where some of Australia’s most skilled and in-demand surgeons operate on cardiac, cancer, orthopaedic and neurosurgery patients. These include St Vincent’s Private in inner Sydney, the Mater on Sydney’s north shore, St Vincent’s Private hospitals in Fitzroy and East Melbourne, and in Brisbane at Kangaroo Point and Northside. The hospitals are well-known for excellence and as facilities where some of the country’s most skilled, in-demand surgeons operate.

The stalemate needs to be resolved in a way that puts the system on a sustainable footing. If it is not resolved, customers with top cover will be unable to use it in St Vincent’s hospitals, health editor Natasha Robinson reports. Instead, they would fall under the second-tier default benefits scheme, in which NIB would only have to fund 85 per cent of patients’ hospital costs. That could leave hip replacement patients having to pay more than $4000, in addition to gap payments for surgeons and anaesthetists. The knock-on effects across the health system would be severe. As Australian Medical Association president Steve Robson said recently, the private hospital sector is “too big to fail”.

Insured patients intent on staying with their preferred doctors would look to other private hospitals. But other large private hospitals are also under financial pressure, with some heading for bankruptcy. As a leading ENT surgeon told The Australian recently, private insurers need to realise that without private hospitals, their products would be pointless. More than 70 private facilities – day hospitals, overnight hospitals, psychiatric hospitals and rehabilitation hospitals – have closed since 2019. In some hospitals, private maternity and psychiatric wards are deserted and rehab facilities closed. Patients opting for the public system would join long waiting lists. In December, figures released by the AMA showed more than 850,000 patients were waiting for planned surgery.

St Vincent’s Health Australia CEO Chris Blake on Thursday said the organisation would walk away from NIB after months of negotiations. The insurer’s offer would go nowhere near covering the cost of providing hospital services, Mr Blake said. Private hospitals were not immune from rising costs, with electricity costs set to double in the next year. “Private hospitals are going backwards, and the insurers are making increased profits,” he said. “That needs to be rebalanced, because quality of care cannot be sustained in some instances.” NIB CEO Mark Fitzgibbon’s response threw little light on the subject. He said NIB was “sympathetic to St Vincent’s financial position and that of other private hospitals” and defended the company’s offer as “very fair and reasonable”. He was disappointed St Vincent’s aired their argument in public.

But given the fact problems in the sector have been emerging for years, and the public’s interest in the matter, the subject needed to be aired. The sustainability of private hospitals is currently being examined by a federal Health Department review. It is in the interests of government, taxpayers and patients that the sector works out its problems, preferably without further government regulation. But the situation is too serious to be left to limp along without reform. While the private hospitals industry as a whole is operating on a profit margin of just 1 per cent, insurer profits have been rising year on year. That is no longer sustainable and is risky for the health system overall. If private policy holders cannot receive the services they pay for, they are more likely to walk away from the sector, creating new difficulties for all patients. As Professor Robson said, Australians pay their health insurance premiums in good faith and rightly expect to be able to use their policies when they need them. When negotiations between hospitals and insurers run off the rails it is patients who suffer.