Major contract between NIB and St Vincent’s Private hospitals on brink of collapse

The country’s largest operator of non-profit private hospitals has sounded a warning on the crisis in private health as it threatens to walk away from negotiations with one of Australia’s biggest health funds.

NIB customers will be the big losers with a deal between the health fund and St Vincent’s Health Australia is on the brink of collapse. Picture: Newswire / Gaye Gerard

The country’s largest operator of non-profit private hospitals has declared the crisis in private health is crippling its ability to care for patients as it threatens to walk away from negotiations with one of Australia’s biggest health funds.

St Vincent’s Health Australia blindsided health insurance giant NIB on Thursday when it took its contract fight to the public arena and warned that the health fund’s 1.3 million members may no longer be able to use their hospital cover for surgery at the non-profit group’s 10 hospitals across NSW, Victoria and Queensland.

The unprecedented move would leave those with NIB hospital cover unable to use their policy to cover the costs of surgery at 10 private hospitals operated by St Vincent’s after October unless the stalemate can be ­resolved.

Many of the hospitals, including St Vincent’s Private in inner Sydney, the Mater on Sydney’s north shore, St Vincent’s Private Hospitals in Fitzroy in East Melbourne, and St Vincent’s Private Hospitals at Kangaroo Point and Northside in Brisbane, are well-known as facilities of excellence where some of the country’s most skilled and in-demand surgeons run operating lists.

Amid crumbling viability in the private health sector, St Vincent’s Health Australia chief executive Chris Blake said the group had asked NIB for a fair funding agreement that recognised the rising costs of providing private hospital care but alleged it had been rebuffed.

“NIB has not put a fair offer on the table and has closed the door on any reasonable proposal from St Vincent’s,” Mr Blake said.

If the stalemate cannot be resolved, after October NIB members having surgery at St Vincent’s hospitals will fall under the second-tier default benefits scheme, in which NIB would only have to fund 85 per cent of the ­patient’s hospital costs. That could leave the average hip replacement patient having to pay a bill of more than $4000.

The stoush comes as the sustainability of private hospitals is currently being examined by a federal health department rapid viability review. About 70 private hospitals have closed over the past five years, many private maternity and psychiatric wards are currently sitting idle, rehab facilities have closed, and many more entire hospitals are on the brink of bankruptcy.

“There is a crisis in private healthcare in Australia,” Mr Blake said. “The reality is private hospitals are failing.

“The long-term issue is that the system itself is within years of being unfundable. If one part of the system fails, we all fail. The last thing St Vincent’s wants to do is end up in a situation where we are going out of contract with insurers, it’s an absolute last resort, and the proof of that is that we’ve never done it before. But the best outcome for us in this negotiation doesn’t even cover our costs.”

If the contract lapses, it will not be the first time customers of a health fund have had to rely on the default benefit scheme safety net because their insurer’s agreement with a hospital has been ripped up.

But it is an extremely concerning development for the industry that a not-for-profit hospitals provider – which is attempting only to cover its costs where making a profit is not a consideration – should deem the contract negotiations so unfair it was willing to abandon them.

NIB chief executive Mark Fitzgibbon issued a short statement in response to St Vincent’s position, saying “NIB has a long partnership with St Vincent’s, is sympathetic to St Vincent’s financial position, and that of other private hospitals, and has made a very fair and reasonable offer to St Vincent’s”.

“It’s disappointing they have elected to argue their position publicly,” Mr Fitzgibbon said. “But we will continue discussions with them, noting that our partnership has several months remaining.”

The Australian Medical Association said the dispute highlighted the need for an independent regulator for the ­private health system.

“Disputes like this should never be allowed to happen,” said AMA president Steve Robson.

“Australians pay their health insurance premiums in good faith and rightly expect to be able to use their policies when they need them.”

Private Healthcare Australia chief executive Rachel David warned against that call and ­criticised the tactic of taking the negotiations public.

“There’s no suggestion that patients are going to be penalised at any level,” Dr David said.

“I think part of this is designed to put some political pressure on the government to undertake some kind of intervention. I also don’t think that’s appropriate. I think the sector needs to show that it can manage within its means and deliver a product that’s value for money for consumers.”

Private hospitals have not yet recovered from the severe impacts of the Covid-19 pandemic, with the benefit payments being provided to operators under contracts with private health insurers lagging well below health inflation and the rising costs of staff and equipment.

The private hospitals industry as a whole is operating on a profit margin of just 1 per cent while ­insurer profits have been rising year on year.

Newcastle Business School professor Francesco Paolucci, an expert in healthcare systems, said the breakdown in a crucial contract negotiation between a big insurer and private hospitals operator was predictable amid the multiple pressures on Australia’s public-private health system model.

“This outcome is not surprising,” Professor Paolucci said. “We are going to see more of this. The problem that we currently have is we have a system that is fragmented, with a number of stakeholders involved in funding something that needs co-ordination and integration, which is the purchasing of healthcare.”

Parties to contract negotiations never reveal the numbers on the table, but a general guide is that offers by insurers often tend to broadly align with their latest approved premium increase.

For NIB, that was 4.1 per cent, one of the largest increases of all funds, and well above the industry average rate rise of 3.03 per cent. The health fund paid out only 79 per cent of its premium revenue of $1.9bn in the 2022-23 financial year, and its management expenses were 12.3 per cent.

Catholic Healthcare Australia’s director of health policy, Katharine Bassett, said St Vincent’s was justified in its stance.

“It is totally unacceptable for insurers to put the squeeze on patients and hospitals while increasing their large profit margins and bank balances,” Dr Bassett said.

“Today, St Vincent’s is rightly taking a stand against insurer power and greed. Other hospitals may need to do the same.

“While it’s St Vincent’s and NIB today, it could be another hospital and insurer tomorrow as funding from insurers has not kept pace with the rising costs of delivering care.

“Insurers have been banking record profits while returning less to patients and hospitals. We’ve reached the breaking point.”