Private regional hospitals, maternity and mental health services remain on a knife’s edge

A host of private hospitals, maternity services and psychiatric wards are under threat of closure, with a federal government review revealing the extent of the sector’s decline.

Prince of Wales Private Hospital maternity ward in Sydney is one of the private wards that has experienced declining births and revenue.

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A host of regional private hospitals, maternity services and psychiatric wards are under threat of closure as a federal government review of the viability of the sector reveals the extent of declining patient numbers and massive hits to profits.

A summary of the recent Private Hospital Sector Financial HealthCheck conducted by the government showed expenditure of private hospitals increased 4.1 per cent between 2018-19 and 2021-22, but revenue only went up 2.9 per cent on average across the sector.

The report showed private hospitals were operating in 2022-23 at Earnings Before Interest, Tax and Depreciation of 4.4 per cent, down from 8.7 per cent in 2018-19.

“This is significantly below the 5 per cent threshold that represents the required free cash to reinvest in hospital services,” said Australian Private Hospitals Association CEO Brett Heffernan.

However, in the latest available financial data, the EBITDA margins of private hospitals increased in 2022-23 to an estimated figure of between 7 and 8 per cent. The government said there were positive signs of growth in admissions, and more recently indications that a number of private health insurers have offered additional funding to some private hospitals. But the review led by health department secretary Blair Comley concluded it was unable to say if private hospitals would be likely to improve profitability.

The private hospitals peak body hit out at the report, which was not published in full but only as a brief summary, as providing no way forward.

The government has established the Private Health CEO Forum to bring together leaders from private hospitals, insurers, medical groups and independent experts to develop short-term options for government consideration and to commence work on long-term reforms to strengthen the sector’s financial viability.

“We’ve all been waiting a very long time for this report only to find out what we already know,” said Mr Heffernan. “We recognise that long-term systemic reforms will be needed, but there is no escaping immediate action is essential to prevent more private hospitals from going to the wall.

“We weren’t anticipating that this report would provide a panacea, but all this suggests is continuing a conversation. We are long past the need for answers, not more discussion.”

The financial health check was called following a number of high-profit disputes between private hospitals and insurers amid disquiet in the sector that while the health insurance industry had come out of the pandemic with record profits, many hospitals were on the edge of survival and struggling to negotiate agreements with insurers that would cover rising costs. Hospitals were hit by a double whammy in recent years of declining admissions as a result of mass elective surgery cancellations, workforce shortages and very high health inflation.

Regional hospitals remain in a perilous situation, said Catholic Health Australia’s director of health policy Katharine Bassett.

“The viability of private hospitals in regional areas are of particular concern,” Dr Bassett said. “We have already witnessed the closure of many services in our regions and, without immediate intervention, more will follow. In many cases, private hospitals are the only providers of hospital care, and so their viability is crucial for the health and wellbeing of these communities.”

The HealthCheck also identified private obstetrics and in-hospital psychiatry as services of particular concern. Births in public and private hospitals declined 5.9 per cent and 4.7 per cent respectively from 2018 to 2022-23, with an average $2615 in out-of-pocket costs. Between 2015–16 and 2022–23, 9 private hospitals closed their maternity wards, and two hospitals with maternity services ceased operating.

The number of mental health services delivered by private hospitals declined about 15 per cent from 2018-19 to 2021-22. “The sector expressed concern about access to private hospital psychiatric services noting the difficulty in attracting and retaining psychiatrists prepared to work in a hospital setting,” the report said.

Private Healthcare Australia, the peak body representing health insurers, responded to the report saying it was intent on helping private hospitals survive in a way that does not push up premiums for consumers.

“It is notable (HealthCheck) found private hospitals experienced healthy profit margins in 2022-23, and that health insurance premium increases closely matched rising health fund payments to hospitals,” said PHA CEO Rachel David, who said the extent of private hospital closures had been exaggerated.

“This shows that what Australians pay for health insurance typically goes straight back out to hospitals to cover the cost of their care. This is backed by the latest data from the Australian Prudential Regulation Authority showing health funds return 88 cents to consumers from every dollar spent on premiums – the highest return of any type of insurance.”