Private hospitals being left behind as barriers to innovation threaten their future

Private hospitals are facing becoming ‘legacy institutions’ unless they are able to overcome significant barriers to innovation as the sector faces a viability crisis that threatens to further overwhelm the public system.

Westmead Private Hospital in Sydney’s west.

Private hospitals are facing becoming “legacy institutions” unless they are able to overcome significant barriers to innovation as the sector faces a viability crisis that threatens to further overwhelm the public system.

A federal government review has raised the prospect of the private hospital sector becoming “uninvestible” – a situation already playing out as building projects for hospitals grind to a halt.

While the public sector has managed to move relatively quickly in shifting to day surgery and hospital at home models, which offer big efficiencies and often better clinical care for ­patients, the private sector is being hampered by systemic barriers to innovation.

The shift to home-based care has been incremental, particularly in the private system in Australia, despite the nation being a pioneer in developing the model.

A recent survey by the Australian Medical Association found some 40 per cent of private ­patients were unable to access out-of-hospital care, either because their insurers don’t have agreements with private hospitals or a program of their own.

“Private hospitals are eager to innovate but are financially disincentivised,” says James Pollard, president of the Hospital in the Home Society Australasia.

“While the government actively encourages public hospitals to expand ‘at-home’ services, private hospitals face significant ­barriers in developing comprehensive healthcare programs, despite evidence of improved patient outcomes across many services.”

The viability of private hospitals was again thrust into the spotlight this week when the nation’s second-biggest for-profit operator, Healthscope, bought in 2019 for $4.4bn by Canadian private ­equity giant Brookfield, which wrote down the value of its business by almost $1bn in April a year after selling off a suite of assets offshore, launched an unprecedented campaign targeting insurers whose profits had been rising over recent years at a time when many private hospitals had been pushed to the wall.

Private hospitals are struggling with flat admission numbers, rising wage costs and significant health inflation.

Healthscope has accused private health insurers of “bleeding private hospitals dry” and is calling for higher payments for procedures under mutual contracts.

Private Healthcare Australia describes the campaign as “a disgrace” that if successful would hit consumers’ hip pockets.

One outcome of the spat may be the rest of the sector along with medical and consumer peak bodies, which have declined to join the aggressive public campaign, band together in conjunction with the government to work intensively on constructive reform.

Barriers to innovation such as the slow transition of big private hospital groups in being able to shift to provide more out-of-­hospital services is a key area of focus. Dysfunctional and fragmented funding models, and the lack of any overarching regulation, has left many private hospitals that are keen to establish home-based care hamstrung.

Insurers have been able to move into the market and offer the services themselves while simultaneously funding them. Hospital in the home is acute inpatient equivalent care and can span rehabilitation, cancer treatment, chronic disease treatments, primary care, community nursing and palliative care.

Dr Pollard said while virtually every major public hospital had home-based services, only a small number of hospital in the home services were run by private hospitals. A lack of regulation at the commonwealth level was part of the problem, meaning there was no clear pathways for funding to flow from insurers to hospitals.

“The challenge … at the moment is one of definitions and the funding issue relates to the fact there are different definitions for different elements of home-based care,” Dr Pollard said.

“If the hospitals don’t evolve the models of care, they’re not giving their patients the full suite of treatment opportunities they might otherwise have.”