What patients need to know in private hospital dispute
A war of words has erupted after the nation’s second-largest hospital operator announced it will terminate contracts with two private health insurers. Here is everything you need to know.
Millions of patients may have to pay more for certain hospital visits following a bitter twist in an ongoing contract dispute between a major private hospital network and health insurers.
Healthscope has dramatically announced it will terminate its hospital contract with Bupa on February 20, and with the AHSA on March 4, after both insurers threatened legal action for what they claimed was a breach of contract.
Healthscope is Australia’s second-largest private hospital operator, with 38 facilities across the country. Bupa has 4.1 million clients and the AHSA represents 22 small to medium-sized private health insurance funds.
“We are shocked and deeply disappointed by Healthscope’s action,” said Bupa’s Asia-Pacific chief executive Nick Stone.
He has moved to assure customers there would be no immediate change to their cover nor to who would remain fully covered until at least February next year. Customers who already have surgery booked at a Healthscope facility will still be fully covered under the existing scheme, so long as their paperwork is filed by the time the contracts end.
Despite that, the move is likely to be upsetting for customers.
“We are concerned that Healthscope’s actions will cause undue stress to patients and
customers looking to access private healthcare at a time when we should be working
together to build trust in the private health system and take pressure off hospitals and their
frontline teams,” Mr Stone said.
When the contracts do end, patients will in many cases qualify for what’s known as second-tier default benefits. Under the scheme, patients with private cover can still seek treatment at a hospital where there is no negotiated contract with their health insurer.
The insurer will usually pay a percentage – typically around 85 per cent of the hospital costs – leaving the patient to pay the remainder of the bill. It’s a legislated measure designed to reward people who take out private health cover.
Associate Professor Gino Pecoraro, president of the National Association of Specialist Obstetricians and Gynaecologists, said disputes like this one had real-life consequences.
“This isn’t an esoteric or theoretical thing; this has very real effects on patients and it really throws the whole value proposition into question,” he said.
“It’s a very telling situation where all of a sudden one of Australia’s largest groups of hospitals feel that they can’t arrive at a profitable situation or contract to sign with one of the largest health insurers in the country.”
Professor Pecoraro said the time for finger pointing was over and it was time for the government and opposition to help improve Australia’s healthcare sector. He said patients in rural and remote areas were most likely to feel the fallout.
“What if there isn’t another hospital in that town that offers that service? You could potentially be out of pocket for a large amount of money. It is increasing. I honestly can’t see how anyone other than the government could sort this problem out.”
Speaking on 6PR Radio, Health Minister Mark Butler said he was concerned by the dispute but said it was not a matter for the government to resolve.
“We do not involve ourselves in commercial negotiations,” he said.
“We do not use taxpayer funds to bail out one side or the other because they think they need more money. The reason why these two operators, whether they’re insurers or hospital operators, get to be in a very privileged position of delivering health services, significantly underpinned by taxpayer contributions, is at the end of the day they are expected to come to a deal in the patient’s interests, and that’s the case here as well.”
Both insurers negotiated new three-year contracts with Healthscope last year, which came into effect within the past 12 months.
At the time, Bupa released a statement celebrating the deal that included a quote from Healthscope chief executive Greg Horan, saying: “This is a truly collaborative partnership that recognises the rising costs facing private hospitals and also sees both parties committed to delivering innovative new care options.”
However, Healthscope said those contracts were now unviable because of spiralling operational and staffing costs. To offset that, Healthscope last month proposed charging a new fee for Bupa and AHSA customers who used its services.
Mr Horan told The Australian he had forewarned insurers that such a move was probable.
“We made it very clear to our partners at that time that this is actually a contract we’re signing under duress,” he said. “It’s not getting what we want, and we will be coming back to you this year to make sure we’re funded appropriately.”
Both insurers took exception to the fee, saying it breached their recently inked contracts. They told Healthscope they would pursue legal action, and Healthscope responded by terminating their contracts.
The Australian Health Services Alliance has accused Healthscope of putting profits ahead of patients.
“Healthscope’s actions are undermining its integrity and threatening the quality of care that Australians deserve,” AHSA chief executive Andrew Sando said.
“Higher premiums create greater affordability challenges for ordinary Australians, fewer private health insurance memberships and participation, more reliance and pressure on public services, and longer waiting lists.”
Likewise, Private Healthcare Australia, which represents insurers, has accused Healthscope of throwing a tantrum and price gouging.
“If Healthscope was serious about delivering patient care to Australians in a cost-of-living crisis, it would negotiate an affordable and sustainable outcome, rather than throwing its toys out of the cot,” said PHA chief executive Dr Rachel David.
“This is another unethical tactic from a $1 trillion North American private equity firm that appears intent on holding health fund members hostage, while also trying to bully health funds into paying them more so they can increase their profits.”
Healthscope is Canadian private equity-owned and in enormous debt. As it sought to renegotiate its funding agreement with Bupa in recent months, the insurer offered to inject funding into aspects of care that would result in efficiencies, such as home care in alternative to hospital for appropriate patients, and virtual care programs. But Healthscope was seeking a significant cash boost, which Bupa refused.
All of this dispute comes back to money.
During the pandemic, health insurers saw profits soar because customers were still paying into their funds but were largely unable to make claims because they could not get elective surgery or many extras. At the same time, the cost of operating a hospital rose and staff shortages meant health workers were in a stronger position to negotiate better pay.
That caused a shift in profits and now insurers and private hospitals are tussling for who should get what. Hospitals say the situation means they’re struggling for survival while insurers are enjoying high profits.
“We are 100 per cent withering on a vine,” Healthscope’s Mr Horan said
“If nothing changes, you will continue to see hospital closures. You will see service closures, 100 per cent unless we can get fair funding, and it will happen much faster than people anticipate.”
Dr Peter Sumich, president of the Australian Society of Ophthalmologists, said it was unfortunate patients were again caught in the middle.
“There is a game of cat and mouse that goes on between insurers and hospital groups that determines what benefits are paid for patient care,” he said.
“The current impasse is due to the determination of health insurers to retain more of their revenue for shareholder profit.”
Dr Sumich said surgical societies and the Australian Medical Association had long called for an independent hospital regulator to be appointed so they could arbitrate disagreements and protect patient interests.
“Patients always end up like the meat in the sandwich,” he said. “My advice to a patient who has found the right fit of surgeon and hospital would be to go ahead and have their surgery and pay the gap. Alternatively, they can switch health fund very easily to one that does have a contract with the hospital.”
The Australian Private Hospitals Association cautioned this latest move in the dispute was a sign of things to come.
“Over the last few years around 20 private hospitals have shut their doors entirely, while more than 70 services have closed in other hospitals,” APHA chief executive Brett Geffernan said. “This has coincided with health insurance companies raking in billions in record profits.
“When something is crook with private hospitals … the risk is the public hospital system goes critical. Waiting lists get longer and deeper. Everyone is worse off.”
While it is somewhat common for hospitals to threaten to terminate contracts with insurers when negotiations sour, it is unusual for it to actually get to this stage. This latest action is inevitably part of a high-stakes punt to force the insurers back to the negotiating table.
Given the high number of patients potentially affected by this contract breakdown, that is a highly likely but not guaranteed scenario.
