Hospital Viability & the Political Landscape

Address to the 2025 APHA National Congress

Hospital Viability & the Political Landscape

Darwin Convention Centre (via Video Link)

Brett Heffernan, CEO, Australian Private Hospitals Association

Thanks Lachlan.

Good morning everyone. Firstly, I want to apologise for not being able to join you. I've got a bug that has had me tethered to a toilet for the best part of a week. Not pleasant. But, goal weight and all.

Speaking of things that'll make you throw up... it brings us to private health insurance and the political landscape.

The viability crisis afflicting private hospitals began with COVID and never recovered. But even more damaging, we then saw the emergence of unchecked rapacious profiteering by the health insurance industry.

Now, there has always been argy-bargy between private hospitals and insurers. It's expected. But the last three years have been something very different.

In that time some 20 private hospitals have closed their doors entirely, while more than 70 others have cancelled services. Maternity has gotten the headlines recently, including here in Darwin, but it also includes mental health units, ICUs, Critical Care Units... among others.

That denies families paying big premiums the value proposition for taking out insurance: the access and choice they expect.

It also heaps more pressure on public hospitals.

So how did we get here?

Over the last three years APRA revealed that the health insurance industry has short-changed private hospitals by more than $3 billion. That is, that the gap between what the insurers pay hospitals and the actual cost of treatment has blown-out each year.

The insurers' catch cry is they cannot keep pace with the rising cost of health care.

But APRA also reports that over the same period the insurers reaped record profits of over $5 billion. $2 billion a year in just the last two years.

By the way, quite separately, in 2023-24 the insurers awarded themselves an 18% increase in 'management fees' – reaping another $3.5 billion from the annual premiums Aussies pay.

This, ultimately, compromises insured people another value point for taking out insurance: an assurance of quality care. Without adequate returns you can't invest in the technology, procedures, services and care that made Australia's private hospitals second to none.

Now, those numbers are damning. But there's more.

The insurers retort is that they pay out 88 cents in the dollar from premiums for member benefits. This has been the traditional benchmark.

Wrong again.

APRA's annual reports on the operation of health insurers show they have not hit that threshold since 2019-20. They are currently at 83-84 cents.

Political

Over the last two-and-a-half years private hospitals and the APHA have taken these facts to the Federal Government. To Health Minister Mark Butler and his Department directly.

It included two research papers by Ernst and Young, as well as the unprecedented step of private hospitals opening their books to show the glaring gap between healthcare costs and payments from insurers.

This precipitated Minister Butler's much-hyped Private Hospitals Viability Health Check. Promised by August 2024, but not released until November 2024.

For many months the Minister was on the public record throughout last year recognising the profound funding shortfall. Private hospitals thought reform solutions would be coming.

Instead, despite being promised a heads up on the report, we got it when everyone else did. And, that's not a surprise, given there was nothing in it. That's not a figurative nothing... it was actually nothing. Not so much as a thought-bubble.

Now, in my view, the Minister and his Office made the political call that the standard line from the sector would be... 'we're disappointed, but keen to keep working with government'. Why? There is clearly no relationship to protect.

The Office lied about a heads up and two years of goodwill by hospitals was summarily dismissed. It deemed it could afford to do so with impunity.

The Government's Health Check did confirm that one-third of private hospitals are operating at ongoing losses. Of the remainder, most are simply breaking even. Just a few are operating at a profit, but this is only at margins of 1-2%.

To put this is context, a research report by Ernst & Young in 2024 found that hospitals need a minimum 5% return in order to invest in the technologies, procedures and services expected of them.

Further complicating this financial crisis, banks will not lend to hospitals when returns are below 10%.

So hospitals can't even service their debts in the hope that reform might come.

At this point, politically, all bets were off. We hadn't been on the public record holding the government to account yet. Though, in meetings in Canberra it was made clear to me that "the Minister has no appetite to act in this space".

In fact, the Minister was already overdue to clock on. The funding shortfall to hospitals from insurers in 2022 was $660 million. That should have had the Minister on the phone to the insurers telling them to pull their heads in, or they'll be regulated. That didn't happen.

That, likely, emboldened insurers, who then withheld $1.135 billion in 2023. Again, no ministerial pushback. And, last year, a whopping $1.254 billion. Zip again from the Minister.

Whether you're the Minister for Health or tiddly-winks for that matter, under these circumstances you have to expect a touch up. I would.

But there have been other insurer-led scandals that have gone through to the keeper.

Phoenix policies

Late last year the Commonwealth Ombudsman lifted the lid on phoenix policies. This loophole-exploiting practice sees health insurers scrap existing products, replace them with near-identical services and flog them off at higher prices.

The Federal Health Minister's response was to hold a press conference where he essentially asked if the insurers would please stop it.

No inquiry into how widespread the practice is, how many Australians have been ripped-off or by how much, nor any mention of recompence for the unwitting victims.

At the very least, the Australian Competition and Consumer Commission (ACCC) might be asked to cast an eye over it regarding potential unconscionable conduct?

So insurers are diddling both ends of the spectrum – gouging members at one end and short-changing hospitals at the other.

Market Dominance of Insurers

In December, media reports exposed that, during the contract dispute between BUPA and Healthscope, BUPA was offering doctors up to $500 per patient to take their business to non-Healthscope hospitals.

Remember, that BUPA rejected Healthscope's call for a $100 per admission co-payment as financially unworkable.

This provides a glimpse into take-it-or-leave-it negotiation tactics common among insurers. Make offers hospitals can't accept, then exert market dominance over hospitals to force them to sign or be run out of business.

Isn't there a question here as to potential unconscionable conduct or anti-competitive behaviour? In any case, it warrants more than a shoulder-shrug from the Federal Government?

This example demonstrates that the Minister's constant refrain that insurers and hospitals have to talk it out, is far from a discussion of equals. He should know that.

These examples show that the health insurers need to be reined in.

Maternity

I want to touch briefly on maternity services, especially as were gathered in Darwin.

So far the Albanese Government has committed $6 million to prop up failed maternity services in Hobart and $10 million in Newcastle following the maternity unit closure in Gosford.

Darwin. It's early days in the campaign, so I suspect your day with come.

Naturally, local communities will welcome the funding. But wouldn't a proactive approach to fixing the funding mess in the first place have been a better way to go?

$16 million – and counting – is a very expensive band-aid. A taxpayer-funded band-aid that would not likely have been necessary had the Minister been engaged in the deepening crisis in his portfolio two years ago, or even six months ago.

Noone makes margin on maternity, but it has been traditionally maintained on the basis that it is an important local service. So, it has been cross-subsidised by other areas of the hospital.

But after three years of being underpaid for services across-the-board by the health insurance companies, it has made maternity services untenable.

Now, there are many factors that make maternity care challenging. Birth rates in Australia are at historic lows. Midwives are had to come by. Having pediatricians on-call 24/7 is expensive.

But a key issue is insurers include maternity cover at the Gold level of insurance only. Mothers-to-be quickly find this insurance does not cover an obstetrician, meaning they are up for around $10,000 in out-of-pocket costs.

So they go public.

Only 19% of births are now in private hospitals, down from 30% a decade ago.

It's a great lurk for the insurers, who are selling Gold level maternity cover to young people, while being pretty confident it won't be used.

Minister Butler needs to get onto that too.

If it seems like we're focused on the Minister and the Government... we are. Why? Cos he's the Minister and they're the Government.

If the buck doesn't stop there after two-and-a-half years of nothing, then where does it stop?

Three weeks ago, Minister Butler dropped a bombshell in the media demanding the insurers pay more to private hospitals or he will instruct his department to regulate to make it so within three months.

Despite there being no detail around the proposal, we welcome the election-eve commitment. It has come two-and-a-half years too late for many hospitals... and will come too late for those on the brink of collapse.

It's fair to say, I think, that after two-and-a-half years of nothing, that the government has been dragged to this position. If not for APHA's recent public positioning, I doubt we'd get a look in.

The APHA Board deserve kudos for staying the course.

But the Federal Opposition has to step up, too.

So far, the Coalition appear unwilling to grasp the nettle of funding reform. Peter Dutton must, at least, match the commitment made by Mr Butler.

The issues affecting private hospitals are not volume-related... as I suspect the Opposition sees it. When you're being underpaid for the treatment you provide, then performing 10, 100 or 1,000 procedures doesn't matter if you're just compounding the funding shortfall.

Regardless of who forms government after May 3, private hospitals need a government committed to bringing the health insurance industry to heel.

In this election campaign, both sides of politics must accept the critical need to reform the funding mess that allows insurance companies to rake in record profits while dictating pricing to hospitals.

Why? There's a lot at stake. Private hospitals perform 70% of all planned surgery – 1.7 million operations – each year, including the majority of hip and knee replacements, malignant breast cancer procedures, spinal procedures, and eye surgeries.

They account for 1.6 million medical treatments each year, including the majority (54%) of chemotherapy, as well as 62% of acute mental health care and 80% of rehabilitation hospitalisations.

Further demise of the private sector will be devastating for patients, local jobs and healthcare delivery, while crippling already struggling public hospitals.

Given the depth and breadth of private hospital activity, the healthcare system is too important to abandon to the take-it-or-leave-it negotiation tactics of insurers and their abuse of market power.

Whether that's legislation, regulation or a code of conduct to hold the insurers to account for the premiums they receive from 15 million Australians, we're open to the discussion and/or debate.

Anything less will not stop more hospitals from shutting down services or, indeed, closing entirely.

I think I'll leave my comments there for now. And look forward to any questions. Thank you.

-ENDS-

Previous Speeches:
2/4/2025 President's Opening Address