The official journal of the Australian Private Hospitals Association

August 2006



Few would argue about the vital role of private hospitals in providing top quality health care throughout Australia - but could this sector do more? In this article, guest columnist, Des Moore suggests that the role of private hospitals should be increased.


Under the five year Health Care agreement ending in 2008-09 the Commonwealth is providing $42 billion in specific purpose grants to State Governments for expenditure on health, primarily for operating public hospitals. These grants, which increase in real terms by nearly 4 per cent a year, were supplemented by an additional $660 million over five years at the February 2006 Commonwealth Heads of Government meeting. Such funding arrangements for public health are again on the agenda for the July 2006 COAG meeting and, with continued substantial waiting lists for treatment at public hospitals, both the adequacy of funding and the performance of State public hospitals will doubtless be discussed.


Public hospital performance is not only a matter of medical standards and outcomes. These appear generally to be satisfactory, although the long time taken by the Queensland public hospital system to deal with the death-increasing performances by surgeon Dr Patel does raise questions about internal management capabilities within such systems. There is a basic issue of whether public hospitals are likely to be the most efficient from an economic and budgetary perspective.


The Queensland Government's main response to the Patel incident involved increasing expenditure on public hospitals rather than establishing a more competitive framework, such as by contracting out certain services and surgery or increasing the role of private hospitals.  But Queensland is not alone in this regard. All state and federal governments also seem largely focused on public hospital funding levels and internal performance indicators.


This neglects the growing role of private hospitals. Few seem aware that such hospitals are now fully competitive with their public counterparts, albeit in a market necessarily constrained by public hospital free services. In 2004-05 nearly 40 per cent of all patients were treated in private hospitals, up from 33 per cent in 1997-98, with Queensland private hospitals treating the highest proportion (almost half). Beds in private hospitals have increased over this period by nearly 12 per cent while those in public hospitals have declined slightly.


This is a remarkable situation given that private hospital patients have to pay their own treatment costs as well as contributing, through their taxes, to those of public hospital patients. Individuals are effectively voting with their feet, reflecting higher quality treatment and the reduced waiting time offered by private hospitals.  With the strong growth in real per head incomes, an increasing proportion of the population is thus both able and willing to pay for private hospital treatment.


This becomes less surprising once it is realized that private hospitals now perform the almost all surgical procedures: of the 660 different procedures and treatments undertaken, they provide 653. Importantly, such treatments are also of a generally high quality. In 2005 the Australian Council on Healthcare Standards (an independent body that assesses quality accreditation for the majority of public and private hospitals) reported that private hospitals generally performed better than public hospitals in all mandatory criteria. My research also indicates that private hospital groups have compliance and risk assessment units that apply comprehensive performance monitoring measures and standards. Far from "competing to the bottom", it is in the interests of such groups to minimize the risk of a Dr Patel type situation. 


Moreover, private hospitals may be performing more efficiently than their public counterparts. Although meaningful comparisons are difficult to make, average public cost weight data compiled by the Australian Institute for Health and Welfare show costs about 10 per cent lower in private hospitals in 2004-05.


The foregoing developments have significant potential implications for the future role of public hospitals and, hence, the need for public health funding. Although the ageing of the population and the general demand for additional health treatments are likely to sustain a strong growth in total hospital separations (recently around 3-4 per cent a year), the opportunity exists for private hospitals to absorb most if not all of that growth.


The adjustment of government policies to this end would increase the significant savings to governments' budgets - and hence to the taxpayer - that already exist from the treatment of patients in private hospitals. On my rough estimate these amount to at least $9 billion a year. The quality of treatment would also be improved and public hospital waiting lists reduced.



What changes in government policies might be considered?


*          While the 30 per cent rebate on private health insurance premiums provided by the federal government since 1999 cost over $2.5 billion in 2004-05 (equivalent to about 40 per cent of recurrent expenditure by private hospitals), it has increased the insurance participation rate from 31 per cent (and falling) to over 40 per cent and has contributed to the increased usage of private hospitals. A further extension of the rebate would undoubtedly further lift usage rates and effect   savings in public hospital costs;


*          If governments made it clear that, as a matter of general policy, they are taking a positive approach to an expansion of private hospitals, this would also have the potential to increase usage.   A policy statement could include an indication of the expected extent of growth in both public and private hospitals.


*          Another option would be to make low interest loans available to private hospital groups to assist the capital funding of the prospective further expansion in demand for their services;


*          To reduce separations in public hospitals and waiting lists of those on low incomes, access to public hospitals of private patients could be reduced by putting insured patients on a "special" waiting list that would normally involve a 12 month wait for treatment except in circumstances where it would not be practicable to obtain private hospital treatment.


The establishment of a policy sympathetic and encouraging to the role of private health groups would be a major step forward in public health policy. The resultant increase in competition would provide users of the services with the choices that educated societies are increasingly wanting.


Des Moore is Director, Institute for Private Enterprise. His May 2006 report on The Role of Government in Queensland for the Queensland Chamber of Commerce and Industry included a detailed analysis of the hospital sector in that and other states.