Catholic Health Australia Submission: Private Health Reform Options

Increasing cost pressures and declining viability has resulted in many hospitals needing to make tough decisions regarding what services are provided. These pressures are more pronounced for for-profit hospital providers who are driven by the interests of private equity investors and shareholders. In the last few years, we have seen for-profit providers increasingly focus on providing high-activity, lower-cost, and low-complexity services to maximise profits, and reduce the availability of high-cost, complex services. Not-for-profit hospitals, particularly those run by faith-based organisations, frequently step in to fill this gap, as these hospitals prioritise patient care over profitability. Additionally, not-for-profit hospitals often serve a higher proportion of uninsured or underinsured patients. These factors have resulted in not-for-profit hospitals facing significant financial strain as they absorb the costs of providing essential services that for-profit hospitals are less inclined to offer. To address these challenges, it is essential the industry establishes more equitable funding models that avoid some hospitals focusing on low cost and high margin services at the exclusion of other essential private health services. Policies should aim to ensure not-for-profit hospitals receive adequate support to continue providing essential, high-cost healthcare services without compromising their financial stability.

Additionally, while CHA welcomes the government’s intent to improve the viability of private hospitals, the only proposal that will provide immediate relief to hospitals is the implementation of regulated and standardised sector-wide guidelines for payment terms between private health insurers and private hospitals, providing all outstanding payments not under dispute are promptly paid. CHA has prioritised the proposals based on what will have an immediate impact on viability:

1. Payment terms and administrative costs
2. Mental health
3. Hospital in the home
4. Changes to risk equalisation arrangements
5. Maternity care
6. Second-tier default benefits

The following additional proposals are recommended to improve private hospital viability in the short-term:

• Leverage latent capacity on private hospitals to support public hospitals: there is an opportunity to shape the National Health Reform Agreement (NHRA) to support financial sustainability for private hospitals by taking a national approach to incentivise state and territory governments to utilise private hospital capacity for public hospital waiting lists. Currently the individual arrangements are separately negotiated between various states and local health networks with individual hospitals providers/hospitals. This process is inefficient, bureaucratic, short-term focused, and often provided by the private provider at a discount to the state/territory funding. These arrangements could be significantly improved through the development of a national private contracting framework, with states and territories obliged to pass through 100 per cent of existing health funding, with transparent and published performance targets set for all state and territory public health services.
• Support enterprise agreement (EA) wage growth in private hospitals: the increasing cost of EA wage growth (in particular nursing) is of significant concern for the private healthcare sector and the ongoing sustainability of the sector. State and territory negotiated EAs typically dictate the market rate for the private sector. The government can support EA wage growth in private hospitals through several mechanisms. These include subsidies under Section 51, grants under Section 96, and tax incentives or rebates under Section 51(ii). Additionally, the government can offset costs by covering superannuation contributions, subsidising utilities and medical consumables, and supporting capital expenditures and compliance costs.
• Incorporate hospital costs into the annual private health insurance premium round process: the cost pressures faced by private hospitals must be integrated through an external cost model to ensure premium increases account for hospital cost pressures. This process must be transparent, with clear agreements on handling commercially sensitive information. The Department of Veterans’ Affairs (DVA) Cost Indexation Report could be a useful first tool for this integration, providing an evidence-based overview of cost pressures without additional administrative burden. Funders could reference this report in their applications, explaining how they will ensure adequate reimbursement for health service providers. • Adjust the capital reserve requirements for private health insurers: the Australian Prudential Regulation Authority (APRA) implemented a new capital framework for private health insurers on 1 July 2023, to enhance financial protection for policyholders by better reflecting the risks faced by insurers. Private health insurers argue that these stringent requirements overstate their risks, leading to higher costs and operational challenges. The new standards inadvertently reduce funding to hospitals as insurers must maintain higher reserves, limiting liquidity for immediate expenditures like hospital reimbursements. Additionally, many private health insurers are holding onto more capital than required, resulting in less liquidity available for hospital reimbursement. Adjusting the capital requirements to better align with the unique risk profile of private health insurers and implementing a cap on capital requirements could alleviate these pressures and direct more funding to hospitals. A phased implementation and thorough assessment of financial impacts are necessary to ensure a smooth transition.

• Allocate the entirety of the private health insurance rebate to patient benefits: the private health insurance rebate is designed to help Australians afford private health insurance premiums, with higher rebates for older and lower-income individuals. Around 20 per cent of the rebate is currently used for private health insurers administrative and management expenses, reducing its effectiveness in enhancing patient care. To address this, private health insurers should be required to allocate the entire rebate to patient benefits. This should be implemented alongside
• Pause reforms to the Prescribed List: the ongoing reforms to the Prescribed List are inadvertently impacting hospital viability. These changes include, but are not limited to, the removal of fibrin sealants from the list, amendments to definitions under the current prescribed list grouping scheme, and the removal of technical support services for cardiac implantable electronic devices from the prescribed list. It is recommended that these reforms be paused until the private hospital viability issues are addressed.