We must not leave the future of private hospitals to market forces alone

This month, the Minister for Health and Ageing said what many in the health sector have been warning for years: private health insurers are returning less to patients and hospitals, while banking more in the form of profits and overheads. His frustration is justified, and hospitals share it.

The latest data from the Australian Prudential Regulation Authority confirms the trend. In the March quarter, just 80.7 per cent of hospital treatment premium revenue was returned to patients in the form of care. That means one in every five dollars paid by patients didn’t support their hospital treatment; it went instead to management expenses, executive salaries, marketing and profits.

This slow but steady decline in the proportion of premium dollars reaching frontline care has been happening for years. The result? Staff burn out, hospitals go under, and patients wait longer or miss out altogether. CHA members care for more than a million Australians each year. We see the impact of this underfunding every day.

This isn’t about defending the status quo. Hospitals are not immune to reform; in fact, they welcome genuine conversations about efficiency and innovation. But those conversations must include a fair return from insurers. Reform that ignores where the money is going, or failing to go, won’t succeed.

Private hospitals are not a luxury add-on to the public system; they are a fundamental part of it. They care for more than four in 10 hospital patients in Australia and deliver around seven in 10 planned surgeries. In many communities, particularly those in rural and remote areas, they are essential to the continuity of care, often operating in tandem with public services to meet community needs.

Yet, while private hospitals are being squeezed by rising costs and workforce shortages, insurers continue to post billion-dollar profits. Providers are being asked to do more with less. This is not just unfair. It’s unsustainable.

In the past five years, nearly 80 private hospital services have closed across the country. While recent headlines have focused on the collapse of Healthscope, less attention has been given to the quiet but significant closure of Toowong Private Hospital, a family-owned facility that has provided vital psychiatric care to its community for almost 50 years. Across the country, many community-based hospitals, including those run by CHA members, are under similar pressure, struggling to stay afloat in a system that increasingly favours scale over service. These are the ones we should be most concerned about.

It is encouraging that the Minister has put insurers on notice and is considering regulatory options. But time is short. If these reforms are to mean anything, they must address not only the proportion of revenue returned to care but also the broader power dynamics in the system. Insurers must not be allowed to use vertical integration —owning or controlling hospitals, clinics, and telehealth services — to dictate terms that disadvantage independent providers and fragment care. Competition must be fair, not rigged. This is why CHA is calling for a National Private Price proposal: a new approach to hospital funding that replaces opaque, bilateral negotiations with a transparent, efficient, and sustainable pricing model. A National Private Price would restore balance in negotiations, protect patient access to care, and support the long-term sustainability of Australia’s mixed health system.

This moment must be a wake-up call. Australia needs a private hospital system that is resilient, accountable, and valued — not just for its economic utility, but for the care and dignity it provides to millions of Australians. That means rethinking ownership structures, strengthening oversight, and ensuring that private hospitals are funded fairly and sustainably. The system needs reform. And it needs it now.

Dr Katharine Bassett is Director of Health Policy at Catholic Health Australia