In a concerning revelation, a recent Australian government review has exposed the dire financial state of the nation’s private hospital sector. As profit margins dwindle and costs soar, the viability of critical services like maternity care and mental health treatment hangs in the balance. The findings have ignited urgent calls for reform from industry leaders, but will it be enough to save the struggling sector?
Plummeting Profitability Threatens Vital Services
The Private Hospital Sector Financial Health Check, which assessed financial data from 2017-18 to 2023-24, paints a grim picture. Of the 243 hospitals that voluntarily submitted data, representing nearly 60% of private hospital activity, the weighted average earnings before interest, tax, and depreciation (EBITDA) margins fell from 8.7% in 2018-19 to a mere 4.4% in 2022-23. While the health department estimates the sector-wide margin may be slightly higher at 7-8%, the downward trend is undeniable.
The review highlighted obstetrics and mental health as two areas of particular concern, with hospitals finding it increasingly difficult to offer these essential services. As Dr. Danielle McMullen, president of the Australian Medical Association, pointed out, many hospitals have had to close or restrict these critical areas in recent years due to financial pressures.
Expenditures Outpace Revenue Growth
A closer look at the data reveals a troubling disconnect between hospital expenditures and revenues. According to the National Hospital Cost Data Collection and Private Hospital Data Bureau, private hospital expenditures grew at a compound annual growth rate of 4.1% from 2018-19 to 2021-22, while revenues lagged behind at just 2.9%. As Brett Heffernan, CEO of the Australian Private Hospitals Association, aptly put it, “You don’t have to be very good at maths to see that doesn’t add up to a profitable sector.”
We have a situation where in 2021-22 health insurers racked up $1.1bn in after tax profits. It doubled in 2022-23 to $2.2bn. The latter was on the back of an average 3% premium hike.
Brett Heffernan, CEO of the Australian Private Hospitals Association
Calls for Structural Reform Intensify
Industry leaders argue that the review’s findings underscore the urgent need for structural reform in the relationship between healthcare funders and providers. They contend that without significant changes, more private hospitals will be forced to close their doors, shifting the burden onto an already strained public healthcare system.
In response to the review, Health Minister Mark Butler announced the establishment of a Private Health CEO Forum. This group will bring together leaders from private hospitals, health insurers, medical groups, and independent experts to develop short-term solutions and lay the groundwork for long-term reforms. While Butler acknowledged the vital role private hospitals play in the broader healthcare landscape, he made it clear that there would be “no silver bullet from Canberra or funding solution from taxpayers.”
A Sector in Crisis
The private hospital sector’s financial woes have far-reaching implications for the entire Australian healthcare system. As Heffernan warned, the closure of more private hospitals would immediately shift the workload onto an already overburdened public system, exacerbating lengthy waiting lists and compromising patient care.
The Australian Medical Association has long advocated for the creation of an independent Private Health System Authority to oversee much-needed reforms. While the government’s CEO Forum is a step in the right direction, many fear that without swift and decisive action, the sector’s financial crisis will only deepen.
As the review’s findings reverberate through the healthcare industry, one thing is clear: the status quo is no longer sustainable. Private hospitals, insurers, and the government must work together to chart a new course forward, one that ensures the long-term viability of the sector and protects access to critical medical services for all Australians. The future of the nation’s healthcare hangs in the balance, and the clock is ticking.
