Lexi Webster
Private hospitals in Australia are owned and run by the private sector, including for-profit companies and not-for-profit organisations. They are funded by private health insurers, with the government providing no direct funding. Private hospitals benefit from Australia's ageing population, with its rising demand for health services. However, they face high fixed costs and energy expenses, and their profitability is influenced by factors such as occupancy, scale, and case mix. The viability of private hospitals in Australia has been questioned following the collapse of the country's second-largest private hospital group, Healthscope, which highlighted the challenges of profitability and investment in the sector.
| Characteristics | Values |
|---|---|
| Ownership | Private hospitals in Australia are owned and run by the private sector, including both for-profit companies and not-for-profit organisations. |
| Funding | Private hospitals are primarily funded by private health insurers, with some contributions from the government in certain cases. |
| Patient Costs | Private hospital patients may have to pay for 25% of the Medicare fee for doctors' services and any difference between doctors' fees and Medicare payments. Private insurance may cover some or all of these costs, depending on the plan. |
| Profitability Factors | Occupancy, scale, and case mix influence profitability. Larger hospitals with higher occupancy rates are generally more profitable due to better resource utilisation and more attractive contracts. |
| Complex Procedures | Private hospitals undertake complex treatments, including cardiac surgery, chemotherapy, psychiatric care, rehabilitation, and veteran care. |
| Patient Profile | In 2015-16, 40.8% of all Australian hospitalisations were in private hospitals, including patients with and without insurance, public patients, and veterans. 26.1% of admissions were from disadvantaged communities. |
| Safety and Quality | Private hospitals must meet National Safety and Quality Standards and are credentialed by state and territory governments. |
| Investment in Training | Private hospitals invested $167 million in 2014-15 to train healthcare professionals and expressed a willingness to invest further. |
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What You'll Learn
Private health insurance funds
There are two types of private health insurance: hospital insurance and extras insurance. Hospital insurance covers all or some of the costs of hospital treatment as a private patient, including doctors' charges and hospital accommodation. Extras insurance (also called ancillary) covers treatments generally not available under Medicare, such as dental, optical, physiotherapy, chiropractic, and acupuncture.
You can purchase hospital-only insurance, extras-only insurance, or combined hospital and extras cover. The more expensive the health cover, the more hospital procedures and extras treatments will be included, and the more money you'll get back when you claim.
It is easy to transfer between health insurance funds. You can change insurance policies at any time, and most private health funds recognise the waiting periods you've served with your previous insurer.
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Rising demand for health services
The aging Australian population and the corresponding increase in chronic diseases have led to a rising demand for health services, benefiting private hospitals in several ways. Firstly, as the population ages, the incidence of age-related diseases and conditions increases, leading to a higher demand for healthcare. Older adults often require more frequent medical attention and hospitalizations due to conditions such as cardiovascular disease, cancer, and dementia. This results in an increased need for the specialized services and facilities that private hospitals offer.
Secondly, the rise in chronic diseases contributes to longer hospital stays and a higher demand for complex and ongoing treatment. Conditions such as diabetes, obesity, and mental health disorders often require long-term management and multiple hospital admissions. Private hospitals are well-positioned to provide ongoing care and specialized services for patients with these chronic conditions, which can result in more frequent and prolonged admissions.
Additionally, the preference for private healthcare is increasing among Australians. Many people are opting for private health insurance, which provides them with the option to be treated in a private hospital. This trend is particularly prominent in the aging population, who often require more frequent healthcare services and prefer the perceived higher quality of care and additional amenities that private hospitals offer. The demand for cosmetic and elective surgeries is also rising, and these procedures are typically performed in private hospitals.
To cater to the increasing demand for health services, private hospitals can expand their facilities and service offerings. They may invest in new buildings, upgrade equipment, and increase their bed capacity to accommodate more patients. By doing so, they can not only meet the current demand but also attract more patients and generate higher revenue. This can create a positive cycle where the expansion of services leads to increased demand, resulting in further revenue growth and potential for development.
To conclude, the rising demand for health services in Australia has resulted in various benefits for private hospitals. The aging population and the corresponding increase in chronic diseases have led to more frequent hospitalizations and a preference for private healthcare. This has been further exacerbated by the rising demand for cosmetic and elective surgeries. Private hospitals can capitalize on these trends by expanding their facilities and services, ultimately driving revenue growth and improving patient care.
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High fixed costs
Private hospitals in Australia are owned and run by the private sector, including for-profit companies and not-for-profit organisations. They receive the majority of their funding from private health insurance companies, with the rest coming from patients' out-of-pocket expenses.
Private hospitals have high fixed costs due to their large infrastructure and expensive technologies. They require a high level of occupancy to break even and turn a profit. This is because their costs are largely fixed, so higher patient numbers mean more revenue to cover these costs.
In 2014, it was estimated that a 60% hospital utilisation rate was necessary for a private hospital to break even. This means that a certain number of beds must be filled for the hospital to be profitable. As a result, larger hospitals tend to be more profitable as they can attract more patients and better share resources.
The high fixed costs of private hospitals also mean that they are hard to disrupt. They benefit from Australia's ageing population, which increases the demand for health services. However, they are also exposed to rising energy costs, which can impact their profitability.
Private hospitals in Australia delivered almost 70% of all elective surgery in 2015-16 and provided care for more than 37,500 people in private psychiatric facilities during the same period. They also undertake complex treatments, such as cardiac surgery, and offer similar services to public hospitals.
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Government funding
Private hospitals in Australia are owned and run by the private sector, including both for-profit companies and not-for-profit organisations. The Australian government does not directly fund private hospitals. However, the government does play a role in regulating and interacting with private hospitals in the following ways:
- Department of Veterans' Affairs: The Australian government provides funding for private hospitals through the Department of Veterans' Affairs. Private hospitals undertake the bulk of hospital care for veterans.
- Contracted Public Hospital Services: State or territory governments may contract with private hospitals to deliver public hospital services. In such cases, Medicare covers the costs for public patients at those hospitals.
- Medicare and Private Health Insurance: While Medicare does not fully cover treatment costs in private hospitals, it contributes to a significant portion of the expenses. Medicare covers 75% of hospital and medical fees for private patients in private hospitals, as long as the treatment is listed on the Medicare Benefits Schedule (MBS). This reduces the out-of-pocket expenses for patients with private health insurance.
- Public Patients in Private Hospitals: Anyone can receive treatment at a private hospital, including public patients. Public patients in private hospitals have the same rights as they would in a public hospital. Medicare covers 75% of medical costs for public patients in private hospitals, similar to the arrangement in public hospitals.
- Health Check and Regulation: The Australian government has conducted a health check of the financial viability of the private hospital sector. Private hospitals must be approved and licensed by state or territory governments and meet the National Safety and Quality Standards developed by the Australian Commission on Safety and Quality in Health Care (ACSQHC).
It is important to note that the funding for private hospitals in Australia primarily comes from private health insurers and patient payments. The viability of private hospitals is influenced by factors such as occupancy, scale, case mix, and the tension between hospital costs and insurance premiums.
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Private hospital patient fees
Private hospitals in Australia are owned and run by the private sector, including for-profit companies and not-for-profit organisations. They are not directly funded by the Australian government. Private hospital patient fees are typically covered by private health insurance. However, patients without private health insurance can still receive treatment at a private hospital, but they will be responsible for paying any costs not covered by Medicare.
If a patient chooses to be treated at a private hospital, Medicare covers 75% of the hospital and medical fees, provided the treatment is listed on the Medicare Benefits Schedule (MBS). The remaining 25% of the MBS fee is covered by the patient's private hospital insurance, and any costs above the MBS fee are paid out of pocket by the patient. This is known as the "'gap'" and can result in unexpected out-of-pocket expenses.
Private hospital patients may also incur additional fees for specific services, such as ambulance fees, emergency department fees, and single room rates for overnight stays. Ambulance fees can be expensive, so it is recommended that patients have ambulance cover through private health insurance or from Ambulance Victoria.
It is important for patients to understand their insurance coverage and potential out-of-pocket costs before seeking treatment at a private hospital. The Medical Costs Finder tool can help patients estimate their expected expenses. Additionally, patients should consult their referring doctor as the most important source of information when choosing a specialist and evaluating the value of doctor's fees.
The viability of private hospitals in Australia has been questioned, with some experts suggesting that private equity firms do not find them financially attractive. The drop in private insurance memberships and the impact of the COVID pandemic have further contributed to the financial challenges faced by private hospitals.
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Frequently asked questions
Private hospitals in Australia are funded by private health insurers, with the majority of funding coming from these insurers. The Australian government does not directly fund private hospitals. However, the government may contract private hospitals to deliver public hospital services, in which case Medicare covers the costs for public patients.
Private hospitals can increase their profitability by increasing their scale, occupancy, and having a diverse case mix. Larger hospitals are more profitable as they can better share resources and attract doctors. Higher occupancy rates are crucial as hospitals have high fixed costs. Additionally, offering a range of complex procedures with higher margins can increase profitability.
In 2015-16, 40.8% of all hospitalisations in Australia were in private hospitals, amounting to 4.3 million out of 10.6 million hospitalisations. This included patients with or without health insurance, public patients, and veterans. Notably, 26.1% of hospitalisations from Australia's most disadvantaged communities were in private hospitals.
