NEP was just one of several suggestions for improving the transparency and accountability of pricing in the private sector.
The introduction of national efficient pricing for private health insurance-funded hospital services – excluding MBS and doctor fees – guided by an independent authority has been thrown up as one suggestion for improving transparency and accountability of pricing in Australia’s private health sector.
A forum of health sector leaders at Parliament House in Canberra yesterday made several other suggestions, including:
- Establishing a structured mediation or arbitration mechanism, triggered when contract negotiations between insurers and providers fail, using NEP as a default minimum pricing benchmark;
- Establishing an independent authority to oversee premium setting, ensuring fairness and transparency;
- Mandating public disclosure of specialist fees to ensure patients have access to clear, comparable cost information prior to treatment, improving transparency and informed decision making;
- Rolling out education for clinicians on informed financial consent aimed at improving patient understanding of likely costs;
- Improving public awareness of Department of Health, Disability and Ageing information on out-of-pocket costs through a public information campaign.
Jane Griffiths, CEO of Day Hospitals Australia, told the forum that the lack of transparency about how much private hospitals were paid was a major issue.
“We commissioned a document called The Fork in the Road in 2024 and we’ve updated it this year. The disparity of funding across the funding model is amazing,” she said.
“For example, for diagnostic gastroenterology, the overnight hospitals – the large corporate hospitals – are paid 93% more than the specialised gastroenterology units in the day hospital sector.
“Just by moving those diagnostic procedures, there would be a saving of $182 million per year just for that.
“We also did some work looking at the top 20 diagnosis-related groups that are done as same-day [procedures] – you would save half a billion dollars if they were moved.
“The point that I’m getting to is that the current funding model is not transparent and it’s not equitable, and patients and doctors have no visibility over the contractual arrangements with hospitals.
“The funding model needs to be thrown out.
“We need regulation to move these procedures out of the overnight sector so the overnight sector can be funded appropriately.”
Ms Griffiths said Day Hospitals Australia would support a national, private efficient price.
“The principle that we’re really looking for is the right patient for the right procedure in the right venue of care at the lowest cost,” she said.
“That’s what we should be looking at in Australia. I represent Australia internationally, and it’s embarrassing when countries like Brazil, Norway, Sweden, have already managed to do this quite successfully.
“It is about patients being treated in the most appropriate venue of care at the right cost.”
One dissenting voice came from Dean Breckenridge, chief policy officer for private hospital operator, Ramsay Health Care.
“I’m not aware of anyone who’s actually done the economics to understand what moving money throughout the system’s going to do to access and availability of ICUs, complex treatment opportunities, the viability of regional hospitals,” he told the forum.
“If we look to America as the example we know … this kind of approach of one price for the procedure, irrespective of the type of hospital … that hasn’t worked and they have to continue putting in pricing differentials to make sure that that fundamental infrastructure that is needed to treat complex people who actually do need to stay overnight continues to be available.
Related
“If we look at the ABS statistics on the profitability of private hospitals, the aggregate margin, it sits at 0%.”
Mr Breckenridge said “no amount of shifting money between one hospital to another, one setting to another, is going to improve the aggregate margin for the whole sector”.
“All it will do is bring everyone down to an unprofitable, unsustainable point,” he said.
“If we go down the path with this kind of model, it actually requires about $2 billion of additional revenue to maintain an investable long-term margin.
“The capital replacement rate for private hospitals is less than 50% and it’s been like that for over five years.
“It’s true there is no excess revenue available to reinvest and to replace the systems and equipment and buildings in the private sector.
“Unfortunately, it’s a fantasy to say that the shifting of money from one part of the sector to another is going to solve everything, and that’s before we even get into the actual fundamental differences in how the cost base exists for hospitals.”
Mr Breckenridge said in the not-for-profit sector, their nurses had FPT exemption.
“They don’t pay payroll tax, they don’t pay income tax, they don’t pay the mental health levy … that alone is a 10% difference in the cost of running a hospital for a for-profit and a not-for-profit,” he said.
“So if we did in this made-up-world move to a national price, are we adjusting for taxable status? Are we adjusting for return of investing capital? Are we adjusting for nurse-to-patient ratios?
“These are all the things that have to be addressed well before we can head down the path of any meaningful discussion.”
When asked if he could have a wish granted to improve things for the private hospital sector, Mr Breckenridge said he had two at the top of his wish list.
“One thing is, there are a significant number of mechanisms today, whether under the … ombudsman or the Department themselves as a regulator, that could actually enforce greater access and equitable contracting,” he said.
“The Unfair Contracts Act will apply to small to medium enterprises and businesses. Do they use it? No.
“The Catholics have an exemption for collective negotiations. Do they use it? No.
“So why should we ask for the government to nationalise private hospitals when we’re not helping ourselves?
“The second point is, there are a lot of savings in the system, and we keep fighting and not looking at them.
“The Parliamentary Budget Office does not take into account secondary effects when looking at policy. That means, if a private hospital invests in an electronic medical record and it saves money for Medicare through reduced duplication of [unnecessary] pathology and imaging … That alone will save $300 million in reducing the wasteful, duplicate, unnecessary testing that happens.
“But that saving doesn’t go to the hospital that paid the billions of dollars for an EMR.
“So if the PBO changed the secondary effect rules, we could actually have a system that incentivised and paid back a dividend to the hospitals investing in digitisation. It would bend the cost curve. It would improve outcomes.”
Paul McBride, assistant secretary of the DoHDA’s private health strategy, confirmed that the Department, along with the Private Hospital CEOs Forum was “exploring” the possibility of NEP.
“Transparency overall is a good thing,” he said.
“No one’s trying to nationalise the private hospital system. Contracting is broader than some of the problems of the viability of private hospitals.
“So we’re exploring what a national efficient price should be. It could just be a floor. Could be a ceiling.
“It would necessarily, probably have to take account of different costs in regional areas versus private areas, so let’s work through what it has to be, rather than catastrophise.”
Another participant at the forum, representing another private hospital, said it was completely dependent on entrepreneur money and philanthropic donors, “from the goodness of their hearts”.
“They’re not interested in building an EMR,” he said.
“They want to build a wing.”