But the not-for-profits are backing it.
Peak health bodies are divided on the federal government proposal for a new way to fund private hospitals – a national pricing framework that would do away with the need for individual price negotiations with every private hospital operator.
The not-for-profits Australian Health Service Alliance (AHSA) and Catholic Health Australia (CHA) have welcomed the proposal, calling it a “nation-strengthening step”.
But Private Healthcare Australia, which represents insurance companies like Medibank, NIB and Bupa, have said it will cause over half a million people to drop their private health insurance, and that it doesn’t incentivise high-value care or out-of-hospital care where appropriate.
“The fundamental principles in the draft report are not consistent and not agreed,” it said in its submission.
“[A] round 560,000 people would likely drop their private health insurance, putting massive pressure on private hospital and health fund viability, while overwhelming the public health system. It is surprising the Australian Government has not already done this modelling before allowing the proposition to proceed, as it is clearly impractical.”
HSD obtained a copy of the draft plan in December last year, when it was sent out to a select few in the private sector for consultation, prior to its public release.
The proposal includes:
- the adoption of consistent classifications across all private hospital services;
- the collection of robust patient cost data;
- the establishment of a PNEP to replace the current default benefit regime; and
- a series of adjustments to the PNEP to account for the unavoidable costs of delivering services in different locations, and by different size and type of private hospital.
The implementation would occur in phases – an indicative private national efficient price (PNEP) by July 2026 and a comprehensive PNEP by July 2027 “following data improvement”, and default benefits would be fully replaced by July 2028.
In its Pricing Framework for Australian Private Hospital Services Private Healthcare Australia submission, the PHA said a national pricing framework wasn’t a bad idea per se; but this one, as it stood, was not in good shape.
“A PNEP can help move our health funding system towards a more effective, efficient and higher quality system if designed with a future-focus based on modern clinical guidelines and consumer expectations,” it said in the submission.
But “[a]n average price just locks in the existing care pathways. The price should be based on the most efficient model,” it said.
Setting a PNEP at the current average would be inflationary – increasing costs by $800-$1200 million, resulting in hundreds of thousands of people dropping their private health cover – and “create significant transition issues while providing none of the benefits to the consumer and the Australian community,” said PHA.
It agreed with the government proposal that PNEP adjustments should be set using private hospital data, but said it should also include a consumer perspective “to ensure all adjustments meet consumer needs rather than provider preferences”.
“The most significant omission is the consumer perspective. Consumers’ capacity to pay health insurance premiums is being eroded with historic inflation, and PHA is surprised the paper does not highlight the need to keep premiums for consumers as low as possible. Any reform action that increases premiums risks being self-defeating,” it said.
It was difficult to get a “trusted national price” because hospital costs were opaque, said PHA. Hospitals sometimes didn’t have the data themselves, it said, and those who weren’t prepared to improve on this should not be eligible for legislated health fund benefits.
Every hospital, including day hospitals, should be required to collect and report data to inform a PNEP, it said.
Furthermore – and most importantly – a national price needed to take into account the value of care delivered, as well as drivers of cost, it said.
“The PNEP has the potential to not just make existing models more efficient, but to influence change in models of care to improve value. For example, high value procedures such as cataracts should be promoted by a PNEP model, while procedures that are known to promote low value care, such as spinal cord stimulators, should be discouraged,” the PHA said.
“A cost-plus model as envisaged by the draft paper does not promote value and instead reinforces low-value care models in the private system.”
The PHA said that the “hospital-centric approach” of the proposed model was old-fashioned and “that funding should support care in the most clinically appropriate and cost-effective setting”.
The organisation said it supported “rural loadings” (to reflect the higher cost of delivering care in rural areas) but that could disadvantage those health funds which had the majority of their customers living in rural areas.
It said the government should consider discounts on the PNEP where there was an oversupply of beds in “wealthy city areas … where competition is plentiful”.
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It warned that a “PNEP has the potential to be gamed, particularly in areas where there is an oversupply of beds and clinicians”.
“There is a case for government to explicitly control the number of beds or services available in a particular location or use significant incentives to ensure private hospital services are not clustered,” it said.
“The existing second tier default arrangements result in clustering, with the default rate in North Sydney being higher than in Northern Tasmania or the Northern Territory. This mistake must not be repeated with a PNEP that has no controls or incentives on bed numbers.”
The PHA said the proposal “overstates the extent of the problems for private hospitals in negotiating contacts”.
“There are seven buying groups covering 29 health funds, so the suggestion health funds are each negotiating their own contracting and pricing arrangements with private hospitals is incorrect,” it said.
“Health funds need to manage scores of contracts with hospital groups and individual services, so reducing the administrative burden will also improve efficiencies for health funds and their members.”
It said “[p]rivate sector bargaining is key to driving productivity and innovation” and delivered benefits to consumers, with private health funds able to reward hospitals for improvements in quality. “Health funds should be empowered to play a larger role in promoting high-quality care for their customers,” it said.
“The most important aspect of contracting is ensuring patients do not receive out of pocket costs when they are hospitalised (other than the previously agreed excess),” said PHA.
“[I]t should not be possible with a PNEP for a hospital to charge patients for their services.”
PHA agreed that the private hospital sector had to be sustainable and remain affordable for people, but “PHA disagrees that every hospital operator and funder must be financially viable,” it said.
“Innovation is key to improve patient outcomes, and some private businesses will not survive the transitions required.”
Not all private hospitals provided the same level of quality of care, said PHA. It said the government should require private hospitals to adhere to standards on clinical independence (from commercial considerations), using MyHealthRecord, sending discharge summaries to GPs, promoting gender balance and diversity for medical staff, OH&S, supporting clinical registries, environmental sustainability, collection of Patient-Reported Outcomes Measures (PROMs) and Patient-Reported Experience Measures (PREMs), industry standards, financial protections and billing and record-keeping accuracy, financial transparency, declarations of interest, reducing out-of-pocket costs, informed financial consent and single billing.
The PHA highlighted the cost of “Australia’s absurdly generous reimbursement scheme for medical devices”, saying it not only took money out of the healthcare budget, but it also resulted in more procedures requiring those devices.
“It is essential medical devices are included in a PNEP, and PHA will not support a model which does not include devices… It is an essential feature of a PNEP that must be implemented on day one or before,” PHA said.
“The [Prescribed List] is the most inefficient and highest cost component of the private system. Replacing it with a [Diagnosis Related Groups]-based national efficient price would help drive productivity. Conversely, a cost-plus approach to the PNEP could continue to incentivise the use of medical devices, including for low-value interventions.”
The PHA submission also said there should not be any adjustment to the PNEP based on ownership structures of private hospitals, saying “all hospitals should be aiming for high-quality, high-value efficient care”.
Meanwhile, the CHA, which represents Australia’s largest non-government group of not-for-profit health, community and aged-care providers, and the AHSA, Australia’s largest aggregated contract negotiator and purchasing group for not-for-profit private health funds, released a statement today saying that the sector “backed the government’s proposal for a new funding mechanism that puts private hospitals on a sustainable footing, removes complexity, and focuses on delivering quality care to patients”.
The group agreed that the transition to the PNEP would need to be carefully managed to make sure rural, regional and “mission-driven” hospitals were not disadvantaged.
“A PNEP would finally allow private providers to be funded in a way that reflects real costs and real activity. It clears away decades of complexity. Most importantly, it strengthens the viability of the not-for-profit hospitals that communities across Australia rely on,” Dr Katharine Bassett, director of Health Policy at CHA, said.
“This reform is about making sure private care remains accessible, affordable and sustainable, and that the not-for-profit mission continues to have a strong place in Australia’s health system.”
AHSA CEO Andrew Sando said the private health sector was balancing the viability of providing quality care with affordability of insurance premiums for their customers.
“The opportunity presented by a PNEP must be explored to see if it is part of the solution,” he said.
“A Private National Efficient Price introduces a common foundation and a shared understanding of what care actually costs. That transparency benefits everyone: patients, providers and taxpayers.”