Former federal health minister Greg Hunt has co-authored a new white paper suggesting states pay private hospital operators to help address spiralling public elective surgery waiting lists.
State governments could make significant inroads into public elective surgery waiting gridlocks by paying private hospitals to take some of the load, says former federal health minister Greg Hunt.
The recommendation is part of a white paper co-authored by Mr Hunt and published by global professional services firm Alvarez & Marsal, for which Mr Hunt is a senior advisor.
The move would not only reduce waiting lists but would also serve to stabilise the struggling private sector, which currently accounts for 40% of all admissions and 70% of all elective surgeries.
Mr Hunt told Health Services Daily he had been asked often about his thoughts on the collapse of private hospital operator Healthscope and the state of Australia’s private hospital sector.
“People are saying how do we deal with the problem of Healthscope and the challenge of the private hospitals, everyone keeps saying what would you do as minister,” he said.
“So Alvarez said they would support me if I wrote a paper on this.”
Mr Hunt said that while the Healthscope collapse was an emerging problem, it also presented a window of opportunity.
He said Commonwealth figures estimated about a third of private hospitals across Australia were “under water at the moment on their annual operating costs”.
“Then you’ve got the opportunity that you have, in essence, surplus demand in the public sector and excess capacity in the private sector,” Mr Hunt told HSD.
“When you boil it down to that, there’s a really obvious answer, and that’s neither breakthrough nor rocket science.
“There’s a long history of public [services being provided] in private [hospitals] on either an ad-hoc basis or more an ongoing basis, but there’s not a systemic approach to that.
If he was minister, he said, he would not support a federally funded bail out of Healthscope.
“We didn’t do that during covid, or for any of the institutions, and nor did we do it for Virgin on the airline front,” he said.
“But we did use long-term uptake contracting to do what the Commonwealth had to do in any event for vaccines with the CSL, and that caused them to build their cell-based manufacturing [in Australia], and we did the same with Moderna, which led to them doing their MRNA vaccine manufacturing.
“In neither case did the Commonwealth make a capital donation, but we did what we had to do.”
While the public hospital system continued to absorb most health services in Australia, the private sector played a vital role in elective surgery, maternity care and rehabilitation services. The white paper warned that if the current trajectory continues, patient choice and access could suffer.
The white paper raised urgent concerns over the financial sustainability of Australia’s private hospital sector, warning that without reform the industry could face growing instability and reduced patient access to care.
“This paper outlines a pathway to safeguard the future of Australia’s private hospital network through three key pillars: operational efficiency, a National Public-Private Hospitals Partnership, and a renewed agreement between private health insurers and hospital operators,” the authors wrote.
The report, titled Australia’s Private Hospital System: A Sector Under Pressure, outlines a range of structural challenges confronting private hospitals, including rising costs, workforce shortages and outdated funding mechanisms. According to the authors, these pressures had intensified over the past five years, placing unprecedented strain on operators.
“The recent financial collapse of Healthscope, while based on unique failures, is nevertheless a forewarning of emerging challenges to the broader private hospital system,” the authors wrote.
“This in turn poses risks of flow on with negative impacts to the already stressed public system. The private system has been a fundamental pillar of Australia’s health system and has been critical in supporting Australia’s public hospital system, and any significant impact on the private will therefore impair the public as well.
“In order to sustain the private hospital model going forward, it is therefore time to consider the treble response of more efficient private hospital operations and asset management, a National Public Private Hospitals Partnership and a new Private Health Insurers and Private Hospitals Agreement.
“Without implementing such responses, the risk increases of a failure of the private hospital system, leading to significant impact on the public hospital system and ultimately bringing risks to patient care.”
The white paper highlighted that labour costs, which accounted for over 60% of total hospital expenditure, had surged due to widespread staffing shortages. These shortages were further aggravated by an ageing population and increasing demand for complex care, pushing private hospitals to rely more heavily on agency staff and overtime pay.
Additionally, operating expenses tied to regulatory compliance, technology upgrades and safety standards continued to rise, outpacing revenue growth from private health insurers and patients.
In response to the sector’s growing instability, the federal government launched a consultation process aimed at overhauling private health system funding. Health Minister Mark Butler introduced a package of reform options in late 2024 during a Private Health CEO Forum, signalling the government’s intent to work more closely with providers.
The proposed changes included revising how insurers pay hospitals, reducing unnecessary hospital admissions and promoting value-based care models that reward outcomes rather than volume.
The report also called on the industry to adopt new technologies and care delivery models to help curb costs and improve efficiency. Suggestions included expanding day surgeries, telehealth consultations and digital hospital platforms that allow patients to recover at home under remote supervision.
Private hospital leaders were also encouraged to work more closely with insurers and government bodies to streamline administrative processes and reduce duplication of care.
Mr Hunt told HSD the concept of private public partnerships between state governments was not intended to extend to the operation of hospitals – NSW recently implemented new legislation banning Public Private Partnerships in hospital operations – but agreements to provide services such as elective surgery.
This model could involve an agreement between the commonwealth and the states to set aside a proportion of growth funds from the new five-year NHRA due to start on 1 July 2026 for waiting list reduction in public hospitals through annual off-take agreements in private hospitals.
“It could be an opt in model for both individual jurisdictions and individual hospital operators. Pricing could either be individually negotiated or can replicate State Hospital prices as agreed by the Independent Hospitals and Aged Care Pricing Authority (the Pricing Authority),” the report authors wrote.
“In order to give context, the range of value for the next five-year agreement is likely to be between $170 and $200 billion based on the starting annual benchmark for Commonwealth investment.
“If for example two per cent of the funds were set aside for waiting list reduction, that would represent a minimum of $3.4 billion. If 40 per cent – in line with the private share of hospital admissions – was reserved for public in private waiting list reduction that would represent $1.36 billion or an average of over $272 million per annum to be shared across the States and Territories on a pro rata basis for additional public in private contracting to reduce waiting lists.
“It may also be that the States are able to negotiate collectively or individually greater one off or ongoing allocations using this model to conduct a blitz or comprehensive waiting list program.”
Mr Hunt also said there could be merit in governments making selected purchases of private hospital assets to add to public capacity. Healthscope is currently looking for a buyer for its 37 private hospitals.
“From a public network capacity perspective, this approach could provide for an immediate addition of beds rather than waiting for many years, as is often the case,” the authors wrote in the report.
“Notably, the cost per bed for acquiring existing facilities could range between $200,000 and $300,000 per bed (subject to the competition of assets), as compared to a new build which could cost between $6 and $6.6 million per bed.
“In short, targeted acquisitions in strategically located areas that fit State needs can significantly accelerate public capacity, preserve essential system infrastructure and workforce, and potentially deliver beds at just 1/15th the cost of a new build, even after factoring in system integration costs.
“The downside is that these are not new builds designed ground up to integrate into the State system. In some cases, capital upgrades may be required. However, the selective purchase of private hospital assets or operations should be reviewed by each jurisdiction.”
Read the full report here.