A new report by Deloitte calls for government leadership to reform the private hospital sector, which is facing growing financial fragility.
Ramsay Health Care is pushing for system-wide reform of the private hospital sector to strengthen the viability of the sector and address its “structural challenges” as profitability deteriorates.
The new report, developed by Deloitte Access Economics and released by Australia’s largest private hospital operator Ramsay Health Care, outlines a plan to reform the private hospital sector, arguing that reforms would create a more sustainable, transparent and patient-centred system.
“Reforms should strengthen the value of private health insurance for consumers, address unequal bargaining dynamics between hospitals and insurers, support investment in digitisation and enable private hospitals to participate in emerging models of care.
“Given the sector’s role in elective surgery capacity, regional access and system flexibility, these reforms are essential to maintain viability and support the sector’s evolution.”
The authors argue that existing capacity across the private and public hospital sectors should be coordinated “to optimise the use of existing infrastructure and reduce the need for governments to fund new facilities”.
“This should include consideration of privately insured admissions in public hospitals, noting that many privately insured patients will continue to access public hospitals regardless of insurance status, particularly for emergency and high-acuity care.”
The report says private hospitals drive economic growth, reduce pressure on the public system and play a vital role in providing healthcare.
However, the authors argue that the private hospital sector is facing growing financial fragility, with one third of reporting private hospitals recorded negative returns 2023-24.
Earnings before interest, tax, depreciation and amortisation (EBITDA) margins in the private hospital sector have been declining since 2019-20.
“The average sector EBITDA margin in 2023-24 (5%) is lower than margins required for sector viability and investment, with an increasing number of private providers making lower returns in recent years.”
The report refers to the 2024 Department of Health, Disability and Ageing (DoHDA) Financial Health Check, which found that approximately 33% of reporting private hospitals generated negative returns in the previous year, compared to around 12% in 2017-18.
That report also found that the sector’s underlying cost growth has risen by 4.1% annually between 2018 and 2022, compared with 2.9% in revenue growth.
“Workforce shortages and financial pressure have driven service closures, including over nine private hospitals closing maternity wards and two maternity services in recent years,” the report said.
Demand for private hospitals has recovered to pre-pandemic levels, but the authors say there is constrained growth in referrals through fewer GP attendances and initial specialist consultations.
While the number of consumers with hospital insurance has grown by more than one million since 2020, the proportion of members with gold tier coverage has declined from 38.7% in 2020 to 28.5% in 2025.
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The key reasons for the widespread move towards lower-tier products are affordability pressures, product phoenixing, exclusionary policies and extended waiting periods, the report says.
The report says around 45% of Australians have private hospital cover, while private hospitals are responsible for 70% of elective surgery and contribute $14 billion to GDP.
But the report says the private hospital sector is under pressure through:
- Customers downgrading private hospital cover, affecting mental health and maternity services;
- workforce shortages;
- rising labour, energy and medical supply costs;
- price indexation not keeping up with costs, with insurer payout ratios falling from around 88% to 84%.
The report says there are opportunities to strengthen the system through the adoption of digital technologies and AI to connect healthcare services and reduce administrative burdens, and through care model innovation to extend and integrate care beyond hospital settings.
Ramsay Health Care chief executive Natalie Davis said the paper supported current reform proposals in mental health, maternity and hospital in the home services.
“It also makes the case for a broader, longer-term reform conversation focused on innovating our health care system through digital enablement and support for contemporary care models,” she said.
“There is a significant opportunity to consider fundamental reform of the tiered private health insurance system so every product sold gives consumers genuine value, clarity and confidence.
“Greater investment in proven clinical innovations, workforce development, digital capability and new models of care would also help improve patient outcomes and deliver services more efficiently.”
Ms Davis said digitising and connecting health data would support more integrated healthcare services or patients and free up to 30% of the time clinicians spend on administrative tasks.
“The Productivity Commission has estimated that $5 billion in efficiencies could be created to support a more productive and sustainable health system,” Ms Davis said.
The report recommends five key areas of reform, including:
- Modernising private health insurance products to improve transparency, support contemporary models of care and ensure patients get value for money.
- Expanding funded training pathways across public and private hospitals and remove barriers to workforce entry.
- Introducing targeted funding streams to support workforce development, productivity, clinical innovation and digital transformation.
- Creating multi-year public–private partnerships that make better use of private hospital capacity to support public patient demand.
- Establishing fair bargaining frameworks for insurer-hospital funding contracts to ensure funding supports patient care.
Download the full Future of Australian Private Hospitals report