An AIHE perspective on the benefits – and unintended consequences – of purchasing private surgical capacity.
There is something immediately appealing about Victoria’s newly proposed SurgerySooner program.
There are almost 69,000 Victorians waiting for elective surgery. Private hospitals have operating theatres and surgical capacity. So why leave patients waiting in pain when that capacity could be used?
The Victorian government’s proposal is relatively straightforward: if elected, it would spend $1.27 billion over four years to purchase capacity from more than 100 private hospitals and day surgeries, providing around 25,000 additional procedures each year for public patients.
Patients would remain public patients and would not pay for their surgery.
The procedures proposed include hip and knee replacements, cataract surgery, gynaecological procedures, hernia repairs, gastroscopies and colonoscopies.
It’s modelled partly on Queensland’s Surgery Connect program, which allows clinically suitable public patients to have their surgery performed in private hospitals, with Queensland Health paying for their treatment. Queensland committed a further $247 million in 2026-27 for more than 25,000 procedures through the program.
On the surface, this looks like sensible capacity management. And in many ways, it is.
But there is another question healthcare leaders should be asking. What incentives do we create when purchasing private capacity becomes a major solution to insufficient public capacity?
Because health systems respond to incentives, sometimes in ways we did not intend.
First, the obvious benefit
For the patient waiting months for a hip replacement, cataract operation or hernia repair, the philosophical debate about public versus private provision may not matter very much. They want their operation. If there is an empty theatre 10km away while they remain on a public waiting list, using that theatre makes sense.
There are other advantages too.
Private hospitals may have capacity that can be mobilised faster than new public infrastructure can be built. Governments can purchase activity without needing to construct another theatre. Public hospitals can potentially release some pressure from elective operating lists. And private hospitals gain greater certainty of activity.
The Australian Private Hospitals Association has supported the Victorian proposal and argues that longer-term contracts would allow private hospitals to plan workforce, resources and surgical workloads more effectively.
There is nothing inherently wrong with any of this.
The problem starts when a pressure-release valve becomes the operating model.
Perverse incentive 1: We can become better at buying our way around a problem than fixing it
Imagine a public hospital consistently struggling to deliver enough elective surgery. It may have theatres. It may even have surgeons. But lists are being cancelled because of bed pressure, nursing shortages, emergency demand, inefficient theatre utilisation or inadequate downstream capacity.
Government now has two choices.
The difficult option is to fix those constraints. That may require workforce reform, theatre redesign, better discharge systems, different rostering, industrial negotiations, improved productivity or investment in public capacity.
The easier option may be to purchase another 1000 procedures externally. Patients get treated. The waiting list falls. The immediate political problem improves. But the internal constraint may remain exactly where it was.
That is the first risk.
A system can improve its waiting-list numbers without necessarily improving its underlying ability to deliver care.
Perverse incentive 2: The public system can be left holding the difficult work
Not every operation carries the same level of complexity. A clinically straightforward, relatively predictable elective procedure is generally easier to schedule than a patient with multiple comorbidities, high anaesthetic risk, significant social complexity or a greater likelihood of needing intensive care.
That creates an important commissioning question.
If private capacity absorbs disproportionately predictable cases while tertiary public hospitals continue looking after the most complex patients, comparing raw surgical activity becomes misleading. The public hospital may appear less productive. But it may simply be carrying a very different case mix.
There is nothing wrong with deliberately separating high-volume lower-complexity surgery from complex tertiary care. In fact, it can be excellent system design.
But it needs to be designed deliberately rather than emerging accidentally through purchasing arrangements.
Otherwise, we risk privatising the predictable work while concentrating complexity, training obligations, emergency demand and clinical risk in the public system.
Perverse incentive 3: We may be competing for the same workforce
A private operating theatre does not create a surgeon. Nor does it automatically create an anaesthetist, theatre nurse or technician.
Australia has one healthcare workforce moving between different parts of the system. Many clinicians already work across both public and private hospitals.
So purchasing more private surgical activity does not necessarily mean we have created entirely new capacity. Sometimes we may simply have created another purchaser competing for the same scarce people.
This matters enormously. If a government expands purchased surgical activity, boards and health departments should be asking: Is this genuinely additional capacity – or are we moving workforce from one side of the system to the other?
If the latter occurs, the headline number of procedures may improve while another part of the system quietly becomes harder to staff.
Related
Perverse incentive 4: The better private capacity works, the easier it becomes to underinvest in public capacity
This may be the most important long-term issue.
External purchasing works particularly well as surge capacity. It can help clear a backlog after a disruption. It can address geographic gaps. It can make use of genuinely spare infrastructure.
But if governments know that private capacity can always be purchased when waiting lists rise, the urgency to build sustainable public elective capacity can weaken.
Slowly, a temporary response can become structural dependence. And once that happens, governments become increasingly dependent on the price, workforce availability and commercial decisions of external providers.
The governance question therefore changes from “How many operations did we buy? to “What public capability are we building at the same time?”
Perverse incentive 5: We start managing the queue rather than asking why the queue exists
Waiting lists are highly visible. That makes them politically powerful. But the elective surgery waiting list is the endpoint of a much larger pathway.
Patients first need access to primary care. Then specialist assessment. Then diagnostics. Then a decision for surgery. Then pre-operative preparation. Then theatre. Then a bed. Then rehabilitation and follow-up.
A program can accelerate one part of this journey while the bottleneck simply moves somewhere else. That is why sophisticated health systems should resist measuring success through one number alone. Twenty-five thousand additional procedures would matter enormously to the people receiving them.
But health leaders should also examine:
- whether waiting times for specialist assessment improve;
- whether theatre productivity improves in the public system;
- whether cancellations decrease;
- whether public workforce capacity changes;
- whether complexity is becoming concentrated in particular hospitals;
- whether postoperative care becomes fragmented; and
- whether the public system becomes more capable over time.
The real opportunity: treat public and private capacity as one system
Perhaps the more useful debate is not whether public patients should be treated in private hospitals. They already are in Queensland, and sensible partnerships between the two sectors can make good use of existing infrastructure. Queensland’s Surgery Connect program has now contracted 32 providers, with the state reporting more than 35,000 procedures delivered through the program since February 2025.
The more interesting question is what we are trying to build. A mature model would regard private capacity as part of a deliberately designed health-system architecture rather than simply somewhere to send patients when the public waiting list becomes uncomfortable.
That means contracts should do more than purchase procedures. They should consider workforce impacts, case-mix allocation, continuity of care, clinical governance, training, complications, readmissions, patient outcomes and the long-term capability of the public system.
And there should probably be one particularly important measure sitting beside the number of outsourced procedures: Are we becoming less dependent on external capacity, equally dependent, or more dependent over time?
Because those three outcomes tell very different stories.
Surgery sooner matters. But so does system capability. For a patient who has spent a year unable to walk comfortably, getting surgery next month rather than next year is a very real health outcome. We should not lose sight of that.
Using spare capacity anywhere in the health system can be both sensible and compassionate. But healthcare leaders have to look one step beyond the immediate intervention. Every funding model changes behaviour. Every purchasing decision shapes the market around it. And every solution creates incentives for what happens next.
So perhaps the question for SurgerySooner – and similar programs around Australia – should not simply be: “How many people did we get off the waiting list?”
It should be: “After spending the money, is the health system itself more capable than it was before?”
If the answer is yes, we have created reform.
If the waiting list falls but the underlying public system becomes increasingly unable to function without purchased capacity, we may simply have created a very effective workaround.
And healthcare has accumulated enough workarounds already.
Dr Sidney Chandrasiri is the CEO of the Australian Institute of Health Executives.
This article was first published on the AIHE website. Read the original article here.