Pearls and Irritations

An article published in the Medical Journal of Australia earlier this year points to increased private equity (PE) activity in Australian healthcare, conservatively estimating A$4.5 billion in acquisitions across general practice and selected specialties in 2022 alone. The paper refrains from extensive commentary on the drivers and implications of this trend. However, it points to broad international experience suggesting that PE’s elevation of profit above other considerations coincides with underwhelming outcomes for patients, practicing clinicians and funders alike.

Fast forward to the present day, and Canadian PE-owned private hospital group Healthscope has launched an aggressive media campaign claiming private health insurers are retaining excessive pandemic-related profits while as many as 70 private hospitals are being forced to close across the country due to rising costs, while conveniently failing to mention that 66 new private hospitals have opened. The private health insurance lobby group has returned the favour with counter claims and casual observations about the cynical and extractive nature of for-profit healthcare, in particular when it is PE-owned. The government has responded as government does, by conducting a review of private hospital finances, with preliminary findings suggesting that the private hospitals are “uninvestable”.

This highly performative, recurring squabble between these perennial private healthcare frenemies is carefully curated to achieve one thing: build the social licence necessary to support private healthcare’s never ending, above-CPI, top-line growth that its investors expect. Once attained, the health minister will be politically enabled to sign off on another round of premium increases, which will then percolate through private health insurers to the private hospitals and clinicians that work in them. As always, the public will foot the bill.

Elaborate and aggressive pursuit of profit is unedifying at the best of times, more so when the trust of unsuspecting health insurance policy holders is tested by brazen and exaggerated claims about their health being put at risk. The complex chain of profit-seeking that drives such behaviour diminishes the standing of all involved – private equity owners, hospital administrators, device manufacturers, health insurers and ultimately, even the clinicians.

At its core, the private healthcare business model is being eroded by clinicians wishing to work fewer hours, while charging more (via out-of-pocket expenses) for the time they do work. Clinicians are achieving this by opting for more efficient day procedures, which leave less profit to be captured by the private hospitals. Furthermore, the ability for clinicians to literally charge what they wish is a function of the poor quality of the markets in which they trade, replete with a near absence of transparency with respect to outcomes across cost, quality or value.

The private healthcare services market, first established 160 years ago, has by design, always been engineered in the service of providers. The introduction of mutual health insurance pools, and later Medicare, have represented attempts to rebalance patient and provider interests. Private health insurance has since mutated from its original intent of spreading risk across communities and decades, to now acting as a “pay now, buy later scheme” that relies on growth in disease, while also entrenching above CPI inflation into the cost structure of the market.

The arrival of more sophisticated and more highly motivated intermediaries in the hospital and insurance sectors has had the regressive effect of distorting these markets back in favour of the providers, typically impacting those who can least afford it.

Policy solutions to these market challenges are available through more purposeful regulation. Increased clinical and administrative accountability could be achieved through analysis and use of already-collected, detailed claims data. The same data asset could also be used to introduce true, actionable price and outcome transparency for GPs and patients seeking referrals into the private healthcare system. These data driven approaches would represent powerful ways for the sector to flex the principle of choice that it grips on to so tightly, while also distinguishing it from Australia’s well-accepted but strained state public hospital systems.

Withholding Medicare rebates to clinicians who gouge their patients above an arbitrary threshold would be a start. Tighter policing of clinicians using two payment terminals to evade monitoring of out-of-pocket charges could be another.

Review of the multi-billion-dollar annual government subsidies provided to the private healthcare market through forgone tax revenues and direct subsidies also need to be considered, if only to justify the use of the word “private” when describing the sector.

And finally, if it is true that these heavily subsidised private markets cannot support private hospitals in regional communities, policymakers should opt to nationalise these services, rather than socialising the losses as is being requested by Healthscope.

In 2016, the then Healthscope CEO was reported as responding to a journalist’s question about decreasing surgery figures by declaring, “As far as I’m aware there has not been an outbreak of wellness”.

Inadvertently, this quip highlights one of the more profound defects in current public and private healthcare funding arrangements – the perverse incentives enforced by fee-for-service arrangements which encourage the delivery of more and more services as the only path to growth, in lieu of a more accountable, outcomes-based approach designed to encourage effective and efficient maintenance of our health via the prevention of disease. In such a true health (vs. healthcare services) system, the closure of hospitals due to decreased demand would be cause for celebration, just like the closure of iron lung wards was subsequent to the introduction of the polio vaccine.

In its current configuration, the private health system operates as a barnacle on our health and our economy. Rather than more tinkering, it should be allowed to fade from relevance as more ambitious, health maintenance markets are designed and implemented which profitably serve the best performing policies and providers, as judged by what people actually want… their health, not just more treatment.

Share and Enjoy !

SHARE TWEET SHARE COPY EMAIL PRINT