Removing the private bias in the public hospital system

article-body

Private patients are increasingly using their health insurance to get early access to high-demand hospital treatments in public hospitals – forgoing long waiting times and queue jumping public patients.

This in turn is driving private health insurance premiums upwards, with the federal Department of Health estimating the practice of public hospitals charging private patients has driven a 2.5 per cent increase in insurance premiums over the last five years.

Perverse inter-governmental funding rules means public hospitals are actively discriminating in favour of privately insured patients. According to independent analysis of hospital data by the Australian Institute of Health and Welfare, on average, the wait time for public patients is now more than double that of private patients and in specific elective cases five to six times more.

The data shows public patients for example, wait three times as a long (76 days) for orthopaedic elective surgery, as do privately insured patients (25 days) in the same hospital. Similar disparities exist for hysterectomies (54 days wait for public patients versus 28 for privately insured patients) and for tonsil removals (138 days vs 49 days).

Clinical need and equity challenged

This conflicts with the long held, bipartisan Medicare principle that all Australians should have access to free public healthcare and be treated according to their clinical needs. 

So while Australia’s hybrid public and private health system is delivering superior wellness outcomes at a cost almost unmatched in the world, it is ranked far less, when looked at through an equity lens.

Equity compares the performance for higher and lower-income individuals within each country. Recent Commonwealth Fund analysis exposed how the divide between private and public patients is making Australia’s universal system, far less equitable. Australia is now ranked seventh for equity against similar developed economies.

Private patients admissions balloon

According to analysis by Ernst and Young (EY), commissioned by Healthscope, the current funding rules means public hospitals receive 44 per cent more for a private patient ($7,085) compared to a public patient ($4,927).

State Treasuries understand this incentive well and it is the fundamental driver of the sharp rise in private patient admissions to public hospitals, and central to any policy resolution of the issue.

To take advantage of the superior returns from private patients, public hospitals are offering to waive excesses and promising a fast track to high demand treatments, as encouragement for private patients to use their insurance to cover their stay in supposedly free, public hospitals.

This in turn is putting pressure on already stretched hospital resources and increasing already stretched waiting lists. EY estimated the cumulative notional ‘rental’ cost to state and territory governments’ of providing services to private patients in public hospitals over the last ten years was around $2.9 billion.

According to data presented to a Health Ministers meeting in February, the number of private emergency patients has increased by 144 per cent since 2007, compared with 26 per cent for public emergency patients.

Private elective patients have also risen sharply, up by 78 per cent, compared with 21 per cent for public elective patients.

As a result the number of privately insured patients in public hospitals has grown an average of 9.6 per cent over the decade to 2016, compared with 4.9 per cent in private hospitals. Recent data suggests this trend is worsening, with the AIHW reporting admissions rose by 4.3% on average each year for public hospitals and 3.6% for private hospitals between 2012–13 and 2016–17. This compares with average growth in population of 1.6% over the same period

In the biggest state, NSW, one-in-five patients are now being admitted as private patients, underlining how significant the structural bias has become.

The EY analysis shows the total private patient use of public hospitals is now a $6.2 billion. This is a major imposition on the sector, elevating this issue to a critical and urgent reform health ministries and central agencies need to resolve.

Government calls out private queue jumpers

Alarmed at the inequity and the extra costs, the federal government has recently listed the issue as part of the current review of the national health agreement with the States and Territories. Six out of the eight jurisdictions have now agreed to review the issue.

Unravelling the financial incentives is the key to solving the issue. Last year the federal government listed several options to reduce the major premium, public hospitals get from private patients.

These include limiting insurance benefits to the medical costs of private treatment in public hospital, with no benefits paid to the hospital and preventing public hospitals from waiving any excess payable under the patient’s policy.

There has also been concern at the practice of public hospital emergency departments signing up sometimes critically ill patients, with the promise of a fast track through the wards to treatment. This has led to the suggestion to remove the requirement for health insurers to pay benefits for treatment in public hospitals for emergency admissions.

Similarly, it is being suggested health insurers should not be required to pay benefits for an episode where there is no meaningful choice of doctor or doctor involvement.

Alternatively the rules governing the funding of private patients could be recalibrated to neutralise the monetary incentive that is driving the hospitals to admit private patients.

Each of these changes would mitigate against the inherent bias in the system in favour of private patients, but would in practice be only partial measures. In some cases they would be administratively difficult to implement, or be limited by the current complex funding arrangements between state and local health areas.

A more pragmatic approach could be to provide a transition process whereby a cap is introduced based on the current number of private patients by states and territories’ baselines. Stephen Duckett from the Grattan Institute has suggested capping public hospital private patient growth to the same level as the current Commonwealth-state agreement, which limits growth payments to the states at 6.5 per cent. Any additional activity above this cap would not attract any more Commonwealth or state/territory funding.

This would soften the impact for states like NSW, Tasmania and Queensland where the underlying incentives has seen the number of private patients in public systems grow rapidly.

In the medium term the current incentives in the system could be unwound. This could either be the simple abolition of the charging of private patients in public hospitals or a mix of funding rule changes to bring parity into the overall system.

The determination of the actual controls to fix the bias against public patients is now being considered as part of the review of the national health agreement.

What the exact changes are will be debated by health officials and negotiated by ministers. However, it is critical that the success of the changes be judged against the longstanding Medicare principle that all Australians should have access to free public healthcare and be treated according to their clinical needs.

This means elective surgery waiting times should be the same for all patients and that the incentives which are driving public hospitals to favour private patients are eliminated.