Too much regulation has been blamed by the private health sector for limiting innovation in the industry, slowing the pace of change and preventing hospitals and insurers from providing more home-based care options for chronic conditions.
Addressing theMelbourne Economic Forum on Thursday,Private Healthcare Australia director of policy and research, Ben Harris, said regulations on costs, quality and what insurers can and can’t do “knocks down innovation”.
“It’s prohibiting a lot of work in primary care and … a fair bit of prevention work, and these are things that for chronic health care we need to be doing a lot more of,” he said.
“There’s a heap of things insurers can’t do, including knowing what’s going on with patients. For example, a lot of times the first time an insurer knows someone has a problem with their knee is when they’re paying the bill.
“Being a passive payer as opposed to an active participant which helps patients make an informed choice is a fundamental problem when looking at chronic conditions.”
Cabrini Health boss Michael Walsh also highlighted the inherent problem in the fee-for-service structure of the industry, in which private hospitals are not incentivised to invest in community-based care and instead admit patients because admissions generate the dollars.
Again, in part, this issue had arisen due to industry regulations, with Mr Harris saying insurers could pay for out-of-hospital treatments, but only when it was a clear substitution for in-hospital care, which could be tough to demonstrate.
“Incentives for organisations to make investments in developing out-of-hospital services and getting rid of wasteful care are quite weak,” Dr Walsh said.
The need for regulatory reform to allow for innovation and restructuring to better manage chronic health conditions was one of the few points all speakers at the forum agreed on.
Mr Harris and Dr Walsh found themselves butting heads with the Grattan Institute’s health program director, Stephen Duckett, about the state of the private health industry and the “death spiral” of private health insurance, with Dr Duckett pessimistic about the sector.
Young people not taking out insurance
Dr Duckett, who has previously been outspoken in his belief that Australians should question the extent to which taxpayers should subsidise the private health sector, said the industry had “grown up expecting that the government will solve all its problems”.
“Looking at the projections, the industry won’t collapse in the next quarter … but the proportion of young people with insurance is continuing to decline,” he said.
“The price of premiums for old people will go up and the more they go up, the fewer old people will be insured, and that creates an industry dislocation issue.
“You have to look at how to put in place the right sets of incentives and the right regulatory frameworks to allow a managed industry transition. If you don’t, you have to have bigger handouts or there will be more industry disruption.”
According to the Australian Prudential Regulation Authority’s latest figures,the proportion of people with private health insurance at the end of 2018 fell by 1 per cent.
This fall has largely been driven by people aged 20-39 who have become fed up with paying the same rates as the older generations, despite requiring substantially fewer services.
But thanks to the sector being “incredibly over regulated”, Dr Duckett said hospitals and insurers were unable to respond to the challenges they were facing.
Mr Harris acknowledged the threat of young people opting against health cover, but argued they misunderstood why it was necessary and were underestimating their health risks.
“No one complains if I didn’t use my car insurance last year, or that they didn’t use their home and contents, but they complain if they don’t use their health insurance,” Mr Harris said.
“A lot of younger people are having more significant problems earlier in life. People are getting hip and knee problems in their 40s. Or if you have a mental health issue, if you rely on the public system, good luck.”
Across the healthcare sector the number of hospital beds required by the population is declining, but the numbers have remained more stable in private hospitals, according to data from the Australian Institute of Health and Welfare.
Dr Walsh was confident that private hospitals would grow their share of the overall market, despite the challenges facing the sector.
To combat any declines in revenue from people opting not to take out private health insurance, or deciding to go public anyway for services like obstetrics, Dr Walsh said hospitals were diversifying their revenue streams.
He believed that private hospitals were still attractive investments, particularly when viewed as infrastructure plays.
“There is quite a lot of equity ownership of private hospital infrastructure. Even at Cabrini, there is Cabrini Property Limited and Cabrini Health Limited. We essentially pay ourselves for the use of the hospital andincreasingly there are lease back arrangements,” Dr Walsh said.
“It’s about working capital really. If you end up with hundreds of millions sunk into bricks and mortar you build decades ago, it’s not available to invest in the technology [and infrastructure] of the future.”