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Should patients with private health insurance be treated in a public hospital?

As the discussion rages over the value of private health insurance and the media reports that the percentage of Australians with basic hospital cover has dropped to its lowest level in more than a decade, a controversial question remains overlooked.

Should patients with private health insurance be treated in public hospitals?

Public hospitals around the country are bursting at the seams.  Waiting times for elective surgery are blowing out.  So why do public hospital administrators ACTIVELY pursue private patients and the fees they earn from their admissions from private health insurers?

It is because of a poorly understood and grossly unsustainable funding model.

Public hospitals are funded by the Federal Government for each episode of care.  This is a centrally controlled funding model (called Activity Based Funding, or ABF in short) which pays each hospital the same amount for each episode of care.  For example, a standard hip replacement is funded the same in each hospital, with other factors such as an admission to ICU, or remoteness of location modifying the amount funded.

When a patient is admitted to a public hospital and they have private health insurance, hospital staff (often referred to as a Revenue Raisers) will approach the patient and ask if they elect to use their private health insurance.

They will be enticed into doing this so they can “enjoy” such benefits as free phone, free “free to air TV’, free parking, single rooms and their choice of doctor.  The reality is, most people use a mobile phone not the antiquated thing by the bed; free to air TV is hardly a bonus in the era of the internet; free parking is generally only extended to the patient and not their visitors; single rooms are allocated according to how sick they are not their financial status; and whilst they may choose their specialist, their day-to-day care will largely be provided by the junior doctors on the ward, the same as every other patient.

If the Revenue Raiser is really good at their job, they may even make the patient feel very guilty if they do not elect to be private, or all warm and fuzzy if they do, as they are doing their bit for humanity by helping to fund the essential services of the underfunded public hospital system.  Let’s face it, given this reasoning, most of us would choose to be private because, well, we are good people and want to do the right thing.

But is it the right thing?

Since administration of chemotherapy is the second most common reason for an admission to a hospital or day-unit in Australia, using this to question the current practice provides useful insights.

In the case of a cancer patient admitted into a WA public hospital day-unit to receive chemotherapy, the base amount the hospital is funded for this admission under ABF is $1192.  But WA hospitals run approximately 17% over budget (with a 2018 report* showing RPH was the second and SCGH the third most expensive hospitals in the country during the 2014/15 period), so in real terms the day-unit admission for chemotherapy treatment costs $1,395. If the patient elects to use their private health insurance the health fund will pay the hospital $300 for the admission, but on the flip side, because the health fund is contributing the Federal Government will take away $119 from the base amount.

So now you have a situation where the public hospital day-unit admission for a chemotherapy treatment cost $1395 but the hospital will only receive remuneration of $1373 for the service (i.e. they lose $22 per private patient admission). They are literally paying for private patients to be in their hospitals and day-units, creating overcrowding and stress on the public system in the process.

It is the equivalent of buying a Gucci handbag for the bonus free lipstick.  Where taxpayer’s money is being used to buy the handbag and the health fund contributions is paying for the lipstick.  However, they have now bought so many Gucci handbags that they don’t all fit in the walk-in-robe and the handbags are piling up in different rooms all around the house.  Plans are now being made to knock down the back of the house and extend the wardrobe.  Unsurprisingly, the funds required for the extension will cost a lot more than a lipstick.

It also has another more subtle effect.  If, when the patient elects to use their private health insurance the care they receive is no different to a public patient, what value is the patient really getting from their insurance?  If they are not getting value from their insurance, why would they keep the policy?

The answer is, they don’t. Figures from the industry regulator show that 64,000 people dropped out of private health insurance in 2018.  Health economist Professor Stephen Duckett was quoted by the ABC’s “The Business” saying the entire industry has reached a “tipping point”.  This tipping point is likely to have very negative consequences for both the private and public health sectors, and more importantly, the patients they serve.

So, who wins when a patient elects to use their private health insurance in a public hospital?

Not the patient.

Not the public hospital.

Not the private health insurer.

Not the tax payer.

Enough, is enough.  Unless there is a clinical or unmet need, private patients should be treated in private facilities by private providers.  Other legislative issues around private health insurance which affect important factors such as gap payments should also be addressed. Maybe then the public hospitals will have enough resources to treat the patients who really need their services.


This article was wrtitten by Julie Adams, as an invited Opinion Piece, for the Australian Institute of Management WA Leader Magazine Issue 17 Dec 2019.