Last week the Australian Institute of Health and Welfare (AIHW) released its annual report on public hospital activity Admitted patient care 2015-16: Australian hospital statistics.
Most years this report barely causes a ripple in the daily sea of health-related media statements and announcements. However, this year it resulted in some sizable waves.
For the first time the AIHW looked at waiting times for elective surgery by funding source, reportedly at the direct request of the Minister for Health.
The report found that there was significant variation in waiting times depending on the funding source as well as the type of surgery performed.
In fact, public patients were found to have a median waiting time of 42 days for elective surgery, more than twice as long as the average waiting time of 20 days for patients who used private health insurance to fund all or part of their admission.
The issue of private patients being treated in public hospitals has been on the Government’s radar for some time.
The Minister for Health Greg Hunt raised this issue in the context of this year’s private health insurance (PHI) premium increase, partly attributing the rise in premiums to costs associated with private patients in public hospitals.
“I am concerned that this practice is putting pressure on private health insurance premiums and taking beds away from public patients that need them — and that leads to longer waiting times,” the Minister said.
The health funds themselves have also complained about pressure being put on fund members to elect to be treated as private patients, despite this often conferring little or no benefit to the patient.
In March this year, Health Minister Greg Hunt wrote to all state and territory health ministers, stating that: “Health expenditure is continuing to rise and this includes an increasing trend of private patients being treated in public hospitals.”
This letter followed the release of a report from Ernst and Young, Private Patient Public Hospital Service Utilisation, commissioned by the Independent Hospital Pricing Authority (IHPA).
This report found that there had been growth of over 10% per year in the numbers of private patients treated in public hospitals for the past seven years.
The report also identified a number of practices encouraging patients in public hospitals to elect to use their private health insurance, for example, job descriptions in advertisements for private patient liaison officer positions, and appeals to patients from hospitals on their websites about the savings provided to the hospital from patients electing to be treated as private patients.
The report concludes on this basis that there is significant evidence that state/territory governments were actively recruiting private patients as a revenue source.
The National Health Reform Agreement
There is nothing wrong with hospitals raising additional funding – in principle. However, when this funding is attached to specific categories of patients it creates an incentive for hospitals to give this group of patients preferential treatment. If this occurs in relation to private patients it would violate the Medicare principles and the terms of the National Health Reform Agreement, agreed to by all States and Territories.
The agreement states that:
States will provide health and emergency services through the public hospital system, based on the following Medicare principles: a. eligible persons are to be given the choice to receive, free of charge as public patients, health and emergency services of a kind or kinds that are currently, or were historically provided by hospitals;1 b. access to such services by public patients free of charge is to be on the basis of clinical need and within a clinically appropriate period…
The reason private patients attract revenue to public hospitals is related to the way in which public hospitals are funded.
According to the terms of the National Health Reform Agreement, public hospitals should be funded using activity-based funding (ABF) wherever practicable.
ABF is a way of funding hospitals based on the number and mix of patients they treat. It is considered a fair and efficient funding mechanism which supports competitive neutrality across sectors, as it is based on the same price for the same service across public, private or not for profit providers of public hospital services.
The ABF model developed by IHPA works by basing funding on measures of activity called National Weighted Activity Units. These units are discounted for private patients through the implementation of a Private Patient Adjustment (PPA). This is supposed to account for the additional revenue hospitals can obtain from private health insurers or other private courses, e.g. workers compensation.
This is covered by section A41 of the National Health Reform Agreement.
A41. ABF payments for eligible private patients must utilise the same ABF classification system as for public patients with the cost weights for private patients being calculated by excluding or reducing, as appropriate, the components of the service for that patient which are covered by: a. Commonwealth funding sources other than ABF; b. patient charges including: i. prostheses; and ii. accommodation and nursing related components/charge equivalent to the private health insurance default bed day rate (or other equivalent payment)
However, not all states/territories have fully implemented the IHPA’s ABF framework and the funding systems still being used in some states can be less transparent and allow greater scope for generating funding from private patients. It is also difficult for the IHPA to set the PPA at exactly the right level. When the PPA is set too high, even those states which have fully implemented ABF funding will receive more revenue for treating private patients than public patients.
Is it cost-shifting?
The Federal Government is concerned about the rise in private patients being treated by public hospitals as they argue that it represents a cost-shift from the states/territories back to the Commonwealth (as it shifts a proportion of funding from public hospitals to private health insurance). The increasing cost of private health insurance is a key policy challenge for the Federal Government, both because it is unpopular with consumers and because it has budgetary implications for the Commonwealth (via the 30% rebate).
It’s clear that increased utilisation of hospital services by insured private patients – whether in the public or private system – will put upward pressure on PHI premiums.
However, the extent to which this trend represents cost shifting or unethical behaviour is debatable. This is because the definition of ‘cost-shifting’ in this context is unclear.
All Australians with private health insurance have the right, where available, to be admitted to a public hospital as a private patient. Whether or not a specific patient who choses this option is considered a ‘cost shift’ appears to depend on one’s perspective.
As there is no clear criteria to determine cost-shifting behaviour, there are three categories of patients which are often discussed as being on a spectrum of entitlement to admittance as a private patient in a public hospital. These are as follows:
Legitimate: patients who intend (or would intend if available) to use private hospitals but cannot do so due to factors such as location and/or lack of available services. No-one appears to dispute the legitimacy of treating these people as private patients in public hospitals.
Questionable: patients who intend to be admitted as public patients but who make an informed choice to use their private health insurance in a public hospital often in return for an allowable benefit, for example, to obtain a private room (not for faster access to elective surgery). Whether or not these patients represent a cost-shift to the Commonwealth appears to rest on an assessment of their intention as well as the motives of the hospital involved.
Dodgy: patients who fully intend to be public patients but who are “persuaded” to declare themselves private patients and who receive no benefits for doing so (and in some cases may incur additional out-of-pocket costs). At the less acceptable end of the spectrum there are stories of patients incurring co-payments of over $1000 for a service identical to that which they would have had as a public patient.
While those patients falling into the first group might be easy to identify, it is not easy to distinguish patients in groups 2 and 3 as it relies on a qualitative assessment of their decision making process. This is impossible to determine from utilisation data.
There is also an implication that the role of the hospital is important in assessing whether a consumer is legitimately requesting to be treated as a private patient. There is a sense that while it might be acceptable for an individual to choose to be admitted as a private patient, it is not right for a hospital to influence this decision through (for example) employing someone to inform prospective patients of their options.
The Ernst and Young report casts some light on this matter by including information about job advertisements placed by public hospitals which specific that raising revenue from public patients is a core requirement of some positions.
The report also claimed that a number of state governments had set revenue targets for hospitals to raise from treating private patients. These findings together suggest that public hospitals may be actively seeking opportunities to obtain revenue from PHI funds. However, they do not, in themselves suggest that hospitals are giving preferential treatment to private patients.
The hospitals themselves have always denied this practice, arguing that they are entitled to recover the cost of treating patients from PHI funds and that this money is used to improve public hospital services for everyone.
This is why the AIHW Report caused such a stir. For the first time, this report found data which indicated that hospitals are providing faster access to elective surgery for private patients.
Responses to the Report
As discussed above, the Health Minister Greg Hunt used the report to demand an explanation from state/territory ministers, describing the findings as “unacceptable”.
Private Healthcare Australia president Rachel David said public hospitals are being incentivised by state governments to chase revenue from private patients. She said patients being admitted to emergency departments have reported being pressured by public hospitals to declare themselves private patients, facing unnecessary and exorbitant out of pocket costs. The end result is duplication within the health system, meaning higher premiums and increased taxes.
The Australian Healthcare and Hospital Association, representing public hospitals, pointed out that the research did not reveal whether there were differences in the categorisation of public and private patients which would account for different waiting times. It also emphasised that patients electing to use their private health insurance for elective surgery in a public hospital represented only 6.9% of the public hospital elective surgery load.
AHHA CEO Alison Verhoeven said, ‘There are valid reasons for using private health insurance in public hospitals, including the lack of availability of private hospital care in some regional areas, visiting officer practice rights in public hospitals and patient choice of clinician, all of which are longstanding fundamental features of our health system’.
Consumers Health Forum chief Leanne Wells said longer waits for public patients “undermines a fundamental tenet of Australian health care — that everyone should be treated according to their medical need.”
Stephen Duckett from the Grattan Institute called the report data “really concerning.” “The data also show that there is an even more stark difference in wait time depending on procedure. Public patients waiting for cataract procedures are waiting almost four months, whereas those with private insurance are waiting two weeks,” he said.
AMA Federal President, Dr Michael Gannon, said he said he was concerned by the AIHW data. “These arrangements do not in any way contribute to universal healthcare and it’s entirely unfair. It is at odds with the Medicare agreement and is not a good use of the private health insurance rebate. It’s a core principal of medical ethics that treatment should be delivered according to clinical need and not insurance status.”
Ian McAuley, a fellow at the Centre for Policy Development and policy analyst, said the data was more evidence that private health insurance should be scrapped altogether in favour of a single insurer.
Implications for consumers
While the Commonwealth and States/Territories argue among themselves about the details of health funding, consumers – yet again – are often the losers. While some individuals with private health insurance may be gaining faster access to elective surgery, this comes at the cost of undermining the equity and universality of the public hospital system which ultimately serves all our interests.
It is a difficult issue for the Federal Government which wants to reduce pressure on insurance premiums but cannot risk banning the public hospitals from treating private patients as it would further erode the already questionable benefits of PHI.
The difficulty in identifying and addressing cost-shifting due to private patients in public hospitals is tied up with broader unresolved issues within our health system.
Further research will shed light on the details of public hospitals’ practices in this area but will be unlikely to address some of the more fundamental questions this issue raises. These include how to reconcile a commitment to equity and universality within our public health system with a system of PHI which promises preferential treatment for some. Health Minister Greg Hunt may soon find himself in deep waters if he insists on wading into the murky depths of health financing reform without understanding the complexities and co-dependence of public and private funding systems.