MEDICUS FEBRUARY 2016

C O V E R S T O R Y

Let’s get ahead of the curve

Dr Michael Stanford Group Chief Executive Officer St John of God Health Care

T he last 15 years have been a very good era for the provision of private healthcare in Australia. The combination of the Medicare Levy Surcharge (1992), introduction of 30 per cent rebate (1999) and Life Time Health Cover (2000) resulted in the intended Federal Government Policy outcome of dramatically increasing the proportion of Australians with Private Health Insurance (PHI). From a miserably low 30.8 per cent of Australians with PHI in June 1999, the number rose to 43.3 per cent after the advent of Lifetime Health Cover and has steadily increased to 47.3 per cent today. This proportion of Australians with PHI was last seen in December 1987. The increased number of people with PHI has given confidence to the private hospital sector to massively invest in improving and expanding facilities, applying the latest technology and significantly increasing their service range. Since 2005, St John of God Health Care (SJGHC) has invested $740 million of its funds in major capital developments to support doctors in their work of caring for the increased, and ageing, population. The dynamics of the private health industry are changing, quite quickly. For the first time since 2000, the proportion of the population with PHI has stalled. We now find the public

The current policy framework will, in

hospital system is an active, growing and a significant competitor for private patients (up 38 per cent in the last three years alone, in terms of private in public admissions). We also find ongoing consolidation in the number of health funds (down from 44 in 2000 to 33 today) and the change to predominately for-profit funds (68.5 per cent of market share in 2015, whereas only 12.5 per cent in 2000). Annual premium increases that exceed general inflation are an unsustainable financial proposition for consumers and the Federal Government, with no surplus of its own in sight, is going to look for savings with regards to the PHI rebate and also savings through the MBS system. Health funds are travelling well financially with good capital adequacy ratios and reasonable profits. However, they know they have to offer increasing exclusions and co-payments to ensure cheaper products for, at times, unwilling (especially younger) consumers. As a sector, their profitability is reducing (from 8.3 per cent profit before tax in FY10 to 7.0 per cent in FY14), and they see outlays on hospital benefits, medical services and prostheses items each increasing at around 9 per cent per annum. Not-for-profit and for-profit funds alike will inevitably look at enhanced cost control, when it comes to both

my view, limp along for a few years yet but it will change due to economic forces

management expenses and outlays.

We have an unsustainable private (and public) healthcare model. Governments and health funds will have to look for savings. Moreover, health funds will have to find an enhanced value proposition to maintain or grow members in a perennially sluggish national economy. The current policy framework will, in my view, limp along for a few years yet but it will change due to economic forces. It is in the interest of private hospital operators, doctors and our industry bodies to try to get ahead of the curve and shape a model that doesn’t waste money on enhanced profits to overseas prostheses makers, encourages good quality of care and penalises poor quality, doesn’t allow ridiculous out-of-pocket charges by any participant and doesn’t rely on more than the minimum of government support. If providers don’t make the changes, someone else will – government and funders, alone or in tandem. ■

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