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Private Hospitals in Australia, Commission Research Paper, Ausinfo, Canberra Private Hospitals Commission in Australia Research Paper Commonwealth of Australia 1999 ISBN 1 74037 120 8 This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from AusInfo. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, AusInfo, GPO Box 1920, Canberra, ACT, 2601. Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Post Office Melbourne Vic 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: [email protected] An appropriate citation for this paper is: Productivity Commission 1999, Private Hospitals in Australia, Commission Research Paper, AusInfo, Canberra. The Productivity Commission The Productivity Commission, an independent Commonwealth agency, is the Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244. Foreword Over the past decade, a number of reports by the Commission and its predecessors have looked at aspects of Australia’s health care system. These include: Exports of Health Services (IC 1991); The Pharmaceutical Industry (IC 1996); Stocktake of Progress in Microeconomic Reform (PC 1996); Private Health Insurance (IC 1997); and Productivity Commission Submission to the National Review of Pharmacy (PC 1999b). The Commission also acts as Secretariat for the Review of Commonwealth/State Service Provision’s work on monitoring the performance of health and other government services (SCRCSSP 1999). This research report on Australia’s private hospital industry had its origins in the Commission’s private health insurance inquiry. That inquiry raised a range of issues relating to demand for, and the efficiency of, private hospital services; and the nature of contracting between hospitals, health funds and doctors. This report addresses those and other relevant issues. The primary objectives of the report are informational: to provide a comprehensive overview of the private hospital industry and to detail the key factors affecting its performance. While the report draws attention to a number of related policy issues warranting examination, it does not contain any detailed policy analysis or recommendations. The report draws extensively on unpublished data contained in the Australian Bureau of Statistic’s Private Hospital Expenditure collection and the Department of Health and Aged Care’s Casemix Protocol collection. As such, it is likely to be of interest to those in the industry as well as in government. The report has also benefited from information provided in informal discussions between the Commission and government officials and members of the industry. The Commission is grateful to all those organisations and individuals who contributed. Ian Bickerdyke was the primary researcher for the report. Gary Banks Chairman December 1999 FOREWORD III Contents Foreword iii Glossary vii Summary xi CHAPTERS 1 Introduction 1 1.1 Scope of the report 1 1.2 Information sources 2 1.3 Report outline 3 2 The private hospital industry 5 2.1 The private sector’s role in the delivery of hospital services 5 2.2 Defining the private hospital industry for this study 10 2.3 Industry structure and activity 11 2.4 Mergers and hospital diversification 17 3 The market for private hospital services 19 3.1 Market definition 19 3.2 Market participants 21 4 Financial performance 29 4.1 Private hospital revenues 29 4.2 Private hospital costs 34 4.3 Profitability 38 5 Broader performance indicators 45 5.1 Hospital efficiency 45 5.2 Quality of care 52 5.3 Appropriateness of care 57 CONTENTS V 6 The regulatory and legislative environment 59 6.1 State and Territory regulation 59 6.2 Commonwealth regulation of the private hospital industry 65 7 Competition in the private hospital market 73 7.1 The relationship between private hospitals and doctors 73 7.2 The relationship between private hospitals and health funds 77 7.3 The relationship between health funds and doctors 85 7.4 The Trade Practices Act and the ACCC 88 7.5 Other competitive aspects of the private hospital market 89 8 Broad drivers of demand for private hospital services 93 8.1 Income growth and distribution 93 8.2 Population growth and ageing 95 8.3 Technological developments 97 8.4 Community attitudes to health care 99 9 Some future policy issues 101 9.1 Industry-specific issues 101 9.2 Some broader health policy issues 111 APPENDICES A Private hospital revenues, charges and costs 117 B Additional hospital performance and State-based structural data 139 References 159 VI CONTENTS Glossary Accreditation Verification by either the Australian Council on Healthcare Standards or the International Standards Organisation that a hospital meets specified quality-related processes and clinical performance requirements. Acute care An establishment which provides at least minimal medical, hospital surgical or obstetric services for inpatient treatment and/or care, with round-the-clock qualified nursing and other professional services. Amendment Act Abbreviation for the Health Legislation (Private Health 1995 Insurance Reform) Amendment Act 1995. Amongst other things, this Act provides the legislative basis for contracting between hospitals, doctors and health funds through HPPAs, MPPAs and PAs. Average length Average number of days spent by individual patients in a of stay (ALOS) particular hospital or group of hospitals. BOO(T) facility Facility treating public patients financed, built and run by a private operator in return for patient payments from the State government concerned. Depending on the nature of the particular contract, ownership of the facility may transfer to the State government at the end of the contract period. Casemix Describes the mix and types of patients treated by a hospital according to their medical conditions. Casemix is often described with reference to Diagnosis Related Groups (see below). Clinical revenue Revenue of a hospital segmented according to the hospital’s profile clinical mix of services. Co-located Private hospital sited on the premises of a public hospital to private hospital form a joint medical facility or precinct. The two hospitals may sometimes share infrastructure and services. GLOSSARY VII Compensable Patient whose medical and hospital costs are met by a third patient party motor vehicle or workers’ compensation insurer. Competitive Term used to describe a market outcome in which no neutrality individual supplier is advantaged or disadvantaged by government regulations, subsidies, taxation arrangements and the like. Copayment Portion of the cost of an insured health service met by the user. Diagnosis related Basis for a clinical classification of services provided in group (DRG) hospitals. The criteria for developing groupings are that they are clinically meaningful and involve similar resource use. DVA patient War veteran or war widow/widower eligible for free hospital treatment through the Repatriation Private Patient Scheme run and funded by the Department of Veterans Affairs. Freestanding day An establishment performing minor operations and other hospital (or ‘day procedures not requiring an overnight stay, which is not part of hospital’) any private hospital providing overnight care. For-profit group A for-profit private hospital whose proprietor owns other hospital private hospitals. Sometimes referred to as ‘chain’ hospitals. For-profit A for-profit private hospital whose proprietor does not own independent any other private hospital. These hospitals are often owned by hospital doctors. Health insurance Organisation registered under the National Health Act to fund provide health insurance meeting some or all of the cost of treatment provided to insured private patients in either public or private facilities, as well as contributing to the cost of a range of ancillary medical and dental services provided outside a hospital setting. VIII GLOSSARY HPPA Hospital Purchaser Provider Agreement. Describes a contractual arrangement between a health fund and a hospital under the provisions of the Health Legislation (Private Health Insurance Reform) Amendment Act 1995. Where an HPPA is in place, and unless the agreement specifies a pre-determined patient copayment, the hospital must accept the HPPA price as full payment by the fund for the episode of care for eligible contributors. MPPA Medical Purchaser Provider Agreement. Describes a contractual arrangement under the Health Legislation (Private Health Insurance Reform) Amendment Act 1995 between a health fund and a doctor, covering the provision of medical services to contributors in hospitals. If an MPPA is in place, a health fund is able to pay medical benefits in excess of the Medicare schedule fee, thus allowing for the elimination of out-of-pocket expenses for patients (or limiting them to a
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