Presenting a dire picture of the financial health of private hospitals in Australia, this paper points to a critical shortfall in revenue relative to operating costs. It attributes this to insufficient indexation of private health insurance (PHI) benefits, coupled with rising operational costs, particularly for nurse salaries, leading to shrinking profit margins and an inability to invest in services. 

The paper responds to the Australian Government's Private Hospital Financial Health Check, which, according to the author, underestimates the severity of the sector's financial woes. The paper details the widening gap between PHI benefit indexation and actual cost inflation, leading to declining profitability and reduced capacity for private hospitals to reinvest in services and attract investment. 

The author argues that a robust private hospital sector is crucial to Australia's healthcare system, providing essential services to a significant portion of the population and relieving pressure on the public health system. They propose immediate solutions to stabilise the sector while structural reforms are developed. 

Key findings

• The shortfall in PHI benefits paid to private hospitals has been steadily increasing, from $660 million in 2019-20 to an annualised shortfall of $1.254 billion for 2023-24.
• The operating profit margin for private hospitals has fallen considerably, from approximately 9.6 percent in June 2018 to 1.4 percent in June 2023.
• A significant proportion of private hospitals are either breaking even or operating at a loss.

Key recommendations

• Provide interim funding to the sector of between $450 million and $650 million per annum, until such time as the government and key stakeholders have worked through longer-term structural solutions.
• Introduce a Digital Interoperability Private Hospital Incentive to digitise paper-based records and implement interoperability across the health system.
• Introduce a Commonwealth Private Hospital Nursing Wage Subsidy.
• Increase private hospital funding by $0.9 billion through the return to a payout ratio of 88 cents in each dollar of hospital policy premium revenue.