Briefing paper
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Executive summary

Public patients are routinely being treated in Australian private hospitals. Some jurisdictions have large-scale, planned programs where private or not-for-profit hospitals are contracted by the public sector to treat public inpatients (for example, Queensland’s Surgery Connect program). Often, however, ‘contracting’ is done on an ad hoc or short-term basis where private hospitals are asked, at relatively short notice, to treat public patients in order to relieve pressure on public hospitals.

The findings from this project stem from interviews with 24 senior health executives across Australia. Interviewees were public and private hospital executives and government bureaucrats. All had experience in hospital contracting. The focus of the interviews was their experiences with contracting: why and how contracting arrangements were developed, what worked, what didn’t, and what changes to policy and practice were made over time. Interviewees were also asked about their views on the merits of contracting, whether it should be done more often, and if so, what needed to be done to make sure it worked well.

While the views of these senior health executives on this topic were diverse, several clear messages emerged that are pertinent to policymakers working in this area. They are:

  • The way we are doing contracting currently in Australia tends to be ad hoc, and this is enormously frustrating to hospital executives in both the public and private sectors. Without greater certainty about the type and volume of patients to be treated, and how long contract arrangements will remain in place, it is unlikely that the full benefits of contracting (such as more timely access to care for public patients, and the more efficient use of resources) will be realised.
  • Some private hospital executives are unconvinced of the merits of contracting because they believe it reduces the value of private health insurance and the incentives to develop other private sources of revenue. Their views on contracting raise broader policy questions about the relative roles of public and private hospitals in Australia. These questions need to be addressed if governments intend to expand to use of contracting in the hospital sector.
  • State and territory governments (referred to as states) need to develop clear and consistent policies on contracting in the hospital sector. This includes developing fee schedules for different types of services and processes for establishing and negotiating contracts with the private sector. At the same time state-level policies need to be flexible enough to allow local (or regional) health services to make decisions about when, where and how contracting is done in their area. Without significant local level involvement in decision-making, it is difficult to ensure that contracting arrangements between local public and private hospitals (which tend to be more convenient for patients) will work in the longer-term.

Hospital executives have suggested numerous options for reform that have the potential to improve the way we do contracting in Australia. They range from small-scale reforms, such as contracting over longer time-periods and setting up brokers to facilitate contracting, to larger-scale ones such as establishing contestable funding pools; co-location of public and private hospitals; public-private partnerships; and implementing new hospital financing models (such as Medicare Select). These options, and more, need to be given serious consideration by policymakers if they are to improve the efficiency and effectiveness of our hospital systems.

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