Australians could be facing a healthcare vacuum, and probably increased costs, after hospital operator Healthscope announced it would terminate contracts with two major insurers.
Healthscope, which operates 38 hospitals across the country, will no longer work with Bupa and the Australian Health Services Alliance (AHSA), following their refusal to pay a ‘facility’ fee. The decision will affect an estimated six million Australians. AHSA represents 26 private healthcare insurance funds including Australian Unity, GMHBA, Health Partners, Westfund and HIF.
Healthscope has introduced a $100 ‘facility’ fee for each overnight admission and $50 for day procedures, which it claims is to cover the increasing gap between health insurance payouts and the rising cost of hospital care. In response, Bupa and the AHSA initiated legal action over the move. Other health insurers have agreed to the fee.
The contract with Bupa will be terminated from 20 February 2025 and AHSA will be cancelled from 4 March 2025.
Not surprisingly, the move has drawn strong opinions from both sides of the argument.
Healthscope CEO Greg Horan said in a statement that Bupa and the AHSA’s refusal to sustainably fund hospitals in this high-cost environment meant Healthscope was left with no option but to issue termination notices.
Enormous profits
“In the absence of fair funding, this fee was Healthscope’s best option,” he said.
“The response from the insurers was lawfare, and we are not prepared to engage in protracted and expensive legal challenges.
“Bupa, in particular, has delivered enormous profits to its UK parent, while refusing to pay fairly for the care of its Australian members at Healthscope hospitals.”
“In order for us to remain viable, we are left with no choice but to terminate the contracts.”
In reply, peak body Private Healthcare Australia (PHA) said the decision was a “deeply unethical move”.
American model
PHA chief executive Rachel David said the fee was a “new low” from parent company Brookfield, and she claimed the group was trying to extort money from health funds so it can make bigger profits for its overseas investors. She said the health funds being targeted by Healthscope already have legal contracts in place for fair funding of services and that this move could be illegal.
Dr David said it was an “American way of doing business”.
“This is a deeply unethical move from a $1 trillion North American private equity firm holding patients hostage and trying to bully health funds into paying them more so they can increase profits,” she said.
“Brookfield was only ever in the Australian hospitals market for the short term. It is trying to squeeze out as much profit as possible before it abandons Healthscope hospitals, potentially making private healthcare unaffordable in the process.
“Targeting patients is a new low. I have never seen a hospital group do this before. This will cause great distress and uncertainty for thousands of people trying to plan healthcare across Australia right now.”
Business suicide
In The Australian, Dr David described the move as business suicide.
“It’s almost what I would call a kamikaze move because there’s no way Healthscope can survive if half the sector deserts their hospitals,’’ Dr David said.
“Inevitably, if they choose not to return and negotiate a sustainable outcome, what happens is the doctors leave because their patients won’t be able to afford the extra fees and they go to competitor hospitals and Healthscope loses its revenue.’’
However, there is one thing both can agree on, people with health insurance from these two groups will probably be paying hundreds more for their care.
Earlier this year, Healthscope wrote down the value of its business by $919 million, a decision it blamed on steep cost rises. Healthscope was bought by Canadian private equity giant Brookfield in 2019 for $4.1 billion. It is estimated to be carrying $1.6 billion in debt.
Healthscope said it was willing to renegotiate the contracts at any time.
What do you think of this decision? Will it affect you? Why not share your thoughts in the comments section below?
Also read: Health insurance price spikes – who’s to blame?
