28-05-2025
What's Behind the Collapse of Australia's 2nd Largest Private Healthcare Provider?
News Analysis
Analysts say the collapse of Healthscope, Australia's second-largest private hospital operator, reveals deeper structural problems with the sector.
The decision to put the group into receivership raises concerns about the future of its 37 hospitals, 19,000 staff, and 650,000 annual patients.
Dr. Tanveer Ahmed, psychiatrist and medical director at Kellyville Private Hospital, believes the seeds were sown during the pandemic.
'The government was basically holding up the private hospital sector through the pandemic. They effectively became guarantor of the entire system,' he told The Epoch Times.
While government support during the pandemic—$1.5 billion through the Private Hospital Financial Viability Payment (FVP)—provided temporary relief, Ahmed said the cost of wages and compliance have continued to surge, while revenues have barely moved.
An Issue With How Health Insurers Pay Hospitals
A central point of tension lies in the pricing and profit-sharing model between hospitals and insurers. According to available data, health funds contributed over $270 million of revenue in the last two years.
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'The health insurers are actually making quite good profits, while the private hospitals are really struggling,' said Ahmed.
The Australian Private Hospitals Association (APHA) has lobbied the government to deal with an alleged funding imbalance where insurance companies can dictate what type of pricing it wants for hospital services.
According to Australian Prudential Regulation Authority data, insurers earned over $5 billion in profits over the past three years, while allegedly underpaying hospitals by $3 billion in care costs.
Simultaneously, they charge $3.5 billion annually in 'management fees,' which are a portion of the premiums that are paid to insurers each year. The issue is, these fees also eat into the funds that go towards hospitals.
'When you're underpaid for services, more patients or births only increase the shortfall. It's fixable—and doesn't have to cost taxpayers a cent. What's needed is the political will to make insurers pay fairly,' said APHA CEO Brett Heffernan.
Maternity Care Costs Driving Mums into Public System
One of the most strained services is maternity care. Births at private hospitals have dropped from 30 percent to 19 percent over the past decade, with families preferring public services.
Insurance policies frequently exclude obstetric services, even for patients with 'gold' level coverage.
Many are shocked to discover they must pay up to $10,000 in out-of-pocket expenses for a childbirth.
This hidden coverage gap has pushed many expectant mothers back into the public system, further burdening taxpayers.
A Monash University study estimates that the cost of filling this gap could reach $1 billion annually.
The federal government has pledged $16 million to support maternity services in Hobart and Gosford after recent closures, but critics argue this is merely a temporary fix.
'Wouldn't a proactive approach to fixing the funding mess in the first place have been a better way to go?' said Heffernan. '$16 million is a very expensive taxpayer band-aid applied after the fact.'
Private Hospitals Need to Bear the Consequences: Health Advisor
Yet some say private hospitals need to do better at managing their operations.
'A private hospital company is a business. If it can't meet its commercial and financial obligations, it needs to face the consequences,' said Terry Barnes, principal at Cormorant Policy Advice and a former health advisor in the Abbott government.
'It's easy to blame private health insurers by saying they don't pay enough for the health fund members who use private hospitals. But if an operator is in trouble through its own poor management or commercial judgment, policy holders shouldn't be expected to carry the can for what's beyond their control,' Barnes told The Epoch Times.
'Nor should taxpayers be expected to bail out financially troubled operators like Healthscope.'
Barnes said the key now was to engage with banks and creditors to keep Healthscope going.
Insurers Concerned About Fraud With 'No Gap' Fees
Health insurers have, in turn, highlighted issues in the medical profession.
In November 2024, allegations surfaced against nearly 50 doctors accused of defrauding Medicare and patients by charging under-the-table fees while claiming 'no gap' billing.
'These allegations are deeply disturbing,' said Dr. Rachel David, CEO of Private Healthcare Australia. 'You do not expect [specialists] to be financially exploiting you at your most vulnerable.'
Insurers have urged patients to examine their bills and act if they suspect fraud.
In one health fund survey, 31 percent of patients under 'no gap' arrangements were charged fees, and 23 percent of those under 'known gap' terms paid beyond allowable limits.
A Broken System Without Transparency
In November 2024, the government released a summary of its Private Hospital Sector Financial Health Check.
It revealed that between 2018 and 2022, hospital expenses rose by 4.1 percent annually, outpacing revenue growth of just 2.9 percent.
Hospital operators argue that the report confirms what they have long warned: the system is unsustainable.
Yet the analysis was based on voluntary disclosures, and the full data remains unpublished due to confidentiality concerns.
Meanwhile, contract negotiations between insurers and hospitals have dragged on with little progress.
Federal Health Minister Mark Butler described Healthscope's situation as 'unique' but admitted that the broader sector faced 'challenges.'
