Healthscope terminates Bupa, AHSA contracts

Healthscope has announced that it has terminated its contracts with health insurers Bupa and the Australian Health Services Alliance (AHSA).

The private healthcare provider, owned by North American private equity group Brookfield, is Australia’s second-largest private hospital group, with 38 hospitals across the country.

The terminations will come into effect from 20 February for Bupa and from 4 March for the AHSA funds. The termination will impact all Bupa customers as well as customers in the Alliance Group, which includes Australian Unity, GMHBA, Health Partners, Westfund and HIF.

Care, costs and profits

Healthscope said in a statement that it had proposed a modest fee to bridge the gap between chronic underfunding from insurers and rising costs of providing care. 

“The current step is the result of both insurers pursuing legal threats to stop the introduction of this fee,” the statement said.

CEO Greg Horan said, “We were proposing the hospital facility fee following Bupa’s and the AHSA’s failure to recognise and fairly fund the rising cost of care. In the absence of fair funding, this fee was Healthscope’s best option.

“The response from the insurers was lawfare, and we are not prepared to engage in protracted and expensive legal challenges,” Horan said, noting that private hospitals across the country are being impacted by a viability crisis.

“Hospitals are losing money, and cannot attract new investment. Private health insurers are banking record profits — 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,” Horan said. 

Issues kicked into the long grass?

Australian Private Hospitals Association (APHA) CEO Brett Heffernan said, “For more than a year, private hospitals have been raising viability issues with the federal government. Many have taken the unprecedented measure of opening their books for federal government scrutiny, laying bare the parlous state of hospitals as a result of being underfunded by health insurance companies.

“The result of that protracted engagement is yet another round of CEO roundtable talks. Private hospitals are less than impressed, seeing it as a bid to kick critical issues into the long grass in the hope no one notices.

“Over the last few years around 20 private hospitals have shut their doors entirely, while more than 70 services have closed in other hospitals. This has coincided with health insurance companies raking in billions in record profits.

“In 2021–22 health insurers racked up $1.1 billion in after-tax profits. It doubled in 2022–23 to $2.2 billion. The latter was on the back of an average 3% premium hike. In just the first quarter of 2024 the insurers pocketed $800 million in profit. Now it is suggested some insurers may be seeking a 5–6% premium rise in 2025,” Heffernan said.

Bupa’s 2023 full year financial results, released in March this year, indicate that BUPA APAC registered a revenue of $10.7 billion in 2023, with an underlying profit of $291 million. In 2022, the company reported revenue of $10.2 billion and profit of $756 million. 

Hefferman said that the benefits insurers pay to hospitals has fallen and runaway inflation has seen the gap widen. “For instance, in 2015 the average payment hospitals received from health insurers for a hip replacement was $22,166. Despite almost a decade of growing costs and inflation, in 2023 the average payment was $20,548. Private hospitals performed 29,236 hip replacements last year (74% of all procedures), so the losses quickly add up. They are losing money across a raft of the procedures, treatments and services they provide.

“When something is crook with private hospitals providing the full gamut of surgical, medical, obstetrics, psychiatric and rehabilitation care, the risk is the public hospital system goes critical. Waiting lists get longer and deeper. Everyone is worse off.

“That private hospitals have closed and others are barely hanging on, while insurance companies accumulated over $4 billion in profit in just over two years, is evidence the system is out of whack.

“Without a mechanism that ties premium increases to payments for care in private hospitals, any premium increase next year is just lining insurance company coffers. If there is nothing compelling insurers to meet the true costs of care, the experience is they simply won’t do it.

“Structural reform of the relationship between funders and providers of private health care is needed, but it won’t come quick. In the meantime, if health insurance companies can’t be forced to meet the costs of their members in hospitals, then the government will have to fill the void with temporary co-payments to keep private hospital doors open and the healthcare system afloat.

“If not, more private hospitals will have no choice but to charge patient gap fees to meet the shortfall left by derelict health insurers.”

Alternative options?

Dr Rachel David, CEO of health funds peak body Private Healthcare Australia, said, “If Healthscope was serious about delivering patient care to Australians in a cost-of-living crisis, it would negotiate an affordable and sustainable outcome, rather than throwing its toys out of the cot.

“This is another unethical tactic from a $1 trillion North American private equity firm that appears intent on holding health fund members hostage, while also trying to bully health funds into paying them more so they can increase their profits.

“There is no scope for health funds to pay across-the-board, above-inflation increases to private hospitals. People struggling with the cost of living will simply drop out or downgrade their health cover, which leaves Healthscope worse off as its customer base dries up.”

David said if Healthscope followed through with its contract termination, patients could be charged thousands of dollars to receive care at a Healthscope-owned hospital.

“This is just not done in Australian health care. We don’t rip up contracts, we don’t hang patients out to dry and we don’t directly gouge patients like the American system,” she said.

David called on medical practitioners who work at Healthscope hospitals to consider alternative options, given the uncertainty Healthscope has created for patients who are awaiting surgeries.

“In most locations, alternative hospital providers with more stable finances are available. There are empty beds and operating theatre capacity around the country, in some cases right next door to a Healthscope hospital,” she said.

“Federal government data shows we now have more private hospitals in Australia than we did five years ago. There are more ethical hospital operators who are happy to talk to medical practitioners about switching patients, or doctors’ entire practices, to alternate facilities.

“Health funds are doing everything possible to protect consumers against big, foreign-owned companies like this,” David claimed.

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