Private healthcare is facing a crisis – is a hybrid model still the answer?

Australia’s private health sector is facing a “fiscal cliff” and must be treated as one half of a hybrid system alongside its “public health sibling” if both are to stay above water, according to Cathy Ryan of Cabrini Health.

Speaking ahead of the Health Insurance Summit, Ms Ryan said that governing private and public health separately leaves both sectors vulnerable to future economic shocks, with the aftereffects of earlier crises still being felt.

Cracks in the current siloed approach were first exposed during the COVID pandemic, she said, when the government leaned on the private sector to alleviate the public health burden – a responsibility it embraced, but with harmful consequences.

“All of a sudden, there was a reliance upon the private sector to support a national approach. The private sector jumped on board because, obviously, the main priority was patient health. But consequently, we had around three years of a government agreement, which was just purely cost recovery.

“And so, what would normally be an opportunity for some level of profit to fund new services and equipment – because we’re a private business – led to a three-year drought, leaving little to no reserve for any future shocks to the system. With that, of course, we saw personal protective equipment (PPE) go up by 1000 percent and it hasn’t ever returned to its original levels. It’s been normalised at that rate.”

Rising CPI and premiums

As it turned out, Australia’s second shock was not far away, with the Consumer Price Index rising to around 7.8 percent in 2022 and Private Health Insurance premium increases hitting 2.7 percent in the corresponding period.

With private insurers still prohibited from retaining profits from the lack of claims outcomes during COVID-19, the gap between cost and private hospital reimbursement widened significantly.

Though Minister Butler awarded the industry a 4.41 percent average increase – the highest since 2017 – Ms Ryan said, for many, the damage cut deeply.

“It left many insurers wondering how they were going to manage these extraordinary cost increases that were hitting medical consumables as well as electricity and utilities. Hospitals, of course, are very high users of water and electricity.”

Keeping pace with public sector wages

From there, Victoria moved quickly to its next ‘unprecedented’ challenge, with a monumental wage increase for public sector nurses and midwives in mid-2024.

To offset the damage of rising CPI and borrowing costs, the Victorian government landed on an historic deal to pay them an additional 28.4 percent over 4 years, carrying through to 2028.

Ms Ryan said the increase had significant implications for private healthcare.

“In the private sector, we must follow the public sector, because how do you attract staff if you don’t? And in keeping pace with this, many were left wondering, ‘how do we pay for it?’

“When you’re a not-for-profit provider, like Cabrini Health, there is no mission without margin. If you’re trying to do work that aligns with your mission (care of the sick and vulnerable), but which isn’t necessarily funded from state or Commonwealth governments, then it becomes a tougher situation.”

A grim outlook

Ms Ryan said there is urgency around planning health provision as ‘one system’, with petrol prices, tariff uncertainties and biomedical import challenges adding to the sector’s woes.

“We are very heavy importers of medical equipment, and we’ve already seen manufacturers being targeted by cyberattacks because of the US-Iran war. So, it seems we’ve already forgotten lessons learned from COVID-19 around self-sufficiency and are facing yet another cost pressure for across all hospitals.”

Ms Ryan is also concerned that an estimated 32 percent of GPs will retire within five years, claiming a shrinking GP workforce will see a system that is reliant upon specialist referrals more difficult to access, in turn creating volatility in private hospital occupancy revenue. Ultimately, this could lift out-of-pocket costs, she argued.

“It wouldn’t be a surprising outcome. The government is working to dampen down out-of-pocket costs, but access to GPs may have an opposite effect.”

Overlaying this, the cost for private hospitals to demonstrate compliance in their care delivery is growing, amid what Ms Ryan describes as “legacy red tape”.

“Some of it doesn’t even make much sense,” she said. “You could be a patient receiving a drug to modulate your immune system for Crohn’s disease or multiple sclerosis and that same drug could be used for cancer treatment. If it’s used for the latter, that’s completely fine, but if it’s used for Crohn’s, the doctor has to specify in writing why the patient needs it, even though it is approved for that purpose. Delays in receiving these certificates in turn delays payment for providing this service. Not too many businesses would be happy to wait two to three months to be paid.

“So we’ve got these legacy rules that don’t necessarily make sense. And the deeper you get into cost spirals, the more you start to think, that unmodernised legislation, rules and regulations with band-aids over band-aids over a number of decades have led us here”.

Making it happen

Ms Ryan said that while the case for a consolidated hybrid model was clear, the pathway to get there was more challenging.

“If we want this hybrid system, we have to regard it with a clear lens of what each side contributes right across our national population – something we haven’t historically been very good at,” she said.

“Currently, there is a blind spot in terms of visualising how the public and private sector operate in tandem. With Medicare and a contribution to the Private Health Insurance rebate coming out of the government coffers, there has always been a focus on how the private sector operates. But there hasn’t always been knowledge of the data – for example, that 65 percent of elective surgery is carried out by private hospital providers.”

Sharing her insights on how to move forward, Ms Ryan will present at the upcoming Health Insurance Summit, hosted by Informa.

This year’s event will be held 21-22 July 2026 at the Crown Conference Centre Melbourne.

Learn more and register your tickets here.