Mind the Gap: Part 6 - Public Hospitals

This is Part 6 of a series outlining the Australian Health Insurance industry from the perspective of a health provider.

6. Public Hospitals

Public Hospitals have nothing to do with Medicare. They get their money from State and Territory Governments, charities, donations, and anywhere else they can make money (for example, raffles and lotteries). They then spend that money on treating as many patients as possible.

Most Australian State and Territory Governments decide how much to pay a hospital based on factors like how many patients go through the emergency department each day, how many patients live in the area of that hospital, what kind of diseases the hospital treats in a particular year and also how many and what type of operations are performed at that hospital. This is called a "Case-Mix" system. As a response, hospitals like treating conditions that make them money (such as gastroscopies, colonoscopies, haemorrhoidectomies, orthopaedic surgery, coronary angiograms or heart bypasses) and not so much treating those that lose money (cancers, difficult infections, major operations where patients are in hospital for a long time). That doesn't mean that they don't treat them, just that the accountants get unhappy.

In order to keep hospitals on their toes, the Governments also penalise hospitals by taking money away if they do anything that makes the Government look bad, such as having long waiting lists, people waiting in the emergency department for more than 4 or 12 hours, or going on ambulance bypass because they are full. These fines are in the order of about $10,000-$100,000 for each occasion or unmet target. Therefore hospitals will do almost anything to meet these targets and avoid being hit with penalties, even if it means not paying staff or cutting back on "financially viable treatments". In many cases, hospital budgets are "make or break" depending on the extent of these penalties, and usually there is a mad rush to meet targets in the few weeks leading up to the end of a financial reporting period.

Doctors are paid a fixed salary by the hospital for all of their work (including ward rounds and operations), and usually there are arrangements to pay for overtime or extra work that is not rostered or expected beforehand. As in all industries, the more work the hospital can squeeze out of its staff without paying them, the better their bottom line.

As a secondary concern, public teaching hospitals are also responsible for the teaching and training of medical students and postgraduate doctors. Where hospitals have strong undergraduate teaching alignments with universities, there may be arrangements for universities to pay the hospital directly (in particular, teaching costs associated with clinical tutoring of full-fee paying medical students from private universities), or indirectly (e.g. funding part of the salary of clinical staff for their academic duties, contributing to infrastructure costs and building works, etc.). Besides community kudos, there is little or no money in this, and no effective outcome measures exist or are employed to measure performance in this area. It is therefore often ignored and the quality of teaching declines year by year.

Major public hospitals also receive some extra money for research through public and private sector research grants. This, rather than undergraduate or junior doctor teaching, is probably responsible for the alignment of hospitals to university departments.

Just like private hospitals, public hospitals are more than happy to treat privately insured patients, as they then get reimbursed from the Private Health Insurer for some of their costs and therefore more money can go to treating uninsured patients.

While privately insured patients do not get any special treatment in a public hospital, they may feel good because they are effectively making a donation to the public hospital. They also benefit from the fact that major public hospitals are usually better equipped and have more round-the-clock medical staff than private hospitals, and are therefore better at managing very complex or critical patients than small private hospitals. An added benefit is that due to the profit incentive, many public hospitals will pay for any excess payments incurred by the patient on their policy, which means that subsequent admissions to a private hospital later in that year will be excess-free.

With the Federal Government's Lifetime Health Insurance drive in 2000, many patients took out very basic health cover, essentially private insurance when treated in a public hospital only - effectively a Clayton's Private Health Insurance policy: a policy which is good for everyone except the patient. Thankfully these policies are becoming less common as they are gradually withdrawn from the market by Health Insurance Companies.

Sydney Hospital from Wikipedia

• Public hospitals chase private patients
  
• Performance bonuses for veterans hospitals
  
• Abbott proposes private management of public hospitals

More on this series next week.