John Menadue | Private hospitals duck cost test

Chief Executive of Australian Private Hospitals Association, Michael Roff’s recent note that private hospital costs are significantly lower than public hospital costs doesn’t quite add up, according to CPD’s John Menadue. In Menadue’s letter to the Australian Financial Review, he points out the various inconsistencies in Roff’s calculations. Here’s what John had to say:

I am at a loss to understand how Michael Roff, Chief Executive, Australian Private Hospitals Association can claim in his letter of 15 February, that according to the Productivity Commission … ‘Private hospital costs were 32% less than public hospitals.’

The draft PC Report, page 83, acknowledges that ‘comparing the costs of public and private hospitals has been one of the most challenging parts of this study.’  It goes on that ‘the Commission’s experimental cost estimates suggest that, at a national level, public and private hospitals had broadly similar costs per casemix-adjusted separation in 2007/08. However, significant differences were found in the composition of costs ..’  It then elaborated on the differences.

In the Financial Review of 17 February, Mark Fitzgibbon, in an opinion piece, was more cautious and said only that the Productivity Commission ‘calculated that almost three fifths of surgery in public hospitals had an average cost at least 10% higher than in private hospitals.’ That is meaningless if he leaves out the other two fifths. His figure, drawn from page 102 of the PC Report, makes clear that private hospitals are specialised in certain areas, particularly minor surgery. We have always known that the hard jobs are invariably left to the public sector.

The ultimate test of whether private hospitals are more efficient overall is why they don’t jump at the opportunity to treat public patients in private hospitals on a casemix basis.  Years ago Jeff Kennett made an offer to the private hospitals to treat public patients on this basis, but they declined.

John Menadue

Director, Centre for Policy Development

First published in the Australian Financial Review on Monday 21 February.

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