Australian private hospitals under ‘serious threat’ amid margin erosion, with more closures on the horizon

Private hospitals have suffered significant erosion in earnings and margins to the point where a large segment of the sector is under “serious threat”.

With WA taxpayers set to foot the bill to re-open a crucial mental health clinic in Cockburn, the private hospital industry’s peak body warns the spate of recent closures could grow.

Australian Private Hospitals Association chief executive Michael Roff said operators need to be making a margin of at least 5 per cent to “keep your head above water”.

“There has been a significant erosion in earnings since 2019 to the point now where a lot of hospitals aren’t making sufficient margins to fund their business-as-usual capital expenditure,” he said.

“There’s a significant portion of the sector who have margins below that 5 per cent level and . . . across the sector the average margin has continued to decrease.”

Hospital operators say they are facing an existential threat because higher costs for medical equipment, supplies, maintenance are surpassing the payments they receive from private health funds.

Bethesda Health Care revealed last month it was “suspending services” at its $60 million mental health clinic in Cockburn, less than a year after it opened.

It claimed the 75-bed clinic was not “financially viable” and was struggling to source psychiatric staff.

The Cockburn clinic has since been thrown a lifeline by the State Government, with the South Metropolitan Health Service set to run services. The government has struck a three-year lease.

Bethesda boss Neale Fong also warned after the Cockburn bail-out that more private hospital closures were likely without government intervention.

Dr Fong, a former WA Health Department boss, reportedly warned these closures would put more pressure on public hospital and lead them to State-owned services to crisis point.

At least two Sydney private hospitals have said they will close in recent week. This was on top of the 16 private hospitals Ramsay Health Care has reported shutting across Australia in the past 12 months.

St John of God Health Care group chief executive Bryan Pyne said like other providers across Australia, the Catholic healthcare group was operating with a slower-than-anticipated return of patients following COVID.

Mr Pyne said St John of Gold also faced rising operating costs with consumables, wages, insurances, utilities and interest rates.

“We have taken a long-term outlook to our response to these factors to ensure this important organisation, which began in WA 125 years ago, remains sustainable in today’s environment,” he said.

St John of God early last year announced an internal review aimed at addressing the financial impacts of COVID and other factors impacting the current healthcare environment.

It has cut nearly 180 positions.

While the St John of God is just cutting costs and putting some expansion plans on hold, Mr Roff warned of more hospital closures across Australia “unless something changes”.

“The conundrum here is that you have private hospitals struggling to survive and at the same time you have the health insurance industry that’s enjoying record profitability,” he said.

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