Medibank Private’s treatment of Calvary is truly a Via Dolorosa for consumers.

My apologies for the slightly sectarian title of this piece. I remain an enculturated Catholic despite being a long time lapsed. I think the metaphor is pretty appropriate, as Medibank Private is truly using its market power to crucify private hospitals with this deal. Although drawn-out and controversial negotiations with Calvary have been concluded, it remains unclear on whose terms this happened.

While the Federal Government and Medibank Private are desperately trying to pretend that this is simply a commercial argument over money, far more is at stake than many people realise. I would argue that the outcome of this donnybrook has critical implications for the public sector as well.

For those who came in late, at issue is a contract negotiation between Medibank Private and the Calvary group of hospitals. Calvary is a Catholic Church-aligned hospital operator which runs a number of private hospitals, residential care communities and community health services in south-eastern Australia. It is regarded as a well-run, medium-sized private hospital operator, the seventh-largest in the country. To generate economies of scale, it is common for insurers and hospital groups to negotiate large-scale agreements about funding arrangements. The game-changer in these negotiations is the insistence by Medibank Private that it would not fund costs related to a list of 165 ‘highly preventable adverse events’. This list has been released and can be viewed here. This is a genuinely new demand in such agreements.

Medibank initially claimed that it was trying to drive improvements in quality and safety in private hospitals, by financially penalising hospitals who have preventable occurrences which lead to bad outcomes. In this respect perhaps it would be laudable aim. What many, including the AMA President Brian Owler, suspect is that this is just a fig leaf covering a massive cost shift away from the newly privatised insurer. Medibank was privatised by the Abbott government in a $5.7 billion float in November last year. It commands fully one third of the private health insurance cake, with 3.8 million clients. It’s the 800-pound gorilla of private medicine in Australia. Beating up on a middle-sized hospital group to scare the others into submission is exactly what you might expect it to do, if it was a gorilla which was trying to cut business costs to boost shareholder value.

Medibank’s argument that they are really looking at the patients’ interests would be more convincing if their arbitrary list of problems actually meant something significant to outcomes. In fact, the Federal Government is trying to organize just a document through an appropriately expert statutory body which it wants to use in the future for similar purposes. Unfortunately for Medibank’s credibility, the CEO of the Australian Commission on Quality and Safety in Health Care (ACQSHC) which is working on the list says that trying to hold hospitals financially accountable to the draft as it currently stands would be ‘very unwise’. The stick is not yet fit for purpose, but Medibank Private simply doesn’t care because it doesn’t have to. It’s too big for hospital operators to ignore. The Government has refused to lift a finger to stop it because it’s not the majority shareholder any more.

Many of the items on the list are routine complications that occur despite the best of care. The elderly frail patients who make up the bulk of hospital inpatients have falls and injure themselves all the time. Their care is expensive because it’s complex and they come good more slowly than average. A 24 year old with a broken arm can cope just fine outside hospital, but a fragile 89 year old who lives alone? Not so much. That’s why they are expensive. But if you’re admitted unwell and delirious due to an acute illness and you hurt yourself, or if you have a surgical procedure and get an infection the hospital will have to wear the cost, or pass it on to you. Guess which one they will eventually have to do?

Medibank Private are no doubt smart enough to recognise that private health insurance is already so expensive that many customers regard it as poor value for money. Premiums are heavily propped up by rebates from the government. All health insurers in the country are mortified at the thought of their customers being slugged large out-of-pocket expenses. Hence their determination to push the quality and safety angle.

It’s not as if health professionals and hospitals need any convincing to reduce in-hospital complications. The poor hospitals won’t be able to say out loud that certain patients are simply too undesirable to admit, but no doubt they are already devising appropriately vague bureaucratic euphemisims for this purpose. The challenge for hospitals is how they want to handle the PR of this most un-Australian restriction in access to care. Australian health consumers are accustomed to having better access through the private sector than the public, and many put money away out of very limited resources to ensure they will get the care they need. Too bad now if you are at risk of an expensive complication. You’re financial poison to a private hospital under these rules.

Make no mistake, the unpalatable direct consequence of this ham-fisted negotiation by Medibank is that private hospitals, particularly smaller operators, are going to have to limit their exposure to high risk patients. Given the list, my guess is this will include the frail elderly, diabetics having surgery and patients suspected of being suicidal at the very least. It is a directly foreseeable consequence of these actions by Medibank Private that a push will begin to find ways to send higher risk patients into the public hospitals. I can imagine savvy private hospitals running risk-management screening tools over unwell patients in Emergency Departments before deciding whether to take a punt on that customer or not. I’d include questions about infection risk, falls risk and suicidality, as well as excluding up front anyone with osteoporosis, since they would be more likely to fracture from a minor injury.

The Federal Government is trying desperately to distance itself from the unruly simian it has turned loose in the system. But the floating of Medibank Private to turn it into a for-profit enterprise was its policy. The ACQSHC list is a Government-driven creation, and no doubt if Medibank succeeds in cost-shifting routine unavoidable complications back onto private hospitals using an early draft of the list, the Feds will do the same to the public sector later on. They will be able to justify cost-shifting ‘underperformance’ back onto the States by docking their hospital budget grants for events that fall within the listed codes. Where that would leave the public hospitals is just too gruesome to contemplate for a first-world country like us.

This much is all too clear to those of us on the inside. US-style medical rationing is very appealing to business types who don’t understand that health care is not like other businesses. It’s a mistake to try to ram through ideological policies without working through the real-world implications. The Medibank Private-Calvary negotiations are being watched with extreme trepidation by hospital administrators and medical professionals, because they know it will come to them all in turn as their contracts are renegotiated over the next couple of years. It may take some time for the full impact of this slide towards health-based discrimination to become clear. Hospitals will lean upon reserves of staff goodwill and money for a while but you can take my word for it that where the 800-pound gorilla has cleared the path, some very cheeky monkeys are going to follow on behind.