Use PHI For Admission
Public-hospital budget control presents enormous challenges in the environment of
ever-increasing healthcare expenditure. In earlier sections of this thesis, the
multifactorial impact of advancement in health technology, increase in the public’s
population’s life expectancy, means that the cost of providing healthcare services is
likely to continue to increase in the foreseeable future (Seshamani & Gray, 2002).
Some have estimated that, should the health expenditure be not appropriately
controlled in the state of NSW alone, it is likely to consume the whole state’s budget
in the year 2033 (Gadiel & Sammut, 2012). Indeed, the state budget will be
increasing due to inflation and a range of other reasons, however, such projected
extrapolation is indicative of the type of fiscal challenges facing the Australian State
and Federal Governments now and in the near future. This is why revenue raising
has become an important component of hospital budget control, and as such, it is
also important to understand the costs and benefits involved in encouraging patients
to use PHI.
Hindle and McAuley (2004), through their archival study, attempted to explain the
effects of increased PHI based on evidence gathered during the PHI policy
development. This study took an international macro-economic perspective on the
overall impact of increased PHI coverage and its relationship to the service cost of
the public and private health sectors, health service provision, population’s access to
care, etc. It did not examine further, at a micro-economic level, the way in which
individual public hospitals will be affected financially.
Sullivan, Redpath and O’Donnell’s (2002) study suggested that material benefits
such as free television/telephone hire, better food and single rooms were tangible
benefits that the patients see as valuable and could provide patients with enough
attraction for them to use PHI. However, the paper arbitrarily assumed that the cost
of providing these “extras” was prohibitive, and that the costs involved would not see
a commensurate increase in patients using their PHI with any actual or projected
In addition, the researchers of this thesis failed to clarify or define what prohibitive
cost means from their perspective, and there is a lack of measure in arguing at what
point the cost of providing these benefits becomes not worthwhile to pursue.
On the other hand, it can be seen that the assumption that it is not worthwhile in
providing “extras” to patients was made without any concrete evidence and analysis;
it cannot convince academics who would require empirical evidence to make an
informed decision on the validity of their argument. In addition, in the bid to
encourage hospital patients to use their PHI cover for a hospital stay, hospitals often
choose to waiver the patient’s excess or negotiate with the doctors to also waive
their gap fees. There are other costs associated with encouraging patients to use
PHI, such as administrative time and creating and distributing communication
materials to encourage patients to use their PHI cover. The cost for some of these
intangible services provided aimed at converting patients from public to private has
not been properly quantified in Sullivan, Redpath and O’Donnell’s study. The biggest
cost involved in encouraging patients to use their PHI is perhaps the cost of waiving
the PHI policy excess for patients, in order to counteract their fear of OOP expenses.
Waiver of excess is often done for patients who are admitted via the hospital ED, the
rationale being that this can increase patient’s rate of electing to use their PHI, with
the resulting additional revenue generated through patients using that PHI far
exceeding the cost of waiving the fees. However, it appears that there is a lack of
empirical study in appropriately accounting for the cost of waiving the excess and
quantifying the effectiveness of such an initiative from an academic sense; Sullivan,
Redpath and O’Donnell’s (2002) study also lacked such measurement.
There have been bodies of literature encompassing the financial implications on the
Literature examined in the previous sections of this study largely looked at whether
or not the historical policy changes have been able to increase the amount of
population buying PHI to alleviate the pressure on public health funding, as seen
above. However, no literature analysing the financial costs and benefits of
encouraging patients to use PHI in a public hospital has been found. It appears that
a study should be conducted in this area to increase the understanding of these
financial costs and benefits. Importantly, public hospitals should be accountable for
the funds spent on encouraging more patients to use PHI, and should understand
whether or not these expenditures are indeed cost effective. In addition, a study on
this topic is useful when it comes to designing cost-effective future programs to
encourage more patients to use PHI in a public hospital.
Moorin & Holman (2006) posited that when the attrition rate of PHI holders grew
between 1991 and 1996, the number of private patients in the public hospital
reduced; this is especially true in the low socio-economic group. This phenomenon
could lead to a reduction in public hospital revenue. Duckett (2005b) suggested that
PHI policy development in the late 1990s encouraged people who would normally
receive care at a public hospital to change to a private hospital. His argument
focused on the fact that the shifting of the health service burden from the public
sector to the private sector is a consequence of the policy change, and the
approximate cost is $12,500 per patient. It is unclear as to whether the assumptions
made were based on any pre-tested financial analysis, or whether the actual savings
could be verified. Based on Duckett’s (2005b) argument, public hospitals could be
affected in 2 ways under the PHI market back then: on one hand, in that more
patients would choose to be treated in a private hospital than in a public hospital,
and the public hospital would lose the revenue it would have gained by treating
associated with patients choosing to be treated in private hospitals instead. Amid
these assumptions, a shift of cost from public hospitals to private hospitals may not
be easily quantifiable, and the lost revenue may not be easily accountable. This is
because the issue of patients moving from the public health sector to the private
health sector does not equal a reduction in workload in the public sector; it simply
means that extra availability was made possible in the public sector for dealing with
other cases, and this availability would soon be filled up by the existing healthcare
demand.
Referring to a survey mentioned previously, the result of people not using their PHI
in public hospitals was shown in the 2004–2005 NHS, where nearly 20% of those
who had a PHI and were admitted to public hospitals chose to be treated as public
patients at their most recent hospital visit. By understanding the cost of encouraging
patients to use their PHI cover for a public hospital stay, health managers will in turn
gain an understanding what predicted costs would be involved in converting these
patients from public to private.