Having said that, most people wouldn't actually understand what that means, for the simple reason that most consumers don't have an understanding of how health insurers and hospitals interact, beyond the idea of their hospital stay being "covered" by insurance.
I mean, it is hard enough trying to explain how health insurance works when it comes to covering the costs of surgery. The way insurance works at a hospital level is far more opaque, and it has been an accumulation of insights over years that has allowed me to have even a basic idea of what is going on.
What is truly fascinating is that hospitals (or, I should say, hospital managers) will either refuse to divulge this information to a clinician like myself ("commercial-in-confidence" they say or some similar excuse, which really doesn't float), or just as likely, those managers themselves don't even understand. Which is a worry. Which may be at least partly why so many hospitals are financially struggling.
Anyway, here is a rough sketch of the hospital-insurer interaction to help explain where things are at.
Hospitals have two options when it comes to health insurers - they either have 1) negotiated contracts with each insurer, or 2) they work with something called "tier-2" benefits. The vast majority will have contracts, becuase the tier-2 benefits pay far less.
Now, those contracts involve, obviously, negotiation. Which means there has been, progressively, a bit of movement on various things over the years. My sneaky suspicion is that hospitals have dug their own hole there, becuase I am pretty sure that they have negiotiated up the reimbursement for some procedures at the expense of less reimbursement for others. They may have thought that was very clever at some point, but such activity creates imbalances in the system that are very difficult to overcome down the track.
Every admission to a hospital involves a diagnosis of some sort. There may be a procedure performed, there may not. What is important to make clear is that the payment an insurer makes to a hospital is not, in any way, related to the MBS code that determines how insurance pays a surgeon or an anaesthetist. In fact, the MBS code is almost irrelevant.
Instead, hospitals use a separate coding system for the "diagnosis", referred to as DRG. Whilst an admitted patient who is fit, young and healthy (like my patients) may only have 1 diagnosis (which will relate directly to their procedure, if it is medical rather than cosmetic), other patients can have multiple diagnoses, depending on their overall health for example. Take an orthopaedic patient having a joint replacement. That patient may have a diagnosis relating to their arthritis, but they may also have additional diagnoses relating to other aspects of their health - maybe they have a pacemaker, maybe they have diabetes, maybe they are having a previous joint replacement changed and there is a diagnosis relating to that, maybe they have a bit of an issue during their hospital stay and they end up in ICU....and every one of those issues is assigned a DRG code. Those DRG codes can then be scaled up or down according to modifying factors.
Ok, so the insurer, who is on the hook for that patient's admission, pays the hospital according to the DRG coding relating to that admission to hospital. Not only does the hospital (or hospital group) negotiate with the insurers for how much they receive for given DRG codes, there are entire coding departments in private hospitals working away becuase more codes = more money. If they can identify another reason to add a DRG to the admission, then the bill that gets sent to the insurer gets larger and larger. But of course, more codes also implies sicker patients, longer admissions and more care requirements.
There are also additional layers of complexity to consider. This is a simplification, and I think it is accurate, but like I said it is a case of having pieced this together from bits of information here and there.
Depending on the DRG, there are pre-determined lengths of stay apportioned to those codes. So let's say a given DRG has a national average length-of-stay of 3 days. There will be a range of admission lengths that are considered normal (in this example, that might be anything from 1 to 3 nights). If a patient has a length of stay within that average range, that is termed an "inlier" admission; anything outside that is termed an "outlier". Hospitals want admissions to sit in that "inlier" range. No matter how long a patient is actually in hospital, provided they are admitted as an "inlier", the hospital receives essentially the same dollar amount from the insurer for a procedure. So, if the patient goes home in 2 days, then the hospital wins as they have received essentially 3 days worth of funding. However if the patient stays 4, then the hospital is potentially down.
There is a rather different scenario however when it comes to some day surgery, and again, I have put this together based on my discussions with hospitals - they didn't just come out and tell me this (because I suspect they wouldn't want to, and I'll explain why in a second).
So, let's take a procedure I do all the time like breast reduction:
The length-of-stay allocated to the DRG for these patients is typically 1-2 nights. The funding has something called "trim points" - basically high and low bounds for the length of an admission. As I mentioned above, if the admission is within the range determined by a national average, then the funding is considered "inlier funding". If however, the admission is outside those bounds (shorter, or longer) then different formulae are applied to derive a reimbursement to the hospital.
Nearly all of my patients having breast reduction are treated as day-cases - so, that is a 0 night admission.
Now, in this case, something perverse occurs. Rather than the hospital taking a "win" like I described above, when patients are treated as day cases, there is a subtanatially reduced fee allocated to the reduced length-of-stay because breast reduction treated as a day-case is considered a "short stay outlier" - that is, a day-case is less than the "low trim point" for the DRG for breast reduction - which therefore attracts a reduced level of funding. These are just ball-park figures, and they vary from fund to fund, but a breast reduction might be allocated a cost of $5000 for that 1 night stay, but the health fund reimbursement to the hospital is reduced to ~$2000 if the patient goes home same day, despite the vast majority of the cost of any admission for surgery relating to the operating theatre costs.
So, what will then happen is that some hospitals will demand that patients stay a night, even though they don't need to, and even if it is against the surgeon's wishes. Becuase the hospital wants to make bank, and they don't want to miss out on that higher payment.
Like I said, perverse.
World-wide, there is a substantial push to treat patients effectively, but also efficiently. A major part of efficiency relates to length of stay. If you look at hospitals in the USA, the UK, anywhere in Europe, or in Canada, there is a major effort towards "ambulatory surgery" - that is, day-surgery. It is well recognised that unless you are sick, hospitals are bad places to stay any longer than you have to. We know that patients recover better in their own homes, and it is far more cost effective.
And then you look at Australia, and for reasons that escape me, our hospitals and health insurers have managed to create a system of "incentives" which drive inefficient care, becuase the hospital is being paid more to be less efficient.
Anyway, back to Healthscope. Which, in Adelaide means ACHA, who run Memorial, Flinders Private and Ashford.
Healthscope has terminated their contract with BUPA and the AHSA funds, which means they are reverting to the default "tier-2" benefit payments unless new contracts are negotiated.
Now the "tier-2" benefit (which I mentioned way up the top) is something like 85% of the national "average" cost paid for a given DRG code - so that means the insurer covers much less than their negotiated contracts would normally pay to the hospitals. As a consequence, when tier-2 benefits are in play, the hospitals will then recoup their costs by directly billing the patient for any shortfall.
So, now you see all this pointless mudslinging from both sides, each claiming the other is treating patients like mugs. We have Healthscope saying that the insurers aren't paying enought and hospitals are going out of business. Which, to be fair, is actually true. We have the insurers (via their professional lobbyists and a lady by the name of Dr Rachel David) saying that the hospitals are using patients as pawns in their evolving battle with the insurers. Which is also, at least a little bit, true.
And the reality is, they're all arseholes. They're all making totally disingenuous claims about each other and themselves. Neither of these two parties cares about anything except profit. Which, in a normal business context, might make sense. But when it comes to healthcare, there are additional considerations that simply cannot be ignored.
If the insurers and the hospital groups like Healthscope actually cared about patients (as they both claim they do), they would be working collaboratively toward a unified goal: the provision of best clinical care at the lowest cost. Importantly, those two things can't be disengaged from each other, and that is the issue currently. If it is all just about lowest cost, without any consideration for the "best care" part, then the whole things falls apart.
But if there is a focus on best care, performed efficiently, to achieve lowest cost for that care, then both parties (insurer and hospital) can make a profit. Instead, it is a death spiral with two hyper-partisan corporate entities tearing each other apart, whilst the "customers" (ie. the patients, and indeed, the doctors and nurses) get caught in the process.
Unfortunately, what we have is an insurer who wants to pay the hospital as little as possible (whilst claiming this is about keeping premium increases down, but actually just banking billions in profit), and the hospital which wants to make as much profit as it can whilst doing as little as possible - but just enough - for the patient and still meeting their obligations.
It is absolutely vital that the economics of health care make sense, otherwise our private health system fails. Hospitals need to make enough money to ensure that they are able to invest in equipment, facilities and staff. Insurers need to stay afloat which means they need to control costs. More importantly, it is absolutely vital that patients receive the best possible care.
Where it all falls apart is when one party in all of this (the insurer) is making mega profits, while the other party (the hospital) is failing due to uncontrolled inflation, massive labour cost increases, and wilful inefficiencies in a misguided attempt to wring more dollars out of the insurer.
So what is the answer?
I don't bloody know - it seems no one does. But I have some ideas. I do know what isn't going to work.
The answer ISN'T status quo. There needs to be wholesale reform of our healthcare system, but no political party has the balls to face the challenge I suspect.
The insurers cannot continue to make mega-profits, whilst enticing young people into junk insurance policies, and failing to adequately compensate the hospitals for caring for their sicker members.
The hospitals cannot continue to try to "game" the system to get as much money as they can, instead of simply focusing on providing exceptional, efficient care.
The taxpayer cannot be expected to continue to underwrite this system without some proof that it is viable and sustainable.
The doctors cannot find themselves having lists taken away from them because the hospital claims they aren't "making enough money".
And patients cannot be left in the lurch when they expect their insurance to work for them.
What I see happening, is a shift toward hyper-specialised, single service hospitals offering high levels of care with a focus on efficiency, but possibly with an associated increased cost to patients. Those facilities have the best chance of being profitable. Which is great for elective surgery in many ways. But the problem with that, if it is to the exclusion of more traditional hospitals, is the challenge of what happens when a patient needs an additional service (let's say, they need another specialist to see them whilst in hospital; or if they need a sudden increase in the level of their clinical care, like an admision to intensive care)? That is only possible with a traditional hospital model in which a broad range of services is offered.
No matter how we look at this, it is pretty clear that:
Right now, the really jarring aspect of all of this is that the insurers are rolling around like Scrooge McDuck. They're on their own there, becuase every other part of the system is tightening up. The insurers seem oblivious to the fact that when the hospitals eventually close because they are not financially viable, then the insurers will be up shit creek themselves.
Our system needs a fundamental redesign.
Better national pricing models; better oversight; better investment; better care; better efficiency; better legislation.
Big job, and I'm not sure we have the political will to see it happen. Happy to be proven wrong.