It was anticipated that increase uptake of Private Health Insurance (PHI) would reduce demand on public sector surgical waiting lists. The best measure of changed demand is the comparison of the actual cases added to that projected given previous trends in PHI uptake. Detailed Victorian data is available up to 2000-1. The total waiting list has varied little, reflecting significant decreases in both in patients added to and removed. There was a marked increase in private sector elective surgery cases coinciding with the fall in additions to the public sector waiting list and in public sector elective surgical cases. The June 2001 Victorian surgical waiting list would have been 69,599 not 41,838 if the PHI uptake rate had continued to fall in line with pre-1999 trends, and that of June 2002 about 100,000 compared to 40,458 in March 2002. Limited data from other states suggests the Victorian trends are representative of all Australia.

Length of stay (LOS)

The additional cost of treating acute care type Victorian private patients as public patients in Victorian public hospitals based on the current public sector payment model and rates was calculated, as was the loss of health fund income to public hospitals. If all private cases became public the net recurrent cost would be $1.05 billion assuming all patients were still treated. If private health insurance (PHI) uptake had declined to 23.3% as was projected without Lifetime Health Cover and the 30% rebate, the additional operating cost and income loss would be $385 million. This compares to the Victorian cost of the 30% rebate for acute hospital cases of $383 million. This takes no account of capital costs and possible public sector access problems. The analysis suggests that 31 extra operating theatres would be needed in the public sector (had the transfer of surgical patients from the public sector to the private sector not occurred). This analysis suggests that without the PHI rebate the current stresses on Victorian public hospitals would be increased, not decreased.

The many types of payment models used in the Australian private sector are reviewed. Their features are compared and contrasted to those desirable in an optimal private sector payment model. The EPMTM (Equitable Payment Model) is discussed and its consistency with the desirable features of an optimal private sector payment model outlined. These include being based on a robust classification system, nationally benchmarked length of stay (LOS) results, nationally benchmarked relative cost and encouraging continual improvement in efficiency to the benefit of both health funds and private hospitals. The advantages in the context of the private sector of EPMTM being a per diem model, albeit very different to current per diem models, are discussed. The advantages of EPMTM for hospitals and health funds are outlined.

The conversion rate on a diagnosis related group (DRG)-standardised basis of Victorian private overnight (ON) elective surgery cases to same day (SD) cases declined from 4.7% per annum over 1996-97 to 1998-99 to 2.5% per annum over 1998-99 to 2002-03. Similar analysis within the Victorian public sector shows a decline from 3.8% per annum over 1996-97 to 1998-99 to 1.9% over 1998-99 to 2002-03. Comparison on a DRG-standardised basis shows while the public sector continued to show a higher incidence of elective surgery SD cases than the private sector in 2002-03 (by 1.6%). The difference has declined since 1998-99 when it was 2.4%. DRG-based analysis suggests the conversion rate in both sectors and the difference in SD surgery cases between the two sectors will continue to decline. Future savings in recurrent and capital cost due to ON surgery cases becoming SD cases are likely to be much lower than savings in recent years.