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Wednesday, 29 April 1987
Page: 2025


Senator GILES —I present a report of the Senate Select Committee on Private Hospitals and Nursing Homes relating to private hospitals in Australia.

Ordered that the report be printed.


Senator GILES —by leave-I move:

That the Senate take note of the report.

In September 1981, Senator Janine Haines referred to the Senate the activities of private hospitals and nursing homes, bringing to the Senate's attention growing concern in the community about the ownership and operation of private hospitals and nursing homes. As a result, the Senate established the Select Committee on Private Hospitals and Nursing Homes and adopted very detailed terms of reference for investigation and report by the Committee. The Committee found that the matters referred by the Senate required an extremely wide inquiry and decided to table separate reports on each section of the inquiry. The report on nursing homes was tabled in the Senate in February 1985. The report I have tabled today is the outcome of the Committee's inquiry into private hospitals in Australia. The Committee intends to conclude its inquiry with a report on discretionary surgery and it is anticipated that this report will be tabled in the Senate in the near future.

At its establishment, this was the first all-woman committee of the Senate, chaired initially by Senator Walters. Subsequent re-constitution has been accompanied by enlargement and, fairly recently, the inclusion of Senator Brownhill, taking the place of Senator Bjelke-Petersen. I must pay tribute to the patience and fortitude of Committee members whose contribution to this report has included over 70 meetings as we sought to ensure that rapidly changing circumstances were thoroughly analysed for their relevance to our terms of reference, recalling witnesses as necessary, and substantially revising earlier drafts of the report.

Throughout this marathon, the secretariat has supported the Committee with meticulous attention to detail and unfailing efficiency and courtesy. Our first Secretary, Patricia Mayberry, and our first research officer, Penny Moyes, have long gone to other positions but have maintained a welcome interest in our progress. They were replaced by Tim Dodson, who left us only recently and who well deserves much of the credit for the scope and thoroughness of the report. He was ably assisted by Justine Francis and later by Alvaro Marques, who conducted the company searches which have added an important element to the report and who also officiated as Acting Secretary in the final stages. We are happy to welcome Christine MacDonald as our new Secretary for the third and final phase of the inquiry.

The Committee, in framing its report on private hospitals, has used information contained in some of the 162 submissions received during the inquiry and the evidence heard from the 142 witnesses who appeared before the Committee. Members of the Committee also visited a cross-section of private hospitals. From these the Committee was able to gain an idea of the range of services and facilities available. The Committee was impressed with the services and care provided in the majority of hospitals visited.

As I have already mentioned, the terms of the Committee's inquiry were very wide. Private hospitals in Australia comprise approximately 31 per cent of Australian hospitals and 23 per cent of Australian hospital beds. The Committee has gathered statistics on the number, size, growth and distribution of private hospitals and beds and the provision of services, including specialty services, in the private hospitals. The Committee also reviewed utilisation statistics including occupancy rates and average length of stay. Because of the lack of data only limited comparisons between private and public hospitals have been possible. However, we have been able to identify a number of disturbing trends. These include: A significant rise in the proportion of private hospital beds, from 16.9 per cent of all hospital beds in 1963 to 23 per cent of beds in 1986; a growing concentration of private beds in metropolitan areas; and the falling level of occupancy rates in private hospitals to about 57 per cent-far below acceptable levels, indicating an oversupply of beds and consequent potential waste and overpricing.

The Committee reviewed the means of controlling the growth of private hospitals and found that although the responsibility now lies with the States, there is a great variation between the States in the degree and the manner of private hospital regulation. However, we believe that it is increasingly important that the States have full control over the introduction of new hospitals and beds and their location within each State. In most cases State governments are moving in line with the Committee's findings in this regard.

Before dealing further with the Committee's findings, I raise a matter of serious concern to the Committee. The Committee found in carrying out its inquiry that there was a lack of adequate and accessible records of a number of matters pertaining to the operation of private hospitals. The Committee was hindered by the lack of records of ownership of hospitals and it also found that there were deficiencies in medical record keeping and a lack of accurate medical data for private hospitals. This not only hindered the Committee's inquiry but also constrains full and proper scrutiny of the private hospital industry by government and by the public and its accountability to those it purports to serve. The Committee has recommended that State governments pass legislation to ensure that ownership details are available and that each State health authority requests each private hospital to provide adequate medical records. The Committee hopes that the State governments will undertake the examination of these recommendations as a matter of urgency.

There is a rapidly growing recognition of the fact that an efficient hospital system in Australia, given the acceptance of a well entrenched private sector, is fundamentally dependent upon the integration of the public and private systems. The market-driven philosophy which pervades the dissenting report of Senator Walters and Senator Brownhill-it is held by many other people-cannot be justified in the delivery of health care for many reasons, all of which are canvassed in the report. Health is accepted to be a common good, an imperative, not a discretionary service for which one shops, like a haircut. An unwell individual is the subject, rarely the instigator, of a range of decision about tests, procedures, hospitalisation and so on. The elevation of the virtues of choice to a primary objective is mostly no more than a fallacy; the patient seeks professional advice which is usually not questioned. Analogies with conventional consumer behaviour are simply not legitimate. If further justification is required of the need for accountability of the private hospital industry, despite the cessation of the day bed subsidy previously provided by the Commonwealth Government, it can surely be found in the heavy public investment in the education and training of nurses, technicians and doctors and in research conducted in our universities, public hospitals and institutes.

As with the inquiry into nursing homes, the Committee was directed to the issue of ownership of private hospitals. Although the Committee received submissions and evidence expressing a number of concerns about ownership of private hospitals, it found that there was little detailed or comprehensive information available about ownership structures. To clarify this issue, the Committee sent a questionnaire on ownership to all private enterprise hospitals in Australia. Replies were eventually received from all hospitals surveyed. The Committee also carried out a number of company searches to ensure validation of the information received.

The Committee's survey showed that the majority of the 190 private enterprise hospitals in Australia were operated by proprietary companies and trusts, New South Wales having the highest proportion of hospitals owned by proprietary companies. In an attempt to gain a clearer picture of company involvement in private hospital ownership, the Committee attempted to ascertain how many companies were shareholders of hospitals. We found that there were a total of 485 companies holding shares in private hospitals and that the number of companies holding shares in each hospital ranged from one to more than 15. Many of these companies did not trade but acted as nominees or trustees for individuals, hospital trusts or family trusts.

On making company searches of a sample of hospitals in order to validate the self-reports which constituted our review of the whole industry, it was discovered that there were some inaccuracies and omissions. Perhaps more significantly, we discovered some highly complicated corporate structures of the type which have been associated with schemes to avoid or evade taxation. Constraints of time and resources, added to incomplete and out of date records, prevented the Committee from drawing more than tentative conclusions, but several instances have been drawn to the attention of the Australian Taxation Office and recommendations have been made within the report endorsing the call by Mr Frank Costigan, QC, in interim report No. 5 of the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union for a greatly improved system of corporate controls.

There was also evidence of the use by companies with shares in private hospitals of tax exempt charities invented for the purpose. Further examination of this phenomenon was hampered by a New South Wales Crown Solicitor's opinion in 1954 which is used as a basis for denying the public any access to the accounts of charities in that State. Another important finding of the survey was the number of companies having interests in more than one hospital. The survey revealed that 36 per cent of hospitals are owned by 18 ownership groups. These ownership groups ranged from foreign owned companies to family concerns and included a significant number of doctors.

The terms of reference directed us to examine the financial involvement of medical practitioners and their families in private hospitals. We found that doctors had a direct financial interest in at least 39 per cent of private enterprise hospitals. Further, 93 per cent of doctor investors were still in private practice and 70 per cent of doctor investors referred patients to their own hospitals. Whilst some doctors had interests in only one hospital, the Committee found that some 60 doctors invested in more than one hospital. These investments were sometimes channelled through a complex network of companies and trusts and in at least two cases involved a substantial investment in private nursing homes. The Committee believes that these findings indicate that doctors have a significant financial involvement in private hospitals in Australia.

Apart from the Committee's own survey, few investigations have been undertaken into patterns of doctor ownership. However, a study conducted by Professor L. Opit and Dr J. Morley into the ownership patterns in Victorian hospitals and selected hospitals in New South Wales and South Australia revealed a high incidence of doctor involvement in the ownership of private hospitals and some very complex company structures. Although the Committee did not receive any specific evidence of a conflict of interest by medical practitioners with financial equity in private hospitals, it takes the view that it is essential that any medical practitioner who chooses to invest in a private hospital should not be in a position where there is even a potential for abuse. The Committee has therefore recommended that medical practitioners, or their families, be prohibited from having any financial interest in a private hospital.

The Committee investigation of ownership also revealed an increasing trend towards corporate ownership. The Committee's interest in this area was twofold: First, to identify the extent of corporate ownership, both foreign and Australian based; and, secondly, to identify the potential effect of the growth of corporate medicine on the provision of health care in Australia. This trend towards corporate ownership has seen the emergence of corporate owned hospital chains-both foreign and local-in the Australian private hospital sector. The rise of the Hospital Corporation of Australia Pty Ltd, a subsidiary of the Hospital Corporation of America, has been of note. The Hospital Corporation of America is the largest hospital corporation in the world and owns and manages some 420 hospitals world-wide. In 1984, its earnings after tax were $US297m out of a total revenue of $US4.2 billion. The Hospital Corporation of Australia began operations here in 1978 and now owns 13 hospitals. As with all foreign companies in Australia, HCA's entry into the market was reviewed by the Foreign Investment Review Board. The FIRB instructed HCA to divest 35 per cent of its equity to Australian shareholders by September 1981. But it was not until June 1985 that HCA satisfied this requirement at which time the Australian Industry Development Corporation invested approximately $16m to acquire the 35 per cent Australian shareholding required by the FIRB.

We are most concerned about the activities of the AIDC, being a Commonwealth statutory authority, in this regard. There are various reasons why we believe this investment is totally inappropriate for a Commonwealth statutory authority, and I draw the Senate's attention to our recommendation in the report that the AIDC divest itself of the majority of its shareholding in HCA by the end of 1987, and the remainder of its investment by 1990.

The Committee has questioned the desirability of allowing foreign owned corporate hospitals into Australia. Approximately 12 per cent of private enterprise hospital beds are now owned by two foreign corporations. We believe that uncontrolled entry of such corporations is contrary to the national interest, it being unlikely that Australia will derive any net economic benefits from such investment. Accordingly, we have recommended that the Treasury prohibit the entry for further foreign owned corporations into the health care industry, that the level of local equity requirements be reviewed and that a limit be placed on the number of private hospital beds under foreign ownership so that these corporations are prevented from obtaining any further equity in the private hospital sector.

We are not only concerned with the activities of foreign owned corporations in the Australian health care sector. We are also concerned at the growing trend towards private hospital ownership being concentrated in the hands of a few operators. Recent evidence suggests that there has been a surge in private hospital investment and that some of the private hospital operators have increased their share of the market or are about to add new hospitals to their holdings.

Honourable senators are no doubt aware of the recent takeover involving Health and Life Care Ltd which reportedly acquired 21 private hospitals at a cost of $118m from the consolidated health care group, Dr McGoldrick's family company. Health and Life Care will now operate 27 private hospitals, making it the largest private hospital operator in Australia, with 960 beds or 6.5 per cent of the total number of private hospital beds.

Unfortunately, so far very little information about these Australian privately owned hospital chains is available, but this may change as more and more private operators prepare to go public. A recent item in the Sydney Morning Herald indicated that the Paul Ramsay Group, which now owns nine hospitals, will float a health care company on the stock exchange in June. Moves such as this confirm the private health care sector as a new boom area in the Australian economy.

Developments in the United States of America, and more recently in Australia, of which we have given considerable detail in our report, have shown that there are many disadvantages in this trend towards entrepreneurial medicine. There is a very real danger that medical practice will be determined by the pursuit of profit rather than patient or local needs, that doctors may lose autonomy in decision making in the corporate environment and that medical ethics will be replaced by the corporate ethos.

I wish to make one final comment before closing. I have already mentioned that Professor Opit and Dr Morley produced for the inquiry a study of ownership patterns of private hospitals. Professor Opit and Dr Morley also gave evidence to the Committee, which was referred to in its report on nursing homes. That evidence related to the extent of doctor ownership of private hospitals and the trend towards corporate ownership in Australia. During the debate on the earlier report, Senator Walters attacked the credibility of both doctors. The Committee's finding on ownership of private hospitals has substantiated the evidence given to the Committee by both of those doctors and has totally vindicated their position, as any fair reading of our report will demonstrate. Indeed, for reasons that are detailed in the report, it is highly probable that both surveys underestimated ownership by doctors and their families. On the tabling of this report, we find that a crude attempt has been made in a dissenting report to discredit these prestigious and valuable witnesses. Professor Lou Opit and Dr Morley are highly regarded clinicians and academics; quoting them selectively and out of context, as has been done in the dissenting report, is unjust and unworthy. It demonstrates no more than that the authors of the dissenting report are congenitally unable to accept that a potential for conflict is inherent in the delivery of private hospital or other medical services by doctors. All the professional witnesses to the inquiry agreed that this potential exists where doctors have a financial interest other than or in addition to their direct medical services to patients. Most of our witnesses believed that this was undesirable. The majority of the Committee concur.

In the short time available to me, I have been able to give the Senate only a brief outline of the Committee's report. I would also like to acknowledge the assistance of Dr Sidney Sax who was appointed as specialist adviser to the Committee. His assistance and advice during the consideration of the draft report were invaluable. Many of the matters discussed in the report will have important effects on the future structure of the Australian private health sector. I hope that honourable senators will find time in their busy schedules to read the report and consider the implications of its findings.