Economics of Healthcare — or Why Private Hospitals Are Going Broke in the Middle of a Pandemic

It’s counter intuitive to think that hospitals would be going broke at this time of pandemic but when you look at the economics or business models of private hospitals, it’s easy to see how they have trouble coming out of the shut down and maintaining a positive cashflow.

Ramsay Healthcare, a global glomerate of healthcare based in Australia but with sites in eleven countries, just announced a share issue to raise $AU 1.2 billion. This is so that it can service its current debt obligations and also “to have some cashflow available for possible opportunities.”

The possible opportunities would be other healthcare facilities that will hit bargain basement pricess, presumably, as they struggle to maintain operations but I highly doubt that Ramsay will actually be able to take advantage of these, given that its debt obligations alone will take up the $AU1.2 billion and possibly more, for it just to stay afloat.

So why are organisations like Ramsay and other private health operators in trouble? The problem is two fold:-

1. Stopping elective surgeries Category 2 and 3 for over a month
2. Private health insurance premiums continue to increase while many of the holders of these policies now find themselves unemployed.

Elective private surgeries are the bread and butter of Ramsay and other operators. Private health funds cover the cost of the bed, theatre and the staff to run the surgeries. Category 2 is classified as non-urgent elective surgery, would could include removal of cancer, bowel surgeries, total knee replacements, hip replacements etc. You can still survive if these surgeries aren’t performed but a delay may cause a decrease in your quality of life and longevity of life.

Category 3 is more elective but still important. Curettes, colonoscopy, endoscopy, diagnostic laparoscopies, biopsies etc. These procedures are important for diagnostic purposes of a problem. Failure to diagnose early delays treatment and improvement of quality of life.

So the only surgeries that were allowed were Category 1 surgeries i.e. result of car accident, life threatening heart attack, donor organ harvesting and insertion and birthing services. So pretty much if you’re walking and breathing you didn’t get surgery.