Executive Summary

This report provides information on sources of funds for admitted patients in Australian hospitals. Using data from 2005–06, the report compares funding for privately insured and public patients in public and private hospitals and, in particular, compares the Australian Government contributions for these patients. For this analysis, ‘privately insured’ patients are those for whom private health insurance was used to fund their episode of care. It does not include patients who had private health insurance but did not use it to fund their care.

Overview of privately insured episodes of admitted patient care

  • Expenditure in 2005–06 from all sources for privately insured patients was estimated at $3,477 per episode on average, for the subset of 596 (out of 666) Australian Refined Diagnosis Related Groups (AR-DRGs) used for this analysis. Of that, $2,330 (67%) was hospital charges and $1,101 (32%) was medical charges (Table 2).
  • Sources of funds for the hospital and medical charges were private health insurance (PHI) benefits of $2,646 on average, Medical Benefits Schedule (MBS) rebates of $512 and out-of-pocket expenditure of $274 (Table 2).
  • Sources of funds for the total cost of the episodes were divided between the Australian Government (41.1%), state/territory governments (0.7%), private health insurance (50.3%) and patient out-of-pocket (7.9%) (Table 3).
  • For the 20 highest volume AR-DRGs, the Australian Government contribution ranged between 30% and 50%. Across all the AR-DRGs in the analysis, the range was similar— between 28% and 56%. It varied because the Australian Government funds a greater proportion of medical costs than hospital costs. Thus, AR-DRGs with a higher medical component tended to have greater Australian Government funding.

Comparing Australian Government funding for public patients and privately insured patients

  • In 2005–06, the Australian Government’s average contribution per episode for public patients was $1,367 (Table 4) for the subset of AR-DRGs used for the analysis, compared to the average contribution for privately insured patients in private hospitals of $1,364 per episode.
  • For privately insured patients in public and private hospitals, average funding from the Australian Government per episode was $1,427.
  • For 10 of the top 20 highest volume AR-DRGs, the Australian Government provided higher funding for privately insured patients than for public patients, with expenditure per privately insured episode between 105% and 174% of expenditure per public patient in the same AR-DRG. For the other 10 AR-DRGs, Australian Government funding for privately insured patients ranged from 21% to 97% of funding per public patient (calculated from Table 4).

Age group differences

  • The private health insurance rebate varies by age of the fund member, from 30% for those aged 0 to 64 years, to 35% for members aged 65 to 69 years and 40% for those members aged at least 70 years.
  • The Australian Government therefore bears a greater proportion of the costs of privately insured admitted patients for each of the 20 highest volume AR-DRGs for the older age groups than for those aged under 65 years (Table 6).

Data quality

The report combines data from a range of sources, such as the Hospital Casemix Protocol (HCP) data set and the Australian Institute of Health and Welfare National Hospital Morbidity Database (AIHW NHMD), to make estimates of the sources of funds for privately insured and public admitted patient care (see methodology details in Chapter 2 and Appendix 3). The HCP data set is an important source of information on funding for privately insured patients. However, because of the limited scope of its data and its incomplete coverage of episodes, the results from this data set should be interpreted with caution. This is particularly the case for public hospital episodes for privately insured patients and for episodes in low volume AR-DRGs, where characteristics of the episodes did not match those in the AIHW NHMD, which is a comparable comprehensive data source.

Most of the analyses in this report use the 20 AR-DRGs from the HCP data set with the largest number of privately insured episodes in the NHMD (together accounting for 34% of all privately insured episodes in the NHMD). Totals are calculated for the 596 AR-DRGs that contain at least 50 episodes in the HCP data set. These high volume AR-DRGs represent 73.3% of all privately insured episodes in the AIHW NHMD.