Managing Private Medical Practice in Public Hospitals

Tabled: 20 June 2019

2 Managing private medical practice

DHHS's management and oversight of private medical practice in public hospitals is essential to ensure that Victoria optimises its NWAU growth funding from the Commonwealth Government and that health services comply with the NHRA and relevant legislation. DHHS should also ensure that private patients are not prioritised over public patients.

At a system-wide level, DHHS should know whether using private practice in public health services is beneficial to Victoria and delivers the intended outcomes for patients and health services.

2.1 Conclusion

Victoria does not have a strategic approach to determine what mix of state, Commonwealth and private revenue would best support healthcare provision. DHHS's lack of system-wide management and oversight of private practice arrangements means that Victoria has forgone Commonwealth Government health funding. In 2017–18, Victoria could have accessed an additional $48 million in capped NWAU growth funding. Prior to this year, NWAU growth was uncapped, which means that Victoria could have claimed an unlimited amount of NWAU growth funding from the Commonwealth Government. This would require Victoria to make a co-contribution of 55 per cent to match the Commonwealth Government's funding. However, Victoria's contribution can include savings from delivering health services more efficiently. DHHS has not undertaken any planning or forecasting to assess whether it would be beneficial for Victoria to access greater NWAU growth funding.

Health services have not actively managed their compliance with legislative and funding obligations. DHHS has failed to provide up-to-date essential guidance to health services to encourage compliance with these obligations. Consequently, the audited health services have inconsistent practices and are non-compliant with the NHRA and the Health Insurance Act 1973.

DHHS does not guide or oversee the development of private medical practice arrangements in public hospitals. It therefore does not know whether private practice is achieving its intended outcomes of attracting and retaining specialist medical practitioners and providing additional health services, as well as more revenue for services.

2.2 Compliance and oversight

DHHS does not monitor whether public health services comply with the NHRA, IHPA rules, and the Health Insurance Act 1973. DHHS notes that it sets the parameters in which public health services operate and it could do more to monitor health services' compliance with the NHRA and other national legislation.

The NHRA says that health services should:

  • provide public patients with the same level of access to services as those provided to private patients in public hospitals (clause 5)
  • treat eligible patients presenting at a public hospital outpatient department free of charge as a public patient unless the patient has been referred to a named medical specialist who is exercising their right of private practice and the patient chooses to be treated as a private patient (clause G19b).

DHHS has visibility of the statewide specialist outpatient services through current reporting, which means it could monitor compliance of the Victorian health system with clauses 5 and G19 of the NHRA. However, it does not use existing data to monitor or evaluate compliance.

Clause G20 of the NHRA states that where a patient chooses to be a public outpatient, components of the patient's treatment, such as pathology, are bundled in the price of a public occasion of service. DHHS does not examine compliance with clause G20 of the NHRA because it does not have the necessary MBS billing data. While DHHS has unsuccessfully tried to access this data from the Commonwealth Government, it has not attempted to access it from health services. Given DHHS's role as steward, it should assure itself that health services are compliant with clause G20.

Non-compliance with the NHRA means Victoria could be required to repay money under IHPA's Cost-Shifting and Cross Border Dispute Resolution Framework. Currently, DHHS does not have controls in place to prevent or detect incorrect claims.

Forgone revenue for the Victorian health system

Commonwealth Government funding calculations determined by the Administrator of the National Health Funding Pool rely on activity-based reporting from the states and territories. Victorian health services are required to provide activity data to DHHS. The Victorian Agency for Health Information—an administrative office in DHHS—then provides this data to IHPA on behalf of Victoria. The Commonwealth Government uses this data and IHPA's national efficient price and national efficient cost to determine its payment to Victoria. Victoria receives a base payment each year, plus up to 6.5 per cent extra in growth funding. The total amount of the base payment and the growth funding becomes Victoria's base for the next financial year.

Victoria must co-contribute 55 per cent to access the 6.5 per cent growth funding. DHHS reports this would total $108 million, with this then becoming an ongoing commitment. However, Victoria can make its co-contribution in savings from delivering health services more efficiently. It may be in Victoria's best interest to claim the maximum 6.5 per cent growth funding, however, DHHS has not done any planning or forecasting to determine Victoria's strategy for accessing NWAU growth funding.

DHHS advises that Victoria received $196 million in Commonwealth growth funding for 2017–18. This equates to 5.4 per cent of the available 6.5 per cent NWAU growth cap. Victoria could have accessed a further $48 million if its reported activity level had reached the cap.

We examined Latrobe Regional Hospital, SVHM and Western Health's outpatient funding data for 2016–17 and 2017–18 to ensure these health services were correctly reporting and billing all outpatient services.

For Latrobe Regional Hospital, it proved impractical to accurately quantify the amount of unclaimed MBS billing. This is because of the differences between the software utilised in recording occasions of service in the billing system and the reporting system, which led to inaccurate data matching. Despite undertaking further matching attempts, it was not possible to accurately identify the number of unbilled occasions of service. For this reason, we have removed Latrobe Regional Hospital's unclaimed MBS data.

The data established that Latrobe Regional Hospital does have unclaimed MBS services, but the number is not quantifiable due to the incompatible systems. Testing of a sample of 50 occasions of service for 2016–17 and 2017–18, which raw data suggested appeared to be unbilled, revealed that 37 of the sample had been billed. None of the verified unbilled occasions related to the 2017–18 financial year.

We identified two areas of forgone funding (MBS and NWAU) for Victoria totalling $10.65 million, as outlined in Figure 2A.

Figure 2A
Total Commonwealth Government funding for outpatient services forgone by Western Health and SVHM, 2016–17 and 2017–18

Total Commonwealth Government funding for outpatient services forgone by Western Health and SVHM, 2016–17 and 2017–18

Note: *The 2016–17 forgone NWAU calculation is an underestimate as this was derived using the 6.5 per cent cap. Given that there was no cap in place in 2016–17, the actual forgone NWAU is higher.
Source: VAGO.

Unclaimed MBS payments in specialist outpatient clinics

Unclaimed MBS payments occur when health services record or deliver a service as 'private', but cannot meet Medicare's requirements for making a claim. Reasons health services cannot claim MBS funds include:

  • a patient having an expired or invalid referral, or no referral
  • a senior medical practitioner not providing the treatment.

We found 28 649 unclaimed public MBS outpatient services in Western Health and SVHM for 2016–17 and 2017–18, as seen in Figure 2B.

Figure 2B
Number of unclaimed outpatient services in Western Health and SVHM, 2016–17 and 2017–18

Number of unclaimed outpatient services in Western Health and SVHM, 2016–17 and 2017–18

Source: VAGO.

Health services should work to ensure that all outpatient service activity not claimed under MBS is reported to DHHS as a public occasion of service, so DHHS can report this activity to the Commonwealth Government. The Commonwealth would then include this activity when calculating Victoria's NWAU growth funding. DHHS is responsible for monitoring Victoria's progress towards the NWAU growth cap. Reaching the full 6.5 per cent NWAU growth cap would maximise Victoria's share of the overall health funding from the Commonwealth Government, though this would require an additional financial commitment from the state.

We calculated that the forgone potential NWAU funding to Victoria as a result of the unreported 28 649 occasions of service is $3.78 million. Figure 2C breaks down this figure for Western Health and SVHM by year.

Figure 2C
Value of unclaimed outpatient services if changed to NWAU in Western Health and SVHM, 2016–17 and 2017–18

Value of unclaimed outpatient services if changed to NWAU in Western Health and SVHM, 2016–17 and 2017–18

Source: VAGO.

While health services still receive WASE funding for these services from DHHS, this activity is unclaimed by DHHS from the Commonwealth as a public occasion of service. DHHS should ensure it claims these services, so that this activity is not 'hidden' and therefore contributes to Victoria's NWAU growth.

We found that DHHS's siloed management of health funding is impacting its ability to understand and strategically consider its mix of revenue streams. This is because different parts of DHHS separately manage parts of the funding arrangements. This includes:

  • the health funding and policy area developing policies and guidance for health services
  • the finance branch tracking Victoria's NWAU growth
  • the performance team managing activity targets and acting as the main conduit with health services
  • the intergovernmental relations team managing Victoria's negotiations with the Commonwealth Government.

To effectively manage Victoria's health funding, these teams should work together.

Choice of funding streams for specialist outpatient clinics

Public health services offer some specialist outpatient clinics as public MBS clinics to meet demand. These also generate additional revenue. This means that public health services claim an MBS payment rather than reporting it as a public occasion of service and accessing state WASE funds.

In some instances, specialist outpatient clinics attract higher NWAU payments from the Commonwealth Government to Victoria than MBS payments. However, health services charge services to MBS because they do not directly receive NWAU growth payments for providing additional services. Health services therefore do not realise any immediate financial benefit.

We compared the three audited health services' specialist outpatient clinic MBS claims against the potential NWAU funding for 2016–17 and 2017–18 (the difference between the MBS payment compared to the applicable 45 per cent NWAU payment). We found that NWAU payments exceed MBS payments by more than $8.27 million. Figure 2D provides a breakdown of this figure.

Figure 2D
Revenue forgone by health services using MBS instead of public occasions of service in 2016–17 and 2017–18

Health service

Revenue forgone in 2016–17 ($)

Revenue forgone in 2017–18 ($)

Total ($)

Western Health

2 398 830

2 714 861

5 113 691

  • Latrobe Regional Hospital*

1 051 463

850 429

1 901 892

  • SVHM

464 582

799 349

1 263 931

Total ($)

3 914 875

4 364 639

8 279 514

Note: *The figure for Latrobe Regional Hospital is likely to be higher because we were not able to accurately identify all MBS billing.
Source: VAGO.

Episodes of care and billing

Clause G20 of the NHRA states that where a patient chooses to be a public outpatient, components of the patient's treatment, such as pathology, are bundled in the price of a public occasion of service. For example, where a patient attends a public specialist outpatient clinic and has radiology or other tests as part of their visit, the health service cannot additionally claim any imaging or testing as an MBS payment. We confirmed this interpretation of the NHRA with IHPA and the Australian Government's Department of Health.

We found that all three audited health services were not compliant with clause G20, the Health Insurance Act 1973 and MBS, and incorrectly claimed more than $5.8 million in the 2016–17 and 2017–18 financial years, as Figure 2E and 2F show.

Figure 2E
Amount of funding incorrectly claimed by health services due to incorrect count of episode of care, 2016–17 and 2017–18

Health service

Revenue wrongly claimed 2016–17 ($)

Revenue wrongly claimed 2017–18 ($)

Total ($)

Western Health

1 140 333

1 177 519

2 317 852

Latrobe Regional Hospital




573 185

478 624

1 051 809

Total ($)

1 713 727

1 656 143

3 369 870

Source: VAGO.

Western Health's radiology department made the majority of these incorrect MBS claims. There is a lack of clarity on correct billing practices in this area. For instance, Western Health offers services to the community through which patients may come in for unrelated diagnostic tests, such as an X-ray ordered by a general practitioner prior to attending their outpatient appointment. Consequently, the numbers reported in Figure 2E may be overstated. DHHS should provide health services with greater clarity on this issue to help them comply with the NHRA.

For SVHM, the largest proportion of incorrect MBS claims came from its neurology clinic. Both Western Health and SVHM have no controls in place to prevent non-compliance with clause G20 and the Health Insurance Act 1973.

Health services' non-compliance with clause G20 exposes Victoria to needing to repay incorrectly claimed money under IHPA's Cost-shifting and Cross Border Dispute Resolution Framework. Despite this risk, DHHS does not monitor health services' compliance with clause G20.

This lack of compliance with clause G20 also represents non-compliance with the Health Insurance Act 1973, because the service has been covered as part of the NHRA and a Medicare benefit is not payable.

Incorrectly billing MBS for consultations

The Medicare Benefits Schedule Book, published on 1 December 2018, states that 'Charging part of or all of an episode of hospital treatment or a hospital substitute treatment to a non-admitted consultation is prohibited. This would constitute a false or misleading statement on behalf of the medical practitioner and no Medicare benefits would be payable'. This means that health services cannot claim an MBS payment and report the same service as a public occasion of service, therefore deriving state funding as well. This is essentially 'double dipping'.

We found that all three audited health services were not compliant with MBS and incorrectly claimed almost $2.5 million in 2016–17 and 2017–18 for consultations that were also claimed as a public service, as Figure 2F shows. This includes more than 23 000 visits where MBS was claimed, and the outpatient visits were reported as a public occasion of service.

Figure 2F
Amount of funding incorrectly claimed by health services due to claiming MBS for consultations and public occasions of service, 2016–17 and 2017–18

Health service

Revenue wrongly claimed 2016–17 ($)

Revenue wrongly claimed 2017–18 ($)

Total ($)

Western Health

301 080

399 802

700 882

Latrobe Regional Hospital

5 672

5 210

10 882


901 195

826 342

1 727 537

Total ($)

1 207 947

1 231 354

2 439 301

Source: VAGO.

Health services need controls to ensure compliance with all funding rules. Latrobe Regional Hospital had the lowest number of incorrectly claimed services. Figure 2G explains the MBS billing processes at Latrobe Regional Hospital.

Figure 2G
Case study: Latrobe Regional Hospital's MBS billing processes

Latrobe Regional Hospital transitioned all outpatient services to its newly constructed Gippsland Private Consulting Suites in 2018. As part of the move, Latrobe Regional Hospital has centralised all its data entry and MBS processing. We found that Latrobe Regional Hospital had no instances of a public occasion of service and an MBS consult after it centralised its data entry and MBS processing. Latrobe Regional Hospital has taken the following steps to ensure its data entry and billing process are correct:

  • It has a dedicated data entry team.
  • It undertakes data integrity testing and returns any incorrect records to the person that entered them for remediation.
  • It audits a sample of patient files against data entry records on a monthly basis.

Source: VAGO.

DHHS guidance for MBS billing

DHHS published its Specialist clinics in Victorian public hospitals: A resource kit for MBS billed services in 2011 to assist health services to manage MBS billed activities (public MBS specialist outpatient clinics).

DHHS's resource kit defines what health services can claim from MBS during specialist clinics. DHHS's guidance states that where a patient chooses to be treated as a public patient (in a specialist clinic service), components of the public hospital service (such as pathology and diagnostic imaging) will be regarded as part of the patient's treatment and will be provided free of charge. DHHS's guidance states that procedures undertaken during a public specialist clinic appointment must be provided free of charge.

However, IHPA's 2017 guidance on the NHRA differs from DHHS's resource kit (see Figure 2H). IHPA's guidance notes that, for example, diagnostic imaging undertaken for review in a public clinic three days prior to an appointment is also included within the occasion of service and therefore cannot be separately claimed through MBS.

Figure 2H
IHPA guidance for specialist outpatient clinics

IHPA guidance for specialist outpatient clinics

Source: IHPA.

This means that while public health service practices may comply with DHHS's resource kit, they could still be non-compliant with the NHRA, according to IHPA's guidance.

DHHS's resource kit also outlines two remuneration models for MBS private practice arrangements in public hospitals—the 100 per cent donation model and the 100 per cent retention model. It outlines how specialists should operate under each model.

The resource kit states that for the 100 per cent retention model, specialists should not be paid by the health service for their time. In addition, it states that health services would normally negotiate a facility fee with the specialist to cover the costs of the clinic.

The information in this resource kit is the only guidance DHHS has provided health services on private practice models. DHHS has not provided health services with guidance or information on using private practice more widely across health services, for example, in relation to inpatient services.

Treatment for private patients

DHHS's Elective surgery access policy 2015 and Elective Surgery Information System Manual 2018–19 apply to public and private elective surgery patients treated in a public health service. DHHS's policy states that 'insurance status or patients' willingness to pay should not result in preferential treatment or access to services within public health services'. All patients included in the Elective Surgery Information System (ESIS) are subject to this guideline.

Our analysis of DHHS's ESIS data for 2016–17 and 2017–18 shows that Western Health provided faster access to private ophthalmology (cataract surgery) and plastic surgery (wisdom teeth removal) patients at Sunbury Day Hospital, which offers services including day surgery and some outpatient appointments. This practice is not compliant with clause 5 of the NHRA. We did not find evidence that SVHM and Latrobe Regional Hospital employ the same practices.

Figure 2I shows that Sunbury Day Hospital provided access to private cataract patients almost four times faster than for public patients. For wisdom teeth removals, Western Health provided access to private patients about eight times faster.

Figure 2I
Sunbury Day Hospital ophthalmology and plastic surgery total patients and average wait days for admission, 2016–17 and 2017–18


Number of admissions

Average wait days






1 070

1 083



Plastic surgery





Source: VAGO.

We examined why Western Health was treating private patients faster than public patients at its Sunbury Day Hospital.

Western Health advises that it is only state-funded for two days of surgery a week at Sunbury. For the remaining three days a week, it has service level agreements with private surgeons to use its surgery facilities to conduct private medical services. Western Health advises that these private surgeons do not pay a facility fee. However, Western Health was unable to find a copy of the service level agreement. During the time that private surgeons use the facility, Western Health provides staffing to run the facility, such as nursing staff, administrative staff and cleaning staff, at Western Health's cost.

According to DHHS's Elective surgery access policy 2015, patients being treated at Western Health during the three days that it conducts private medical services, and managed on private surgery waiting lists, should not be a part of the public waiting list and recorded on ESIS. However, if private surgeons are using Western Health's facilities at Sunbury Day Hospital to treat private patients, and listing them on the public waiting list and in ESIS, they are subject to the same rules prohibiting preferential treatment based on insurance status. That is, higher priority patients must be treated first when compared within the respective patient group. Western Health acknowledges it should not have recorded these patients on ESIS and believes that treatment time for public patients was not affected.

We examined the waiting times and the urgency of cataract surgery at Sunbury Day Hospital. We found a very high number of private patients (73) who had an urgency rating of 1, which requires an admission within 30 days as the patient's condition has the potential to deteriorate quickly, to the point that it may become an emergency. In comparison, category 2 patients have a recommended wait time of 90 days and category 3 patients 365 days.

Most of the category 1 patients were private (73 compared with one public). Western Health advises that private patients are categorised as urgent because of more streamlined assessment processes, where patients have pre-operative eye measurements confirmed prior to waitlisting. The recommended clinical urgency category of cataract surgery listed in DHHS's Elective surgery access policy 2015 is category 3. Assigning a clinical urgency rating of category 1 to these patients would mean they would be next to be treated, in line with ESIS guidelines. In addition, these patients should not be classified as category 1 because their condition is not at risk of becoming an emergency, in line with category 1 guidelines.

The current inclusion of private patients from private surgeons on Western Health's public wait list may also artificially improve its performance on time to treatment measures for elective surgery, which are monitored by DHHS and publicly reported. Figure 2J breaks down the waiting times for cataract surgery at Sunbury Day Hospital for public and private patients.

Figure 2J
Waiting times for cataract surgery at Sunbury Day Hospital, 2016–17 and 2017–18




Average wait days

















1 007



1 063


Source: VAGO.

We also examined Sunbury Day Hospital's waiting times and urgency of treatment for wisdom teeth removals for 2016–17 and 2017–18. We found that category 3 private patients waited only 14 days on average, whereas category 3 public patients waited 340 days. Figure 2K shows these waiting times.

Figure 2K
Waiting times for wisdom teeth removal at Sunbury Day Hospital, 2016–17 and 2017–18




Average wait days






















Source: VAGO.

We analysed the financial class of the patients from Western Health's public list and those treated by private surgeons. Figure 2L shows that the majority of the patients treated at Sunbury Day Hospital by private surgeons are self-funded.

Figure 2L
Financial class of patients from Sunbury Day Hospital's ophthalmology and plastic surgery lists

Financial class of patients from Sunbury Day Hospital's ophthalmology and plastic surgery lists

Source: VAGO.

To understand whether Western Health claimed public funding for these private surgeries, we linked the Sunbury patient data from Western Health and DHHS's Victorian Admitted Episodes Dataset for ophthalmology and plastic surgery. This data is used for allocating health services' WIES funding and it is reported to the Commonwealth Government.

We found that in 2016–17 and 2017–18, Western Health has unintentionally claimed WIES funding for 99.7 per cent of the private patients treated by private surgeons at Sunbury Day Hospital. Over 1 200 of these patients are self-funded, which means these patients are paying for faster access to a service and that Western Health wrongly received state and Commonwealth funding.

2.3 Private practice arrangements

In Victoria, each public health service employs its own staff and enters into private practice arrangements directly. As a result, DHHS has no oversight of the types and number of private practice arrangements across the state. Therefore, DHHS cannot determine the true benefit or cost of administering private practice arrangements to the state.

DHHS does not review whether public health services implement its guidance—Private patient: principles for public health services—and therefore does not know whether private practice is delivering the intended benefits.

We found broad variation in private practice arrangements in Latrobe Regional Hospital, Western Health and SVHM. Three models exist across the three audited public health services:

  • 100 per cent donation
  • 100 per cent retention
  • mixed (partial donation and retention).

Some arrangements, such as the 100 per cent donation model, are common across health services. Figure 2M summarises the arrangements across the three audited health services.

Figure 2M
Types of private practice arrangements across the three audited health services

Type of arrangements

Latrobe Regional Hospital


Western Health

100 per cent donation

100 per cent retention

Mixed model

Source: VAGO.

Lack of compliance

Section 19(2) of the Health Insurance Act 1973 allows medical practitioners to undertake private practice and use the 100 per cent retention model only when the arrangement exists within a 'broader' employment arrangement with the public health service. We identified that SVHM may not comply with this section.

At SVHM, all medical practitioners with 100 per cent retention private practice arrangements are VMOs. The two types of VMOs on the retention model are:

  • salaried VMOs who are employees
  • fee-for-service VMOs who are contractors.

SVHM's six fee-for-service VMOs do not receive any salary or sessional fees or accrue employee benefits from SVHM when working under the 100 per cent retention model. VMOs bill directly for their services, for example, to MBS.

SVHM does not centrally administer these 100 per cent retention private practice arrangements and there are no formal agreements in place. Instead, SVHM's specialist departments enter into informal agreements with VMOs. While SVHM's current approach of using fee-for-service VMOs generates no administrative burden, it may not comply with section 19(2) of the Health Insurance Act 1973.

DHHS should clarify this area of private practice and issue guidance to health services. Figure 2N outlines a number of actions currently being implemented by SVHM to address a range of issues associated with its private practice arrangements.

Figure 2N
Case study: SVHM's improvements to private practice arrangements

SVHM completed a review of its private practice arrangements in 2018. Its review identified many of the issues highlighted in this report. SVHM is currently implementing actions to improve its governance of private practice. These include:

  • creating a medical workforce unit to manage and govern all facets of private practice
  • reviewing internal policies and procedures
  • improving capability of senior medical practitioners and senior operational staff by providing operational guidelines for private practice
  • developing clinic costing templates to analyse the cost effectiveness of each clinic, including a comparison between public and private revenue sources, staffing, consumables and diagnostics costs
  • reviewing all SPFs.

Source: VAGO.

Unknown administrative costs

Western Health has the most complex private practice arrangements of the three health services. Most of Western Health's senior medical practitioners have 100 per cent donation private practice arrangements, which distribute a percentage of revenue back to the senior medical practitioner's craft group SPF.

However, we also identified Western Health has complex arrangements, such as varying private practice contribution rates depending on the type of service delivered, and, in one case, an agreement with a private company owned by a consortium of medical practitioners. Western Health does not know whether all its private practice arrangements are beneficial for the health service.

Figure 2O describes the complex arrangement in place with one specialist craft group at Western Health. Western Health has not assessed whether this longstanding arrangement is in its best interest, or whether the facility fee meets the costs to the health service.

Figure 2O
Case study of one specialist craft group at Western Health

All senior staff medical practitioners in one specialist craft group at Western Health, employed over 0.5 full-time equivalent, are partners in a private company. Currently, the group has about 45 partners.

The group's current annual turnover is $1.5 million.

The group's partnership executive includes senior clinical staff of Western Health. The executive group is responsible for the day-to-day administration and use of funds held by the group.

The group bills MBS on behalf of all its partners when they are exercising their right of private practice. All revenue received by the group is held in a separate bank account.

The group:

  • pays a 60 per cent facility fee to Western Health to cover costs associated with the use of its facilities
  • pays 10 per cent goods and services tax to the Australian Taxation Office
  • retains the remaining 30 per cent for its own benefit.

At the end of each financial year, partners in the group consider research interests of their speciality and assess overall income tax liabilities to determine its donation to Western Health. In the past, the group donated $200 000 to Western Health to support research. Other donations have contributed to purchases of equipment for Western Health, renovations and information technology improvements.

The group also uses funds for a range of social and networking events. For example, the group funds dinners for all staff in their speciality group every six months that coincide with registrar departures.

Source: VAGO.

Health services bear a proportion of the administrative costs of private practice arrangements. This includes processing, billing and accounting for private practice funds. Where there is a variety of private practice arrangements such as at Western Health, the health service bears an increased cost of administering the different arrangements. We found that none of the health services we audited know what it costs them to administer their right of private practice arrangements.

Intended benefits

DHHS lists three benefits of private practice in Private patients: Principles for public health services, namely that it:

  • is an additional source of revenue
  • attracts and retains highly specialised staff because of the patient mix (public and private)
  • maximises care to the community, through opportunities to reinvest revenue into expanded public service offerings.

DHHS does not review whether health services implement the private practice principles above, and consequently has no understanding of whether it is delivering the benefits intended.

Private practice does provide health services with an additional source of revenue. Our analysis shows that in the 2016–17 and 2017–18 financial years, the three health services derived more than $207 million from private practice (MBS and private health insurance). However, neither DHHS nor the audited health services know the cost of administering private practice. Health services do not know how much billing, processing and receipting private revenue costs them, and how cost-effective the provision of facilities, staff and services to support private practice at no or low cost is. Further, DHHS does not know the extent of forgone Commonwealth Government funding (NWAU revenue).

DHHS maintains that a benefit of private practice is that it enables health services to attract and retain highly specialised staff. However, DHHS does not know if this is the case given that it does not directly employ medical practitioners or collect data from health services on recruitment or retention.

The three health services in this audit have data on staff turnover, but do not compare this data with the type of private practice arrangements senior medical practitioners have to understand if these arrangements play a role in staff retention. We spoke to 15 senior medical practitioners, who said that private practice arrangements did not impact their decision to work at a public health service. Instead, their decisions were based on:

  • positive workplace culture
  • easy access to peer support
  • flexibility of work
  • opportunity to work on complex clinical cases
  • opportunity to undertake certain procedures required to meet credentialing and privileging requirements in sub-specialities.

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