Brad Hazzard Northern Beaches Hospital
NSW Health Minister Brad Hazzard (Image: AAP/Joel Carrett)

The opening of a shiny new hospital on Sydney’s Northern Beaches this month has been a nothing short of shambolic. Despite boasting panoramic ocean views and swanky facilities, the hospital repeatedly ran out of vital drugs, wheelchairs and body bags.

According to the hospital’s former CEO Deborah Latta, who resigned just two days after its opening, the initial struggles were merely “inevitable teething problems”. There may indeed be a sense of inevitability about the chaos at Northern Beaches Hospital. The hospital is run under a partnership between the state government and Healthscope, a private medical provider, the latest in a line of hospitals to be opened under such an agreement. History suggests such partnerships frequently cause problems like those seen at Northern Beaches — but the NSW government does not seem to have learnt from past mistakes. 

A chequered history

Private-public hospital partnerships are generally guided by a belief that the private sector will offer much needed efficiency in healthcare provision. But, according to Stephen Duckett, program director of health at the Grattan Institute, “by and large, this has not been a good story”.

“The idea of public-private partnerships is that risk will be transferred from the public sector to the private sector”, Duckett said. “This generally has not happened [and] we’ve had a number of cases where the public sector has had to step in.”

Although there has been some success — Duckett cites Joondalup Health Campus in Western Australia as an instance where such a partnership went well — most evidence points the other way.

In the early 1990s, the NSW government opened the privately-operated Port Macquarie Base Hospital, the first such experiment in Australia, despite substantial opposition from community groups and unions. The government’s savings calculations failed to take into consideration additional administrative and legal costs the government would incur, and according to a subsequent report by the NSW Auditor-General, it ended up costing $5.5-6.5 million more than a public hospital of an equivalent size.

Still, despite the failures at Port Macquarie, other states continued to follow suit. In 1995, Healthscope opened a privately run public hospital in South Australia, which, after years of losses, was bought back by the state government at a cost of $17.5 million to the taxpayer. Victoria’s Latrobe Regional Hospital, opened in 1998 under a similar agreement, was bought back by the state two years later, after suffering $8.9 million worth of losses. And in 2013, the Victorian government announced plans to buy back Mildura Base Hospital, the last remaining privately run hospital in the state.

Ten years of “teething problems”

Port Macquarie also suffered “teething problems” — similar to those documented at the Northern Beaches Hospital — which happened to last over a decade. While privately run, Port Macquarie was the worst performing hospital in the state according to the NSW Department of Health, with waiting times for elective surgeries double the state average. In 2005, the hospital was brought back under state control, after sustained pressure from disgruntled community groups.

Often, this dysfunction had other, unintended consequences. A report by the McKell Institute, for example, found that privatisation in NSW and Victoria was accompanied by a slump in staff morale, and a decline in patient satisfaction.

According to Duckett, one of the key reasons for these chronic problems is the difficulty of creating an adequate contractual agreement between the government and a private provider, which accounts for various unforeseen risks which may arise when running a hospital.

“One of the problems with writing the contract of this kind is specifying what services are to be delivered,” he said.

Duckett says the early struggles at Northern Beaches, where the hospital repeatedly ran low on vital supplies, were a result of the failure of the contract to provide adequate specifications about supplies.

Why do we keep doing it?

The history of public-private partnerships does not point to a particularly positive future for Northern Beaches. So why do governments keep pushing a losing policy?

Usually, much of the discourse surrounding these partnerships is one of efficiency. Yet the efficiency argument does not necessarily stand up to scrutiny. A 2009 report from the Productivity Commission found that public hospitals in NSW and Victoria were more efficient than their private counterparts.

There may, therefore, be something more ideological behind the push for these partnerships. The McKell Institute report argues that the resurgence of public-private health partnerships, which did largely fall out of vogue following the disasters in the 1990s, is down to a dogmatic belief that the market will provide healthcare more efficiently.

According to Duckett, there has been a preference among governments over the past 20 years to deliver services through the private sector where possible.

But the debacle at Northern Beaches, and at Port Macquarie before it, indicates that governments’ unerring faith in the private sector might just be compounding patients’ pain. 

Should governments pursue public-private hospital projects in the future? Let us know by writing to boss@crikey.com.au.