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Specialists in Public Hospitals

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How does treating patients privately in a public hospital work?

Patients can be treated privately in a public hospital if the doctor has a right to private practice or private practice privileges.

Private patients may be:

  • patients admitted through the emergency department who elect to be treated privately
  • patients who are referred to a named specialist from a GP to a hospital outpatient clinic
  • patients who are referred from a specialist’s rooms for treatment in the public hospital
  • patients who are accepted clients eligible for third party payments, such as workers’ compensation, transport accident insurance or war service veterans.

If you have a right to private practice you may accept these patients as your patients and treat them privately.

Detailed arrangements for the exercise of rights of private practice are usually provided for separately to your employment contract.

It is important to understand that even though the hospital may do all of the associated administrative work including billing on your behalf these patients are still your private patients and you have all the normal medico-legal obligations that you would for any other private patients.

Private patient Medicare billings are paid to the treating doctor, even though you might not ever see the money, and is the doctor’s taxable income.

The schemes used for billing private patients vary, with three main approaches standing out.

1. The doctor bills the patient directly and receives payment directly.


This system is most common for part-time specialists (Fractional / Sessional Specialists / VMOs). The patient may have been referred from the doctor’s private rooms and has been provided with informed financial consent. The patient is billed directly by the doctor’s practice.

2. The doctors and the hospital set up a special purpose fund or trust fund.

Patients are billed by the private practice fund or by the hospital on behalf of the treating specialist, and the income distributed to the hospital and doctors from the fund.

This is an older style of scheme. Few examples remain.

3. The doctor agrees to pay across all the income from his or her private practice to the hospital in return for an enhanced salary.


A special purpose fund may also be set up for use by doctors for minor capital items and ancillary expenses such as subscriptions. This is now the most common model of private practice for full time specialists, and is preferred and promoted by the Victorian Department of Health and Health Services. The scheme is detailed in a class ruling from the Australian Tax office. The ruling is CR 2005/26.

Private practice in public hospitals is an area with a number of risks and pitfalls. Should you be offered a private practice arrangement which you are concerned about please contact our Workplace and Advocacy Unit at AMA Victoria.

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