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The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.
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This web page gives a brief overview of Healthscopes near collapse and its recovery to become a very successful growth company. It examines the costs to others of its policies and practices. It provides links to pages which explore its story and the consequences more closely.
(1985 to 2005)
LINKS CORPORATE MEDICINE WEB SITE
In the health-care industry, Healthscope has a reputation for being a cost-conscious and tough operator. Dixon (managing director) agrees. "We are pretty hard-nosed," he says. He believes the company has been able to strike a fine balance between cost control and keeping reasonable relationships with specialist doctors and other medical staff.
Finance, health-fund negotiations, information technology and procurement are centralised. Dixon says: "But the general managers of the hospitals have a lot of autonomy to market the hospital and develop the right case mix. You cannot have the sort of relationship you need with the doctors unless it is managed at local level."
Hospital Pick-me-up Business Review Weekly March 13, 2003
Healthscope is a very interesting company to examine because it is a model company from the point of view of the market and superficially for the public and the health professions. It embraces both the hardheaded business belief system of the market and also a commitment to serve the community and provide good care. It seeks to serves these two conflicting conceptual masters. There is no reason to doubt its sincerity. Because of this it provides a particularly good insight into the problems and exposes the health care market for what it is.
Healthscope is an excellent illustration of the critical differences between a for profit company which focuses on profits for shareholders and a not for profit group which focuses on services. For profit care is about opportunity for profit. Unprofitable services are scrapped even when they are needed. Profitable services are provided, sometimes when they are not needed. For profit services market their wares to whoever will use them and are tempted to fan community anxiety and vanity in order to find customers regardless of need. Their provision of screening services is particularly controversial as the line between marketing and education is readily blurred. There is something discordant in the thinking underlying policies which seeks to control costs and ration care in health by using a mechanism where survival in a competitive situation depends on one set of participants doing the very opposite.
Not for profit care is about serving the community's needs. Funds are stretched to meet community needs even when they are not profitable. Funds are diverted from less needed services to do so. Not for profit services identify genuine need. They cooperate with others to meet that need and educate the pubilic in their best interests.
Healthscope's difficulty is that to survive and prosper, and it is highly motivated to profit and grow, it must serve its market masters on the share market and give them priority over its humanitarian commitments.
Market listed growth companies usually have a rough ride at some stage and their survival depends on their bending to the dictates of the market. Healthscope learns this the hard way and does so while maintaining its humanitarian illusions. It skates around its service failures by justifying its actions using marketplace explanations.
As a market listed company Healthscope comes to display all of the ruthlessness and hard headedness required for success. This is the medicine that market theorists believe is essential for health care. Hard headedness and compassion are poor bedfellows.
When market pressures permit Healthscope maintains good relations with doctors, nurses and patients. Its senior staff appear to be motivated and to have the best intentions. At the same time they believe that the market is the best way to provide good health care. It is the sort of company which Dr Wooldridge and other politicians must have seen as the future for health care.
Healthscope's real nature and the nature of the marketplace soon become apparent when its response to unprofitable situations is examined. Care, community service and its relationships with staff take second place when they conflict with profit.
When Healthscope's public statements are examined it is clear that its overriding priorities are profit and growth. Good relationships with doctors and real service to patients are dependent on their profitability. It is a market listed company and this is what its institutional investors expect. They would not invest if it behaved differently. Since its beginning Healthscope has indicated its ambition to become a health care giant and its efforts are directed towards this.
Healthscope's policies and its practices have been spectacularly successful but it was not always so. It learned quickly and its recent success and rapid growth are based on the market strategies it developed and not on care or good relationships with staff and community.
The continued consolidation of the private hospital market has swung the pendulum of power from the health insurance industry back to the hospital provider. Peter Smedley known as the Pac Man for aggressively growing businesses through acquisition had one part of the correct business principal of consolidating the hospital market for Mayne. The basic principal of consolidating the market through acquisition and driving synergies through shared services has now been proven.
HSP and RHC have acquired a number of new hospitals over the last two years and have increased the operating margins through cost savings generated by combined buying and negotiation power.
Unfortunately for Smedley he had the right idea in centralising the functional support structure but he failed to work in partnership with the healthcare professional to implement these changes.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004
Healthscope was started in 1985 as a liaison between doctors disillusioned with the public hospital system and businessmen who saw profit in health. It listed on the market in 1994. It confidently predicted large profits and rapid growth. It appointed motivated and highly skilled medical administrators frustrated with the public system. It owned a panel of mostly small general medical and surgical hospitals in a competitive environment. The demands of modern sophisticated care called for larger facilities. It could not compete. It also entered into a disastrous money losing contract with the South Australian government to operate the Modbury public hospital.
The company almost went under and there was repeated restructuring as it rid itself of its more idealistic founders and ruthlessly sold off hospitals which lost money. It went through a series of managers until it found one who would do what was needed.
Owners of the Cleaning company Spotless became the dominant shareholder and they appointed one of their own hard headed businessmen, Bruce Dixon as manager in 1997.
The company now adopted a policy of avoiding competition by concentrating on psychiatric, rehabilitation and rural hospitals where there were no competitors and they could dictate payment to the insurers. This was very successful and the company started to grow. Its growth strategy focussed on leverage - buying strategically in order to give it regional dominance when negotiating fees under contracts with insurers. This was the policy followed by successful US companies competing for contracts with managed care companies - usually called Health Maintenance Organisations or HMOs
If Healthscope was to become a major player then it would have to reenter the competitive medical/surgical marketplace. It would need to grow rapidly to secure the leverage to make it competitive with the two big operators in this area. It did so by buying a parcel of six strategically placed money losing Mayne Health hospitals. It also negotiated management contracts with not for profit groups that also lacked leverage and were struggling in this new competitive marketplace.
It became the dominant private hospital owner in South Australia and the Northern Territory. It dominated Rehabilitation and Psychiatry in Victoria. After a bruising confrontation with the insurer BUPA it continued its growth rush by buying the failing Gribbles Pathology and then snapping up the small hospital owner Nova Health.
It acquired international pathology holdings and became global. The reasons for jumping into the competitive Pathology market by buying a company that was not doing well are difficult to fathom.
Mayne Health's alienation of doctors, the collapse of its hospital empire and a lacklustre performance by its diagnostic services created a hiatus. Healthscope reentered the competitive sector by moving rapidly into this. It became big enough to rival and compete with Ramsay and Affinity Health, the dominant operators in Australia. Its problems will be compounded by the merger of these two giants to form one company dominating the industry. To compete it will need to turn around its most recent purchase of unprofitable hospitals and pathology businesses. Some see this as a herculean task. My concern is that the community and the patients it serves will be harmed as it struggles to do so.
Healthscope's early misfortunes, its strategies, its recovery and its expansion are addressed in detail on another web page.
Update Oct 2005:- Healthscope confounded its critics and rapidly integrated Gribbles and Nova increasing its profitability. When Affinity sold its hospitals to Ramsay, the ACCC required Ramsay to sell 19 of them. Healthscope bought 14 large high quality hospitals across the country giving it 17% of the private hospital marketplace. It only has one competitor Ramsay with 27% and both have the sort of leverage which makes others noncompetitive. It is moving into skin cancer clinics and primary care, as well as exapanding its international operations.
Update Jan 2006 Healthscope unexpectedly announced a large profit downgrade due to problems with its pathology business. This sent shares spiralling down 25%.
CLICK HERE to explore the Healthscope story.
Healthscope's culture, its patterns of belief, the sort of people that managed it, its relationships with doctors and nurses, and its business practices are apparent from its actions and the many extracts on all the Healthscope pages.
Its board reads like the who's who of boardrooms in Australia. It employs highly qualified and motivated medical administrators. It develops good relations with doctors and nurses. It adopts best medical practices and seeks accreditation of its hospitals. It also adopts hard-nosed business practices and builds its success around incentives based on measured economic outcomes - a practice at the root of the problems in corporate health care.
I have devoted a separate web page to some of these and other aspects of Healthscope's practices. It contains extracts from reports that bear more closely on these aspects.
CLICK HERE to access the page about culture and people.
The true nature of Healthscope, its market focus and its dilemmas when confronted by its humanitarian mission is revealed in the many subplots within this overall story. Separate pages have been devoted to them.
The key difference between for profit and not for profit hospital services is that for profit services stretch care for profit and tailor care and community services so that it is profitable. They don't run hospitals or provide care that is not profitable. Profitability takes precedence over service to the community. Profitable services are supported and unprofitable ones closed. To them this is obvious and logical.
Not for profit care is focussed on serving the community. Resources are stretched in order to meet the needs of the community. If there are limited resources less critical services are reduced in order to maintain the more critical. Profitable services which are not critical are supported in order to support unprofitable but needed services. In an ideal world hospitals cooperate to do this. In Australia and the USA not for profit hospitals are forced to expend effort and resources competing so forcing them into a for profit mode of operation. This seriously compromises their mission and they do not perform well in this discordant environment. This renders them financially vulnerable to corporate predators.
Because Healthscope has a medical mission as well as a particularly strong market focus it is one of the best examples of the way service becomes subservient to profit.
The economic crunch
Healthscope went public in 1994 with great ambitions but with a set of small hospitals that were not really viable. Some of these it had acquired from the South Australian government. It was unable to compete in the general medical marketplace. It was not possible to provide sophisticated services in these small hospitals at competitive prices and also maintain standards.
Soon after when its profitability plummeted and its share price tumbled Healthscope sold many of these small hospitals or else turned them into rehabilitation or psychiatric hospitals. From a medical point of view this was a sensible thing to do, but it was market pressures rather than medical needs which drove them to do so to any which were not profitable. Importantly Healthscope learned the marketplace perils of running unprofitable hospitals and providing money-losing services. It almost went under. It adopted a very firm policy of divesting itself of unprofitable hospitals and services.
Healthscope managing director Bruce Dixon says: "We specialise in the regions, where we do surgical work; and we specialise in psychiatry and rehabilitation in other places."
2003 Escaping competition
That way, Healthscope generally operates the only private hospital in town or the only psychiatric or rehabilitation operation in the area.
"Essentially, if a health fund wants to write insurance in those regions, it needs contracts with our hospitals.
"The key to the whole industry is the rates you get off the funds."
Health returns on the mend. The Age April 18, 2003
The other thing that Healthscope did was to move out of the competitive arena and concentrate its efforts in psychiatry, rehabilitation and rural hospitals. Because regions could only support one specialty hospital or in rural areas one general hospital, there was no competition. Insurers were forced to use their hospitals and pay what Healthscope wanted. The important point is that Healthscope entered this area for economic reasons and in order to survive in the marketplace. They did not do so to meet an unmet need although this may have resulted in their doing so. It was a response to market pressures. The strategy was very successful and Healthscope survived.
Competition theory indicates that in the competitive health care marketplace poor operators will be forced out of business and replaced by good ones. Healthscope was a poor operator with outdated hospitals and as a consequence should have been forced out. It escaped this fate by finding a niche where it did not have to compete. Market analysts praised its skills and strategy in avoiding competition. Its strategy and its success seem to be additional examples of market failure in health care. Geography and distributed need are some areas where the theory falls down.
These issues are addressed on the web page telling the Healthscope story of near failure, recovery and then rapid growth.
The Modbury Disaster
On 27 October 1998, the South Australian Auditor-General again raised lack of accountability concerns about outsourcing in SA. - - - - - He was particularly critical of its handling of the EDS(Australia) computer contract and the Modbury Hospital one with Healthscope.
1998 Criticism of Modbury
Watchdog's spotlight on government outsourcing, The Advertiser October 28, 1998 (quotes from ABSTRACT by Australasian Business Intelligence)
Healthscope blamed its failure and near bankruptcy on its disastrous privatisation venture in Modbury. Healthscope had developed close links with the governments in South Australia and in the Northern Territory. It was the era when government were divesting and privatising. When Healthscope listed on the share market it took over a number of hospitals from the South Australian government and in the process the government acquired 14% of the company.
The management of the public hospital in Modbury had asked the government to seek tenders to build a colocated private hospital adjacent to the public hospital. Instead the government contracted its partner Healthscope to manage the public hospital for 20 years as well as build the colocated hospital.
The venture proved a financial disaster for Healthscope and an enormous embarrassment for the government who eventually hid the whole process from a parliamentary investigation by refusing to release documents.
Healthscope was running the hospital for less than it would have cost the government. When Healthscope tried to give the hospital back government refused and held them to the contract. There were allegations of excessive cost cutting, understaffing, closure of services and needless closure of beds for long periods. Failures in care received considerable publicity. The entire venture was a monumental failure for the community, for the public hospital, for Healthscope, and even for politicians. It was heavily criticised by a senate committee of inquiry. It was one of the main reasons governments in Australia abandoned the policy of privatising public hospitals.
Healthscope was allowed to renege on its undertaking to build a private hospital. The public hospital's unwise request resulted in it being privatised and it never got the colocated private hospital it asked for. Healthscope repeatedly renegotiated payment for services and the government seems to have supplied enough to keep the company out of bankruptcy. The hospital eventually broke even but has never been very profitable.
The significance of this venture from the point of view of the argument I am making is that Healthscope continued to spend on its profitable psychiatry and rehabilitation hospitals while cutting back on services, staffing and probably care at Modbury. The money followed the profits and not the needs of the community.
The Modbury story is told in detail on the web page dealing with privatisation in South Australia.
Profitability and previous Community hospitals : Mosman Hospital.
Australian private health care was once the province of religious and community groups who sought to meet the needs of the local communities they served. In the USA and in Australia these have now fallen into the hands of corporate giants usually through some form of joint venture and leasing arrangement. In the USA particularly the interests of communities and the services to them have been restructured to serve the needs of the distant company ahead of the needs of the community. Similar trends are apparent in Australia and are well ilustrated by Mosman. Commitments to community interests by the original leasing company are lost as facilities are traded from one company to the next.
Mosman hospital was a community hospital which had been given to Mayne Health to own and run subject to the condition that it continue to provide general medical and surgical services to the community. The legal provisions ensuring this were lost in a succession of ownership arrangements.
This was one of the money losing hospitals Mayne sold to Healthscope in 2002. It required NSW government approval to transfer the license. There were concerns that Healthscope planned to downgrade it to a rehabilitation hospital but instead after a delay in granting the license transfer it elected to boost the services by enlisting the part time services of two young high flyer surgeons and marketing this to the public.
This did not generate sufficient profit and Healthscope closed the surgical service in the face of strong opposition from the staff and the community. They got a rehabilitation service instead. Too late they discovered that they had no legal resource.
CLICK HERE for the Mosman Hospital Story web page.
Betraying the community : Mersey Public Hospital
The full service public Mersey Hospital in Devonport, Tasmania was contracted to Mayne Health in a privatisation agreement in 1994. Mayne was unable to run it more economically than government and it was not profitable. In 2002 Mayne sold the contract to Healthscope but this was subject to government approval.
It is clear that the Tasmanian government agreed to a rationalisation of services which involved the downgrading of the full service Mersey hospital and the transfer of key services to the profitable hospital run by Healthscope in nearby Burnie. Members of the community were never told of this but they were aware of Healthscope's cost cutting history and so were wary. To Healthscope this was a comercial enterprise and they were entitled to manage it as a commercial enterprise. They had no obligation to consult the community.
The Devonport community was loyal to their local hospital and they had a sense of ownership. Their efforts had resulted in the building of the hospital. They saw it as theirs and were strongly opposed to going elsewhere. A number of crises occurred in the hospital and management used these as justification for transferring services to Burnie. The community realised what was happening and suspected that these crises had been engineered.
The community, doctors and nurses rose up in protest after protest. The matter was taken up by politicians. The government and Healthscope backed down. Government agreed to take back the hospital and run it as a full service public hospital.
Healthscope was only doing what it was required to do for its shareholders but government was required to serve the community. This does not mean that politicians were deliberately malign. There are examples, particularly in the USA where government agencies have been so locked into marketplace patterns of thinking that they have cooperated with corporations in exploiting citizens and seen nothing wrong in this.
CLICK HERE to go to the page which documents the Mersey Hospital Story
The Colocated Hobart Private Hospital
Australian Hospital Care won the contract to run the colocated private hospital in Hobart Tasmania. This was never profitable and they went back to government for assistance. They ran the private hospital in the renovated old maternity section of the Hobart General. Unprofitable hospitals undergo repeated restructuring and pass from company to company. Mayne acquired the hospital when it acquired AHC in a corporate takeover in 2000 but could not make it profitable. Healthscope acquired it from Mayne in 2002 and somehow succeeded in making it profitable.
By 2005 the Hobart Public Hospital was cramped and desperate for space to expand and it required the old maternity hospital site. Healthscope was approached and refused to move even though this was in the interests of the Hobart community and the overall health service. Health is now a market process and cooperation for the general good is not part of that.
CLICK HERE to go to the Tasmania Privatisation Page for more.
Healthscope's strategy of owning regional hospitals has many benefits, Dixon says, but a big one is the leverage it gives the company in negotiating with health insurers. "Funds will give you a rise if they have to," he says. "We have been actively developing our hospitals in regional areas, and the strength of the portfolio now is that our hospitals are not exposed to the super-competitive metropolitan area.
2003 Competition at work!
It also means that if people who live in an area where we have a hospital want to go to a local hospital, then they are probably going to have to go to ours." The result of this, he says, is that Healthscope is in a better position to dictate to the health funds the fees it thinks are necessary to provide a certain quality of service. If the funds do not pay those fees, their members will have to pay the gap out of their pocket or go to another hospital.
He (Dixon) believes that the industry changes that have encouraged ACHA to seek outside management will continue to push small hospital groups towards consolidation, mergers and management contracts.
"The not-for-profit sector is going through rationalisation now, and once that is complete, you will probably see only two or three big groups," he says
Hospital Pick-me-up Business Review Weekly March 13, 2003
Hospitals owned by individuals and groups many of whom are dedicated to the care they provide have no leverage in a competitive marketplace. They are unable to negotiate adequate fees with insurers in a marketplace. Larger groups with a large market share can demand higher fees and they must pick up thye crumbs.
Many hospitals, including some of our best are run by churches and communities with a not for profit focus. Their not for profit focus as well as their size make it difficult to compete in a market focussed on competition for profit.
When these personally owned and non-corporate groups are acquired by corporate for profit entities or enter into joint ventures ceding management to the corporation then corporate leverage is increased and they become profitable for the company.
The consequence is that the market operates to remove those who run hospitals for the community and its members, replacing them with those who run them for the profit of shareholders. Economic theorists, market analysts and businessmen see this as a desirable outcome and claim that it is good for health and for the community. They genuinely believe that the system of caring and cooperating providers is obsolete and out of date. Competition they claim works better.
This is not to claim that there are no problems. There are very good reasons why a cooperating not for profit health care system should be integrated and function as a single coordinated well planned service. Taking the care out of health and replacing it with profit and aggressive competition is not the way do this.
US corporations which recognise the opportunities for growth by acquiring not for profit hospitals have been called PACMEN drawing a comparison between the way they gobble up the community's assets and the computer game. Healthscope has focussed its expansion on individually owned and on not for profit hospitals. One of the best illustrations of the process is the management agreement reached with ACHA in Adelaide, South Australia. It is an Australian example of a PACMAN.
The Adelaide Community Healthcare Alliance (ACHA)
In Brisbane (Queensland) the bulk of the top private hospitals providing sophisticated medical care are owned and run by church groups. In Adelaide not for profit community groups own the top hospitals and provide many sophisticated services not available in corporate hospitals. Faced by market pressures and the need for integration they formed the Adelaide Community Healthcare Alliance (ACHA) some years ago. This helped did not make them profitable in the marketplace as they lacked leverage. It was not ACHA that wanted to go corporate but its bankers who were unwilling to lend money unless they did so. Not for profit groups had lost credibility in the marketplace.
Healthscope did not have leverage in metropolitan general hospitals in South Australia or Victoria. The aggressive French multinational insurer AXA dominated these regions. It sold to an equally aggressive English group BUPA. Healthscope had to be content with what BUPA wanted to pay them and this was not as profitable as they wanted. Their entire policy had therefore been directed to securing leverage. Acquiring ACHA hospitals would give them a controlling position in Adelaide and they hoped to use this to hold BUPA to ransom for higher payments.
When the deal to contract the hospitals to Healthscope was proposed there was strong community opposition and the health professions were alarmed. ACHA's board, the banks, and Healthscope pressed ahead with the deal. Both major political parties now have a policy of corporatising health and of not interfering in the activities of the marketplace, They did nothing.
CLICK HERE for an account of the ACHA joint venture
The Western Community Hospital
The Western Hospital was a part of the Adelaide Community Healthcare Alliance (ACHA). It provided needed maternity and other general medical services to a large section of the Adelaide community. Unfortunately it was not profitable. The hospital was strongly supported by the community and the local health professionals. Because of this ACHA continued to operate it in spite of pressure from banks to close it.
When Healthscope acquired control of ACHA hospitals it did not want the Western Hospital. ACHA had no choice but to close it down over intense community opposition. A group of local doctors strongly supported by the community bought the hospital and reopened it as a not for profit venture.
While Healthscope never owned the Western, the poignant story of what happened is a wonderful example of the not for profit ethos, and of the way in which the community and those committed to care valued their hospital and the mission of service which it embodies.
The stark difference in starting points and in focus between for profit and not for profit is well illustrated.
CLICK HERE to examine the story of the Western Hospital
The insurance industry is also going through a process of change, with health funds consolidating, the entry of new entrants, such as BUPA and the potential sale by the Government of Medibank Private.
Groups that lack geographical scale or niche operations will find it more difficult to sustain a viable operation in the current private hospital market.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004
BUPA was the ruthless multinational profit focussed insurer which dominated the market in South Australia and prevented Healthscope from operating profitable general medical and surgical hospitals.
Since its recovery in 1998 Bruce Dixon had pursued a policy of avoiding a competitive environment and of building leverage so that it could force the insurers to pay more. It was very successful in this and built up wealth and market share.
It was focussed on growth and if it was to grow to be a health care major, it would have to move back into the more competitive sections of the health marketplace, secure leverage there and take on the insurers.
It did so by buying individual hospitals, by acquiring hospitals from Mayne and by gaining control of ACHA. Almost all were money losing but because of their locations they gave Healthscope leverage.
Soon after Healthscope acquired control of HCHA hospitals it mounted a challenge. It demanded that BUPA increase payments to its hospitals by 10% - not only in Adelaide and in Darwin, where it had leverage, but across the country.
BUPA had global economic strength and it was not as vulnerable to local sentiment as Healthscope. It responded to the challenge by offering 2% and then withdrawing its coverage for insured members who chose to attend Healthscope controlled hospitals including those ACHA hospitals which provided services not available in the rest of the private sector.
The bitter dispute focussed on putting stress and economic pressure on patients and potential patients. They became the meat in the sandwich. Each contestant sought to pressure those insured with BUPA. Healthscope pressured them to change insurer while BUPA urged them to disrupt care and go to another hospital. Citizens' hip pockets were set against continuity of care by the hospital and doctors who knew and understood their clinical conditions. These citizens had been persuaded to take out private insurance because it gave them choice. They now had to decide whether they could afford to pay extra to have the choice they had made when they were persuaded.
In the end everyone suffered but mostly the insured patients. The rest of the private and the public hospital system were stressed. The spread of health risk in the private insurance pool was distorted causing some insurers to lose money and push up premiums. Trust and confidence in the health system was lost. Although the resolution was behind closed doors it is clear that Healthscope miscalculated and came out of it badly but both parties lost heavily.
The competitive market made a monumental mess for everyone. It compromised care and services while the politicians who had been voted into power to look after the interests of citizens and the community sat on their hands.
CLICK HERE for details of Healthscope's confrontation with BUPA.
In spite of its setback in its confrontation Healthscope's drive to become a major player is now unstoppable. It capitalised on the gap left by Mayne's unpopularity and moved into pathology by buying money losing Gribbles and then another small hospital upstart Nova Healthcare. Its main rival Ramsay jumped ahead of it and more than doubled in size by buying Affinity Health (old Mayne hospitals). Affinity was Australia's largest owner of hospitals.
Gribbles has international pathology holdings so turning Healthscope into a global player and giving it a base for global expansion as opportunities in Australia dry up.
The problem for Healthscope is that so many of its purchases including AHCA and Gribbles are money losing. Its dispute with BUPA has not made ACHA as profitable as Healthscope desired. It has a monumental task in turning all this around and making it profitable. Some are suggesting that the company has overextended itself. Could it collapse and end up like Gribbles looking for a buyer to rescue it?
Whatever happens in the future Healthscope is likely to employ every market stratagem in the book in order to make itself profitable and dominant. The question for citizens and the professions is what this will do for the care of patients, for medical practice and for the health system itself. It must have a significant impact. Past experience suggests that this will not be beneficial. Other growth companies have been remarkably successful before dissolving in scandals and economic turmoil.
Update October 2005:- Healthscope confounded its critics and remained very profitable. Ramsay was forced to sell some of the best Affinity hospitals. Healthscope skillfiully secured these turning itself from a company, about which analysts were concerned, into a powerful and well leveraged competitor for Ramsay.
There have been few if any complaints about standards of care in Healthscope's private hospitals. The privatised Modbury public hospital is a different story. It was losing money rapidly. Healthscope went to extreme lengths to reduce its losses. Healthscope's survival depended on doing so. It is not surprising that there have been allegations of poor services, deficiencies in note keeping and failures in care in this hospital.
Psychiatric hospitals, rehabilitation hospitals, and rural hospitals are less at risk of major complications and of morbidity than metropolitan general hospitals. Complications are less frequent and major surgery and seriously ill patients are not treated in the smaller rural hospitals. The patients and their families are also less aware. Problems in these hospitals are less likely to be detected. That said it is to Healthscope's credit there are no allegations to suggest that cost cutting in its private hospitals resulted in similar problems in care to those alleged in the Modbury hospital.
There are no suggestions of fraudulent conduct. If the allegations about Modbury have foundation then we can conclude that when it came to the crunch and they had to choose between their own survival and the welfare of their patients they chose the former. It is difficult for a doctor to blame them. When placed in the same position by corporate interests a significant number of doctors in the USA did the same.
There was a period during 2000 and 2001 when Healthscope's public statements suggested it was looking at the US model of commercial psychiatric and substance abuse care (e.g. Tenet Healthcare). It saw drug abuse not as creating a need for care but as a demand offering commercial opportunities. Like Tenet (then called NME), in the USA, the company planned to recruit patients by marketing and hot lines. The company not clinicians would be offering "programs" of care.
In Australia, as in the USA, doctors have to sign for care and for admissions. How did Healthscope plan to allocate these patients to doctors? Would the doctors willingness to sign for treatment have influenced this? One must ask if these programs of care would have been "programmatic" and designed primarily to make money or were they designed to benefit patients? This mirrors what happened in the USA. By allocating patients to doctors the companies secured control of their incomes. Only doctors who did what the company wanted were supported with patients. Others starved. As a consequence less ethical and less competent doctors who complied with company policies prospered at the expense of their colleagues who were sidelined. Care was compromised. Vast quantities were given to benefit the companies, but little of it benefited the patients.
Australian psychiatrists and state regulators were well informed about what happened in the USA and it is likely that Healthscope's plans got a frosty reception and that they abandoned them.
"The only way to combat that is through increased volume. We are chasing more volume," he said.
1999 Chasing volume
He added that changes made to the group's hospital mix towards increasing specialisation would help this process.
Restructure Hits Healthscope Result, Australian Financial Review September 14, 1999
According to its managing director, Bruce Dixon, last year's results reflected the benefits from the previous year's marketing campaigns as well as cost-cutting. "We put a lot of effort into getting our occupancy rates up, generating a market for our hospitals."
2000 Getting volume by marketing
Private Hospitals In Recovery Ward, Business Review Weekly 17 November 2000
"With nearly eight per cent of Australia's adult population suffering from substance abuse, we believe there is a huge unmet demand for the programs we will be offering," he said.
2001 Demand and hot lines
Mr Dixon said patients would be referred through a national call centre, which would be set up and manned at The Melbourne Clinic in Richmond, which is also run by Healthscope.
Vic: Betty Ford Clinic for Australia, AAP NEWSFEED May 22, 2001
Like Ramsay, the group is identifying significant scope for organic growth within the psychiatric area. In the relatively mature US market only 20 per cent of patient referrals are sourced from psychiatrists, compared with close to 100 per cent in Australia. That equates to a major disparity in marketing and hence in consumer attitudes towards the quest for psychiatric help. Healthscope has already established a call centre for its psychiatric operations and it can be expected to superimpose a number of marketing initiatives to increase awareness of its services.
2001 Marketing to admit patients
Hospitals Bed Down Better Margins Shares Magazine 1 September 2001
Update Oct 2005:- Healthscope copped some criticism about maintenance of hospitals when a water pipe burst and flooded the hospital forcing the evacuation of patients and disruption of some services at the public teaching hospital they were moved to. Two Hobart hospitals also had problems with accreditation. These matters are dealt with on the Tasmanian web page.
My criticism is not about pointing the finger at any particular company but in looking at the way the market system creates situations which place people in positions where they are under pressure to behave in ways which are not in the best interests of citizens. There are always some among us who will seize the opportunities offered for personal advancement and look the other way when confronted by the consequences. Others will respond to pressures. The system selects for both and puts them in positions of power.
In spite of its aggressive and hard nosed market focus, its unwillingness to provide services which were unprofitable, and its approach to market negotiations Healthscope has been one of the better market listed companies. This may be because its medical administration and its doctors have exerted a restraining influence, something which did not occur in the USA.
For Updates including Healthscope's Jan 2006 crash - see the Healthscope Story page
This page created June 2002 by Michael Wynne
Rewritten May 2005 and updated October 2005, Jan 2006