MEDICINE WEB SITE Disclaimer Content Australian
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.
During the 1980s and 1990s many medical insurers owned and operated hospitals. When a managed care system based on competition between hospitals for contracts with insurers was introduced this created an impossible conflict of interest. By the end of the 1990s they had all sold their hospitals.
(1980's to 1999)
LINKS CORPORATE MEDICINE WEB SITE
South Australian State Government Insurance Commission (SGIC)
Medical Benefits Fund (MBF)
Hospital Benefits of Western Australia
The Federal Health Insurance Commission (HIC)
Many groups provided private health insurance in the 1980s. Some were government bodies. They did not escape the enthusiasm generated by the potential for wringing large profits from hospitals during the 1980s boom. What happened is an excellent illustration of the failure of all those involved to understand the important issues in the push towards market medicine - or if they did try to confront them.
Several of the insurers were soon buying and running hospitals. Others were major investors in corporate hospital groups. At that time no one was talking about purchasers, providers and a conflict of interest in being both. This was an ideological marketplace construct introduced later. In todays marketplace world we all use that construct and accept it as real. I recall that a basic sociological dictum is that if society accepts something as real then, regardless of its validity, it is real in its consequences.
Far from being aloof from the marketplace which government legislated to control and which government policed, government bodies dived right in. What happened illustrates the critical importance of context, understandings and starting points - and the failure of those advocating marketplace medicine including government insurers to understand this. In a cooperative system empathically working to help those in need, owning hospitals, supporting those who own hospitals, and working with others to provide services is simply sensible. When the starting points and understandings revolve around competition and a fiduciary duty to generate profits for shareholders then owning hospitals becomes a conflict of interest and dysfunctional.
There was a great deal of wooly thinking and this was fostered by economists and marketplace advocates who deluded themselves and the public that the for-profit market system was still motivated and driven by empathy and responsibility for others. In Australia the corporate for-profit change was brought in under the mantra of the not-for-profit groups, lumping them together as "private care". The issues were never confronted.
Running hospitals to care for the patients you insured seemed sensible and less costly. This was seen as a synergy and desirable. This was a hangover from an era when those who provided health care cooperated in order to do so for the benefit of patients, and did not compete in making money out of their misfortune. Many of the insurers were not-for profit mutual groups. The illusion of trust and trustworthiness still underpinned medical care and insurers thinking.
The boom was soon over and few of these hospitals made much money. Although labour had attempted to introduce a form of managed care in the early 1990s it was only after the liberal/national coalition was elected in 1996 that managed care principles were more forcefully introduced by the federal government. This required providers (i.e. hospitals) to compete with each other for contracts with insurers to care for insured patients. Graham Samuel had been made chairman of the National Competition Council (NCC) and was clearly influential. Attempts were made to introduce elements of his model for health care.
Insurers owning hospitals were accused of unfairly favouring their own hospitals. Within this new market context there was a clear conflict of interest and insurers owning their own hospitals became unacceptable.
These early private hospitals were mostly small and unsuited for providing sophisticated modern care. Insurers tried to get out of hospitals as best they could but no one was paying what they wanted and it took a long time.
FAI formed a relationship with Moran Health Group to operate FAI's nursing homes and hospitals. Shortly before the market crash in 1988 FAI sold its hospitals to Moran.
FAI, through its 99 per cent owned subsidiaries, Cumberland Holdings Ltd and Bellevue Private Hospital, now owns nine nursing homes and five private hospitals in Sydney's western suburbs, with a total of 255 surgical and medical beds and 750 nursing home beds.
1987 FAI hospitals and homes
TYCOONS FIND GOLD IN HOSPITAL QUEUES Sydney Morning Herald February 17, 1987
Before the crash the company had sold its holdings in Pioneer Concrete, Ampol, FAI Hospitals and Hill Samuel plc, besides other investments, for a gross profit of $325 million.
1988 Sold before the crash
FAI RESULT WILL SHOW HOW ADLER WEATHERED THE CRASH Australian Financial Review February 1, 1988
Moran ran it well, and when FAI founder Larry Adler began investing his taxi-driving earnings in nursing homes, he paid Moran to run them and used the profits to invest in the insurance business. By 1987, Adler was tired of his eight nursing homes and five private hospitals, and sold them to Moran.
1994 Review - Moran managed for FAI
DOUG MORAN'S FAMILY ELIXIR Business Review Weekly October 10, 1994
As we have seen governments have been quite happy to dip into the marketplace when it suited them or it was politically expedient. The federal governments Australian Industrial Development Corp. (AIDC) invested in Hospital Corporation of America in 1986 when it failed to secure an Australian investor to meet its required 35% local content under FIRB regulations.
In 1993 National Medical Enterprises (NME) was in the midst of a massive scandal in the USA, had paid insurers US $200 million in fraud settlements and was about to plead guilty to criminal offenses. Its local arm, Australian Medical Enterprises had been given a reprieve in a dubious decision made by a judge at risk of improper influence. The AIDC ignored the interests of Australian citizens and came to NMEs rescue by funding its bid for the privatisation of the Greenslopes Repatriation Hospital in Brisbane. NME was short listed by the federal Department of Veterans Affairs.
South Australias SGIC bought 9% of Health and Life Care (HLC) when it floated in 1987. HLC was taken in by the persuasive Dr. Ian McGoldrick when it purchased his Consolidated Health Corporation (CHC) and was soon in serious financial trouble as a consequence. SGIC helped in a rescue attempt by buying all HLC's South Australian Hospitals and most of its new Darwin Private Hospital. HLC continued to run them until it entered bankruptcy in 1993.
Mayne Health was interested but decided not to buy the hospitals. Instead they were sold to Healthscope when it was floated in 1994 in exchange for a 13% holding. Healthscope also performed very poorly and it was years before SGIC could extricate itself.
The South Australian State Government Insurance Commission has spent $7.2 million taking a 9 per cent stake in Adelaide-based Health and Life Care Ltd. - - - - - the purchase is in synergy with the commission's move into health care insurance.
1987 Buying into HLC
SGIC Takes $7.2m Stake In NT's First Private Hospital Australian Financial Review August 19, 1987
If the asset sale goes ahead, the SGIC will acquire five hospitals, a retirement village and a laundry but will retain HLC as the manager of the assets.
1989 Rescuing HLC by buying hospitals
The SGIC's chief general manager, Mr Denis Gerschwitz, denied that the acquisition was a WA Inc-style bail-out of a local company.
He said the hospitals were profitable and the decision was made purely on a commercial basis.
HLC SELLS OUT OF SA TO CUT DEBT Australian Financial Review February 20, 1989
Under the refinancing, the SGIC and Partnership Pacific have advanced $14.3 million to Darwin Private Hospital as a three-year loan which can be converted into shares representing 51 per cent of Darwin Private Hospital.
1989 Rescuing the new Darwin Private Hospital project
HEALTH AND LIFE SHARE DEAL Australian Financial Review May 4, 1989
PRIVATE hospital group Healthscope Ltd is expected to float in April through a $60 million capital raising, with the South Australian State Government Insurance Commission taking 15 per cent.
1994 Deal with Healthscope
Under a deal being worked on by stockbroker CS First Boston, the Victorian-based Healthscope with five hospitals will acquire the SA SGIC's seven hospitals to form a group with 800 private beds - just under 10 per cent of the national market.
HOSPITAL GROUP IN APRIL FLOAT Australian Financial Review February 18, 1994
Until recently SGIC was a financial mess. The South Australian Treasurer, Stephen Baker, has described the management from 1987 to 1991 as being proportionately as worrisome as the State Bank debacle, which necessitated a $3.5-billion taxpayer-funded rescue. The much smaller SGIC needed $350 million after its management diversified into numerous failed ventures such as hospitals and hotels
1995 Review finds SGIC is a mess
ADELAIDE OFFICE MAY BE KEY TO SGIC SALE PRIVATISATION Business Review Weekly January 23, 1995
The goodwill written off was goodwill that we acquired on the purchase of seven hospitals from SGIC in 1994. Because of the decline in performance of many of these hospitals in South Australia, we do not believe that the amount attributed to goodwill should be carried as an asset.
1997 Old SGIC hospitals not performing in modern era
ASX-Healthscope Limited (HSP.AX) Chairman`s Address to Shareholders. Australian Stock Exchange Company Announcements October 28, 1997
MBF also became an owner of hospitals and was caught up in the drive to build private hospitals on public campuses. In 1987 it bought four hospitals in NSW. In 1993 MBF pipped another group to buy Health and Life Cares (HLC) nine Victorian hospitals from HLC's receiver. The other company accused MBF of dishonestly using information they had given it. MBF continued to operate these hospitals and only put them on the market it 1998. They seem to have been sold off individually as I could not find a record of who bought the bulk of them.
The NSW Health Department has given the go-ahead for at least 30 new private hospitals this year as part of an ambitious plan to "free up" the potentially lucrative private health sector.
1989 Private hospital growth in NSW
The operators include companies such as Hoscare, the Medical Benefits Fund of Australia (MBF) and the Hospital Corporation of Australia.
GREEN LIGHT FOR 30 PRIVATE HOSPITALS Sydney Morning Herald May 13, 1989
The battle for control of the private hospital operator Health and Life Care spilled into the courts yesterday when Mr Geoff Lord's Belgravia Group lodged a writ against a rival bidder, Medical Benefits Fund.
1993 MBF buys HLC's Victorian hospitals from receiver
The information was provided on the basis that the two parties could bid in some form of joint venture, Belgravia and Keygrowth claimed.
They claimed an agreement had been entered into under which MBF had agreed not to bid or compete against Belgravia and not to enter into an agreement with another party that planned to bid in competition.
Writ Over Health Care Bid The Age March 26, 1993
Health and Life Care's (HLC) nine hospitals have been sold to NSW-based Medical Benefits Fund in a deal believed to be worth $13 million.
1993 MBF's holding
MBF owns two hospitals in NSW, two in Queensland and one in Hobart.
MBF BUYS VIC HOSPITALS FOR $13M Sydney Morning Herald April 16, 1993
In a bid for better economies of scale, MBF plans to rationalise the group of nine hospitals in Victoria by "consolidating some and closing down others"to form new operations of about 70 beds each, according to MBF's general manager of hospitals, Frank Toohey. - - - - - - Mr Toohey says 35-bed hospitals are uneconomic. "They are too small to afford new technology, yet no hospital can survive without it," he said. "I can't see much future for them."
1993 Small hospitals obsolete
RETURN OF THE BODY SNATCHERS Australian Financial Review November 12, 1993
MBF, which owns 11 hospitals in four States, said the review would canvas a range of options, including the outright sale of the facilities.
1997 Talk of selling
Other options included joint ownership or strategic alliances with other private healthcare providers.
MBF looks at hospital sales The Australian December 6, 1997
MBF owned and operated 11 hospitals in Queensland, NSW, Victoria and Tasmania and earlier this year the company invited expressions of interest in the hospitals, either as a network, in groups or as individual facilities. HCoA made an offer for the four hospitals.
1998 Decided to sell
ASX-Mayne Nickless Limited (MAY.AX) Preliminary/Optus statement/Asset Sale/Acquisition agreement. Australian Stock Exchange Company Announcements September 15, 1998
National Mutual was a life insurance business. As such it invested in many businesses and health care was one of these. It put funds into listed hospital corporations like Hospitals of Australia Trust (HOA) and competed to manage trusts like HOA. National Mutual was acquired by AXA during the 1990s. It later sold its health care insurance business to the UK insurer BUPA.
Mutual Community in South Australia and Health Benefits of Australia (HBA) in Victoria both owned hospitals. They were acquired by National Mutual in 1991. It came to own nine hospitals through its subsidiary Benchmark. In 1997 it was accused of favouring them for contracts. It sold Benchmark to Robert Scarborough in 1999.
"We (Hospitals of Australia) also have significant blue-chip investor groups behind us including AMP, National Mutual and Mayne Nicholas," he (Manager of HOA) said.
1987 Wide health investments
HOA Buys Two More Hospitals Australian Financial Review June 10, 1987
But Mutual Community did not forget the health sector. It runs sports science clinics, an occupational health business, health assessment, a 24-hour emergency service and now owns 18 per cent of the private beds in the State.
1987 Wide health investments
WHAT DOES THE FUTURE HOLD FOR HEALTH FUNDS? Sydney Morning Herald November 19, 1987
Click Here to go to the Benchmark page where a full account of the National Mutual story is given.
Hospital Benefits of Western Australia owned 11.6 % of Markalinga. I do not know whether it brought hospitals to Markalinga or simply invested money.
HBA retained its holding when Markalinga became Australian Medical Enterprises (AME). It supported its major shareholder, the corrupt National Medical Enterprises (NME) throughout the period 1991 to 1995. During this time its submissions to NSW were described by them as lacking in frankness and candour. Subsequent events showed this assessment to be a gross understatement.
I wrote repeatedly to the HBA director on AMEs board expressing my concern about the allegations made and the probity of its NME staff managing hospitals in Australia. All I received back were assurances and threats of defamation actions. HBA supported their US appointed CEO when he took a strategic defamation against me - one which he made no attempt to prosecute and withdrew when pressured to do so.
In my view HBA and its AME director were not acting in the interests of the citizens who had insured with them and placed their trust in them. When there was a conflict of interest between their duty to citizens and their financial interest, profits won by a mile! HBA was bought out by Mayne Nickless in 1995.
For instance, the Perth-based Markalinga Trust is 11.6 per cent owned by Hospital Benefit of WA, South Australia's Mutual Community recently bought two hospitals and in NSW, the MBF bought four hospitals.
1987 Holding in Markalinga
SGIC Takes $7.2m Stake In NT's First Private Hospital Australian Financial Review August 19, 1987
The federal government's HIC, the body which administered the government run Medicare and also Medibank Private paid hospitals and doctors for their services. It was also responsible for policing and prosecuting health care fraud. In 1987 the HIC took a 10% interest in the James Hardie controlled Health Care Corporation (HCC).
In a move which raises serious questions about conflicts of interest, the Federal Government statutory authority which administers Medicare has bought a major slice of a high-tech private hospital chain.
1997 HIC's stake in HCC
The Health Insurance Commission, through its Medibank Private health insurance fund, has purchased 10 per cent of the shares of Health Care Corporation Pty Ltd for an undisclosed sum.
A senior executive of the Health Insurance Commission has taken up a position on the board of Health Care Corporation following the purchase during the past week.
CANBERRA INVESTS IN PRIVATE HOSPITALS Sydney Morning Herald February 17, 1987
This page created October 2005 by Michael Wynne