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Content Australian
section Healthscope
and Consolidation The
PACMAN
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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The
Modbury Hospital
Mosman
Hospital
Mercy
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Hobart
Private
The
PACMAN & ACHA
Western
Hospital
The
Insurance Dispute
This web page looks at the background to the PACMAN
label and then tells the story of Healthscope's PACMAN
approach to not-for-profit hospitals. It uses the management
contract Healthscope reached with the struggling
not-for-profit Adelaide Community Healthcare Alliance (ACHA)
to illustrate the similarity with PACMEN in the
USA.
The pressures on community hospitals in Adelaide, South Australia and their response to this pressure are very similar to the situation in the USA. They banded together as the Adelaide Community Healthcare Alliance (ACHA). They tried to compete, adopting for-profit management strategies under pressure from their banks. They had little choice.
In 1997 they almost got into bed with Columbia/HCA but backed out at the last minute. Under pressure from their banks they eventually got into bed with Healthscope in 2003.
The predicted consolidation within the industry has accelerated over the past year and we expect that both not-for-profit and for-profit groups that lack geographical scale benefits or leverage with health insurers will find it increasingly difficult to sustain viable operations in the current private hospitals operations market. Healthscope Directors 2003 Report Nov 2003
2003 Consolidation
The consolidation of the private hospital sector is almost completed. The next phase will be consolidation of the not for profit sector and we are ready to work collaboratively with them to enable this to occur in an orderly fashion.
2004 Not-for-Profit
Chairman’s statement Healthscope Annual Report October 2004
Introduction to PACMAN Activity
- PACMAN behaviour
- Leverage
- Funding PACMAN activity
- The US PACMEN
- Community awareness in Australia
- Healthscope strategy
- The financiers
- The real health care marketplace
- Differences between USA and Australia
- Leverage and consolidation
Opposition to the Management Contract
Healthscope's agreement with ACHA
PACMAN behaviour
PACMAN is the computer game in which the PACMAN ferociously
gobbles up smaller and weaker entities. In health care it refers to
the rapid growth of giant market listed companies that buy or
otherwise take over management of small less powerful competitors
serving the community.
Most of these have been not-for-profit community or church hospitals which were founded by the community to serve the community. By selling to, or by aligning themselves with corporations this focus is turned from serving and caring for the community to serving and caring for a distant corporation and its shareholders; shareholders who have little if any knowledge of health care and no interest in the community and patients cared for. For this reason the tern PACMAN is negatively associated with the takeover of the not-for-profit sector by large for-profit corporations.
Healthscope more than any other Australian
company has openly expressed the PACMAN mentality and its
rationalisation in its public statements - more so probably than
either of the major PACMEN Columbia/HCA
or Tenet
Healthcare in the
USA.
contents
Leverage
Healthscope has no doubt learned, from the US example, that
corporate health care is not primarily about competing in providing
patient care but about negotiating power (called leverage) and size.
Market share is a critical factor in competing. Healthscope's public
statements show this.
Leverage is attained by regional or wider dominance of the marketplace so that insurers are forced to meet company demands for higher payments and cannot turn to competitors.
In addition to leverage size allows a corporate hospital to be supported by the company as it runs at a loss to undercut regional competitors and force them out of business. Usually the PACMAN then absorbs these competitors so gaining market control and leverage. Prices go up. Columbia/HCA employed this strategy very successfully in the USA.
It is also claimed that size brings economies and leverage in bulk purchasing of consumables. The information I am aware of from the USA suggest that this is not a major competitive advantage.
Healthscope's very successful strategy in the
single minded pursuit of leverage and growth are described in the
Healthscope
story on another
page.
contents
Funding PACMAN
activity
Because size and regional dominance give leverage in negotiations
with insurers, leverage becomes a key issue for corporations. The
number of hospitals in any region or even country is limited. In the
USA
there was consequently a frantic rush to grow quickly and secure
regional dominance. To accomplish this vast sums were borrowed, fraud
flourished, care was squeezed, and shares were floated.
To boost profits, and service their loans more money was squeezed from the patients by aggressive pricing and by overservicing. Thousands were needlessly admitted to hospitals for treatment they did not need and hundreds had major cardiac surgery when their hearts were normal. When opportunities for local growth shrunk the companies bought internationally.
Growth is now a major priority in health care
in Australia too. Mayne Health was the earliest proponent of this but
Healthscope
has taken on the mantle even more
enthusiastically.
contents
The US PACMEN
The aggressive pursuit of not-for-profit hospitals which were
then changed from entities serving the community to ones serving
corporate shareholders sent shock waves through US communities.
Columbia/HCA
for instance erected a billboard outside a competing hospital asking
"Why stop here?"
Not-for-profit US hospitals were owned by the communities or their churches. There were laws and regulations which limited the community's power to stop their own managers from selling to for-profit corporations. In some instances at least these managers benefited by moving into much higher paid positions with Columbia/HCA after they had transferred the hospital to the company.
Communities across the country rallied against what was happening forcing state attorney generals to block sales, and state governments to pass legislation restraining and regulating PACMAN activity.
The not-for-profit hospitals banded together
to form the Volunteer Trustees Foundation for Research and Education,
a mutual support organisation researching Columbia/HCA's
practices and warning potential
targets. All this created adverse publicity for the big corporations
and made PACMAN purchases of not-for-profit hospitals more difficult.
It slowed but did not stop the takeover of not-for-profits. As
Columbia/HCA fell from grace Tenet
Healthcare became the
main PACMAN
predator.
contents
Community awareness
in Australia
There is less evidence of community awareness in Australia,
although there have been pockets of resistance to corporate takeovers
or restructuring of public hospitals in Port
Macquarie and Mersey.
There has also been some community effort when private hospitals
which have been community hospitals servicing local communities are
restructured or closed as at Mosman.
The community in Adelaide responded to the threatened
closure of
the Western hospital. These have been
documented mainly in the local press and have not become a national
issue.
Healthscope has learned from the US experience and is moving more carefully. It has not yet been as aggressive or as ruthless as its US counterparts. It has not publicly attacked and demeaned not-for-profit services. But where profits were at stake in Mosman and in North West Tasmania their priorities and their willingness to put their profits ahead of the concerns of the communities they served was readily apparent.
One assumes that in situations like this
Healthscope carefully weighs the long term benefits versus costs for
the company and its shareholders rather than for the community. It
has a fiduciary duty to do so. Shareholder loyalty is much more
important than community support.
contents
Healthscope
strategy
Instead of attacking the not-for-profit sector Healthscope has
very publicly and forcefully taken the position that smaller
operators are not viable in the competitive corporate marketplace. By
repeating this over and over again it has created an overwhelming
impression that this is self evident to all, and that there is no way
out. The banks who lend money for projects have got the message and
the for profits have a major advantage in raising money for expansion
and projects. Healthscope has indicated its eagerness to capitalise
on the problems not for profits have by helping these groups out in
joint ventures.
Not only does this undermine the confidence of the not-for-profit groups, but it destroys their credibility in the banking, financial and political worlds. No one dare challenge it by raising its appropriateness within alternative contexts.
Not-for-profit's support base is eroded. Sun Tzu the 400 BC Chinese general and war philosopher whose book "The Art of War" some corporate managers read advocated strategies like this. He believed that wars were best won by propaganda and by undermining confidence - not on the battlefield.
It is equally possible that Healthscope is
simply forcefully asserting all this simply to reassure itself and
justify its own actions. John Ralston Saul the Canadian writer has
cautioned against conspiracy theories claiming that corporate words
are what they actually believe - or want to
believe.
contents
The financiers
Market analysts whose multinational corporate employers make vast
profits from consolidation have supported Healthscope's advocacy of
consolidation. Analysts' distorted and self-interested reports have
been implicated as key issues in a series of massive
Wall Street frauds.
Analysts in Australia have mindlessly praised consolidation claiming that the current "market" is inefficient, fragmented and therefore not only more costly, but less efficient in providing better care.
"With more size you certainly get better leverage with the health funds, and you also get some savings through economies of scale in areas like finance and supplies."
2002 Leverage
Healthy, wealthy and eyes for more buys. The Australian August 21, 2002
The real health care
marketplace
The marketing and management needs of the competitive market
generally increase the cost of administration and divert financial
and human resources from care to the business of
competing.
It is obvious when the blinkers are taken off that leverage and size enable companies to negotiate higher fees so pushing up costs. Size also places a distance between corporate decision makers and the coal face. They find it easier to cut staff and to manage in ways which compromise care and make the service impersonal and unyielding. The rationalisations of modern managerialism, and market thinking make this ruthlessness a painless process. Managers gain status and rewards by doing so.
The only marketplace where reliable assessments have been made between private not-for-profit and private for-profit is the USA. These show that the corporate marketplace has increased costs, decreased standards of care with increased mortality, and is the most inefficient health system in the developed world. This refutes all the key claims made by market advocates.
This is what you would expect logically but market advocates and politicians either pretend that this is not so, deliberately ignore the evidence, or try to rationalise the evidence away. They continue to claim benefits in these areas.
The best exposure and the simplest analysis of this marketplace in the USA has been made by two New York Times investigative reporters Donald Bartlett and James Steele in their November 2004 book "Critical Condition". It can be purchased for around US $16 plus postage from www.amazon.com.
As Barlett and Steele so accurately indicate
the central problem is the competitive corporate marketplace. In the
USA this developed as the market took control of health and imposed
its practices and thinking. Politicians fiddled and debated then,
faced by a fete accompli, they legislated to catch
up.
Differences
between USA and Australia
After 25 years, as the US market matured, the full consequences
became apparent to US citizens. There have been repeated battles in
which the community have taken on sections of the corporate
establishment and been able to enlist political support. Deficiencies
and fraud have been exposed. They have had some limited success. But
the corporations are dominant and firmly entrenched. The legitimacy
of the market and competition is firmly enshrined in the the US
psyche and those who attack and expose what is happening seldom
challenge the market's legitimacy. Instead they patch the system
which helps temporarily, or else try to make it more closely adhere
to market principles. The latter "reform process" invariably
compounds the problem which is the market itself. This strategy
prevents motivated people from finding a way around the problems
inherent in the market. Without a readily implemented and viable way
out politicians are tied into patching holes in the leaky
bucket.
In Australia, in contrast with the USA, the
health care marketplace was created by government and was based on
marketplace ideology. Business followed. Political credibility is
dependent on the success of this model of health care and there is
little motivation to identify and confront its early failures. It is
too early for major problems to stir up the entire community. The
press is largely corporate owned and most of its business analysts
write from within the market framework.
contents
Leverage and
consolidation
It is not only the companies providing health care that are
consolidating, but also the insurers. As the providers consolidate
their negotiating power with the insurers increases. The small
insurers genuinely attempting to fund care for their communities or
for employees find themselves disadvantaged. They have no choice but
to consolidate themselves. The logical outcome is a small number of
massive and powerful shareholder serving companies negotiating
against one another from each side - the number determined by the
ACCC.
Ostensibly and outwardly, the bargaining is for money to provide care and the negotiators might even believe this. Providers for instance routinely claim that the negotiating demands of the insurers compromise care, yet they seem to be equally ruthless in their pursuit of profit.
Both entities are primarily responsible and beholden to their owners, the large institutional shareholders. They are really negotiating for the benefit of these shareholders, i.e. for profit. They have a duty to do so. The services and the patients are simply a vehicle for haggling.
The pressures to privatise will turn more and more of the insurers into share market controlled entities. To compete they are already behaving as if they were. The large investment institutions will put their money into both insurers and providers. They will be appointing the managers and directors on both sides of the negotiations. They have no interest in negotiating their profits away. As a consequence it is the viability of the individually owned, and the not-for-profit entities, both without shareholders that will be put under pressure.
The interests of the "profit bodies", the patients, are also negotiated away. This most interested group are not represented at the table and they have no leverage. This is well illustrated by Healthscope's antagonistic negotiations with BUPA in South Australia. Here the system created to serve them ruthlessly used them as pawns in a battle for profits.
Pressure is mounting on providers of private health insurance to consolidate their businesses amid controversy over recent premium hikes and rising operating costs across the industry.
2002 Leverage
s-------------------------
The emerging concentration of the private hospital market will put the small community and occupation-based health funds at a disadvantage to the large providers in the setting of rates of health services.
The big insurers, such as Medibank Private and MBF, with 31 per cent and 18 per cent market shares respectively, will have greater bargaining power with the hospital groups, while the small health funds will become price-takers.
Too Many Funds For Industry To Be Robust Australian Financial Review June 6, 2002
Private hospitals are hoping a report by the Australian Competition and Consumer Commission will stop them being exploited by major health funds in annual negotiating rounds.
2004 Consequences for care
The ACCC warned that health funds were continuing to use inappropriate negotiating tactics such as the use of publicity and "take-it-or-leave-it" offers in their dealings with hospitals.
The comments were contained in a report tabled in the Senate this week. The health sector warned yesterday that consumers could expect poorer medical treatment as smaller private hospitals struggled against the greater bargaining power of large private health funds.
"The small hospitals cop it because they don't have any bargaining power and are subject to the take-it-or-leave-it tactics of the health funds," an Australian Private Hospitals Association spokesman said.
--------------------------
Another industry executive said that in some cases private hospitals were being asked to sign contracts with health funds that gave them less than the cost of the patient."The only way you can do it is to cut corners," he said.
Private hospitals put faith in regulator Australian Financial Review December 10, 2004
Having correctly sized up the way the market operated in 1998, Bruce Dixon, Healthscope's new M.D. realised that smaller groups and particularly not-for-profit groups with a very different mission could not compete successfully. Once he had solved the company's immediate problems he went after them. He acquired hospitals in Brisbane and elsewhere from small individual hospital owners. He knew that they faced the same problems as in the USA.
Healthscope Ltd has acquired both the 86-bed Kippa-Ring hospital and the 60-bed Riverview Private Hospital (now called Pine Rivers Private Hospital) from independent family company Private Health Services Pty Ltd.
2002 Buying in Brisbane
--------------------------
Mr Dixon said the hospitals would benefit from membership of a major national hospital group, including centralised management, group purchasing and centralised health fund negotiations.
New owners for private hospitals. Redcliffe & Bayside Herald July 24, 2002
We predict that consolidation of the industry will accelerate as stand alone hospitals (whether private or not for profit) lack the scale benefits of the larger groups. Accordingly, we believe that we are well positioned to take advantage of these trends as they accelerate.
2002 Well positioned to exploit situation
Healthscope Limited (HSP.AX) Preliminary Final Report. Australian Stock Exchange Company Announcements August 20, 2002
Healthscope management said its expansion program was well timed, given the consolidation in the private hospital sector. "We expect that both not-for-profit and for-profit groups that lack geographical scale benefits with health insurers will find it increasingly difficult to sustain viable operations," managing director Bruce Dixon said.
2003 Sending the message
Healthscope Finger On The Pulse Australian Financial Review August 27, 2003
Bankers, economists, politicians and analysts, eager for more opportunities for those who pay their bonuses, have been urging consolidation in Australia. As in the USA consolidation has become a buzz word.
Small personally owned groups and not-for-profit facilities are being forced along the same path as in the USA. They have three choices, either
In all these solutions the not-for-profit facilities hand management and control of the hospitals to for-profit trained managers or to a for-profit corporation and then, all too often, look the other way. Management arrangements which are usually called "joint ventures" suit the for-profit companies as they do not have to outlay capital. They continue to operate under the more acceptable not-for-profit mantle and friendly community name.
Once again we are following the USA with the motivated who serve the community subsidising the greedy who exploit it. We can draw a parallel with what occurs under managed care in the USA. Negotiating power enables the rich insured to pay only a fraction of that paid by the poor uninsured for identical treatment. Their insurers negotiate low fees for their members. The poor who cannot afford insurance have no leverage so pay much more to subsidise the insured. Their assets, their cars, and their houses are pursued by debt collectors until they pay. Health costs are the commonest cause of bankruptcy. As several analysts have revealed the poor subsidise the care of the rich in the USA.
In the same way the smaller sized community centred organisations which focus on the needs of the community are paid less by insurers and so subsidise the big aggressive market listed corporations. These groups focus on profits for their shareholders. They reward executives with large bonuses for their success in competing with community hospitals and then taking them over. This happened in the USA and is now happening in Australia.
The Adelaide Community Healthcare Alliance (ACHA) is the largest operator of private hospitals in Adelaide, South Australia.
Way back in 1997 an earlier group, also run by Geoff Sam ACHA's chief executive was in some financial difficulty. Columbia/HCA was entering Australia promising a $1 billion health investment in our hospital system. ACHA's predecessor planned to join Columbia/HCA in a joint venture. Its chief executive Geoff Sam was the strongest advocate and he was appointed by Columbia/HCA's as its front man in Australia.
A group of doctors from the group visited the USA to learn more and when they came back the plans were jettisoned. Sam, now discredited went to ground as the US $1.7 billion fraud scandal surrounding Columbia/HCA in the USA exploded. He was taken back by ACHA when the US company backed out of Australia.
The not-for-profit hospitals and their doctors had examined the USA and saw the way the wind was blowing in Australia. They progressively banded together to form a larger group with more leverage. Sam continued as chief executive. It is not clear whether his experienced had changed his thinking about corporate partners.
From all accounts ACHA continued to struggle. The purchase of the bulk of the Australian health insurance business in South Australia by the French giant AXA, and then by BUPA, a large ruthless multinational probably sealed their fate. Both had the global resources to sit out any losses if ACHA refused their offers. By 2003 ACHA was in some debt. Not for profit credibility had been eroded and banks would no longer support it.
Healthscope owned a large number of hospitals in South Australia and gaining control of most of those in Adelaide would give it the leverage it needed to successfully take on BUPA. BUPA dominated in South Australia and with such strong leverage it was able to dictate payments in medical/surgical hospitals.
This is another significant milestone for an organisation formed in November 1999 with the merger of Ashford and Western Hospitals. A subsequent merger with The Memorial followed in March 2000. Then, in November last year, the group acquired Flinders Private Hospital from Ramsay Health.
2001 Story of the Alliance
ACHA Health employs more than 2000 and has more than 1600 accredited visiting specialists.
Head of ACHA Health is chief executive, Mr Geoff Sam, a recognised leader in the Australian private hospital network, who was instrumental in what is now the largest private healthcare network in SA.
------------------------
"By merging resources, we aimed to obtain benefits of size, increase opportunities for staff, provide a better range of services for healthinsurance fund members and strengthen our ability to exert more influence on government policy as it relates to the private healthcare sector."
Proudly SA ADVERTISING FEATURE Alliance works for better care. Sunday Mail November 18, 2001
ACHA, incorporated in October 1999, is an Adelaide based, not-for- profit private hospital group that operates the Ashford, Western, Memorial and Flinders Private Hospitals as well as the Ashford Rehabilitation Service and the Ashford Heart Scan. The ACHA group contains 570 acute beds and 50 aged care beds with gross revenues in 2002 of $152 million.
2002 ACHA History
Healthscope Limited (HSP.AX) Selected as Preferred Tenderer. Australian Stock Exchange Company Announcements December 23, 2002
ACHA has 40 per cent of private hospital beds in the metropolitan area and is the state's largest private health healthcare group.
2003 ACHA Size
First day on job, hospitals' manager sacks 23. Adelaide Advertiser April 17, 2003
SOUTH Australia's biggest private hospital group is seeking a national alliance with a major private healthcare operator
2002 ACHA's financial position
The Adelaide Community Healthcare Alliance has been urged to take the step by banks which want the not-for-profit community-owned alliance on a firmer financial footing.
The alliance operates Ashford, Flinders Private, Mile End, the Memorial and Western hospitals and the Adelaide Staffing Agency.
Its chief executive officer, Geoff Sam, said yesterday the financial restructuring would be put to the association's 320 voting members for approval at a meeting on October 31.
----------------------
"Under our current structure our negotiating power with the health funds and banks limits our ability to raise the necessary capital for upgrades and development," he said."To continue to operate as we currently do is not an option."
ACHA would seek an alliance with a national operator - - - -
-------------------------
The Advertiser understands the National Bank and St George Bank have told the alliance they need greater security.
-------------------------
Eastern states hospital groups with major shareholders are seen by the banks as better placed to negotiate deals with health funds and doctors for benefits and services.The Australian Medical Association's federal vice-president, Trevor Mudge, said community control of Adelaide private hospitals would be lost "to the almighty dollar".
Firmer financial footing sought by hospital group. Adelaide Advertiser October 1, 2002
At the same time, staff held stopwork meetings last week amid concerns of ACHA debt levels and job security.
2002 ACHA's debt
------------------------
ACHA, which owns Ashford, Flinders Private, Mile End, Memorial and Western hospitals, is reportedly $110 million in debt.
---------------------
He (Union Representative) said members had reported incidents where companies had turned up at ACHA hospitals demanding stock be returned that had not been paid for.
COMMUNITY PRESSURE SAVES HOSPITAL. Weekly Times Messenger October 9, 2002
Dr Coglin said ACHA hospitals made a $6 million loss in 2001-02 with the final figure for this financial year expected to be "in the order of $14 million after deducting for extraordinary items ".
2003 Large losses
Health fund row: now gap widens Adelaide Advertiser October 1, 2003
The community objected strongly but the business community and their own board had placed them in an impossible position. It was not the boards fault, or the banks, or even Healthscope. Each was operating in the marketplace context within which government and economic theorists had placed health care. It was a context that saw it as desirable that the sick and vulnerable be cared for by those serving the interests of shareholders rather than those serving the interests of the patients themselves.
THE future of the state's largest private hospital group - the Adelaide Community Healthcare Alliance - was in doubt last night as members argued against its proposed sale to a national operator.
2002 A reluctant agreement
The board of the alliance, which controls the Ashford, Flinders Private, Mile End, Memorial and Western hospitals, has recommended the group be sold or leased.
At a rowdy crisis meeting last night, members were told that if the group was not sold or leased the five hospitals could be placed in voluntary administration.
Continuing to operate the hospitals as an independent not-for-profit alliance was "not a financial option", board chairman Creagh O'Connor said.
"ACHA is a community organisation with no shareholders and no access to capital fundraising," he said.
"This limits the board's ability to regularly and responsibly upgrade its buildings, plant and equipment and it leaves the banks as the only parties with financial risk and consequently ACHA's only shareholders."
The alliance's only option was to "restructure" and retain ownership of the hospitals with a national healthcare operator given the opportunity to lease or purchase the operations, Mr O'Connor said.
-------------------------------
The board's proposed "model" involves the ACHA retaining ownership of land and buildings and selling or leasing the hospital businesses to a national operator and receiving rental.
----------------------------
All capital works improvements undertaken by the operator would revert to the alliance for zero cost at the reversion of end of lease.
No cure for ailing health alliance, board says. Adelaide Advertiser November 1, 2002
Healthscope went to the market for more money shortly before it entered into the agreement with ACHA. Some of this went to pay off ACHA's debt and for staff redundancies.
"We predict that consolidation of the industry will accelerate as stand-alone hospitals lack the scale benefits of the larger groups," the group (Healthscope) said. Healthy Healthscope raising $28m. The Sydney Morning Herald August 21, 2002
2002 Consolidation will escalate
The Australian hospital industry continues to consolidate with a number of not for profit organisations electing to exit the industry. [Adelaide Community & Health Association] has foreshadowed that it will seek tenders to manage the Ashford, Memorial, Flinders and Western hospitals in Adelaide, comprising a total of 650 beds. We are also in discussions with other not for profit organisations which may lead to acquisitions or contracts to manage their facilities. The strong financial position of the company including its now conservatively geared balance sheet places us in a strong position to be a front runner in this process.
2002 Not-for-profit groups targeted
Healthscope Limited (HSP.AX) Chairman`s AGM Report. Australian Stock Exchange Company Announcements October 22, 2002
Now it (Healthscope) says it has been given exclusivity by ACHA to finalise due diligence processes and start negotiations on a management agreement. It expected to be able to comment on the outcome of the negotiations in February.
2002 The winner
Hospitals choose possible manager. Adelaide Advertiser December 26, 2002
Management Processes
The first step when taking over a new group is to fire existing
staff and install your own. This enables the acquirer to destroy the
leadership of an existing culture and install its own senior
management and their thinking without opposition. Geoff Sam was the
first to go.
NATIONAL private hospital group Healthscope took over management of three of Adelaide's major private hospitals yesterday, sacking 23 staff and rejecting control of a fourth hospital.
2003 Restructuring and firing staff
Under an agreement, the first of its kind in Australia, publicly-listed Healthscope will manage Ashford, Memorial and Flinders Private hospitals but bricks-and-mortar ownership of the three community and charitable hospitals will remain under control of the Adelaide Community Healthcare Alliance.
------------------------
Healthscope managing director Bruce Dixon said the agreement would give the hospitals greater bargaining power in negotiations with private health insurers over fees.ACHA chief executive officer Geoff Sam, who was among 23 redundant management and administrative staff, was replaced by Michael McDowell, 51, a former general manager of Royal Melbourne Hospital and chief of Melbourne's St Vincent's Hospital.
-------------------------
"ACHA will retain ownership of assets, the business and employ staff; Healthscope will be responsible for management," he said.
First day on job, hospitals' manager sacks 23. Adelaide Advertiser April 17, 2003
The deal gives Healthscope a total of seven hospitals in the Adelaide, making it the largest provider of health care in that city and giving it much greater bargaining power with the health funds.
2003 Leverage and redundant staff
The extra 550 beds in Adelaide will lift Healthscope to 2620 beds across the country, just shy of Ramsay's 2740. Industry leader Mayne group has some 6000 beds.
--------------------------
He (Dixon) said Ashford had been running a full corporate office of about 100 people but 20 had left before the deal was done and a further 23 were retrenched last week. The remainder would be placed back in the hospitals.
Healthscope Buys Rights In Adelaide Sydney Morning Herald April 22, 2003
"The fee payable under the ACHA management agreement is expected to increase as planned improvements to the ACHA hospitals operational efficiency result in profit improvement in the ACHA group," Healthscope said.
2003 Promise of efficiency
Healthscope forecasts improved 03/04 result. Australian Associated Press Financial News Wire August 27, 2003
Healthscope says ACHA hospitals made a $6 million loss in the 2002 financial year and is about to post a loss twice that amount for the past financial year.
2003 Restructuring - jobs, costs and property
Its prescription for the financial ills has been to axe about 80 jobs, cut costs and sell property amid warnings flagship private hospitals such as Ashford will close unless the situation is turned around.
How the health fund battle will hit members Sunday Mail September 21, 2003
HSP provided ACHA with $8m to restructure costs, pay creditors and fund the retrenchment of staff. In return HSP has a 10 year management contract in place to manage the three hospitals with a performance based fee. HSP has total management control and can add the hospitals to current infrastructure with a proportion of earnings going to HSP while losses are capped through the agreement.
2004 Paying ACHA's debt and expenses
--------------------
HSP is confident they can increase the market for hospital management services to the not for profit sector. It enables these organisations to outsource the management control while still holding the underlying asset.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004
The agreement with ACHA allowed Healthscope to gain hospitals and leverage without eating up capital and limiting further expansion. This allowed it to mount its next big takeover - Gribbles Pathology.
Healthscope was soon introducing its efficiencies and by the end of 2004 was claiming a massive turnaround in a very short period. At the same time analysts were downgrading the share price because these hospitals were not as profitable as Healthscope had predicted, and because difficulties at the ACHA hospitals had been concealed from the market. They were asking if anything else had been concealed? Their failure in the brutal confrontation with BUPA undoubtedly played a part.
THREE private hospitals have turned around losses of more than $1 million a month in the past year.
2004 Healthscope claims successful restructuring
----------------------------
ACHA chief executive Alan Lane said yesterday the turnaround had been achieved by asset sales of almost $14 million, cutting head office staff from 80 to fewer than six, reducing costs and driving efficiencies.
--------------------------
However, he said the results were "still not good enough, and we need to keep going".
---------------------------
Mr Lane is also Healthscope's regional manager for South Australia and the Northern Territory.
-------------------------------
"We have been able to make a huge impact on the business in a very short space of time," Mr Lane said.
-------------------------------
Mr Lane said as a result, the company was investing in new equipment, including $800,000 at Ashford and $500,000 at Memorial. The hospitals have also begun recruiting full-time nursing staff to cut the costs of hiring short-term agency nurses.
Hospitals slash millions off operating cost The Advertiser October 27, 2004
Analysts blamed the rout on the company's inability to extract sufficient margins from its hospitals in Adelaide, managed under the Adelaide Community Health Alliance (ACHA) banner.
2004 Others have doubts
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Worse, Healthscope also failed to keep the market properly informed about operational difficulties at ACHA and this has fuelled doubts about Healthscope's other promises, he said.
Healthscope is feeling poorly Australian Financial Review October 12, 2004
ACHA has been a loss making exercise but it seems these losses have been stemmed with a maiden profit contribution for the half.
2005 Yes they were losing money
HEALTHSCOPE LIMITED (HSP) $4.20 Your Money Weekly February 24, 2005
Healthscope had threatened to sell or close any hospital which was not profitable - even Ashford hospital. The Western Community Hospital was a classic community not-for-profit hospital. It had been founded and built by the community and was an important and integral part of the health service to a large section of the population of Adelaide. The doctors and staff were loyal and management looked after them so that it was a rewarding place to work in. Even though patients paid for their care everyone saw health care as a community service.
The Western was not profitable and ACHA's banks pressured the the not-for-profit to get rid of it. ACHA tried to close it in 2002 but when the community and staff rallied in anger they relented. When Healthscope did not want the hospital in 2003 it was finally sold. The doctors in the hospital came to the community's help and purchased the hospital at considerable risk promising to run it as a not-for-profit entity.
The thinking of the community, and the cooperation between community and doctors are in such sharp contrast with that of Healthscope that I have devoted a separate page to it. It illustrates the critical differences between a true not-for-profit mentality and a corporate one.
Click Here to go to the Western Hospital page.
A degree of distrust among staff during Healthscope's restructuring is revealed by a rumour that another community hospital was to be sold and turned into a luxury hotel. Whether this was considered by Healthscope is not clear but Healthscope publicly denied it.
Hospital sources told The Advertiser they believed the Memorial was to be sold, with plans for a new luxury hotel.
2004 Rumours of another sell off
Healthscope regional manager Alan Lane - who manages Memorial under contract to the Adelaide Community Healthcare Alliance - rejected the suggestion.
- - - - - he said. "We are committed to maintaining Memorial Hospital as a centre of excellence and we are working to build on it and grow it."
Memorial `to stay as hospital' Advertiser, The (Adelaide) April 3, 2004
Healthscope's was soon talking about further expansion. It had not-for-profits in its sights. It started selling the ACHA arrangement as the preferred model for not-for-profit alliances
Mr McCann said there was potential to expand Healthscope's role in the not-for-profit sector.
2003 Future growth
"We will pursue future opportunities when the integration of our recent acquisitions and ACHA management agreement are completed," he said.
Hospital profits need peace pact Adelaide Advertiser October 22, 2003
Healthscope remains extremely positive about the contract (with ACHA) and believe it is potentially the preferred future model for the not for profit sector.
2004 Preferred model
Managing Directors report Annual Report October 2004
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This page created May 2005 by
Michael
Wynne
