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section Ramsay Health Care
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interest. They should not be reproduced for commercial
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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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Ramsay Health
Care's business practices and policies are radically
different to the economic rationalist recipe for success and
are frequently contrasted with Mayne Health. They have been
spectacularly successful for the company and have not
resulted in any of the controversial failures of the
corporate marketplace. This page examines them.
Business Policies and Practices
Much of the available information about policies and practices comes from the public statements of Grier and from the articles by analysts and journalists whose information comes from the same source. Grier's forte is marketing and he has done a lot to publicise the private for profit health system and Ramsay in particular. Understandably the information is presented positively and is intended to promote Ramsay and its share price. It provides what shareholders would want to hear in any particular situation, as much as Ramsay's real thinking. This explains some inconsistencies. Ramsay Health Care is doing very well and Grier is not slow in giving the reasons. There is no reason to doubt most of what he says.
Policy has varied and changed over the years. Much of it has been directed to avoiding competition. During the early years Ramsay Health Care and Paul Ramsay operated psychiatric hospitals in the USA and sought to learn from the profitable US commercial experience and bring US commercial practices into their Australian psychiatric hospitals. Because there were seldom regional competitors these hospitals were later "must have" for insurers, so provided considerable leverage in negotiating reimbursement with them.
There was a stage when psychiatry was under some threat of cost cutting. Diversification then became the objective. Ramsay bought rural general hospitals where there was no competition.
During the mid 1990s the pressures on private hospitals from the fall in private health insurance fueled the rush to run privatised public hospitals and to piggy back off the public system. Ramsay was the only company which did this successfully and its two veteran's hospitals have provided a steady profit steam over the years. Its two colocated hospitals, North Shore and Westmead also performed well.
By the end of the 1990s health finds were flush with cash but were not passing that on. Size and leverage in negotiating with insurers became critical for success. Companies competed for leverage. Ramsay expanded rapidly in key areas, and upgraded its central hospitals to make them indispensable for insurers. It took the ultimate big step in the battle for leverage by buying Affinity Health in 2005 making it by far the largest hospital group in Australia.
Ramsay health Care has avoided competition by buying where there were no competitors. Its recent increase in size allows it to dictate to insurers, but it will now be competing for doctors and their patients in the same market space as others.
Ramsay has realised that patients use hospitals near their homes and the company has bought in areas where people are wealthy enough to be insured. It also realised that the top doctors, whose support it wanted were based in teaching hospitals and it targeted its privatization's and colocations towards these.
Growth is a key issue in the corporate health care marketplace and must be maintained to increase share prices. Ramsay concentrated on its core business of hospitals and missed out on the consolidation of radiology and diagnostic laboratories. There are now few opportunities to buy hospitals. Ramsay has refocused its growth strategy on aged care which is claimed to be ripe for consolidation. There are currently few if any market listed operators in this sector.
As Ramsay has prospered Mayne Health has crumbled. Many of the reports of Ramsay's successful strategies compare them with Mayne's failed policies.
In psychiatric hospitals, there is no middle way. You do it well and get dominance in the industry, or you get out. We really tightened up. - - - and swapping experiences with our sister psychiatric hospitals in the US. We now have about 80% of the Australian market in private psychiatric hospitals."
Mar. 1997 Leverage and growth
---------------------
The Australian group has $130 million committed to four projects. Ramsay says: "That is enough to create a bit of indigestion, and we could just consolidate with those projects. But there are so many opportunities coming."
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
Unlike the Mayne Group, which has elements of all parts of the health-care system such as diagnostic imaging and GPs, Ramsay sticks to its core business of running hospitals.
Mar. 2002 Core business
Ramsay sticks to its hospital core The Australian March 4, 2002
Ramsay's successful business model - buy hospitals in areas where people are likely to have health insurance - is different from Mayne's, which has spread itself all over the health system. Now there is speculation that Ramsay might look at aged care and medical diagnostics too.
Mar 2002 Buying hospitals in wealthy areas
Private Operations The Age March 16, 2002
Investment Statement - RHC is a premier private hospital operator generating industry leading operating margins. Strong cash flow generated from the portfolio of quality hospitals is reinvested into enhancing current facilities and expanding into aged care. This is a growth stock with earnings expected to grow through synergy gains from recent acquisitions, brownfield expansion of current hospitals and greenfield expansion of new aged care facilities. RHC is an ideal stock for growth investors seeking exposure to the private hospital and aged care sector.
Nov. 2004 A growth stock
RAMSAY HEALTHCARE (RHC) $7.35 Your Money Weekly November 25, 2004
Ramsay CEO Pat Grier says success in the hospital business is not about size, but depends on addressing several issues.
Nov 2002 Recipe for success
Keep close to your people
Micro-manage costs
Build relationships with key stakeholdersNothing but the best Shares Magazine November 1, 2002
Ramsay has expanded beds and services at its major hospitals including its colocated and veteran's hospitals. These are closely allied to teaching hospitals and doctors who are leaders in their fields use them. They are consequently essential for insurers. As Ramsay negotiates with insurers on the basis of "one in, all in" the leverage provided by these hospitals allows them to negotiate higher fees across all of their hospitals. They are worth far more to the company than suggested by the more modest profits generated by the more complex medicine practiced there.
Grier says that in 2003-04, Ramsay will begin to see the benefits of a $70-million investment in upgrading its facilities and increasing capacity. The expansion includes the acquisition or construction of the 76-bed Lake Macquarie Private Hospital in New South Wales, the 141-bed Calvary Cairns Private Hospital, a 14-bed maternity wing at North Shore Private in Sydney, a 90-bed wing at Brisbane's Greenslopes Private Hospital, as well as consulting rooms and theatres.
Oct. 2002 Enhancing
Right Prescription For A Healthy Company Business Review Weekly (Australia) October 24, 2002
The increase in earnings is primarily derived through brownfield development of its existing facilities. The reinvestment of capital in opening and modernising new wards improves the overall operating efficiencies of a hospital and offers its patients an increased range of facilities.
May. 2004 Increasing services
RAMSAY HEALTHCARE (RHC) $5.12 Your Money Weekly May 6, 2004
Therefore if a health fund wants access to the exclusive Northshore hospital then a deal will be done with the combined portfolio of RHC hospitals. This strong position has been enhanced with the reinvestment of capital back into hospitals to maintain a position as "must haves" for health funds.
Nov. 2004 Leverage using "must have's"
RAMSAY HEALTHCARE (RHC) $7.35 Your Money Weekly November 25, 2004
During the bleak 1990s Ramsay spread its sources of income to move away from dependence on struggling insurers. It joined the privatisation rush where funding came from government. This worked well for Ramsay in the profitable veterans hospitals This stream of income sustained the company through difficult years giving it a head start. Privatised public hospitals failed to do so and Ramsay escaped with only one. Colocated private hospitals initially struggled. The two in wealthy areas and the veterans hospitals were developed into "must have" hospitals providing both leverage and profits.
Where others have concentrated on profitable quick fix rapid turnover medicine (cherry picking), Ramsay has accepted the load of more costly complex care and kept close to the academic heart in teaching hospitals. It later turned this to long term advantage in securing leverage and credibility.
In 1989, Ramsay's Australian health turnover was only $37 million, from psychiatric hospitals (61%) and medical-surgery hospitals (39%). The breakdown he sees for $250-million turnover in 2000 is only 25% from psychiatric, with 41% from privatised veterans' hospitals, medical/surgical 21%, and uninsured patients 12.6%.
Mar. 1997 Spreading the income
------------------------------------
Grier says: "We were overexposed to psychiatric hospitals. We had to diversify towards medical-surgical, and achieve economies of scale in both sectors. We needed credibility with government, health funds and the medical/academic establishment. Funding was tight but we pulled it off largely because of our family business culture here. I'm sure we won tenders partly because the officials assessing our bids felt we were good people to deal with.
-------------------------
Ramsay says: "The industry had a bad reputation for concentrating on the more lucrative, low-tech cases. To be a credible long-term player in acute surgery, you must be in teaching and research as well."
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
The second difference is the particular blend of hospital beds. Ramsay has the nation's largest network of private psychiatric hospitals - an important advantage because psychiatric hospitals generally have amongst the highest operating margins in the industry. Thirdly, unlike operators that receive the majority of their revenue from health funds, Ramsay derives 40 per cent of earnings from the Commonwealth through contracts with the Department of Veterans' Affairs. This earnings diversity provides protection from potential risks.
Feb 2003, Spreading the income
Fighting Fit The Age (Melbourne) February 8, 2003
Goodsall also likes Ramsay's diversified revenue base across acute and surgical, mental health and veterans' hospitals. Rather than big bang acquisitions, Ramsay has concentrated on selective, bolt-on hospitals which fit strategically and culturally with its operation.
Nov 2002 Affects acquisition policies
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
Ramsay says: "The industry had a bad reputation for concentrating on the more lucrative, low-tech cases. To be a credible long-term player in acute surgery, you must be in teaching and research as well."
Mar. 1997 A different focus
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
Health corporations are growth companies and when growth dries up investors look elsewhere. Ramsay has concentrated on hospitals and did not get into diagnostic imaging or laboratories. There are now few opportunities here. Smaller hospital corporations are now in short supply so Ramsay is turning to aged care. This is a marginal area where corporatisation and consolidation have not occurred yet. The difficulties imposed by funding and regulation are even pushing the not for profits out. Grier is very enthusiastic but whether he can make profits here remains to be seen. Perhaps Paul Ramsay, who has friends in high places knows something about plans for future funding.
At Macquarie's emerging companies conference, Ramsay HealthCare's managing director, Pat Grier, was waxing lyrical about the performance of his hospitals and the early stages of his push into aged-care facilities.
May 2004 Aged care, not diagnostics
One point made in the slide presentation was a reference to growth opportunities in other hospital-related activities. Some suggested this might refer to a move into the diagnostics business (Mayne's might well be a possibility) but Grier apparently played down that strategy. Diagnostics was already overcrowded.
Aged care, however, was very fragmented and offered greater opportunities.
Ramsay Health cocky The Sydney Morning Herald May 7, 2004
An aging population must guarantee Ramsay Health Care that it has a never-ending business which has an important niche in the ongoing life of Australians.
May 2004 Some rejoice in getting old!
RAMSAY HEALTH CARE LIMITED : A COMPANY THAT FILLS THE GAP LEFT BY PUBLIC HOSPITALS Ralph Wragg Australian Business News May 26, 2004
The economic benefits of size have been part of the pantheon of real but overblown marketplace justifications. These are never set against the human costs of size in depersonalising a service which is essentially personal. To some extent Ramsay Health Care has realised this in its management style, Mayne Health did not.
More importantly for the company, size increases leverage and negotiating power. Even Grier and other executives recognise that this is going to result in failures in care as smaller operators are squeezed and struggle to remain viable.
Ramsay Health Care has been far more subtle than Healthscope which built its entire business policy around securing leverage and trumpeted its intention to insurers. When it did gain leverage and initiated a bruising dispute the insurers were waiting.
Ramsay believes the for-profit sector will consolidate as small groups prove unable to gain economies of scale. "Fixed costs in health, especially staffing, are very high, so margins are slim until you get into high bed occupancies. You have to be able to cut costs quickly whenever the workload drops away.
Mar. 1997 Consolidation
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
"One other advantage of that size is that you can be much more powerful in negotiating with health funds."
Mar. 2002 Size and leverage
Ramsay sticks to its hospital core The Australian March 4, 2002
Yesterday, Pat Grier, the chief executive of one of Australia's largest private hospital groups, Ramsay, said problems lay ahead for small private hospitals in their dealings with health funds.
Dec. 2004 Squeezing smaller operatives compromises care
-------------------------
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
RHC has what is regarded by health funds as "must have" hospital assets. For health funds to appeal to potential customers they want the best private hospital facilities. RHC's asset position provides a strong point of influence when negotiating with health funds for annual funding. RHC's "one in, all in" policy ensures that favourable funding from the health funds is distributed across the total portfolio of assets. This position of strength explains why RHC can generate operating margins above 10% compared to competitors between 6 to 8% margins.
Dec 2004 "Must have's" and "one in all in" works for Ramsay a year after BUPA rejected it for Healthscope
RAMSAY HEALTHCARE (RHC) $6.80 Your Money Weekly December 16, 2004
This consolidation tips the negotiating power in favour of big hospital groups and makes life harder for the smaller health insurers.
July 2005 This level playing field slopes steeply against smaller competitors
Medibank - the catalyst for change The Sydney Morning Herald July 15, 2005
Ramsay learned from the experiences of others like Healthscope and Australian Hospital Care in the 1980s and early 1990s as well as its own experience with Flinders hospital. It has set strict profit requirements on potential purchases and Grier claims that it sells any hospitals which are not profitable. Ramsay earlier boasted that he had only sold one hospital in Australia. The Flinders colocation is the only recent one I can find. Is this because their selection process is so stringent or is Grier telling the banks and investors what they want to hear?
Note below the way the market in Australia now uses "quality" to refer to profitability and not to care. The market often does not distinguish between them. In the USA the two uses were merged in the business mind. Quality based on profits was equated with quality in care. Those who did so were in indignant denial when appalling standards of care were exposed in their very profitable hospitals. The worry is that this might happen here too.
"We are becoming more objective about how we ration our new capital spending. It may be that there is a better return from investment in diagnostics, radiology and outpatient work than from hospitals. Pathology certainly needs a large-scale operation."
Mar. 1997 Flirting with diversification - following the money
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
"They must be cash-flow positive from year one and sometimes we allow them to contribute to earnings from year two, but we do watch them very closely and if they don't work, we sell them," he (Pat Grier) says.
Mar. 2002 Selling hospitals if unprofitable
Ramsay sticks to its hospital core The Australian March 4, 2002
Ramsay's strategic approach is to maintain the quality of its asset base and not acquire hospitals or operations that are overvalued or which could not achieve returns in excess of 15% ROIC. - - - - - Chairman Paul Ramsay personally owns 51% of the outstanding shares on issue, a source of proprietorial discipline.
May 2004 Quality and market discipline
RAMSAY HEALTHCARE (RHC) $5.12 Your Money Weekly May 6, 2004
Ramsay has not been as aggressive and open in targeting smaller not for profit hospital owners. As size and leverage, in contrast to care and service, have become all important they have become very vulnerable. Ramsay Health Care recognises that and has capitalised on it by buying some. They were sited to provide services rather than profits and Ramsay only wants those that are profitable.
Grier sees more opportunities in trades sales, particularly by not-for-profit operators, rather than pursuing riskier greenfield sites.
Nov. 2002 Purchasing not-for-profit hospitals
An example was the recent purchase of the 141-bed Calvary Cairns Private Hospital from the Catholic Diocese of Cairns. Ramsay applies a strict 15 per cent return on capital criteria to such purchases.
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
Paul Ramsay and Ramsay Health Care have a long history of international operations but over recent years they have been low key about this. In 1997 Ramsay appointed someone to look at "global planning". Currently Ramsay Health Care does not have an international division.
I have come across information indicating activity at various times, not only in the USA but in Hong Kong, Malaysia, China, the United Kingdom, Germany and Ireland. Since the psychiatric debacle in the USA in the 1990s Ramsay has denied international ambitions. This has not stopped him from looking at Germany and Ireland or taking an interest in China.
These international operations are important because they give an indication of how Ramsay and his companies behave when they are not under the close scrutiny of Australian doctors, when they are under market pressure, and when the environment is more permissive. There are concerns about some of its operations in the USA and about its dealings with doctors in Ireland. These are doubly important because they are recent. They are described on the international page.
Ramsay has resisted offers from multinationals to buy his company, including an offer from Columbia/HCA. He has considered joint ventures and other sources of international funding but did not use them.
Ramsay says his main expansion will be domestic. Taking a phone call, he shrugs off a proposal for a new US hospital venture, saying: "Why spend 24 hours flying there when we can do it here, where we can see it from the window?"
Mar. 1997 Global interests
---------------------------
We have had several overseas offers to joint venture here using our management and their equity. The only option I won't consider is selling out." To broaden global planning, Ramsay has recruited Bernard Stanton, who was for 15 years managing director of the Darling family's businesses.
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
As indicated elsewhere, while it is listed on the share market Ramsay functions as if it were a private unlisted company owned by one person. Paul Ramsay always tries to own a majority of the shares in his companies. He can therefore ignore outside pressures. He is not subject to the same pressures or the market practices dictated by institutional investors, analysts and financial institutions including the banks who don't understand health care. They are of course only too willing to praise and support when Ramsay does well.
This is where the critical difference between Ramsay and Mayne lies. Mayne's managers took their proposals to institutional investors for approval and responded to the marketplace dictates of investors and financiers. When the market prescriptions failed in 1999 financiers and investors threatened to break up the company. Their pressures resulted in the appointment of market man Smedley in 2000, and so in the eventual break up of the company in 2003 after he failed dismally. This was even though there were now managers who were performing better. All Mayne management got for doing what they were told was condemnation!
Ramsay's management style reflects this difference.
"Recent admissions by Mayne confirm our view that part of the Ramsay formula for success is a reflection of their style, which is both macro and micro," Goodsall said. "Management is prepared to roll up their sleeves and assist in the operational and practical side of the business. This ... has a bearing on several factors affecting the business, including the willingness of staff to work for Ramsay."
May 2002 Mayne and Ramsay - contrasting styles
Healthy prognosis The Sydney Morning Herald May 14, 2002
Ramsay and Mayne are worlds apart in their management approach. Mayne's former chief executive, Peter Smedley, and his successor, Stuart James, have been widely criticised in the health-care business for being aloof and out of touch with the needs of doctors and patients.
Oct. 2002 Grier's style
Grier is from the open door school of management; he visits the group's hospitals frequently and knows many of the staff by name. There are other differences: Mayne has centralised many of the functions in its health-care division; Ramsay gives its hospitals considerable managerial autonomy. Grier is widely described as a nice guy, a term seldom used in relation to Smedley or James.
Right Prescription For A Healthy Company Business Review Weekly (Australia) October 24, 2002
Grier is a believer in operational autonomy at the hospital level. Only support functions such as supply purchasing, negotiation with health funds, IT and human resources are standardised and centralised.
Nov. 2002 Hospital autonomy
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
It is soon apparent that there is something very different about Ramsay and his Australian company. It was only when I came to this section that I realised what it was.
When I looked to write about the usual corporate motivating forces, goals, incentives and disincentives, performance measurements, and large salaries plus big bonuses for executives I found that they were not there. In spite of this Ramsay Health Care outperformed them all.
People worked for Ramsay because they found this rewarding and fulfilling and wanted to work and do well. They were proud of it. Instead of being driven by what they could get out of their work for themselves, they were motivated to contribute. Senior and junior staff stayed with the company even though they would have been paid much more elsewhere. Staff turnover was low.
This is a for-profit exercise. It is money driven and only provides services for its own benefit. It isn't saintly by any means and there is a hard and ruthless side to it. It has succeeded in walking that fine line between primary financial interest and being people conscious - providing an environment in which people can fulfill themselves. But it probably does so because it has found this to be profitable. As indicated earlier in Ramsay's case there are a number of personal factors which have taken them down this path and it has proved to be profitable.
Ramsay's great strength is his ability to get on with everyone and to motivate his staff. Grier has followed his example and gives staff issues particular emphasis. These good relations embrace, staff, doctors, the business community including competitors and politicians. Much of this has become company policy. One is reminded of the 1950s when some big companies were as loyal to their staff as they expected staff to be to them. They went out of their way to make staff happy and motivated.
In health care, nursing and other staff are not only the largest expense, but are the key to the ambiance, culture and services provided. They can be in short supply. Ramsay realised it was good business to have them on side and eager to join his company.
Ramsay has created a culture that is almost paternalistic. He looks after his staff and commands tremendous loyalty.
Mar. 1995 Paternalism
Back From Brink And Into His Prime Sydney Morning Herald March 25, 1995
"I have always worked on the management principle of getting good people into the business. Healthcare is very much a people industry. Our commodity is people fixing up people,'' he said.
Jun. 2001 A "people industry"
As 60 per cent of Ramsay's costs were for labour, Grier said it was important to ensure employees performed at their peak.
Selling Health Care's Solutions For A Balanced Industry Australian Financial Review June 25, 2001
"If you don't have good staff, you can never attract good doctors. Good doctors will not work with poor staff, but good staff are always in short supply, so they don't need to put up with poor working conditions. If you start putting too much pressure on staff to cut costs and work unreasonably, they leave
Oct. 2002 Good staff bring good doctors
Right Prescription For A Healthy Company Business Review Weekly (Australia) October 24, 2002
The philosophy of helping others and caring for them may fit uneasily with corporate greed and generating increased return for shareholders. RHC has managed to break this mould by ensuring firstly and most importantly that they look after the health professional so that they can then look after the patients.
May 2004 Walking the fine line by investing in staff
The commitment by RHC to its health professionals is spelt out in its annual report under the "Ramsay Way". RHC is focused on developing a culture of commitment and dedication - - - - - - .
This ingredient of investing in its staff perhaps explains why Ramsay can generate significant returns from its asset base where Mayne failed.
RAMSAY HEALTHCARE (RHC) $5.12 Your Money Weekly May 6, 2004
"Much of his success springs from his (Ramsay) personality. He is the better side of the Catholic faith, he treats everyone from the specialist doctors to the cleaners decently. It has paid dividends for him."
Oct. 2004 Paul Ramsay and staff relations
At a time when there is rapid turnover in senior management, Ramsay Health Care and Prime Television stand out for the stability of their staff. One of the biggest components of Ramsay's success has been his ability to attract and retain talented staff without paying the enormous salaries that are a feature of the modern corporate structure. Grier, Siddle and the chief financial officer at Prime Television, Warwick Syphers, have all been with Ramsay for 20 years or more.
Old school and other ties Business Review Weekly October 28, 2004
Ramsay's reputation of superior employee treatment has filtered across the industry and RHC hospitals are regarded as preferential places to work
Dec. 2004 A good place to work
RAMSAY HEALTHCARE (RHC) $6.80 Your Money Weekly December 16, 2004
Ramsay Health Care has a culture of commitment and dedication through the adherence of all staff to the principles of the Ramsay Way.
Jul. 2005 The Ramsay Way
• We are caring, progressive, enjoy our work and use a positive spirit to get things done• We take pride in our work and actively seek new ways of doing things better
• We value integrity, credibility and respect for the individual
• We build constructive relationships to achieve positive outcomes for all
• We believe that success comes through recognising the value of people and encouraging that value through professional and personal development
• We aim to grow our business while maintaining sustainable levels of profitability, providing a basis for shareholder loyalty.
The Ramsay Way Ramsay web site July 2005 http://www.ramsayhealth.com.au/
I have reservations about the effectiveness of accreditation processes in detecting failures in care and detecting dysfunction likely to cause this. There have been too many failures in processes. Accreditation can be a boost for staff morale, but it also gives legitimacy to dysfunctional commercial practices ignored by accrediters, who often come from hospitals with similar practices.
The company is proud of the fact that all of the Ramsay HealthCare hospitals have achieved full accreditation status with the Australian Council on Healthcare Standards.
May 2004 Hospital accreditation
RAMSAY HEALTH CARE LIMITED : A COMPANY THAT FILLS THE GAP LEFT BY PUBLIC HOSPITALS Ralph Wragg Australian Business News May 26, 2004
There is little in Ramsay's business statements about pleasing patient customers, but having motivated staff makes for good patient relations. While Ramsay sometimes refers to patients as if they are customers, it is clear that the company considers doctors to be their main customers - very different to Mayne.
Ramsay Health Care managing director Pat Grier said private hospitals did not generally compete for patients but for doctors.
Jul. 2005 The real customers
Competing for patients would arguably keep prices down, but competing for doctors pushed them up.
"Doctors don't come if you don't have good staff . . . and if you don't have the appropriate equipment," Mr Grier said.
Hospitals splurge on equipment to lure doctors Australian Financial Review July 15, 2005
The patient is the customer, but the doctor is the partner. "You can't afford to rub your doctors up the wrong way. On the other hand, you can't give them everything they want. They also have to realise the success of the hospital is all about them - it's about working together," Grier says, adding that targeting good doctors breeds success, as other good doctors usually follow them.
Nov. 2002 Calling doctors partners but they are still the people to please
Nothing but the best Shares Magazine November 1, 2002
Doctors deal with the patients and the doctors know in which hospital they like to work. While doctor and patient convenience, patient preference, and geography are important, it ultimately comes down to where doctors feel comfortable working and where the facilities and services enable them to practice their craft efficiently and well. They need to build a team of coworkers. Patients are therefore wise to allow their doctors to choose.
Market listed corporations have a prime responsibility to share holders. The market works because customers are distrustful. Health works when patients can trust the service and when doctors and hospitals are trustworthy. Doctors and the hospitals need to have good relations based on mutual trust and respect if they are to provide a good service. These conflicting loyalties and requirements cause many problems.
Hospitals want to cultivate doctors and this is good business, but there are inherent risks. Hospital corporations think in market terms and assume that others do as well. All too often their mode of operation in securing good relations is to try to align the doctors financial interests with those of the company and so capture the doctors compliance in business activities which are often not in patients' interests.
Paying kickbacks in one form or another for referral or other commercial considerations is illegal in Australia and the USA but corporations have shown remarkable ingenuity in finding ways around this.
The practice of aligning doctors and management's own financial interests with company profit lies at the heart of the problem with corporate medicine. It lies at the root of almost all of the massive health care scandals in the USA. Patients have been the victims. These economic advantages bind the doctor to the company even when the other services are substandard and care is compromised.
Blaming doctors for being unethical because they are vulnerable to these pressures gets us nowhere . Ethical behaviour in a broad group requires an environment which supports it and a community which identifies with it. A marketplace context does neither. Doctors as people are not that different to everyone else and are as vulnerable.
What is worrying is that Grier rejects requests from doctors for kickbacks because it is costly and not because it is illegal or unethical. While Ramsay normally does the right thing I worry that, too often, this is for commercial rather than ethical or humanitarian reasons.
Hospitals depend on doctors to keep beds occupied and theatres full. As a result, there is keen competition among rival hospitals for the doctors that can produce a big income. "But you cannot afford to give away the farm," Grier says, referring to some doctors' demands for inducements to work in a particular hospital.
Oct. 2004 Inducements for doctors
Right Prescription For A Healthy Company Business Review Weekly (Australia) October 24, 2002
One of the strongest draw cards is to have doctors offices in or adjacent to the hospital. Doctors want this for their convenience and having offices close to care increases the quality of that care because the doctor is readily available. Geography is a key referral strategy. The temptation is to use this competitively to secure doctors by offering low or no rental or even secretarial or other assistance.
Giving money or providing facilities for research or scholarships is clearly desirable and legitimate but these can be used as a carrot and reward for compliant doctors and are best mediated through an intermediate body. These vulnerable areas have been exploited by corporations in order to secure leverage over their doctors.
Other difficult areas which lend themselves to exploitation are bursaries, paying for conference attendance and postgraduate training opportunities. While all are desirable and beneficial the company can use them to garner support and limit dissent.
Marketing of the doctors to the public or to the profession by the company is particularly treacherous. Companies have marketed compliant and profitable, but incompetent or unprincipled doctors in this way. Some of the worst abuse and misuse of patients has occurred because of this (see Tenet Healthcare in psychiatry and in cardiology).
Companies which have entered into joint projects with doctors will want to market these projects and the skills of the doctor to both the public and to referring doctors. Doctors with less insight, often with questionable skills or objectivity readily internalise this marketing and believe it themselves. The support of the company protects them from the oversight normally provided by peers, who are typically thought to be jealous or malicious because they have not been as successful.
Common strategies are to encourage doctors to become part owners, share holders or joint venture partners with the company. These arrangements are not illegal and are commonly employed in the USA and Australia. Affinity Health, advised by turnaround Citigroup specialists, CVC Asia Pacific has used them as a major tool in their recovery from the Mayne debacle. They are dysfunctional and should not be permitted.
Under Affinity's float plan, it was preparing to offer free bonus shares to the 4000 medical specialists and doctors who regularly refer patients to Affinity Health's 48 hospitals if they became investors under a tiered system where big work generators were rewarded for their contribution in building the business.
Apr. 2005 Affinity offers shares - is this a kickback?
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The medical specialists and doctors are crucial to Affinity's future growth plans because they are, in effect, the business generators for Affinity and dictate where a patient might have a surgical procedure done.
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One fund manager said Affinity planned to issue one free bonus share to medical specialists and doctors for each four shares they subscribed for.
Ramsay stitches up $1.4bn deal Australian Financial Review April 13, 2005
My view is that offering doctors, who admit more patients, more shares as a reward for doing that is a simple kickback which is illegal and should be prosecuted through the courts and medical councils.
I have not seen reports showing that Ramsay Health Care has encouraged doctors to be shareholders or has embarked on joint ventures with them in Australia. I do not know if they have done so. There is a report indicating that they were negotiating with doctors about share holdings in hospitals in Ireland - but in fairness this was favoured by Irish politicians at that time.
Hospital consultants at Beaumont, the public hospital in north Dublin, are currently negotiating with the Australian Ramsay Healthcare group about the size of their shareholding in a 150 to 170-bed private hospital proposed for the site of the public hospital.
May 2002 Ramsay, doctors and shares in Ireland
Future of private hospitals depends on election Irish Times May 2, 2002
It is here that the difficult areas of commercial self-interest and medical ethics collides so forcefully and why corporate shareholder focussed health care is so dangerous for citizens. Practices which are desirable and beneficial in a different sort of service directed to the community become severely dysfunctional in this commercial context.
Although I have not seen reports documenting these practices in Ramsay Health Care, the company has been among the most energetic in cultivating doctors and their support. It claims to have done so by supplying the staff and services they want to care for their patients. This attracts doctors and is desirable.
In the for profit context this too has serious problems. Companies have spent vast sums on costly equipment to attract doctors and have drawn in staff to use them. Some have not had the training, skills, insight, or experience to do so properly. Often the need for the equipment in the community was limited or competitors have installed similar equipment in order to compete. There is an oversupply. The company has encouraged usage in order to secure a return on its investment. Overuse, misuse and excessive, sometimes inept care has resulted. Because of the financial investment and marketing expenditure company officials tend to be deaf to the unhappiness of other doctors about these developments.
Once again Ramsay has given the doctors far more autonomy and influence in its hospitals than others and they are in a better position to restrict excesses like this. Ramsay Health Care walks a fine line balancing its profit priorities responsibly.
Good relations with medicos are crucial for patient referrals. Even in RHC's headquarters, three floors are set aside for doctors' use as consulting suites. RHC supports three university chairs in psychiatry and employs more than 70 registrars and residents (trainee doctors).
Mar. 1997 Beneficial philanthropy, commercial interest or both?
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
If you start putting too much pressure on staff to cut costs and work unreasonably, they leave. Good doctors attract other good doctors, and at that point, your beds are occupied."
Oct. 2004 Balancing conflicting priorities
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Ramsay is doing better than some of its competitors in finding a balance between having good relationships with medical staff (particularly specialist doctors) and reasonable cost controls.
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Grier says Ramsay works closely with its doctors - he describes the relationship as a partnership - but also keeps an eye on them. "All the hospitals have mechanisms for reviewing what is happening and we encourage people to be whistle-blowers if something is wrong.We also use the doctors themselves, whose credibility is tied in with the institution, to keep us informed of poor practices.
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"I think there should be more policing of private hospitals, and I believe the health funds could do more, especially monitoring some of the operators who work on the fringes of the industry," Grier says.
Right Prescription For A Healthy Company Business Review Weekly (Australia) October 24, 2002
"A hospital operator can have first-class facilities, but if you have demoralised staff then clearly the best service will not be provided to health fund members," says Grier. "It's a people industry."
Nov. 2002 Ramsay balances profit and people to produce outcomes
A key differentiator for a private hospital is attracting surgeons and specialists. Having a happy nursing force means a safer environment for doctors in which to practice.
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"They operate the hospitals with an ethos that acknowledges that the health care industry is altruistic and people-driven. Health care people respond to this approach."
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
This success is due to management putting a lot of effort into the relationships with doctors and nurses and treating them as a profession rather than a workforce.
Feb. 2003 Relationships
Fighting Fit The Age (Melbourne) February 8, 2003
Grier maintains, however, that it would damage the company financially and culturally if management chased only the dollar.
May 2004 Balancing for ultimate profit
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"It's very much a balance and it starts with people; patients, doctors, nurses and staff, so therefore you start with the good people, get them on side to do the right thing; good management then generates efficiency, the doctors are our partners, it's all a big balancing act to finally come out with a profit on the bottom line."
Ref In The Private Hospital Scrum Australian Financial Review May 28, 2004
He (Ramsay) likes people, he's extremely popular with the staff. He gets on well with the doctors, and the support of the doctors is what this business is really about."
Oct. 2004 Support of the doctors
Old school and other ties Business Review Weekly October 28, 2004
"Doctors don't come if you don't have good staff . . . and if you don't have the appropriate equipment," Mr Grier said.
Jul. 2005 Equipment attracts doctors
Hospitals splurge on equipment to lure doctors Australian Financial Review July 15, 2005
A major problem in the marketplace is recurrent ownership and management changes. These are consequent on internal commercial policy decisions, and the trading of hospitals for commercial reasons or even to meet government competition requirements. This destabilises the environment in which care is provided and demoralises staff.
Most of the hospitals purchased from Affinity Health have gone through a series of disrupting and demoralising management changes. Ramsay seems to be aware of this problem and has gone out of its way to target the doctors in the new hospitals acquired from Affinity.
But he (Grier) intends going out of his way to keep on the good side of the thousands of medical specialists and doctors who refer patients to his hospitals, continuing to provide what he calls "doctor-friendly" facilities in convenient locations with high-quality nursing staff.
Apr. 2005 Affinity's doctors
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The Affinity Health hospitals will come under their third different owner in 18 months after the Ramsay purchase.
Ramsay has muscle to flex Australian Financial Review April 16, 2005
A prime focus of modern management is cost control and cost cutting and this is done under the umbrella of efficiency. In health care this usually involved cutting staff and expertise. It has been responsible in one way or another for many of the unfortunate outcomes in health and particularly aged care.
This is accomplished by controlling doctors, who might otherwise walk away, with incentives of some sort. Ramsay seems to have balanced the need to contain costs by their focus on doctors, by avoiding areas impacting on doctors' interests and probably by involving them in decisions. One of the keys to Ramsay's success is its policies in regard to micro-managing costs in this way.
Grier's talk of squeezing hospitals for more and more profit jars with this image. Is he speaking to please the market which responds to statements like this, or does he mean it?
While Ramsay Health Care seldom mentions them publicly it is clear that, like the big US corporations, it monitors indicators of profitability - quite possibly also the profitability of individual doctors - and acts on this.
Grier also said organic growth of 6 per cent would come from squeezing existing hospitals harder. He added that some of the up-for-grabs Benchmark hospitals looked attractive.
May 2004 Squeezing hospitals for more profit
Ramsay Health cocky The Sydney Morning Herald May 7, 2004
The key performance metric of average revenue per patient day (PPD) lifted to $619.50, up 6.8 per cent. The second half was particularly promising, with revenue PPD up a robust 9.1 per cent.
Sept. 2001 Tracking markers of profitability
Healthy Ramsay Australian Financial Review September 7, 2001
Micro-manage costs
Nov. 2002 Costs
Margins are tight and costs can blow out by a 1 per cent drop in margins, so it is important to micro-manage costs. "Keep close to your costs but don't needlessly rip out costs, especially people costs, because people are your product."
Nothing but the best Shares Magazine November 1, 2002
A key consideration is a hospitals profitability. A single failed hospital can destroy a profitable company. Grier makes much of selling money losing hospitals when talking to the marketplace which rewards such activities. In practice Ramsay Health Care has sold very few, even when under strong pressure. The company buys with care and seems able to make its hospitals profitable.
Notice the interesting phrase "improving case mix" in the extract. Isn't this simply market speak for cherry picking? In the USA the spread of patients whose insurers paid well or badly was called "payor mix". Targeting a profitable payor mix was an important business objective. In many instances being well insured was a health risk as you were more likely to end in a psychiatric hospital or even have needless surgery.
The worry is that this is seen as not only legitimate but desirable in the Australian marketplace and Ramsay is pursuing it. The medical and community ethic of equity, expressed as "care according to need and payment according means" is flagrantly flouted. This is the principle which underpins Medicare in Australia. This flouting of our citizens intentions is justified and hidden from them by using marketplace jargon and ideas.
Grier has sold underperforming assets, such as Flinders Private in South Australia; focused on improving case mix and occupancy levels; and tackled health funds for higher reimbursement levels. He says that to make a profit from health care requires a fine balance between hard-nosed financial focus and a realisation that it is still a business underpinned by a caring ethos.
Nov. 2002 Improving case mix (i.e. cases which pay better)
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
Paul Ramsay has had close personal relationships with senior politicians of both parties. He has been particularly close to members of the liberal (coalition) party. Both Ramsay and Ramsay Health Care have given handsomely to federal and possibly state parties. Ramsay has close personal ties with many influential people in the business world.
Catchlove from Mayne Health was the public face of corporate medicine. Dr. Wooldridge, our past health minister put him in charge of the Health Insurance Commission (HIC). What we are now learning about Ramsay suggests that he is likely to have been far more influential behind the scenes than the much criticised and less charismatic Catchlove. He is a very persuasive person and relates well to everyone.
Politicians need to turn to someone they can trust for advice and who better than honest and decent Paul Ramsay. This is a man who has done nothing wrong, who is admired by his staff and doctors alike, is likeable, persuasive and very credible. He has worked in the USA so knows what he is talking about when he disagrees with those opposed to market medicine. He can produce figures and examples. His company proves that the market can work. Better still he is not in the public eye and does not seem to be pushing his own barrel.
I am not suggesting that Paul Ramsay is deliberately manipulative or is not sincere. He has simply been saying what he thinks about the private health system in which he believes. He has expressed his opposition to socialised medicine. He has publicly supported the US corporate system but this has been low key. He has been careful not to go out on a limb. He is the sort of authority figure whose views are accepted as valid.
If in fact he has been influential in persuading governments to pursue hospital privatisation in the 1990s and to rescue the private system with massive public subsidies then this has benefited Paul Ramsay and Ramsay Health Care more than anyone else.
Last year Ramsay brought along the Prime Minister's mother, Min Keating, and sister Anne, to help do the honours.
Mar. 1995 Labour and market friends
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While not a visible part of the Sydney business milieu, Ramsay's connections are impeccable. He counts among his friends Paul Keating (labour prime minister in 1995), former politicians Ros Kelly and Nick Greiner (a consultant to RHC); business figures such as the recently departed State Bank of NSW chief, John O'Neill, KPMG Peat Marwick managing partner NSW, Tony Clark, and QCs John Cummins and John Gallagher.Friendships outside the corporate arena include the yachtsmen Iain Murray and Peter Gilmour, who Ramsay backed financially in the unsuccessful 1988 and 1992 America's Cup campaigns, and Australian Rugby Union team members Tim Gavin and Jason Little.
Back From Brink And Into His Prime Sydney Morning Herald March 25, 1995
Received donations from several sources during her campaign including health-related companies and others:
Feb 2004 - State liberal donations
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* Ramsay Health Care $1500
Jillian Skinner North Shore MP North Shore Times February 13, 2004
For a man who controls a large health-care company and a national television broadcaster, who is worth more than $550 million, who makes big donations to the Liberal Party and to various charities, and is a personal friend of the Prime Minister (Howard), Paul Ramsay has managed to keep a surprisingly low public profile.
Oct. 2004 Political connections and benefits?
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His name also appears in the Australian Electoral Commission's annual list of donors to political parties. He is a regular contributor to the Liberal Party; in 2001-02 he was one of its most generous benefactors, chipping in $223,000. No similar-size personal contributions have been made to the Labor Party. Ramsay was one of the few business people invited to meet George W. Bush at a barbecue hosted by Prime Minister John Howard in Canberra during the United States President's visit last year.
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For example, the Federal Government's active sponsorship of the private health sector, including the introduction of a 30% rebate on private health insurance premiums, has been a godsend for all private-hospital operators. In 2000-01, the year after the rebate was introduced, Ramsay Health Care increased profit from $6.62 million to $16 million.
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In mid-1999, Ramsay Health Care's shares were about $1, capitalising the company at $120 million. They now trade above $6, valuing the company at $790 million.The re-election of the coalition has been a blessing for most media companies, including Prime Television. The prospect of changes in cross-media ownership rules pushed Prime's share price up 10% in the two weeks after the election.
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Clark provides a direct link to John Howard for Ramsay. Clark is a former senior partner at the accounting firm KPMG in New South Wales and is one of the Prime Minister's closest friends and his regular golf partner.Since Howard's rise to power in 1996, Clark has had various government appointments, including to the Telstra board. He is deputy chairman of Tourism Australia (the former National Party leader, Tim Fischer, is chairman), and chairman of the Government's Maritime Industry Finance Corporation, which administers waterfront redundancies.
Old school and other ties Business Review Weekly October 28, 2004
Private hospitals are something of an anachronistic sub-sector in that they are in the early stages of a major demand recovery, driven by the Federal Government's Lifetime Health Cover initiative to encourage people to join a health fund early in life and maintain their membership. Fund membership surged to 46 per cent of the population by June last year, compared with barely 30 per cent during the late 1990s.
Nov. 2001 Government rescues the private system
Business Still Goes On Shares Magazine November 1, 2001
Part of this turnaround can be attributed to a helping hand on the demand side from government incentives to encourage private health insurance.
Nov. 2002 Governments helping hand
People-first Remedy Brings Robust Result Australian Financial Review November 19, 2002
As a consequence of Paul Ramsay's people policy the board consists of old friends, even school friends, who have been with the company for many years. This is inevitably a little incestuous and potentially dysfunctional. It would probably be a very different sort of company if this were not so.
Richard Scrushy at HealthSouth also had a board of old cronies and admirers. Corporate governance and ethical oversight failed and the company was embroiled in a US $4 billion fraud as a consequence.
Paul Ramsay is of course a very different sort of person to Richard Scrushy which suggests that the sort of person who runs the show is as, or even more important, than the the mechanism under which it operates. The problem is that in the marketplace mechanism the wrong people all too often prosper and the right ones go under. Paul Ramsay is the exception rather than the rule.
This is simply another contradiction which develops when market principles are applied to health care. Different sorts of people are required and different sorts of organisational structure.
One area of concern, however, is the lack of independent representation on the board, with only two out of nine directors being independent.
Nov 2004 Board representation
Ramsay in strong position for growth Australian Financial Review November 29, 2004
The nature of market analysis is that it is in the interests of analysts and their employers that the analyses made be positive. Analysts' financial interests or that of their companies are linked to their reports. They influence share prices and this in turn flows on into mergers, takeovers and floats from which financiers gain their income.
More simply investors are looking to invest and consequently read positive reports. If an analysts, or a journalist for that matter wants to be read he needs to put a bright face on investments. If the reports are not read then there is no career. You don't build a reputation by predicting failures and when companies fail it is easy to shift the blame. Understandably analysts focus on profitability and interpret performance and management within a purely commercial frame.
If we look back to the mid-1990s we find enthusiastic assessments of Mayne Health and its prospects. The analysis were not rational and this should have been obvious. Ramsay is now extensively praised and again all of the praise is based on the assumption that corporatisation is the way of the future and that it will be the answer to the problems of rising cost. Many representative quotes are included on these web pages.
Major problems are now apparent in market based health systems which are proving to be far more costly, more inefficient and to provide poorer care. It has eroded the ethical structures of the health professions and rendered in intensely personal and humanitarian system arbitrary and instrumental. Ramsay Health Care is the exception rather than the rule.
The Private system in Australia is sustained by a massive and inefficient use of tax payer funds to make it viable. This will have to be maintained and increased to support the market system. Something is likely to give.
RAMSAY HEALTHCARE $4.80 An excellently managed company in the health/hospital area, which is a major growth sector in the Australian economy. Shareholders who have benefited from a share price rise of more than 200 per cent in the past year might consider taking profits.
Nov. 2001 Positive analysts report
SHARE TIPS Sunday Herald Sun November 4, 2001
(Deutsche Bank's David Low) says Ramsay is the best-run private hospital group in Australia and is doing well.
May 2002 More praise
A healthy time to invest in health care Courier Mail May 4, 2002
Cynics say they are little more than expensive hotels, but Ramsay Health Care's private hospitals are receiving a fair share of investor enthusiasm. A combination of faster-than-expected benefits from a $28 million takeover of rival Alpha Healthcare and a continued tight rein on costs has kept stockmarket investors rapt.
May 2002 A little doubt shows
Making millions the old-fashioned way Australian Financial Review May 23, 2002
Ramsay Health Care is really an essay in progress about management that achieves growth, because it knows its business and has not been greedy. It has not sought growth at any price,- - - -
Nov. 2002 Management is about market process - what about care?
Nothing but the best Shares Magazine November 1, 2002
Ramsay Health Care has a high quality portfolio of hospitals and an excellent record in hospital management and patient care, features that combine to attract Australia's leading practitioners.
May 2004 But we don't have hard evidence about patient care so there is no record
RAMSAY HEALTH CARE LIMITED : A COMPANY THAT FILLS THE GAP LEFT BY PUBLIC HOSPITALS Ralph Wragg Australian Business News May 26, 2004
The greying of Australia's population means one thing: owners of hospitals, palliative care facilities and specialty clinics will rake it in over the next two decades. This is the space in which Ramsay Health Care operates and helps explain why the company's stock is at a record high.
Aug. 2004 The ghouls! - as we decay the market feasts on our withered carcasses!
Ramsay tipped to impress Australian Financial Review August 4, 2004 (Source: Ramsay Health Care, UBS)
Andrew Hamilton: For many years, the management team at Ramsay have proved themselves as excellent operators of private hospitals and have added significant value from previous acquisitions and from brownfield expansions of existing assets.
Nov. 2004 Financial perspective's
Ramsay in strong position for growth Australian Financial Review November 29, 2004
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