LINKS CORPORATE MEDICINE WEB SITE Disclaimer 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. Links to Site Maps Central Initial USA Australian International Corporate Practices (to print) Path to this page Home Australia Other pages Entry to Privatisation Privatisation Background Australian states Gen. Pract. Corporatisation Companies A to J Affinity Health Alpha Healthcare Austr. Hosp. Care Benchmark Healthscope Hosps of Austr (HOA) Insurer hospitals James Hardie & HCC Companies M to U McGoldrick's comps Markalinga & AME Mayne Health & HCoA Moran Healthcare Nova Health Ramsay Hlth Care US grps HCA & AMI Small Hosp Groups    Macquarie Health Content This web page discusses the background and the factors influencing the development of the competitive corporate hospital market in Australia. It briefly describes the story of the majority of companies that have operated hospitals for profit in Australia and links to pages decribing each in greater detail.  Australian section    Australian Hospital Companies

CONTENTS

INTRODUCTION AND OVERVIEW

Listed and Unlisted Companies

The changing patterns of competition

• Global ideology
• The impact of Medicare
• The boom years
• The quality of hospitals
• Competitive strategies
• The response of doctors
• The promise of privatisation
• Privatisation's tears
• Managed Care changes the rules of competition
• Leverage
• Power struggles
• The Losers
• Competing for doctors
• Government funding of private insurance
• Doctors show their muscle
• The gravy train arrives at last
• US bankers enter health care
• Consolidation
• A two corporation private hospital system

Fraud and Compromised Care

• Fraud is occurring but is not being exposed
• Fraud has not occurred because Australia has responded differently
• Problems in the public hospital system
• The critical role of doctors

THE HOSPITAL CORPORATIONS

The US Influence

• USA groups HCA and AMI (1978 to 1991)
• Other US Multinationals (1991 to 2005)
• Influential Australians operating in the USA

Companies no longer operating hospitals

• The McGoldrick Companies : CHC, HLC, Superclinics and more (1971 to 2004)
• Markalinga Trust and Australian Medical Enterprises (1986 to 1996)
• James Hardie and Health Care Corporation - HCC - (1986 to 2001)
• Alpha Healthcare (1988 to 2001)
• Australian Hospital Care - AHC - (1979 to 2000)
• Moran Healthcare (1960s to 1999)
• Benchmark (1991 to 2004)
• Nova Health (2002 to 2005)

  FROM HOA TO HCoA to Mayne Health to Affinity Health (1986 to 2005)

  • Hospitals of Australia Trust - HOA - (1986 to 1991)
  • HCOA and Mayne Health (1991 to 2003)
  • Affinity Health (2003 to 2005)

Insurers who Owned Hospitals (1980s to 1999)

Other Small Hospital Groups

For Profit Hospital Operators Surviving 2005

Two Companies now Dominate

• Ramsay Healthcare (1963 to 2005)
• Healthscope (1985 to 2005)
• Independent Private Hospitals of Australia (2000-2005)
• Macquarie Health (1971 to 2005)

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For-profit services are services run in order to make a profit from the service. Not-for-profit services are provided by groups in the community as a service to the community. They do not aim to make large profits and any profits are returned to the community through service. Until about 15 years ago Australian health was dominated by the not-for-profit ethic of care. Even though not-for-profit beds probably still outnumber for-profit beds the private sector is now dominated and controlled by two large market listed corporations. The ethic of care has given way to an ethic of cost reduction and profitability.

We should also distinguish conceptually between publicly listed and private for-profit companies because the pressures on them differ. Privately owned companies are not subject to the short term profit pressures generated by market analysts and large institutional investors. They have much greater latitude in the way they provide care and the sort of short term profit they extract from the system. Many are owned by well-motivated people who have decided to make their living by being of service to the community. Others are opportunists who are simply out to make themselves wealthy.

In the USA publicly listed for profit corporations fairly uniformly provide poorer care than not-for-profit groups and are at greater risk of indulging in fraud. The more financially successful the company the more likely that this success is based on these practices. The share market imposes a strict profit first restraint on humanitarian endeavour. In contrast some private for-profit companies are motivated by genuine humanitarian concerns while others are only interested in the profits. Some are consequently among the best and others among the worst. This is particularly evident in aged care. If we draw a parallel in Australia with the USA then Benchmark is perhaps an example of a group that as far as we know was motivated and has provided a reasonable standard of care. Some of the privately run nursing home groups involved in scandals are among those who have not.

The distinction in Australia is not as clear cut. Many Australian market listed for-profit companies started out as private for profit entities, often with the best of motivations and with a firm belief that market mechanisms would provide the capital with which to provide the best care. In the 1980s this was almost a cargo cult. To generate capital most of these groups floated on the share market. The 1980s boom was soon over and the companies were soon subject to institutional shareholders' profit priorities. Managers who gave care priority over profit either adapted or were replaced. Companies unable to adapt went under. Many of the early companies ran into financial difficulties and the original founding managers were replaced. Some rapidly went through a series of managers before finding one who was sufficiently profit focused to "turn it around".

The original owners of some of these private companies retained a dominant controlling interest in the company when it floated on the market. This has enabled them to resist pressure from investors and operate more like a private for profit company. Ramsay is an example.

Some for profit health care companies (e.g. Alpha Healthcare, James Hardie, Mayne Nickless) were corporations with sometimes unsuccessful businesses. They entered health care simply because they saw this as more profitable for them and got out of it when it was no longer profitable. The needs of the community and humanitarian considerations were not part of the equation.

There has consequently been a more diverse spread of motivation among providers of private hospital care in Australia than in the USA. With a much smaller population, half of which uses the public system, it is not practical to do the same sort of comparisons and draw valid conclusions.

In addition the medical specialists who admit patients to hospital have been well informed about corporate practices in the USA. Unlike their US colleagues they have retained their independence and are likely to have had a far greater behind the scenes influence in restraining dysfunctional practices. This cannot be quantified.

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Since the late 1970s a number of factors have driven the corporatisation of health care in Australia. Some were broad changes occurring globally across the Western world. Others were local.

My understanding of what has happened globally is that there has been a progressive dominance of values espousing personal rights and opportunities in the marketplace over those values relating to social responsibility. Our perception of democracy has changed because of this and democratic ideals have become subservient to the marketplace and those who operate there. Democracy and capitalism are seen as the same thing. This has resulted in what we call economic rationalism, a pattern of thinking which saw market forces and competition as essential to democracy and as universally applicable to all facets of human activity. A sensible system which creates the wealth to underpin society has given rise to an ideological system. Like other ideologies this ideology has sought to convert others and spread its benefits across the world even when it is not welcomed. It has even become a justification for military aggression. In health care this ideology has made it legitimate to turn health care into a commodity, and trade the misery of sick and vulnerable citizens for profit. This profit is for disinterested outsiders who have little understanding of what is being done to make them wealthy.

Health care in the USA already followed a market model. As the ideology spread globally the US system became the role model for "reform". US health care corporations were soon sought after by politicians and economists in Australia. Two US companies brought this method of health care to Australia in the 1980s. They were not warmly received initially but succeeded in promoting the legitimacy of the market model and enthusing the business and political communities.

The advent of Medicare which provided publicly funded health care for all citizens in the 1980s led to a fall in private insurance and enormous pressure on the underfunded public system. There was a blow out in waiting lists. Unhappy public hospital medical administrators were caught between the pressures for more services and the refusal of government to pay for them. They were disillusioned and fell victim to the promise of for-profit care. To the many doctors who had visited the USA, the unlimited resources available in US teaching hospitals at that time promised much for private medicine. These administrators teamed up with businessmen wanting to make a profit. Many, like Doug Moran believed that the pressures on the public hospital system would drive citizens into private hospitals. Several small companies were formed to capitalise on this.

In the 1980s boom the share market seemed like a cargo cult. Competition was a word rather than a serious consideration. They borrowed and raised money from the share market. They expected to make good profits and provide excellent care but most soon carried too much debt. The boom crashed and interest rates rose. Private insurance rates continued to fall and private hospital beds were empty. Companies found themselves competing frantically for patients in order to get the money to service their loans. As losses increased share prices tumbled.

Most of the privately owned hospitals acquired were small dated cottage hospitals. Medicine and surgery were changing rapidly. These changes required sophisticated organisation and expensive equipment. The overheads in providing this in these small hospitals made them noncompetitive. The companies had to invest funds to expand, consolidate and increase services or go under. Those who managed to do so survived. Others struggled on through the early 1990s with large debts.

In the early and mid 1990s a number of strategies were seen to improve financial performance and competitiveness.

Size was seen to offer the benefits of scale so that purchasing was more efficient and cheaper. We know from the US experience that the benefits were marginal.

Diversification was seen to encourage ready access to customers through "one stop" medicine. This was related to encouraging internal referrals between company operations. This was the business reason for targeting general practices and medical centres.

The widely held myth that "efficiency" would enable private operators to provide better services more cheaply led to cuts in nursing staff, the major cost.

Dr. Barry Catchlove, CEO of Mayne Nickless' health activities was a strong advocate for these myths. He had close links to government and the federal minister for health. Strangely he held back on implementing a full market management system along these lines. It was left to the next manager of Mayne Health, Peter Smedley to do so.

Doctors were certainly aware of the stresses placed on nursing services and there must have been adverse consequences from this. That this was accepted by most doctors may have been because hospital managers in underfunded public hospitals were being trained and driven into doing the same things. In the private system doctors were an asset bringing in patients but nurses were a cost reducing profits. In the public system both were costs. Unlike the private system cost cutting consequently impacted on doctors as well as nurses so for them the private system was more attractive and worked better. The extent to which cost cutting and dis-empowering of doctors occurred in public hospitals is well illustrated by what was later exposed in the Bundaberg and Forster inquiries in Queensland in 2005. Doctors had been unhappy about this for 20 years.

The liberal and coalition governments had promised pro-market changes which would increase private insurance rates and so boost private hospital occupancy if they gained power. The gloom occasioned by empty beds in the early 1990's was relieved by this prospect and by the policies of privatisation and colocation which were adopted by coalition governments in all states. The myth that corporate efficiency could do it better and cheaper than government was unchallengeable. The running of public hospitals was contracted to private enterprises who bid competitively to provide the services. Private hospitals were to be built on public hospital campuses and the pressure on the public system relieved by siphoning insured and paying patients into them. Corporations saw both as providing a steady basic income to carry them through a difficult time.

The privatisation of public hospitals proved to be a disaster for those who bid low enough to win contracts and the massive losses sustained led to disputes with government and near bankruptcies. Staffing and care suffered. Both sides abandoned the experiment. Colocated hospitals proved more costly to build and less profitable than anticipated. Only those in affluent areas made money and this had little to do with the colocation. Several companies performed poorly at this time and were sold to competitors during the 1990s.

Only Ramsay Health Care came out of it well. Ramsay won contracts to run Veterans Affairs hospitals from the federal government early in the 1990s. These contracts differed from state public hospitals and were run along the lines of a private hospital with a guaranteed flow of patients. They were profitable and carried Ramsay through the difficult years enabling Ramsay to pay off debts, improve its spectrum of hospitals and put itself in a strong position for when government relief finally materialised. Privatisation and colocation are addressed in detail on a set of web pages devoted to this topic.

Managed care, originally a socialist inspired idea had been appropriated by the market in the USA. It was being promoted as the key to reducing costs and fitted well with global economic thinking. Australian governments were interested. Until the mid 1990s hospitals and doctors did their work and simply billed the insurers who paid. This the economists argued pushed up the costs of health care. The labour government attempted to bring in a form of managed care in the early 1990s but the medical profession resisted.

Doctors reject contracts:- When the coalition gained power in 1996 they reinvigorated this process and formed an alliance with the French insurer AXA and Mayne Health to drive doctors into managed care style competitive contracts. In a speech to doctors in 1996, Dr. Michael Wooldridge, the new minister for health expounded market ideology and reasoning to the profession. He quoted Adam Smith to accuse them indirectly of conspiring to maximise their profits at the expense of the health system.

Doctors were well informed on the consequence of the US system of competitive contracts for patient care, and for a reasonable work environment for doctors. They challenged the minister and refused to comply. This resulted in a breakdown of communication and a bitter dispute in which Wooldridge and the president of the AMA exchanged defamation actions. This was only resolved after Wooldrige's obsessional behavior led to damaging scandals and to his departure.

Hospitals succumb:- The hospitals were in a less powerful position and succumbed to a system of negotiated contracts with insurers. This put insurers in a powerful position to hold payments down. Hospitals now had to compete with each other for contracts to provide services to the insured patients of each insurer. The competitive landscape changed dramatically. Competition was less about providing care or about referrals but for contracts which paid well. What companies and hospitals wanted was "leverage" in the negotiating process so that they could squeeze more from insurers. Mayne was Australia's health care giant but its hospitals were in large centres where there was competition. It relied on size to give it negotiating power and this helped but was less effective than Ramsay and Healthscope's strategies.

Both Ramsay and Healthscope had nearly gone under after the 1980's boom burst. Healthscope had been further crippled by a privatisation project in South Australia. Both read the situation more accurately than competitors and adopted a policy of avoiding competition for contracts by developing hospitals which were "must haves" for the insurers. Both already had a portfolio of specialist hospitals (psychiatry, rehabilitation etc.) and rural hospitals. These became life savers. This gave them an immediate competitive advantage on what was claimed to be a level playing field. There were only a few specialist hospitals in each region and there were no competitors in rural centres. Insurers had no choice but to contract with these hospitals. The companies could dictate the terms of the contracts and by linking negotiations with their other hospitals secure better payments across all their hospitals. Ramsay already had the cash flow from its Veteran's hospitals and continued to enlarge and upgrade its other hospitals, particularly the colocated hospitals. They added additional high level services which competitors with smaller hospitals could not provide so turning them into "must haves". Ramsay and Heathscope prospered and put themselves into a strong position to capitalise on government policies when they came through.

One consequence of this competitiveness was a series of acrimonious power struggles as insurers and corporations drove the negotiations to crisis point and then break down. Insured patients became the meat in the sandwich and their vulnerability was exploited to the extent that their care, their wallets, and both private and public hospital systems suffered.

In addition to the patients the losers in all this were the smaller not for profit and individually owned community hospitals. The playing field was steeply tilted against them. They lacked size and leverage. Their ethos was cooperative and community focussed. They did not operate in a competitive frame and were ill equipped to compete in this environment. They were small and had no leverage. In most of the country they struggled and either sold to corporate groups, contracted them to run their hospitals, entered into some sort of joint venture which aligned them with the corporation, or adopted a for profit focus and mode of operation. Most became part of the corporate negotiating block and agreed to corporate managers. The consequence was not only an increase in the corporate sector at the expense of the not-for-profit sector but a progressive erosion of the not for profit ethic of community and care.

Brisbane seems to be the exception. Not for profits already owned most of the large private hospitals in the city so had leverage. They survived by adopting a profit focussed corporate management style and competing as they were "must haves".

Because specialists retained their independence and their financial security by rejecting contracts they actually gained leverage. This has served them and their patients well. They retained control over the flow of patients. Because they chose where to work and advised their patients accordingly they could have a major impact on the bottom line. Hospitals were now forced to compete with each other for the patronage of doctors. This gave doctors leverage in this competitive pressure cooker. They were able to press for resources and services for their patients as well as better working conditions for themselves, by imposing financial costs. Both Ramsay and Healthscope attempted to walk a fine line between commercial cost cutting considerations essential for economic competitiveness, and providing services and work opportunities to entice doctors. Ramsay in particular made much of its relationships with doctors and of its concern for the well-being and morale of nursing and other staff.

The federal government did not introduce effective measures to combat the fall in private health insurance until their reelection in 1998. This took the form of penalising younger citizens who delayed insuring and a massive tax payer subsidy to those who took out private insurance. Economists who criticised this ideologically driven policy claimed that far more services could have been supplied to more citizens if those funds had been spent on expanding and improving the public system. This was an immediate bonanza for the insurers who were reluctant to pass on this largesse to the hospitals and used their negotiating position to this end. There were a number of disputes. It was not until some time in 2000 that the benefits of the governments legislation flowed through to the hospitals.

In the meantime institutional investors and the financial institutions had grown tired of waiting for the profits which Mayne Health had promised since 1994. They stepped in. Catchlove departed and a business Mr. Fixit, Peter Smedley, who had no experience of health care took over. Both investors and Smedley misread the competitive dynamics of the health care marketplace. Smedley immediately fired existing hospital managers and put in his own business team. He restructured the hospitals and centralised all services. His market model cut staffing and resulted in allegations of unethical practices. Doctors alleged compromised care. The restructuring dis-empowered them and their patterns of work were disrupted.

Already angered and distrustful because of Mayne's earlier support of managed care and its alignment with Wooldridge, the doctors simply walked away with their patients. Ramsay and Healthscope which both recognised the importance of a degree of local hospital autonomy and the role of doctors in this were waiting and made much of what they had to offer doctors. They benefited as Mayne's hospital division sustained huge losses from which it never fully recovered.

Ramsay and Healthscope which had very different management styles to Mayne were well positioned to capitalise on Mayne's problems and to extract payments from insurers. The flow on from the governments subsidies boosted the profits from hospitals. They became very profitable and both companies expanded rapidly acquiring not-for-profit and individually owned hospitals as well as smaller for profit companies.

Mayne continued to struggle and in 2003 sold its hospitals to a Venture capitalist consortium led by a Citigroup subsidiary. Ramsay's bid was unsuccessful. Citigroup, which had urged the breakup of Mayne in 1999, is the largest US financial conglomerate in the world and its divisions have been involved in a series of scandals on Wall Street and across the world. Not only was it a central actor in financial scandals on Wall Street but it was an adviser and coconspirator in the Enron, Worldcom and possibly Parmalatt frauds. It was a funder and adviser to the giant health care company HealthSouth during many of the years when it perpetrated a US $4 billion fraud. That Citigroup was the prime mover in this venture capital group was concealed from the public and the profession in Australia. This was drawn to the attention of state regulatory bodies. The now renamed Affinity Healthcare had some difficulty in securing hospital licenses.

Analysts had been praising the progressive reduction in the number of private operators consequent on corporate acquisitions and take overs on the basis of economies in size in spite of the mechanisation and depersonalisation of health which this entailed. In 2005 less than 2 years after it had bought Mayne's hospitals, Affinity's owners decided to float or sell the company. Ramsay bought the bulk of Affinity leaving Affinity with about 20 hospitals the acquisition of which the ACCC considered would be anticompetitive. Affinity wanted to continue operating at least fourteen hospitals and the plan agreed to by the ACCC was for Ramsay to sell them back to Affinity. When Robert Cooke, the manager who had built up the Affinity empire resigned and when Healthscope offered 20% more for the hospitals, Affinity sold the fourteen to Healthscope. When the ACCC approved this and Affinity's appeal to the courts failed. Affinity dissolved.

Sept 2005 Competition issues

New Affinity said that the undertaking by the Australian Competition & Consumer Commission was aimed at having three providers, rather than only two large ones
Scalpels out for regulator in hospital row The Australian (ABIX abstracts) September 6, 2005

The consequence of this rapid consolidation of the market is that the corporate for-profit sector has come to dominate in Australia even though it does not yet own a majority of private beds. For practical purposes there are only two competitive corporate operators of which Ramsay is by far the largest with 27% of the private hospital sector and Healthscope with 17% trailing not far behind. With few opportunities for further expansion in Australian hospitals, Healthscope has branched into pathology. Ramsay is talking about aged care and international expansion. Both are still performing well in the marketplace. Both are enormously powerful, much more so than any of the 40 separate insurers with whom they will be negotiating fees - and very much more so than any of the private and not for profit groups which provide the remainder of private hospital care.

To those who don't understand the market or its logic, a reduction of the numbers of competitors in the marketplace to two with such a large disparity in size seems to markedly reduce competition and if the theory is correct the benefits. To marketplace cynics the reduction in competition is desirable as this gives the companies an opportunity to cooperate in funding good care while outwardly paying service to the damaging competition ethic.

Sadly experience tells us that success is a strong inducement to do more of the same. A report indicates that Ramsay is able to squeeze 10% from hospitals while Benchmark and Affinity hospitals now purchased by Ramsay could not match this. Ramsay is urged to "bring these assets into line" as if doing so has nothing to do with compromising care. Two common marketplace strategies for cutting costs and improving profits have been to entice doctors to perform more profitable surgeries and to cut nursing levels. The one pushes the envelope towards unecessary surgery and cherry picking profitable healthy patients with quickly treatable conditions, rather than sick and costly ones. The other pushes the envelope towards poor care.

Sept 2005 Bringing assets into line

Getting biggest bang for buck
The result (of Ramsay) is clouded by the acquisition of lower margin hospital asset Benchmark and two and a half months of operating revenues from the recent Affinity acquisition. Stripping out these acquisitions and isolating the performance of the RHC hospitals, EBITA margin continues to lead the industry running at 10%. Benchmark dilutes this margin to 8.8% and Affinity to 8.7%. This dilution represents the opportunity for RHC management to bring these assets into line.
RAMSAY HEALTHCARE (RHC) $9.20 Your Money Weekly September 1, 2005

The others who will suffer from this are the smaller not for profit and private hospital owners geared to serving their communities. In a marketplace where size and leverage is all important in negotiating payment these groups which have neither size nor leverage are very vulnerable. A lack of funding will compromise care. The size of this sector, which puts patients first, will decrease rapidly as hospitals close or are sold. Market analysts see these hospital groupings as obsolete anachronisms and out of keeping with the modern world. They welcome their demise.

A consequence of this is likely to be that the not for profit ethic, which provides a set of ideas critical of market practices, will lose status and credibility in the community. Marketplace thinking and practices will be unrestrained. We will more closely resemble the USA and be more likely to develop the same problems.

Sept 2005 A two player corporate health system

What's more, the deal will reduce the number of big players to two -- Ramsay and itself -- and gives Healthscope a firm foothold in the West Australian and NSW markets.

In boosting Healthscope's bed numbers by 70 per cent to 4170, the deal will give Healthscope more clout when negotiating with the health funds on price, which is the name of the game.
CRITERION : Healthscope (HSP) $5.77 : Ramsay Health Care $9.50 The Australian September 7, 2005

Oct 2005 Implications of leverage and size

There are more than 40 health funds, but only eight buying groups. The health funds have formed buying groups to increase their power.

They use their size to knock down the prices paid to hospitals.

Small hospital operators are being squeezed out.

The health funds bully the price down to the point where they can't make money.

As a result, private hospitals are being bought up by a small number of large players.
Health not a game for the faint of heart Sunday Telegraph October 2, 2005

We need to look back at what we were promised when the government which gave us this system took power in 1996. Dr Wooldridge, the new minister for health made it all sound so sensible and fair with "consumers" ultimately driving the process for their benefit. We need to ask who is benefiting from what we have? (For full speech click here)

May 1996 Speech to the medical profession

The Hon Michael Wooldridge Speech to the Australian Medical Association May 1996
One fundamental of micro-economic reform has been the application of competition principles to industry including those where public sector funding and provision has been significant, as it is in the health sector. These principles are based upon the creation of the 'level playing field', but more importantly on an approach which uses contestability as a key precept.
---------------------------
I would suggest, quite frankly, that health care cannot be set apart, and I do so by defining competition as being about three basic things: choice, quality and cost.

Choice because the end beneficiary of competition is the consumer, who is able to make a choice between the widest range of products meeting his or her needs.

Quality, because it is in the interest of the individuals or groups competing for the consumer's custom to ensure that the product or service that they offer is of the best possible quality and therefore likely to be most attractive to that consumer.

Cost, because the other crucial determinant of a consumer's decision is the impact of that decision on his or her pocket.
AMA Summit Proceedings :::: Competition in Health: "A Brave New World" A 1 Day National Information Briefing on The Trade Practices Act & Competition in Health Friday 10 May 1996

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Similar steadily increasing competitive corporate pressures to those generated by the share market in the USA have been introduced into Australia. This has been driven, at least in part, by market ideology, globalisation and the presence of multinational investors and financiers. I have supported Ron Williams 1992 contention that a corporatised global health system would become severely dysfunctional and that we would see the development of fraud, and misuse of patients similar to that which has occurred in the USA.

While there is much to suggest that the for-profit corporate system we have developed has little to commend it, we have not yet experienced the exposure of fraud and the uncaring exploitation seen in the USA - but it is early days. Instead it has been the public system which has been accused of financial mismanagement, compromising care by cost cutting, and the neglect or misuse of patients. These differences deserve exploration and some comment.

Fraud is occurring but is not being exposed

From outright fraud to allegations of cover up … and those who simply bend the rules. As hospitals face a funding crisis, are those in charge of our health dollar ignoring the rorting of the system?
Doctoring the Figures ABC FOUR CORNERS September 6, 2004

There has been strong criticism and opposition to the corporate for profit ethic in Australia. There is an argument that the pro-corporate positions of health care businessmen, insurers and government would be severely compromised by revelations of widespread health care fraud, or the mistreatment of patients in private hospitals. It is clear that, as in the USA, regulatory bodies have become politicised and serve government rather than the people. In the USA regulators have been singularly ineffective in exposing fraud and care problems. The vast bulk of exposures come from whistle blowers using Qui tam laws. Australia does not have Qui Tam legislation to encourage, protect and richly reward whistle blowers. This has been the basis for the vast majority of convictions in the USA. Whistle bowers in Australia are muzzled.

This argument claims that there is no will among any of the powerful players to investigate these matters. In September 2004 ABC Four Corners ran a program along these lines. They documented a small number of frauds which had been allowed to languish by authorities. They interviewed experts who had looked at the system and believed that fraud was as common as in the USA. While the evidence presented was thin the fact that they took this to air is significant. There may well have been legal constraints to their putting more examples in the program. The fact that they devoted an entire hour to this is in itself significant. If we consider the many government and departmental failures exposed in Australia over the last few years, that something like this might be occurring is less fanciful than it sounds.

Fraud has not occurred because Australia has responded differently

The corporatisation of Australian hospitals has been a contentious and divisive issue in the health professions and with the public. The misbehavior of US corporations in their own countries has led to criticism and to their departure from Australia. US health care and managed care, once openly promoted as the future for Australia have become dirty words. Any exposure of dysfunction would have been used in the political debate. For profit care has consequently never gained the support and self evident legitimacy which it enjoyed in the USA. This critical context may well have acted as a deterrent to dysfunctional practices, temporarily at least. This could change now that Ramsay and Healthscope have become so powerful. They are in a position to ignore criticism.

Probably as important is that specialists who work in hospitals have resisted managed care type contracts and so retained their independence. They are not bound to corporate interests. They are able to monitor and use their leverage to ensure that staffing and care are maintained, and that fraud is stopped. Their response to Mayne is a good example of this but it must be remembered that the doctors were already angered and that the changes introduced by Mayne compromised their position. Other companies have adopted an alternative strategy to secure the cooperation of doctors.

US companies have very successfully aligned doctors financial and research interests with those of the corporation by research assistance, secretarial assistance, joint business ventures and by encouraging them to own shares. Some of these practices have been prosecuted as illegal kickbacks but others are legal. That particular practices are legal does not make them any less dysfunctional in aligning doctors interests with the company rather than the community, and so inducing doctors to go along with practices they might otherwise reject.

Australian corporations have realised that doctors are much more likely to bring their patients and turn a blind eye to what is happening if they have a financial interest. They have boasted of the steps they take to align doctors and see this as eminently desirable. It is valid to argue that alignment of objectives and cooperation are important in the delivery of services and the not-for-profit system exemplifies this. The problem is that in the for profit sector the objectives are usually not aligned and the commercial alignment results is a shift in objectives by the doctors. As a consequence much depends on the morality of the medical profession and their willingness to align themselves with the needs of their patients and the community rather than the corporations. The US experience in controlling doctors tells us that while doctors are financially secure and independent of the corporations then the majority will do so but if their financial security is threatened then they are likely to adopt corporate thinking and values if this restores their financial position. The AMA recognised this and warned the new coalition government in 1996.

Australian corporations have been active in these areas, particularly Affinity Health. It was heavily influenced by its US controlled turnaround experts. Affinity actively targeted doctors by involving them in joint ventures. Press reports suggest that the abandoned plan to float the company would have offered doctors advantageous share purchases, and that this may have been linked to their support of the company's hospitals. Ramsay and Healthscope have done everything they can to keep doctors on side and rewarded. They boast of this.

Whatever the real situation is, the available information suggests that Ramsay and Healthscope have been among the better performers in the provision of care and that we have been spared the worst excesses of the US system. Severely dysfunctional people have not prospered to the same extent as in the USA. While the medical profession were clearly active in placing pressure on people like Edelsten and McGoldrick, the extent to which they influenced the fortunes of other failed corporations, if at all, by withholding support because of concerns about inappropriate market practices is not known.

Problems in the public hospital system

The public system in contrast has been the subject of a series of scandals across the country involving maladministration and compromised care. To the protagonists of private for profit care this is a vindication of their criticisms of socialism. To their credit the medical profession, most of them in private medicine have consistently supported the public system and criticised what has been happening there. The Bundaberg inquiry into the circumstances surrounding rogue surgeon Dr. Patel has been particularly revealing because of the way it has unraveled serious problems in management, and uncovered the role of government in creating the context in which these scandals so readily developed. An excellent editorial and an article in the Medical Journal of Australia (September 19, 2005) accurately summarise what happened but do not track this back into the ideological changes which gave rise to the events.

Ron Williams in 1992 accurately described the way in which both labour and coalition would adopt market principles and privatisation in health care using multinationals to drive the process. The conservative coalition has been more open about this. The two parties differ in the extent of their market policies, in the areas of application and in how they do it. In the early 1990s the Keating federal labour government moved labour policies from being primarily socially focussed to being primarily economic. They were the first to embrace managed care and market reform of health care. The deviant US company National Medical Enterprises was welcomed into Western Australia by a state labour premiere in 1991. Later as federal health minister this same premier introduced managed care changes. State labour governments continue to support colocations and public private partnerships. Government services like electricity and water have been turned into government corporate owned enterprises. Instead of encouraging reinvestment in resources governments have pillaged their profits to boost other more politically enticing projects. Economic rationalist ideas have been brought into public administration by both parties.

Part of the economic rationalist and market ideological focus has been the introduction of management practices derived from economic theory and the marketplace into all government services. This has variously been described as managerialism (see The Human Costs of Managerialism -1995- edited by Rees and Rodley - Pluto Press), microeconomic reform and management by objectives. I see it as a new form of behaviorism, a dysfunctional system of thinking which fails to consider our humanity and reduces us to the level of rats. In essence it is about linking self-interest and measurable outcomes.

Management defines the measurable outcomes desired and then rewards or penalises employees on their success in attaining personal goals linked to these outcomes. It is a very effective means of attaining these outcomes and sounds very sensible. Unlike rats humans are cognitive beings and act within a framework of values, norms, reflection and reasoning. This enables them to better deal with complexity. Managerialism devalues and discourages these attributes. Instead of exercising our perceptiveness and cognitive capacity these cognitive attributes are downgraded and put into archive. Unpalatable facts and common sense are ignored and replaced with simplistic ideological justifications and a "whatever it takes" mentality. For managers control of the workforce and suppression of dissent are important if they are to achieve their goals. Those unable to archive their humanity are fired or go elsewhere. The process is driven by strong pressures both on and by management. Tensions destabilize the workplace.

Serious problems can be predicted when the outcomes set are not congruent with the nature of the service provided and particularly when those outcomes are most easily achieved by compromising the service. In the corporate health sector the profit goals are in direct conflict with the funding required for care. The customer constraints which balance the profit pressures in other marketplace contexts are deficient. This is why fraud and the misuse of patients have been such problems.

While this web site describes corporate medicine the underlying theme is human behavior. How people behave in contexts like this. When we look at the Bundaberg scandal in this way we see that although the actors and goals are different the situation is very similar to that in deviant corporate hospitals. Politicians promised citizens both a high quality health service and a prompt service with shorter waiting lists. Because they had also promised not to raise taxes they did not fund this. Instead they put extreme pressure on the health department to meet economic and turnover goals. This was not practical but careers depended on it. It was accomplished by ignoring dysfunction, by suppressing information, and by falsifying waiting list figures.

A burgeoning and powerful bureaucracy discounted criticism from Australian doctors who were fired or resigned compounding the problems. The response was to employ large numbers of foreign doctors who were not registered to practice in Australia and who were supposed to only work under proper supervision. Administration ignored the fact that there was no one to supervise them. They were pressured into a high turnover. Doctors were promoted to senior positions because of their throughput rather than the quality of their work. Their need for supervision was ignored. These doctors depended on the administrators' support if they wished to stay in Australia. They were powerless and administrators turned a blind eye to what was happening. There are remarkable similarities in personalities and in processes in the scandals surrounding Dr. Patel in Bundaberg and Dr. Moon in a Tenet corporate hospital in California where hundreds of patients were subjected to unneeded surgery which boosted profits.

The critical role of doctors

The government should not assume the professions resolute adherence to ethics in the face of economic loss. ----- Such competition is lethal for standards; it is not in the public interest. It is this message that the medical profession must clearly convey to patients. ------ With the price of services as the sole determinant of health care, ethics will fail and standards will fall. Governments will establish standards bureaucracies, despite inadequate methods for assessing quality. Money will be diverted from patient care to the ever increasing bureaucracies, while professionalism declines."
Dr. Peter C Arnold, Chairman, Federal Council, AMA (MJA September 6, 1996 page 272)

It is part of the ideological response to professionalism to accuse doctors of being anticompetitive, greedy, self-serving and self interested - applying their marketplace frameworks of analysis. The reality is that doctors are human and behave humanly. They are part of the community and come to think like the community. If they are to be moral, ethical, altruistic and trustworthy in serving their patients and the community then they do require security, a stable working environment and reasonable prospects for themselves and their families. The so called "social contract" is based on the community giving them this. This mission of altruistic care also requires recognition and reinforcement by and within the community and a secure place within the community's view of the world. To ideologists, economists and market theorists this is anathema. The market and modern managerialism function by removing this stability and accomplish their goals by introducing forces which threaten doctors' security.

In the majority of the corporate situations described on this web site and in the public hospital scandals doctors had the power to oppose and stop what was happening. Most dysfunctional practices were accomplished either with doctors cooperation or because of their willingness to turn a blind eye. In these situations doctors were either dis-empowered, discredited, controlled or won over to an ideological point of view which was not congruent with their mission of care and service to the community.

Unpalatable as it may be in the context of current thinking, the importance of the personal independence and independent financial security of doctors cannot be overemphasized if they are to maintain their commitment to the interests of the community and their patients. Where this has been maintained in Australia the consequences of dysfunctional ideology have been resisted. I argue that the health professions are in essence the specialised division of the community which executes the community's responsibility for the health of its members and its Samaritan service to those who are in trouble. Their primary relationships should be with the community with whom they work.

It follows from this that the community may not have acted wisely in delegating their responsibilities for health and aged care to either government or to the market when the inability of charitable institutions to fill this costly role became apparent. Neither government nor the market have their citizens' well-being as a primary objective. Relationships with these instrumentalities compete for the allegiance of the doctors. The community might have been wiser to have developed new integrated community structures to fund and provide health and aged care services independent of government and the marketplace.

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USA groups HCA and AMI (1978 to 1991)

Until the late 1970's private care was largely provided by not for profit church groups and a few private hospital owners who were expected to be primarily motivated by an ethic of care. All that changed at the end of the 1970s when Health Corporation of America (HCA) and American Medical International (AMI) entered Australia. Their brash and open market focus did not endear them to the public or to the health care professions. The business community were reticent and slow to invest. The two companies targeted corporate customers, managed hospitals for others and energetically sold the diversified corporate model of care to the business community. They made much of the inefficient fragmented and disorganised not for profit sector and linked the market to the solutions which were needed - solutions which it is now clear the market was unsuited to adequately provide. Neither company performed well and in a little over 10 years they sold their Australian holdings. They successfully sold the legitimacy of the corporate profit ethic in health to politicians and businessmen.

By the time they had departed the business and political establishment had accepted the commercial marketplace as the future for private health care in Australia. Most importantly the exploitation of the vulnerability of sick and aging citizens for profit was established as legitimate. The rationalisations which justified this were entrenched. Despite the warnings from those who had studied the system politicians went looking for multinationals.

The process of culturisation was aided by the stresses placed on the public system in the 1980s as a consequence of the establishment of Medicare in the early 1980s and governments unwillingness to fund the increased load. Public hospital administrators squeezed between the public's demands for services, and politicians unwillingness to pay for them found an outlet for their ambitions in the private sector, readily adopting the rationalisations.

CLICK HERE to explore HCA and AMI's presence in Australia.

The USA was seen as the role model for the future and politicians and investors courted US companies enticing them into Australia. The story of the invasion of our health system by US multinationals is summarised in a paper written for New Doctor in 2004 (pdf file). More detail is available on the individual US company web pages.

National Medical Enterprises (now Tenet Healthcare) operated amidst intense controversy between 1991 and 1996. In January 1997 Columbia/HCA came promising a $1 billion solution to Australia's problems but was resisted by citizens and doctors. It withdrew when the FBI mounted a series of raids across the USA as the first step in unraveling its US $1.7 billion fraud. Sun Healthcare was brought into Australia using political slight of hand in 1997 and departed under a cloud in 2001. HealthSouth came very quietly in late 1997 buying one hospital in Victoria. In spite of the exposure of a US $4 billion fraud and the Australian company's involvement the Victorian authorities have failed to take any action. Vista Health, a US backed Singapore company linked to Tenet Healthcare also quietly bought a hospital in Australia and then lay low. It was eventually sold.

That all of these were tainted by associations with fraud and scandals in their own country did nothing to blunt the ideological enthusiasm for marketplace health. It did give critics the leverage needed to make US Healthcare a public relations evil and so limit the introduction of more US companies. Governments instead turned their support and their ambitions to Australian companies. Mayne Health was the company which most closely followed the US model. The federal government formed a close liaison with this company and appointed staff to senior government positions. The process was fraught with conflicts of interest and doomed. It ended with tears for both. The minister for health left politics and the company sold all of its hospitals in 2003.

Despite all the evidence of dysfunction and a Royal Commission in Canada in 2002 unequivocally refuting the claims to benefit (see review paper I co-wrote in Health Issues Journal in March 2003 or original report at <http://www.hc-sc.gc.ca/english/care/romanow/index1.html>), governments in Australia continued to embrace and support the corporate model of health and aged care and to pin their faith on competition in squeezing more profit from care as a means of improving the health care system. US market expertise in health care is highly valued. In 2003 a group, CVC Asia Pacific led a Venture Capital purchase of all Mayne hospitals. All those in the know connived in hiding the fact that CVC Asia Pacific was a subsidiary of Citigroup, the giant US financial group involved in recurrent fraud scandals in the USA and around the world. Its subsidiaries had been advisers to US health groups including HealthSouth (US $4 billion fraud).

Influential Australians operating in the USA

Paul Ramsay founder of Ramsay Health Care has had major investments in the USA for many years in psychiatric care, in Health Maintenance Organisations (HMO's) and in Juvenile Correctional Services where his company was involved in a scandal. He has had close friendships and links with politicians on both sides but particularly the liberal party. He has been a strong advocate of the US system as a role model and of managed care although this has been muted recently. It is likely that he has played an important role in influencing government health policy.

James Hardie has also invested in health care in the USA but soon became disillusioned and has had less influence.

Doug Moran and Barry Catchlove (Mayne Nickless) have both operated health or aged care facilities internationally. Mayne has operated in the USA but not in health care. Both have been advocates of the US health system and managed care. Both have had close relations with the liberal/national coalition and been influential in policy decisions. Moran claims to have played an important role in formulating the aged care policy which Australians rejected in 1997.

Undoubtedly many other Australian businessmen operating in or visiting the USA would have been aware of the crippling effect of health care costs on US companies which unlike Australia paid for the health insurance of employees. US companies were influenced by Joseph Califano's views and strongly supported and used HMO's (managed care) to control their costs with some success. These Australian businessmen would have urged our politicians to adopt this system to keep our health care costs down.

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1988 "Controversial entrepreneurs

In an industry which at least in its public face seems to have more than its share of controversial entrepreneurs, Hospitals of Australia has been the successful exception so far.
MAYNE NICKLESS FIND ITS GROOVE Australian Financial Review October 12, 1988

The McGoldrick Companies
CHC, HLC, Superclinics and more (1971 to 2004)

A fascinating character, Dr. Ian McGoldrick lost his medical registration in the 1980s following an avalanche of surgical complications. He spent the next 20 years trying unsuccessfully to get back on to the medical register. His life was dogged with controversy, allegations of fraud and eccentricity. McGoldrick, a charismatic and persuasive businessman with little regard for the truth was one of the most colourful medical entrepreneurs. Almost everything he turned to ended in tears for those who had trusted his judgment and fallen victim to his charisma. The failures in his opinion were always someone else's and never his own.

He qualified in 1971 and within 10 years had built up Consolidated Health Care (CHC), briefly Australia's largest hospital group. Its size was not matched by profitability and bed occupancy was poor. McGoldrick set out to sell it. While the more cautious Hospitals of Australia challenged the glowing report McGoldrick had secured from Price Waterhouse, he was able to persuade the South Australian, newly listed and gullible Health and Life Care (HLC) to pay top dollar for CHC. McGoldrick lent HLC chairman, James Kellie, $25 million to buy CHC and maintain a controlling holding. CHC turned out to be no more than a heavily indebted facade for a maze of paper companies. HLC, now the largest Australian health care corporation found itself as the heavily indebted owner of money losing facilities. Suppliers were soon pursuing HLC for CHC's unpaid debts.

A bitter dispute between McGoldrick, still a substantial shareholder in HLC and HLC's founder, James Kellie ended in the courts and paralysed management. The banks and Adelaide's business community stepped in to take over management and rescue the money losing company by selling off assets. The state government run SGIC bought all the South Australian hospitals. The effort to save the company failed and it entered receivership in 1993. Insurer MBF bought the last of the hospitals and HLC's receiver sued Price Waterhouse.

McGoldrick was a bankrupt between 1989 and 1995. His insurers had dumped him. HLC and the many patients who had sued him were therefore unable to recover monies. None of this stopped him from pursuing his medical clinics business. The McGoldrick family had already been closely associated with the infamous Geoffrey Edelsten in his Superclinics venture and ended with a large holding in that company. They also set up their own chain of 24 hour clinics called Supercare. McGoldrick was involved in a bitter and acrimonious dispute in relation to Superclinics and blamed Edelsten for spreading false information when Supercare was founded. Unregistered Ian McGoldrick claimed to be working at Supercare as a handyman and later in administration, denying he was seeing patients. That he was practicing medicine and treating patients was exposed by a television sting operation using a hidden camera. He later admitted to it.

Linked to the medical clinics was a complex web of paper companies, with bogus directors, false addresses, missing accounts, fraudulent invoices for nonexistent medical equipment and questions about the authenticity of companies. When this all collapsed those who had trusted McGoldrick and his agents were left with losses as fraud investigators picked through the mess.

It is easy to get caught up in the dramas surrounding McGoldrick and the companies he ran. Please remember that there were patients in these hospitals and attending these clinics. Ask yourself whether all of this would have had any impact on the care they received. There is no information but during that period oversight was far looser than it is today.

After his 4th unsuccessful attempt to be registered as a doctor and second appeal failed in 2004 McGoldrick turned to property development, one suspects once again with other people's money.

CLICK HERE to explore the fascinating McGoldrick story and the dramas surrounding the companies with which he was associated.

Markalinga Trust and Hospitals of Australia Trust were two of the earlier operators trading on the share market. Both were viewed with favour by analysts contrasting them with the other private health care companies which had more than their fair share of "controversial entrepreneurs". At that time (1988) these would have included Edelsten, McGoldrick, Moran and Ramsay (who almost entered bankruptcy at this time).

Markalinga, a health and property company was formed by Dick Kernot and a small number of others, who I suspect were well motivated to provide a good service. They floated the trust in 1986 and embarked on a policy of expansion spending too much and being caught with large debts in the market crash of the late 1980's. They sold their properties to keep the health business going but by 1991 they were in difficulties. In December 1991 they sold a controlling interest to National Medical Enterprises (NME), the US company which was seeking to expand into our region to escape a growing scandal at home. Markalinga was restructured and renamed Australian Medical Enterprises (AME).

At the time I was in conflict with NME because of its business practices in Singapore which I believed were a threat to the care given to patients. Markalinga was paying $1 million a year for access to NME's business expertise. I tried to keep NME out of Australia in 1991 and when I became aware in late 1992 of the way in which these practices contributed to the extensive mistreatment of patients in the USA I gathered information and took the issues to authorities who did their utmost to find ways of not confronting the sort of company they were actively supporting as the solution to our health care problems. Ultimately they had no choice but to force the company out of Australia in 1996. This web site was started in 1996 as a response to NME and AME's attempts to threaten me and force me to desist by using sham defamation actions - commonly called SLAPPs (Strategic Lawsuits Against Public Participation). Mayne Nickless bought AME.

What happened with NME and AME gives a fascinating insight into the dishonesty and manipulative nature of politics, and the relationship between government bodies and the business community. In spite of the overwhelming evidence that similar practices were industry wide politicians continued to entice and welcome multinational US health care corporations into Australia. The web site grew in order to assist in confronting this invasion. In 2002, NME, now renamed Tenet Healthcare was involved in another massive scandal which included among other things the performance of hundreds of unneeded cardiac operations. Some of these patients died. If Tenet/NME had stayed in Australia, might this have happened here?

The Markalinga/AME web page describes Markalinga's origins, its control by NME and its eventual departure. It provides links to pages which describe the complex events which resulted in Tenet/NME's departure, information about the role I played and the 2002 scandal in the USA.

Click Here to go to the Markalinga/AME web page

James Hardie is the massive building construction company at the heart of the asbestosis scandals in Australia. Like Mayne Nickless in the 1980s, it was inspired by what was happening in the USA and by the rhetoric of the two US companies in Australia. It bought a holding in AMI and founded Health Care Corporation (HCC). It also invested in health care in the USA. HCC was an early enthusiast for colocated hospitals. HCC could not find investors to help it build these and it did not prosper. James Hardie soon lost enthusiasm and looked for a buyer. It was not until 1997 that Alpha Healthcare bought the company with financial assistance from Sun Healthcare. Even so Hardie had to virtually fund its own sale with loans to Alpha. It was still Alpha's second largest shareholder. In 2001 it secretly joined with Sun Healthcare's receivers by selling Alpha's debt to Ramsay so enabling Ramsay to force smaller Alpha shareholders to sell their shares to Ramsay cheaply. This part of the story is told on the Alpha pages.

Click Here to examine James Hardie's health investments and the fortunes of HCC.

Alpha was formed in 1969 and after a series of failed ventures entered health care in 1988 adopting the name Alpha Healthcare. It was a company looking for opportunities to make money. It struggled for many years then unexpectedly embarked on a rapid period of growth in 1996. At this time government had adopted a market based health and aged care policy and was looking for multinational corporations to make its policies work. There is much to suggest that Alpha received some political patronage and support as a vehicle to bring Sun Healthcare into Australia in 1997. Sun was a giant US corporate nursing home and step down care group. It bought into Alpha and funded its further growth. It also bought hospitals from Moran Healthcare.

There were serious concerns about Sun Healthcare's US practices. The Foreign Investment and Review Board (FIRB) overruled an objection by New South Wales when it approved Sun's entry to Australia. The concerns about Sun's US practices continued to grow and in December 1998 the company backed out of Victoria after its probity was found wanting in a government investigation.

Thereafter Sun Healthcare and Alpha's fortunes waned. Alpha was forced to abandon its grandiose ambitions and sold off most of its debt. Sun Healthcare entered bankruptcy in the USA and Australia. Sun deserted its Alpha shareholders and joined James Hardie in handing the company to takeover bidder Ramsay Healthcare on a plate by selling Alpha's debt to Ramsay behind Alpha's back in 2001.

Click Here to access the Alpha web pages

Australian Hospital Care (AHC) started as a one man company founded by Dr. Bryce in 1979. Under his guidance and assisted by his partnership with Australian and Malaysian financiers, AHC grew to be the second largest corporate hospital owner in Australia. Its management seemed to have an implicit belief in the myths of the marketplace. As a consequence it actually spent money to improve facilities and care in the belief that providing better care would be profitable. It entered into a disastrous and financially crippling privatisation of the LaTrobe public hospital in Victoria in the belief that corporate management could generate sufficient profits from its inadequate contract.

AHC listed on the share market in 1996. Its initial results were spectacular doubling its share price. Eighteen months later market pressures and competition took their toll, exposing the company's marketplace indiscretions. I have suggested that these were consequent on actually believing marketplace myths and acting on them.

The company went from bad to worse and was acquired in a takeover by Mayne Health in 2000. It provides some interesting insights into the health care marketplace.

Click Here to go to the Australian Hospital Care page

Moran Healthcare was founded by Doug Moran in the 1960s. It was primarily a nursing home operator but from an early stage owned some hospitals. In the 1980's and 1990's Moran enthusiastically pursued private hospitals. He is best known for his enthusiasm for building luxury private hospitals and health centres for the rich, particularly wealthy Asians. While one Taj mahal was built in Queensland they were not viable and none ever operated.

In 1998 Moran formed a liaison with Sun Healthcare selling it a 51% stake in seven hospitals. Sun Healthcare was at the time the subject of extensive allegations of poor care in the USA, particularly in California. Nurses had repeatedly made public allegations about Sun's practices. Sun was the subject of a US Federal Government Inquiry in 1997 and at the time was being investigated for fraud. It is difficult to believe that Doug Moran was unaware of this.

Moran Health Care eventually sold its Australian hospitals. It also expanded widely internationally but I am not sure whether this included hospitals.

Moran was a bitter opponent of socialism and an influential coalition party supporter. He claimed to have been responsible for much of the federal coalition government's privatised aged care policy in 1996/7. This was a policy which backfired. He donated to the party. He mounted a publicity campaign for the government's nursing home policies calling aged pensioners who sought to protect their assets bludgers and more. This did more to expose Moran's character and biases than to help the government. He was later involved in a bitter and very public family dispute which gave further insights into the sort of person he was.

Click Here for more information about Moran's involvement in hospitals

Benchmark was a group of not for profit hospitals owned by National Mutual. In 1999 it was purchased by a single businessman and changed from mutual to for-profit. Although he planned to float the company on the stockmarket he did not do so and eventually sold the business to Ramsay in 2004. The company was an Australian example of a for-profit operator which was not accountable to and under pressure from banks and shareholders. This situation sometimes produces excellent services but is less accountable to the public and this can be exploited by the greedy and ruthless.

Click Here to go to the Benchmark page

Nova Health was floated in 2002 with great fanfare. It amalgamated nine small hospitals in NSW and Victoria. This was a pipe dream and it was soon in serious trouble. These hospitals were not viable and it had no leverage. It was restructured by selling off these hospitals. The rump, a collection of hospitals it had bought on the Gold Coast in Queensland was taken over in a merger with Healthscope in 2005.

Click Here to go to the Nova Health page which examines this corporate failure

Hospitals of Australia Trust - HOA - (1986 to 1991)

A small group of hospitals founded by two entrepreneurs was floated as a trust in 1986. Mayne Nickless became a 29% share holder and Alpha a 10% holder. Two years later Mayne bought out Alpha and took over management of the hospitals. HOA expanded and generally prospered.

In 1991 Mayne appointed Barry Catchlove to head its health care operations. It bought the rest of HOA and acquired Hospital Corp of Australia (HCA) combining them to form Health Care of Australia (HCoA) which became the vehicle for Catchlove's diversified health care conglomerate embracing laboratories, radiology, general practice and a range of other health care businesses - the "One stop" model.

Click Here to go to the HOA page

HCOA and Mayne Health (1991 to 2003)

Mayne Nickless was a very successful trucking company founded towards the end of the 19th century. It prospered until 1994 when it was embroiled in a scandal which revealed that its empire and its wealth were built on collusive practices with large competitors. It pleaded guilty to criminal charges and paid a large fine. It had already entered Healthcare by taking control of HCA and HOA.

Mayne's trucking business was no longer as profitable and it switched the main thrust of its operations to health care. Over the succeeding years it steadily sold off its now less profitable businesses and expanded its small holding in hospitals until it was the largest by probably a factor of two or more. It adopted a diversified model calling it "one stop" medicine and expanded rapidly into radiology and diagnostics as well as buying up general practices. It was the face of for profit care in Australia and enjoyed strong political support. Its market focus and advocacy of managed care antagonised the doctors. It was disliked by the medical profession. It displayed many of the worst thinking and policies of the US corporate system which it tried to emulate. It failed to gain control of the doctors incomes or of their careers, the keys to success in the USA. There was a conflict of interest in its involvement with the minister for health and there were scandals.

Mayne failed to generate the profits it had promised and could not compete with its competitors. Institutional investors misdiagnosed the problems and called in Peter Smedley, a renowned corporate Mr. Fixit to rescue the company. He expanded into pharmacology and introduced an extensive market focussed restructuring of the hospitals. He renamed the health business Mayne Health. This business policy resulted in accusations of cherry picking, deskilling and other well recognised US failings in regard to patient care. The doctors simply took their patients to competing hospitals and Mayne's hospitals sustained huge losses.

Mayne sold its hospitals to a Citigroup led group of venture capitalists in 2003 and the new company was called Affinity Health. It continued to operate diagnostic services, general practices and an expanded pharmacology business. Mayne has now decided to break up further.

Click Here to access the Mayne web pages

Affinity Health (2003 to 2005)

When Mayne Health's hospitals collapsed under Peter Smedley, the company started to be split up. The first to be sold was the hospital division. This was purchased in October 2003 by a group of venture capitalists led by CVC Asia Pacific. CVC Asia Pacific was the Asian division of the infamous Citigroup conglomerate. They set out to make the hospitals profitable aiming to float them as a new company in 3-4 years. Objections were lodged with state authorities in regard to Citigroup's probity, in the light of its international track record. Perhaps because of this Affinity had difficulty having licenses transferred to. It was only granted licenses in NSW subject to restricting conditions, and then after it had sold to Ramsay Health Care in April 2005.

When an attempt at an early float was not welcomed by the market in mid 2005, Affinity agreed to sell the hospitals to Ramsay Health Care. Due to competition concerns, about 20 of the hospitals were to have been sold back to Affinity Health. They planned to continue to operate them under the name "New Affinity". The deal with Ramsay fell through when Healthscope paid much more and bought the hospitals. Affinity dissolved and is no longer a hospital operator.

Click Here to go to the Affinity web pages

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During the 1970s and 1980s insurers were a mix of mutual, not-for-profit and for-profit groups. Some of them owned hospitals to care for their members. The ethic was humanitarian and largely cooperative. During the boom of the late 1980's hospitals were seen as a profitable corporate venture and many insurers invested in hospital corporations or owned their own hospitals. Following the introduction of managed care in the mid 1990s a competitive negotiating system was set up between insurers and hospitals. This could not work when the insurers owned hospitals which were competing with others for their own negotiated contracts on a "level playing field". They gradually sold off their hospitals.

FAI, SGIC, MBF, National Mutual and Hospital Benefits of Western Australia all owned hospital or invested in them.

CLICK HERE for the story of their hospital ownership.

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A number of smaller listed and unlisted for profit private groups have operated in Australia. I have examined the few where there was information available. These include Australian Hospital Resources, Hoscare, Healthcorp, Hope Health Care, Macquarie Health, HCA-Medicorp, Medicorp, and Independent Private Hospitals of Australia. Healthcorp gives an insight into marketplace thinking in the 1980s. Hope Health Care may be not for profit but I could not find information. It probably still operates as does Independent Private Hospitals of Australia and I believe Macquarie Health. Medicorp's hospital was in Veitnam and it was sold. It now has multiple non-hospital commercial medical ventures in Australia.

 CLICK HERE to examine the information found about these companies.

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Ramsay Healthcare (1963 to 2005)

Ramsay is now Australia's largest hospital corporation and it dominates all the others. Founded by Paul Ramsay in 1963/4 it positioned itself well during the difficult 1990s and was ready to capitalise on the bonanza which followed when government elected to fund the private system with tax payer subsidies. It grew rapidly during the early 2000s particularly at the expense of Australia's largest hospital group Mayne Health. When Mayne threw in the sponge Ramsay was ready to buy Mayne's hospitals, but did so only after a Citigroup led group of venture capitalists had taken a bite at the cherry first.

Ramsay is an owner of hospitals and has not joined Mayne and others in targeting radiology, laboratory diagnostics or general practices. It has however entered aged care where it plans to expand. Ramsay flirted briefly with the stock market in the 1980's but did not enjoy the experience. In 1989 Paul Ramsay's business empire collapsed. He struggled to survive but bought back all the shares in Ramsay Health Care at a fraction of their original price.

Paul Ramsay was a provider of psychiatric care in the USA during the 1980's and 1990's when patients were misused and there was extensive fraud. He also owned health maintenance organisations (HMO's - managed care) in the USA which he sold when HMO's became the target of a US wide backlash against their practices. When his psychiatric empire became unprofitable and Medicaid agencies pursued the company for overpayments he moved into the rehabilitation and education of disturbed adolescents and correctional centres. The juveniles were vulnerable and defenseless. In 2003 there was a scandal with a grand jury investigation of mistreatment and the exploitation of girls in a correctional centre. This can be seen as due to the employment of underpaid and improperly trained staff from the dregs of society in order to reduce costs and increase profitability. Ramsay Health Care sold its interest in the US business in the early 1990's and they have since been operated through Paul Ramsay's private companies.

In Australia Ramsay has been successful in its purchase of Veteran's Affairs hospitals and in providing services to Veterans. It was relatively unsuccessful in obtaining contracts for the privatisation of public hospitals and so did not suffer the big losses the other winners of contracts sustained. Its two colocations were more costly than anticipated and only one of these eventually became profitable.

Ramsay listed on the stock exchange again in 1997. Since then it has adopted a more aggressive stance in its business dealings and has expanded more aggressively. Its new aggressiveness is reflected in the manner in which it purchased Alpha Healthcare. Its strategy was less than fully above board and it left many small Alpha shareholders feeling that they had been defrauded.

The redirection of large amounts of taxpayer money to subsidise privately insured citizens introduced a new profit stream for hospitals. Ramsay capitalised on this and grew rapidly to its now dominant position.

Ramsay Health Care has been privately owned for most of its existence and even when listed publicly Paul Ramsay has retained a dominant holding and the chairman's position. The company has therefore operated as if it were a privately owned for profit company, and as if it were not listed on the share market. It was not as subject to pressures from institutional investors and could follow a different path. Privately owned companies perform well for patients and staff if the owner is genuinely motivated to serve the community. Paul Ramsay too is a very different person to many of those who have led their companies into spectacular success at the expense of the sick, and then undergone equally spectacular failure when fraud and dysfunction were exposed.

In addition to avoiding competition, growing in size, and building up its existing facilities, all in order to increase leverage the company has adopted a policy of supporting all of its staff and establishing good relations with doctors.

My conclusions about Paul Ramsay and his company are rather mixed and ambivalent. On the one hand he is a ruthless businessman with some skeletons in his cupboard. On the other his Australian company has performed well and seems to have walked a fine line between market and care. The recent rapid expansion has brought in additional funding with more shareholders and lenders. This has diluted Ramsay's holding in the company.

Paul Ramsay has good friends in government and business communities and his views are likely to have influenced policy. They will certainly do so now that he is the most powerful hospital owner in Australia. It remains to be seen whether Ramsay Health Care will continue to behave responsibly in the community now that it has so successfully vanquished all opposition, or whether it will exploit its new power for the benefit of its new institutional investors.

Click Here to explore the Ramsay web pages

Healthscope (1985 to 2005)

Healthscope started with great hopes in 1985 as a liaison between disillusioned public hospital administrators and businessmen. It floated on the share market in 1994 promising rapid expansion and large profits. It had failed to appreciate that its hospitals were too small to be competitive in the modern medical marketplace. It sustained large losses which were compounded by a disastrous privatisation project in South Australia. It cycled through a series of managers before it found a manager with hard headed business skills who could make it profitable.

Healthscope was the earliest and strongest proponent of avoiding competition and securing leverage by owning specialty and rural hospitals. This did stand it in good stead but in South Australia, Victoria and the Northern Territory the dominant insurer was National Mutual. Owned by the French AXA and then the British BUPA, National Mutual was a very tough operator and paid poorly for services. Healthscope's profitability was constrained.

Healthscope had been expanding steadily buying up not for profit and small private hospitals whenever they added to its leverage. It was one of the strongest advocates for the absorption of not for profit and community hospitals into the corporate system. The Adelaide Community Healthcare Alliance (ACHA) was an amalgamation of not for profit hospitals in Adelaide which was also struggling with insufficient leverage and losing money. Under pressure from their bankers ACHA entered into a management contract with Healthscope. This gave Healthscope far greater leverage in South Australia.

Healthscope precipitated an acrimonious confrontation with BUPA and the resulting standoff placed pressure on insured citizens to drive their agenda. Everyone suffered as a consequence and Healthscope emerged bruised and chastened.

The availability of takeover targets was rapidly diminishing as Ramsay was better positioned. It tried to keep up and purchased Nova Health. Gribbles Pathology was in trouble and in a surprise move Healthscope went after Gribbles.

Healthscope survived a very poor beginning by sheltering in niche specialisation markets and becoming profitable there. It has expanded dramatically in recent years moving out of its niche markets acquiring a large number of general hospitals and entering the pathology marketplace. It now owns foreign businesses and is looking at global expansion. Some feel that it has grown too rapidly and is overextended. In 2005 it is the second largest owner of hospitals in Australia so is an important player but is dwarfed by Ramsay Health Care.

I have devoted several pages to Healthscope as it provides interesting insights into the real difference between for profit and not for profit services and why the latter are struggling. It explores the increasing importance of leverage.

Click Here to go to the Healthscope pages

Independent Private Hospitals of Australia

Independent Private Hospitals of Australia, a private for profit group is only a few years old. It is owned and operated by a group of doctors who have opposed Medicare since the early 1980s. They predicted many of the problems which have arisen as a result and believe that it is not sustainable and will eventually be dismantled. It operates "The Sydney Hospital" where it offers high technology units in cooperation with corporations developing the latest surgical gadgets. In 2004 it purchsed five hospitals from Nova Health. I have put a section about it on the Small Hospital Groups web page.

CLICK HERE to go to the section about Independent Private Hospitals of Australia

Macquarie Health (1971 to 2005)

Macquarie Health, a private for profit operation owned by entrepreneur Tom Wenkart was primarily a controversial pathology operator and owner of medical clinics. It also operated six hospitals. It was involved in a 10 year saga for a colocation in Sydney. The luxury hospital complex was never built. The money losing pathology business was sold to Mayne Nickless in 1998 and Wenkart became bankrupt in 1999. A report in 2004 indicated that the company still operated 5 hospitals but Wenkart's involvement if any was not revealed.

CLICK HERE to go to the page examining information available about Tom Wenkart and Macquarie Health.

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Web Page History This page first created June 2002 by Michael Wynne Completely rewritten and expanded Oct 2005