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This page
describes Ramsay Health Care's enthusiasm for and financial
success in the privatisation of veteran's affairs hospitals,
its caution in the privatisation of public hospitals, and
its strategy for colocated hospitals.
The Privatisation Years
1994 to 1999
Economic rationalism came to Australia in the 1980s and swept enthusiastically into health care in the 1990s. The market and private enterprise were seen as the answer to all of governments' problems. Marketplace globalisation was the way of the future. Attempts to bring in US megacorporations to restructure our health system failed when their poor track records were exposed. Managed care was only partly implemented when the medical profession refused to have anything to do with it. Governments finally turned to home grown companies.
Private health insurance was in decline until 1999. As more people fled the private system, the public hospital system became overloaded, under funded and over bureaucratised. Unhappy hospital managers reached out to market mechanisms. They formed or joined private companies, many of which listed on the stock market to raise capital.
A growing number of corporations operated private hospitals and they were soon struggling. The prospect of a steady source of regular funding from government contracts to run privatised public services was very attractive. Privatisation appeared to be a life line and was enthusiastically embraced in health care in the mid-1990s.
There were three areas of privatisation. Veterans Affairs, state privatisation of public hospitals, and colocations where private hospitals piggy backed on adjacent public hospitals.
Ramsay, with his experience in the USA was particularly enthusiastic about the privatisation of public services. He advocated managed care and set Ramsay on a policy of privatisation and colocation. At one stage half of Ramsay Health Care's income came from government sources.
Paul Ramsay's US private psychiatric hospitals had prospered by having close relations with teaching hospitals and from involvement in teaching and research. He targeted colocations on teaching hospital campuses and secured some.
Ramsay Health Care was very successful in securing veterans hospitals and in making them profitable. It was far more cautious in its tenders for privatisation and colocation projects on other public hospital campuses than its competitors. It secured only a few state privatisation projects. As a consequence it came out of this failed adventure better than its competitors who were badly burned.
One consequence of this policy for Ramsay was a shift of focus from psychiatric hospitals to general medical/surgical hospitals but not at this time in much direct competition with other private hospitals.
Because the veterans hospitals were very profitable and only a few privatisations and colocations were secured government funding did buffer the company's bottom line. It survived the difficult years in better condition than its competitors. It was ready to expand into private general hospitals and exploit the new dynamics when the decline in private insurance was finally reversed.
Paul Ramsay's $180-million health care operation has adopted a strategy of expanding only in tandem with Australia's public hospital system
1997 Privatisation, the goal
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- - - - if any of about eight tenders for privatised hospitals are successful.
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The group will link every development with the public hospital sector, and its new hospitals are strongly associated with teaching and research. In the US, one RHC Inc psychiatric hospital is on the University of West Virginia campus, and RHC Inc is studying a request from Louisiana State University to build a psychiatric hospital in its grounds. Grier is lukewarm about buying private hospitals. "We haven't bought one for a long time. Working with the public sector is our main game."
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
Ramsay Health Care is one of several groups making a drive to attract government contract business, to lessen the vulnerable reliance on privately insured hospital patients.
1997 Ramsay leads the way
For private hospitals in general, 83 per cent of revenue is from health insurance, 8.5 per cent from the growing trend to self-insurance, 5 per cent from workers compensation and 3.5 per cent from government contracts.
Ramsay, however, has bumped the government contracting percentage up to 54.4 per cent, largely through its two repatriation hospital acquisitions, with health insurance providing a less daunting 42.5 per cent of revenue.
Pat Grier, managing director of the Ramsay Health Care, said the really worrying trend for private hospital groups was the fallout from the top cover tables, the ones which really underpin private hospital treatment.
Private Hospital System Moves Into The Spotlight Australian Financial Review May 29, 1997
Ramsay Health Care managing director, Pat Grier, said governments realised there was a need to increase financial efficiencies in the health-care sector.
1997 The justification
"Privatisation and co-locations are really the thrust of the health-care system at the moment," he said.
Hospital groups vie for Qld projects COURIER-MAIL September 2, 1997
A core aim was to build private hospitals near major teaching hospitals and place Ramsay in a strong position to win government tenders and joint projects.
1997 Synergy with government
"We realised the future was synergy with government," Grier says.
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Growth will be very "discerning", however, with acquisitions required to fit the core public sector strategy. Expansion into pathology is a possibility.
Hooking In To The Public Hospitals Sydney Morning Herald September 17, 1997
He (market analyst) says the Federal Government's push to improve efficiency and limit funding in the health-care sector is providing growth opportunities for private operators. Ramsay Health Care is well positioned to benefit from this trend
1998 from psychiatry to general hospitals
Originally a psychiatric care specialist, Ramsay now derives about 75% of its revenue from medical and surgical hospitals.
Centre takes off SUNDAY MAIL (QLD) April 19, 1998
The health of war veterans is under the control of the Australian federal department of Veterans Affairs. Prior to 1994 they owned Veterans hospitals in major cities. Veterans and their families received care. Doctors were paid a fee for service. It operated more like a private fee for service than a public system. These privatisations were very different to the privatisations of state owned public hospitals embarked on by conservative coalition governments.
The veteran's hospitals were sold to the companies who ran them as full service private hospitals in the community. They provided private care to the community like any other private hospital and contracted with private insurers. The company like the doctors was now paid by government for providing services to Veterans and their families on an item of service basis with some discount in return for a captive referral base. The payments were realistic. These were now private hospitals with a guaranteed occupancy and payment.
Ramsay secured two veterans contracts and these hospitals proved to be very profitable for Ramsay. Veteran’s Affairs, state authorities and the veterans themselves were all satisfied with the service provided by Ramsay. It was more successful in this than its competitors. These two hospitals carried Ramsay through the difficult late 1990s when its other hospitals and its competitors were struggling.
It is interesting that hospital privatisation started under the federal labour government with the privatisation of the veteran’s hospitals in 1994. State public hospital privatisations were by coalition governments. They were opposed in this by labour who later abandoned these policies when they gained power.
The first privatisation secured by Ramsay Health Care in 1994 was the Hollywood Repatriation Hospital in Perth, Western Australia. Ramsay Health Care was at that time still Paul Ramsay's private company. A federal labour government was attempting to force a form of managed care on doctors. Doctors were also critical of the underfunding of private hospitals and the mounting pressures to contract the care of public patients to private corporations. This was seen as part of the managed care agenda.
When the contracting of surgical patients from an adjacent public hospital was included in the Hollywood privatisation the doctors challenged the process.
Paul Ramsay and his company were at this time urging politicians to follow the US system. He quickly learned that if he wanted to build relationships with the medical profession and get them to support his hospitals he needed to keep these views under wraps. Always publicly reclusive he became more so.
In 1994 a probity review in Victoria forced the federal government’s favoured company, Australian Medical Enterprises, to back out of purchases in Victoria and Queensland. Ramsay secured the privatisation of the Greenslopes Veterans hospital in Brisbane.
Ramsay introduced staff reductions and cost savings without an outcry about rationing care. Both hospitals proved very profitable and feedback from governments has been positive. Ramsay has invested funds to expand and upgrade these hospitals.
Under the terms of the privatisation of Hollywood, the hospital will treat 50 orthopaedic and neurology patients from the adjacent Sir Charles Gardiner public hospital.
1994 Hollywood
However, doctors have refused to provide services to public patients transferred to Hollywood because of the WA Government's reluctance to agree to a service contract with medical staff.
COPY US-STYLE HEALTH CARE, CANBERRA URGED Australian Financial Review March 3, 1994
The privately owned Ramsay Health Care has also been aggressive in tendering for contracts and just this month clinched the Greenslopes Repatriation Hospital in Brisbane.
1994 Greenslopes
Ramsay. PRIVATE HOSPITAL OPERATORS ENJOY RETURN TO GOOD HEALTH Australian Financial Review September 28, 1994
RHC's four wins in health privatisation and hospital co-location tenders since 1994 are becoming the backbone of the group's Australian business. The first two were 10-year contracts worth a total $775 million, to run the privatised Department of Veterans Affairs hospitals at Hollywood in Perth (300 beds) and Greenslopes in Brisbane (350 beds). It cost Ramsay a total of $82.5 million to gain the business.
1997 Performance based payments
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Keith Lyon, deputy president of the Repatriation Commission, says he was surprised to see Ramsay winning each of the independent tenders. "Without question, Ramsay's takeover has been an outstanding success from a patients' and efficiency viewpoint," he says. The department picked up the $27-million tab for redundancies of half the repatriation staff. Lyon says that, under the performance-based payment system, waiting times for veterans have almost disappeared and there have been big cash savings. "Our Diggers were very watchful but now they are our greatest supporters on these programs," he says. Grier adds: "We've handled the staff sensitively and their morale is up, too. Before, their suggestions and grizzles didn't get a response. Now we ask them how to fix things."
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
WORK is due to finish next month on the first stage of the $20 million redevelopment of Hollywood Private Hospital.
1997 Expanding the hospitals
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Stage two will include additional operating theatres and purpose-designed day surgery and day procedure units.
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In Queensland, Ramsay bought the Federal Government's Greenslopes hospital in 1995, and since opened about $10 million in upgrades.
Hollywood Stage Ends As Ramsay Eyes Float The West Australian June 11, 1997
The Greenslopes Hospital for war veterans in Queensland was given no choice but to seek private ownership after funding was denied it in 1995. It was purchased by Ramsay Health Care from the Repatriation Commission for $A46.84m and despite concerns being voiced by war veterans, they are now pleased with the result. Ramsay is also satisfied and is preparing to corner more of the local health care market; about $A10m has been spent on upgrading the hospital and waiting lists, which had previously involved three to eighteen months waiting, are now non-existent
1997 All satisfied
Privatisation remedy for Greenslopes Hospital ills The Courier-Mail June 14, 1997
"All parties affected by the privatisation _ staff, Commonwealth Government, University of Queensland and most importantly, the veteran community _ are delighted with the results," Mr Glynn said.
1997 Satisfied
Sheldon tips $35m saving on hospitals COURIER-MAIL October 31, 1997
The Veterans division has reported a strong result compared to the same period of the prior year. Offsetting this however, are the Medical/Surgical and Psychiatric divisions that have faced margin pressure due to the current health insurance market.
1999 Veteran's profitable
Ramsay Healthcare sees lower 2nd half Reuters News March 9, 1999
Mr Grier argues that Ramsay has demonstrated its foresight - it bought its non-health-fund dependent Western Australian Hollywood and Queensland Greenslopes veterans affairs hospitals five and four years ago respectively -and is working to ensure it stays well positioned.
1999 Strategy rewarded
Hospitals Can't Stand Alone: Ramsay The Age March 15, 1999
The veterans hospitals account for 52% of its revenue, and have been a more lucrative area than other hospital business because of the higher rates paid for care by the Department of Veterans Affairs. Across the group, occupancy rates are averaging 80%.
2000 Occupancy and payment
Private Hospitals In Recovery Ward Business Review Weekly November 17, 2000
No.2 hospital operator Ramsay Healthcare should benefit from (Budget) changes that will give about 4000 extra war veterans access to concessional cards, allowing them full access to veterans' hospitals run by Ramsay.
2002 More help from government
Happiness is a hands-off Treasurer - BUDGET 2002 The Australian May 18, 2002
The pivotal step in Ramsay's transformation from a small hospital operator to a larger and diversified organisation occurred when the company won the tender to operate the Department of Veteran's Affairs Repatriation Hospital in Hollywood, Perth, and later at Greenslopes, Brisbane. - - - - and the company is now adding another 160 beds to this division.
2005 In retrospect a key factor for Ramsay
It will spend $55 million on a second stage development of Greenslopes Private Hospital in Brisbane to build a 90-bed accommodation wing, more operating theatres and develop other medical services.
Ramsay to expand Greenslopes Australian Associated Press Financial News Wire February 28, 2005
The rise and fall of the policy of privatising public hospitals is addressed in another section and in pages devoted to each state. The comments and extracts on this web page relate more specifically to Ramsay and his company's involvement and the impact on Ramsay's thinking and bottom line.
Public hospitals are a state responsibility and the privatisation agenda was embraced enthusiastically by all state governments in the mid 1990s. Ramsay with his US experience was very enthusiastic and pursued privatisations energetically but cautiously. Ramsay was clearly more business savvy and did not underbid like his competitors. He was consequently less successful in securing the contracts and did not suffer the losses those who did sustained.
When Ramsay Health Care became the preferred bidder some governments abandoned the projects because they realised the bids did not meet their objectives or public objections were too strong. In others Ramsay backed out because its realised that it had underbid.
Ramsay ended with only one privatisation. It secured the Mildura Hospital privatisation in Victoria when a probity review forced Alpha Healthcare out of the contract in 1998.
Once again this was claimed to be a contract different to all the other failed contracts and the hospital would, Ramsay believed, make money. It did better than the many other privatisations but was only minimally profitable. By 2004 it was losing large sums of money and soon after this became involved in an acrimonious dispute with the government about funding. Ramsay offered to give the hospital back. Government elected to increase funding instead.
In West Australia the government backed away from privatising the Sir Charles Gairdner and the Armadale-Kelmscott Memorial Hospital. Ramsay had tendered for both.
In Victoria the government embraced privatisation more fervently than all other states. Australian Hospital Care secured the LaTrobe privatisation and suffered massive losses. Ramsay formed an alliance with Mayne Health to secure the large Austin and Repatriation teaching hospital privatisation in Victoria. It imploded in a mess of complexity and ideology. When the labour government gained power in 1999 the project was abandoned to the relief of all involved. Ramsay won the Berwick Privatisation but pulled out of the project which was then abandoned. The Knox privatisation in which Ramsay was interested died of inertia.
Ramsay did not win contracts for any of the privatisations in South Australia, NSW, Queensland or Tasmania. The Northern Territory embraced a plan to privatise all of its public hospitals and Ramsay was interested. The plan dissolved when its flaws were pointed out.
Ramsay is bidding for the 120-bed Veterans Affairs Hospital at Turramurra, Sydney. Another tender, with five bidders, involves privately operated services for surgical patients on the Queen Elizabeth public hospital campus in Adelaide. He is also bidding for roles with Adelaide's Daw Park repatriation and general hospital. Potential tenders include the Queensland Government's registration of capabilities for privately owned and operated hospitals at Noosa and Robina for public patients. In Victoria, under the state's new regional health plan, he would like to offer private services for public patients on new hospital sites including Knox and Berwick.
1997 Enthusiasm
Ramsay Hitches His Star To The Public System Business Review Weekly Mar 24, 1997
The major private health-care providers and insurers have started to jostle for this year's big carve-up of Australia's public health system.
1998 All still keen
Year Of The Health Carve-up Australian Financial Review January 8, 1998
The perceived benefits of piggy backing private hospitals on public hospitals by building them on public hospital campuses also proved to be largely illusionary. Once again there was wild enthusiasm
Colocation is addressed separately in the section on privatisation and on state pages whose links are provided in the previous section.
Some colocations succeeded as private hospitals in their own right but others failed and many of the contracts to build private hospitals were abandoned by government, corporations or both. Ramsay's public enthusiasm did not translate into winning contracts. Ramsay's caution enabled it to escape relatively unscathed. It secured two colocations, North shore in Sydney and Flinders in Adelaide in its own right. It obtained the already established Westmead colocation when Ramsay acquired its owner Alpha Healthcare in 2001. All were on teaching hospital campuses.
Both the Royal North Shore Hospital colocation in Sydney, NSW and the Flinders Hospital in Adelaide, South Australia in 1996 proved far more costly to build than anticipated and this impacted on profits. Uptake by patients was slow and the sort of high level medical services provided in these tertiary centres were unprofitable when compared with simple high volume surgery performed in more peripheral facilities.
Flinders hospital proved to be a hot potato which impacted heavily on Ramsay's profits. Ramsay sold it at a loss to the Adelaide Community Healthcare Alliance only 18 months after it opened, They were dragged down by it and dumped it on to Healthscope as part of a management contract.
North Shore Private Hospital remained viable and when changes to the funding system in the late 1990s improved funding for complex procedures it became more profitable. Ramsay invested in more beds and upgraded services.
Westmead was profitable but analysts have not lauded its positive impact on Ramsay's bottom line.
North Shore Private, - - - - and Mr Grier admits Ramsay underestimated the start-up costs. The group's second greenfields co-located hospital, Flinders Private, in Adelaide, will be responsible for further, smaller start-up abnormal losses in the second half. But Mr Grier says both are crucial to positioning Ramsay for growth in the next three to five years.
1999 Startup costs
``If we weren't doing North Shore, we'd be the darlings of the industry, - - - -
Hospitals Can't Stand Alone: Ramsay The Age March 15, 1999
This is despite the undisclosed price tag (of Flinders Private Hospital sale) likely to be below its present book value of $50 million, which was already written down from the $80 million it cost to build the hospital.
2000 Selling Flinders
Sale spurs Ramsay Australian Financial Review September 26, 2000
Ramsay's main problems have been in its two co-located hospitals (attached to large public hospitals), which recorded a combined loss of $3.6 million before interest. The $40-million write-off was offset against the company's asset revaluation reserve and not charged against profits.
2000 Cause of losses
Private Hospitals In Recovery Ward Business Review Weekly November 17, 2000
Flinders made an $8.5 million loss before tax and abnormals, in the year to June 30.
2000 Flinders losses
Hospital offload buoys Ramsay The Australian December 11, 2000
Often, the less-complex health services provide the highest returns. Ramsay Healthcare, for example, has struggled to make money from its North Shore Private Hospital, which offers treatments using the newest technology, whereas its rehabilitation hospitals have been extremely profitable.
2002 Driving health using funding distorts services
Healthy profits Business Review Weekly May 9, 2002
Ramsay's next growth stage focused on co-located hospitals, such as the 180 bed North Shore Private on the grounds of Royal North Shore in Sydney. North Shore Private's EBIT margins are near 12 per cent, and Grier says Westmead Private, acquired in the Alpha purchase last year, is close to achieving similar levels of profitability.
2002 Some profitable
Nothing but the best Shares Magazine November 1, 2002
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History
This page created August 2005
by Michael
Wynne
