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 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. Because adverse allegations are so common I have assumed for the purpose of these pages that there is some substance to them.

Links to Site Maps


Central
Initial
USA
Australian
International
Corporate Practices

(
to print)

Path to this page


Home
Australia
Pathology & Radiology

Other Pages

Gen. Pract. Corporatisation
Hospital Corporatisation
  
Entry to Privatisation
  
Privatisation Background
  
Australian states

Diagnostic companies


Sonic Healthcare
Sonic chronology
Mayne Nickless
Gribbles Group
Primary Health
Macquarie Health
Healthscope Path
MIA
DCA (I-med)

GP companies


Foundation
  
Foundation chronology
LifeCare
  
LifeCare chronology
Endeavour
Primary Health
Revesco-MCS-Gribbles
Mayne Health
Superclinics and Supercare

Content
This web page is the introductory overview of the corporatisation of diagnostic services in Australia. Part 1 explores the history, the processes, the forces at work, and the problems that developed during the corporatisation of patholgy and radiology between 1980 and 2006. It looks for signs of practices simlar to those in the USA. Part 2 lists the main companies that have supplied these services during this period and summarises the history of each one. Links are provided to other pages which examine the conduct of these companies in much greater detail

 Australian section   

Corporatisation
of
Diagnostic Services

Pathology and Radiology

  

 

CONTENTS

 
 

Part I General Review

Introduction

During the 20th century imaging, diagnostic laboratory tests, and pharmacology moved to centre stage in medicine. Few episodes of medical care occur which do not involve one of these. Experts in these fields may not make the clinical decisions but their input can be crucial to these decisions. These services gravitate to hospitals, and to the centres where doctors work.

Jun 2001 Reliance on diagnostic testing

Modern medicine increasingly depends on sophisticated testing, involving wider use of clever but expensive diagnostic equipment, to provide safer and better ways of assessing and preventing disease. In Australia, radiology is the largest category of Medicare expenditure after general practice, closely followed by pathology. Of the total Medicare expenditure of $6.9 billion last financial year, radiology accounted for $1.1 billion and pathology was $1 billion. Total Medicare money paid to general practitioners in 1999-2000 was $2.4 billion.
The Uncanny X-ray Men Business Review Weekly June 22, 2001

Radiology and pathology both require very costly equipment and, because of the rapid changes in the technology they employ, frequent upgrades are needed. To cover costs larger fees and a high turnover are required. Because of this the businesses are very profitable once the breakeven point is passed.

Mar 2005 Huge overheads

Given the huge overheads in running a laboratory (a new lab can cost $20 million to set up) and the cost of keeping pace with regulations, Dixon says many smaller players are happy to sell up and move on. "It's almost impossible for the smaller players to keep up with the corporates as you get huge economies of scale by acquiring a number of big labs," he says. He points out it's a win-win both ways.
RICH PICKINGS THE PEOPLE WHO GET RICH AS YOU GROW OLD Australian Financial Review March 19, 2005

Sep 2005 Costs of equipment

SKG (Subsidiary of Sonic Healthcare) is buying three 64-slice computerised tomography (CT) scanners, with each unit costing about $1.3 million.

This followed the installation last month of a state-of-the-art magnetic resonance imaging scanner at Hollywood, at a cost of about $2.5 million.

In addition, the company has a positron emission tomography scanner at the Subiaco hospital, installed at a cost of more than $3.5 million.
SKG spends on scanners WA Business News September 22, 2005

Both pathology and radiology have consequently become key areas for consolidation and rationalisation to ensure the most efficient use of the equipment. In our world this means that the mechanism used is corporatisation. Corporations can painlessly raise capital and there are opportunities to generate large profits for shareholders. Privately run professional services are unable to compete. They are offered large payments for their practices. Only a few privately owned and run services remain.

Mar 1989 Pathology corporatisation starts

Since that report (Government Review in 1985), the trend towards large groups grabbing the major proportion of business has continued, reflecting the need for pathology laboratories to achieve high-volume throughput.

The trend has been assisted by the widespread rationalisation in the industry, seen recently with Regional Pathology in Victoria going into receivership and its later purchase by the second largest pathology group in South Australia, Gribble.
NEW STARTER IN PATHOLOGY STAKES Australian Financial Review March 20, 1989

Jun 2001 Rapid corporatisation

With the radiology market worth $2billion and the pathology market not far behind, these have been particularly attractive to companies and have been quickly corporatised.
Firms fight for $2.7bn in doctors' fees The Weekend Australian June 16, 2001

Sep 2005 Some did much better than others

Health is a booming segment of the economy and Sonic Healthcare has positioned itself perfectly to reap the benefits of this momentum.
Overseas venture fuels Sonic boom Australian Financial Review September 7, 2005

I have always been privileged to have radiologists and pathologists I knew well "across the passage" so that I could walk over with their reports to discuss X-rays or histological findings. Diagnoses have been revised as a result. Some corporate groups have had the insight to preserve some of this professional collegiality and it has been profitable for them. Others have sought to bind their services to the doctors who use them in other ways.

One of the consequences of corporatisation, mechanisation, centralisation and an emphasis on efficiency is that the laboratory and imaging experts are removed from the clinical setting and from close contact with their clinical colleagues. Decisions are increasingly made on the basis of reports rather than consultation. While tele-radiology greatly improves the service to peripheral practitioners it can impact on collegiality.

Aug 2000 The promise of tele-radiology

Many of these benefits will be achieved through tele-radiology - the digitisation of images which can then be transferred to off-site specialists. Southernex is a market leader in the use of tele-radiology.
Development Capital Of Australia Limited (DVC.AX) DCA Expands with Healthcare Acquisition. Australian Stock Exchange Company Announcements August 9, 2000

Aug 2005 Collegiality - a US company which survived against corporate might for years

"It was just the fact that physicians know physicians doing the interpretation," Jupe said. "They talk. It's more of a close, collegial practice of medicine."
From a small medical practice a big lab grew and grew; Newly sold Clinical Pathology Labs' next test: Stay successful, independent Austin American-Statesman August 30, 2005


to contents

Pathology generates better results from corporatisation than radiology because the expensive facilities can be centralised and the machines automated. Multiple collection centres in medical complexes and hospitals around the country can funnel specimens through these high turnover centres. The number of employees can be reduced and the costly highly trained pathologists anchored and used for maximum benefit.

It is still necessary to carry out some urgent tests on site so this centralisation must be balanced. Some facilities are required in hospitals.

Sonic Healthcare adopted this strategy very successfully setting up only a few major centres around Australia. Gribbles group had multiple scattered laboratories which did not carry out a full range of tests so benefited less. Reports indicate that they became a second tier provider and eventually came unstuck.

Jan 2002 Centralising laboratories

Automation, however, lends itself well to pathology. Effectively the unitary processing fee is the same whether a sample is examined manually as if it is one of a batch of 100 processed automatically. As a result, the Commonwealth Government and the Association of Pathology have set price and volume quotas to regulate the industry. Because volume growth per practice is limited to 5 per cent per annum, acquisition, automation and networking are the main earnings multipliers.

Pathology also lends itself well to a satellitic operating structure where a centralised lab supports numerous sample collecting outlets over a broad geographic region. What's more, the increased emphasis on cervical cancer and diabetes in the May Federal Budget should increase overall levels of pathological testing.
Predators And Prey : Gribbles in a healthy position Shares Magazine January 1, 2002

Mar 2004 Sonic's success

Diagnostic testing company Sonic has consistently delivered better margins than market rivals such as Gribbles Group , Mayne Group and MIA Group .
Consistent Performers Humming Along Australian Financial Review March 17, 2004

Aug 2000 Looking at the market's potential

What has brought about corporatisation of the pathology industry? Diagnostic testing generally has enormous potential for growth as the population ages and new technology enables more sophisticated tests, which doctors say will help in the diagnosis and treatment of illness. Increasing litigation means that doctors are likely to request more tests to protect themselves against allegations of inadequate care. With the genetics field opening up, pathologists have an increasing range of DNA and other genetically based tests, which will add new dimensions to the business.
Sonic's Boom Comes At A Cost, Business Review Weekly August 18, 2000


to contents

Radiology in contrast is people intensive. Trained staff must operate the machines and they need oversight by radiologists. The images need skilled interpretation and the reports are not generated automatically. To get the referrals the machines must be taken to the referring doctors and their patients. The most expensive and less routinely used are usually centralised. As a consequence machines and staff are located in multiple hospitals and medical centres. As a consequence the corporatisation of radiology lagged behind that of pathology.

Dec 2000 Radiology lags behind

The trend towards listed players buying up smaller practices is mirrored in the pathology sector. Radiology is not as yet as such an advanced stage of rationalisation.
MARGIN CALL : Radiology raid ONE to watch The Australian December 1, 2000

May 2001 The companies buying radiology

Listed companies that are actively buying radiology and pathology practices include Mayne (formerly Mayne Nickless), Sonic Healthcare and Medical Care Services. The investment group DCA owns I-Med group, which on May 1 bought a radiology practice with three clinics in Queensland, adding to three other deals with radiology groups in March. Sonic announced a merger with a Queensland radiology group in March.
Taft Joins A Bigger Picture Business Review Weekly May 11, 2001

Jun 2001 Radiology compared with pathology

Macintosh (from MIA) admits that consolidating radiology practices does not reduce costs as much as in the pathology sector. Pathology labs can be automated, but radiology is a hands-on business that requires individual doctors to conduct and analyse the tests.

However, he says consolidation brings other benefits. In a business that relies on expensive technology with defined life expectancies, good management of capital expenditure and efficient use of equipment are vital. In the December half-year, MIA's capital expenditure was $7.5 million (nearly 8% of sales) and depreciation was $6 million. Macintosh says that the centralising of administration, IT and equipment purchases brings efficiencies to the group. It has recently bought software to centralise patient booking.
The Uncanny X-ray Men Business Review Weekly June 22, 2001


to contents

Referral patterns. Fees in both radiology and pathology are set by government and overall standards are generally good. Referral of work is consequently mainly geographic to the nearest or most convenient centre - ie in the same centre or hospital. It is simply not practical to have more than one spacious radiology or pathology unit in a hospital or clinic although this can happen with pathology collection centres.

While there is much talk of competition this is primarily related to securing advantageous geographic locations, size and leverage, as well as maintaining the sort of relationships with doctors which keeps their business, and controversially might encourage increased usage. Kickbacks have been a particular problem in pathology. Person to person referrals have become less common. Companies have varied in their success in securing GP referrals to their laboratories. Primary Healthcare has been particularly successful.

Jul 2004 Primary Health's successful model

The Model
The PRY model is similar to a shopping centre business model. PRY provides a centralised medical centre for GP's to operate in. The GP's like retail tenants are charged a fee of 45 to 50% of gross revenue for operating in the facility. Other services are charged at a fixed rental fee. The leverage for PRY is to increase attendances and generate repeat visits. GP's cannot be financially induced to refer patients to internal partner service providers.

The pairing of GP facilities with related services such as pathology and radiology in the same building fosters such relationships. The convenience of in house services and connectivity of computer systems insures the majority of referral business is in house. The medical centres are run 24 hours a day, every day, offering bulk billing facilities with a policy of not giving medical test results over the phone. A patient who receives a blood test requires two visits to the GP, the first to get a referral for a blood test and the second to receive the results effectively increasing the level of billable attendances. The strategy is to lease buildings then spend $3 to $5m in converting to a medical centre which once fully operational aim to be cash flow positive within 6 to 12 months.
PRIMARY HEALTHCARE (PRY) $5.70 Smaller Companies Guide July 7, 2004

 
 

to contents

Integrating with Referring Doctors
Avoiding Competition

There are clearly many benefits for the patient and for the health system from integrating multiple health services. The problem with integration by corporate for profit companies is that it is integration for the benefit of the shareholder rather than the patient and the system. The two interests are often very different.

The object of integrating pathology and radiology with referring doctors is to obtain their custom. If we are to adopt the sort of market principles advocated by the coalition government in 1996 or the model advocated by Graeme Samuel in 2000 then the diagnostic companies should be competing for referrals from GPs on a level and strictly regulated playing field based on the quality of service and its cost. Integrating these generaol practice services with them is essentially anti-competitive. The claimed benefits of competition will not be recognised.

It is not that the integration model is bad but that the self interested competitive framework within which integration is placed is inappropriate and dysfunctional for the health system - something which by its very nature is cooperative and humanitarian.

Integration is a profitable way of playing pass the parcel and so squeezing and stripping off as much profit from each patient parcel as possible. Work can be directed to team players - ie. those who follow practices which are profitable for the company.

These are not always the best clinicians. They can be problem doctors and even incompetent. The company typically promotes them to the public and protects them from their critics. Profitability rather than clinical competence becomes the basis for status and credibility. Spectacular examples like the unnecessary hospitalisation of large numbers of normal children and bypass surgery on normal hearts are likely to be symptomatic of a broader problem across the corporate health care sector.

Mar 2002 Opportunities to pass the parcel

Market players Mayne and Primary both follow a more vertically integrated model, where revenue is earned at each stage of a patient's treatment.

"Primary's model is a bit more vertically integrated. They do their own pathology, radiology and earn revenue through the whole process," Mr Suleski said.
Foundation rebuilds WA Business News March 21, 2002

Integration for profitability provides endless opportunities for coercing or tempting doctors to play the game - and put the interests of the company ahead of those of their patients. A policy of integration has been a key part of the success of many US health care corporations. Allegations of business arrangements which when they were uncovered were considered to be kickbacks to doctors have formed a significant component of almost all US fraud settlements.

Corporate for profit integration has consequently not worked well or consistently for patients or the health system - nor surprisingly financially for many companies in Australia. Those who have concentrated on one or two core businesses have done better. Integration for the benefits of patients and the health system is almost impossible within a corporate context as the paradigms within which the two patterns of integration operate are contradictory.

In the 1980’s and 1990s kickbacks of borderline legality to referring doctors were a major problem in pathology in Australia. Sustained regulatory pressure and a lack of support by the majority of the pathology profession resulted in most of those responsible going out of business. Instead pathology and general practice groups have adopted a policy of owning the doctors. They have integrated the services to which doctors refer their patients and which the company owns into the doctors work environment.

General practitioners act as gatekeepers and control the referral to all other services. Once they are located in corporate owned centres strategies can be developed to induce them to use those services exclusively and maximally.

Sep 2000 Reason's for GP corporatisation

If general practitioners are not great profit makers in their own right, their purchasing power is considerable. Under the current Federal Government model, general practitioners are the gatekeepers of the medical system and directly control the buying of specialist services.

"The required returns for the investor must therefore come from the centre tenants, from negotiated arrangements with other service suppliers and/or cross-subsidies from other businesses (for example, pathology and radiology) owned partially or wholly by the investor," KPMG said.
-----------------------------
If a medical centre has, for example, 10 full-time general practitioners, each generating $200,000 of Medicare income a year, they are also generating on average $3.2 million a year in downstream specialist billings. If a substantial part of that is picked up by businesses or specialists who work in the same corporate group, it is a good income stream.
Corporate Medicine Business Review Weekly September 29, 2000

Oct 2001 More about reasons and Foundation Health care

The main reason general practices have been bought by companies such as Foundation is their powerful role in the health system. General practitioners are the gatekeepers who control the purchasing of lucrative downstream health services, including pathology, radiology and other specialist treatments. According to a report by the accounting and consulting group KPMG last year, for every $1 in Medicare revenue paid into a general practice, the practitioner is writing out $1.60 in referrals. If Foundation earns $80 million a year in Medicare revenue, in theory, it is recording about $128 million in specialist medical services. The founder and biggest shareholder of Foundation is Michael Boyd, who is also the biggest shareholder in the pathology and radiology company Sonic Healthcare. Sonic owns 10% of Foundation.
Health's Changing Landscape Business Review Weekly October 25, 2001

One strand has been the ownership of general practices by Diagnostic groups. Another has been the ownership of laboratories, diagnostic services, as well as other ancillary services by general practice companies. In each instance the objective has been to secure the allegiance and the referrals from the general practitioners as well as profit from those referrals. General practice is person and time expensive and is seldom profitable itself.

While paying doctors kickbacks for referrals is illegal, geographic positioning is legal and is very effective in securing referrals. All of the integrated groups have built medical centres in which the general practitioners practice and which specialists visit to consult. In the same building are housed the company's radiology, pathology, physiotherapy and multiple other services which the patients or their doctors might be induced to utilise. If they do not own a service they can profitably let space to pharmacies and other groups with which they are associated and who benefit from the location.

Pathology and radiology group Sonic Healthcare was ethically opposed to owning General Practices and so competing with other general practices which referred to them. They were faced with a dilemma. If they failed to buy up General Practices then competitors would buy the doctors on whose referrals they depended and they would lose business.

Sonic resolved this problem when their major shareholder and founder, Michael Boyd, set up a separate company Foundation Healthcare in which Sonic had only a 10% holding. They made an arrangement which gave Sonic exclusive rights in Foundation’s medical centres. This was essentially deceptive as the profits from the referrals went to profitable Sonic while Foundation itself struggled. Sonic was forced to prop up the company and then buy it when a competitor launched a takeover bid. Foundation was profitable for Sonic but not to its other share holders.

There is a long tradition of owning and running general practices as a corporate business. This goes back to controversial medical entrepreneurs, Edelsten and McGoldrick in the 1980s, and to Primary Healthcare in the 1980s and 1990s. It was only in 2000 that the market enthusiasm for wringing profits from general practice and its referrals exploded. By the end of 2002 the bubble had burst. The press extracts give the flavour of what happened.

May 2000 Edelsten's views

One person who clearly understands corporatisation is medical entrepreneur Dr Geoffrey Edelsten, who reportedly told BRW last year: "The success of Ed Bateman's Primary Health Care has demonstrated the enormous economies of scale that can be reaped by merging solo practices ... If you can then vertically integrate it with pathology and radiology and visiting specialists, and have day-care and in-patient care hospital facilities, then the profitability is extraordinary.''
Big Business Targets GPs In National Buying Spree Australian Financial Review May 23, 2000

May 2000 Vertical integration

Under the vertically integrated structures rapidly being set up by companies across Australia, GPs and the services they refer to, such as pathology or radiology, are being aggregated under the one corporate roof. An obvious concern is that there may be pressure to refer patients to in-house services, potentially impinging on doctors' autonomy and perhaps draining money from Medicare.
-------------------------------
If Sonic stays exclusively in pathology, increasing numbers of the doctors who refer to it will be bought out by other corporates, such as Ed Bateman's Primary Health Care, buying up both medical centres and pathology companies. In an interview with the AFR, Goldschmidt (Sonic’s CEO) was extremely candid about his company's dilemma.
Owning The Whole Kit And Caboodle Australian Financial Review May 24, 2000

Aug 2000 Response when Foundation's claim to independence was challenged

"We are talking about fully integrated medical centres so they will have supporting them pharmacy, radiology, pathology and physiotherapy.''

Jones says that Foundation has "developed an alliance'' with Sonic to provide pathology services to patients at the centres.

"We don't have a commercial interest in Sonic and we don't achieve a commercial reward by our patients' use of Sonic,'' he says.

But questioned about Sonic's 10 per cent ownership of Foundation, Jones said: ``[Foundation] as a general practice provider don't have an investment in Sonic, so we receive nothing back from pathology providers.''

Asked if Boyd was a major investor in both Sonic and Foundation, he said: "He is, yes. He is a passive investor in Sonic.''
GPs Inc - Profits Or Patients Sydney Morning Herald August 10, 2000

Aug 2000 The consequence of geography and owning shares

Pathology companies compete on service, not price, and increasing the share of business you do is based on providing a quality service."

Making this more difficult is the recent trend to integration in the health sector. General practitioners order 70% of all pathology paid for by Medicare. But in the past 12-18 months, entrepreneurial health groups have been buying general practices, bringing the doctors into a corporate structure that includes a pathology business. Although the general practitioners can, in principle, send their pathology tests wherever they like, in practice they will mostly use the pathologist that is linked with their company.
Sonic's Boom Comes At A Cost, Business Review Weekly August 18, 2000

Oct 2000 A dramatic development

By far the most dramatic development is the recent growth of medical empires that have brought in general practitioners, pathology, radiology and other specialty services under the one corporate umbrella.
The Painful Opt-out Option Australian Financial Review October 11, 2000

2001 Another reason for corporatising

Another force is the race for scale economies. With continuing cuts in federal government rebates on pathology and imaging, some health care companies are seeking to lock in revenues for their pathology and imaging laboratories by owning a group of in-house referring doctors.
Health Risks For Packer And Smedley Australian Financial Review March 10, 2001

Apr 2001 General Practice corps hungry to buy diagnostic services

Nor are they making any secret of their hunger to acquire lucrative diagnostic businesses; the pathology labs, X-ray and imaging centres that rake in another $2.5billion a year, mostly through referrals from local doctors.
------------------------------
Endeavour has investments in general practice, pathology, X-ray, occupational health and medicine in NSW, Victoria, SA and WA.
---------------------------
Medical Care Services: Perth-based public company providing a back-door listing for Gribbles Pathology Group. MCS subsidiary Total Care Services has 15 general practice medical centres in Perth and its own radiology assets.
Medical Corporates Sing A Siren Song To Harassed Doctors The Age April 7, 2001

Jun 2001 The recipe for success

Primary Healthcare has been doing this for about 15 years and has become a sharemarket favourite because of its success in getting GPs and their patients under its banner and then selling them a huge range of services - everything from psychiatry and dermatology to dentists and plastic surgeons. It's the ultimate one-stop-shop model.
Firms fight for $2.7bn in doctors' fees The Weekend Australian June 16, 2001

Jun 2001 Some see this as managed care

With 75 per cent of the pathology industry and 40 per cent of the radiology sector in corporate hands -- not to mention 15 per cent of GPs nationwide now working within corporate structures -- some say it's only a matter of joining the dots to see managed care working here.
Script for a profit; The Weekend Australian June 23, 2001,

Nov 2001 Corporate response to criticisms

Michael Boyd dismissed Deeble's (architect of Australia's Medicare system) concerns about the pathology industry, saying the world was a vastly different place from when Medibank was set up in the 1970s. "Nowadays, people want convenience ... and the one-stop shop for medicine and health services,'' he says.
------------------------------
In Boyd's case, pathology giant Sonic has formed a strategic alliance with another Boyd company called Foundation, which has almost 1,000 GPs under its corporate roof and is currently putting together medical centres across Australia.
The Rise And Rise Of Medicare Millionaires Australian Financial Review November 20, 2001

As in the USA the enthusiasm for general practice corporatisation soon came unstuck. Only Primary Healthcare was profitable for its shareholders and it went from strength to strength. The reasons for this are not clear to me. All of the others stopped buying general practices in 2002 and were soon running at a loss or just breaking even. After a period of consolidation they were either closed, sold to Primary or Foundation, or kept by a pathology company for their referrals. Sonic later purchased Foundation.

Pathology and Radiology remain very profitable.

Mar 2004 Unable to sell GP businesses

Gribbles had been searching for a buyer for the loss-making division (General Practice) for months and the sale capped its attempt to create a vertically integrated health company.
Primary A Picture Of Good Health Australian Financial Review March 5, 2004

 
 

to contents

Over-servicing

With so much pressure directed towards profitability it seems likely that there would be over-servicing. Concerns about this go back many years and have increased since corporatisation. Kickbacks are sometimes blamed. Gribbles and Macquarie Health are the two most often accused but they have denied this and have never been convicted. This is very difficult to quantify because of the complexity of the tests and the many and varied reasons for performing them. There are other pressures such as fear of litigation. While there has been and still is anxiety about this, little hard evidence is available.

There are currently increasing concerns that the corporatisation of GP's is increasing overservicing.

Jul 1994 Kickbacks and overservicing

But one pathologist last week estimated that up to two thirds of high ordering was "induced'' - by a range of bribes and kickbacks to doctors. He said HIC figures showed that about 14 doctors a week "are being seduced, or encouraged or are naturally falling into becoming high ordering'' - that is, ordering more than $10,000 of tests per quarter.

Many of these doctors tended to cluster around certain pathology laboratories, he said. One practice allegedly got 87 per cent of its work from high-ordering GPs.
---------------------------
HIC figures, based on audits of all Australian GPs and laboratories, show that in some cases, when doctors switched to an unethical pathology lab, their test bills rose to three or five times their previous levels.
---------------------------
In October 1991, the HIC began its "feedback strategy'', sending letters to every GP in Australia, outlining the level of their pathology ordering. The strategy - with follow-up letters every three months - had an immediate effect of slashing referrals by high ordering GPs - from $61.5million in the second quarter of 1991 to $42million in the second quarter of last year.
Bleeding The System Sunday Age July 31, 1994

Nov 2004 There is increasing utilisation for many reasons

With payments for pathology and radiology up sharply, the big beneficiaries of this increased spending are the listed pathology and radiology companies, including Mayne, Sonic Healthcare, DCA Group and Gribbles Group, which is now the subject of a take-over bid by Healthscope.
Medicare cuts an artery Business Review Weekly November 11, 2004

Jan 2006 Signs that GP corporatisation results in overservicing - hardly surprising

THE Medicare watchdog, Tony Webber, is concerned that big medical centres have the potential to exploit Medicare's $9 billion a year in benefit payouts.

Evidence is emerging that doctors working for corporatised medical chains have geared their software and patient management systems to maximise returns from Medicare. There is evidence that some of their services, including pathology and radiology, are "inappropriate", he says.
-------------------------------
Dr Webber said it appeared that medical centres were automatically initiating regular "health assessments" for patients over the age of 75, whether or not they were needed. The Medicare benefit for this service is $232.
-------------------------------
"My concern is that where corporate medicine is having a strong influence on doctors, it raises suspicions that there is a lot of [Medicare] money potentially being wasted," he said. "Medicare benefits are not designed to give a doctor a reasonable income and give corporates a 20 per cent return on investment without compromise to standards of care.
Watchdog sees signs of overservicing Sydney Morning Herald January 12, 2006

 
 

to contents

Medicare Payment and Medicare Millionaires

The vast bulk of the funding for doctors' consultations, imaging and laboratory testing comes from Medicare. This is a steady gravy train for the corporations, but there is always the danger that government may exercise its power to reduce fees. If companies are too greedy it will do so. Government’s ability to do so effectively is limited. Its weakness is that it has no choice but to fund these services. It can reduce funding for a while but is soon put under pressure. The voting public will be vocal if services are compromised and corporations are adept at exploiting this pressure point.

Entrepreneurs looking for opportunity have not been slow to recognise the potential of this system of funding and there are now a number of Medicare Millionaires. With wealth has come credibility and influence. The percentage of funding from Medicare has increased steadily over the last 20 years. It was estimated in 2001 that up to 90% of funding for GP, pathology and radiology services came from the taxpayer.

Oct 2001 Medicare income

Listed medical companies receive a big part of their income from Medicare benefits. An estimated 75% of the $1.2 billion the Government paid in Medicare pathology benefits last year, and an estimated 60% of the $1.2 billion for radiology work, went to corporatised medical practices. In addition, about 10% of the $2.3 billion in Medicare benefits paid to general practitioners went to companies that were listed or were planning to be listed. Overall, at least 25% of the $7.5 billion-plus that will be paid in Medicare benefits this year will go to listed companies.
Health's Changing Landscape Business Review Weekly October 25, 2001

A new breed of medical entrepreneur is quietly becoming extremely influential and wealthy, with three Australian health-care businessmen now worth more than $100 million each.
--------------------------
Shy Perth accountant Michael Boyd now boasts more than $200 million through holdings in the giant Sonic Healthcare, which like all pathology companies has its revenue underwritten by growing Medicare referrals from local GPs.

Similarly, Melbourne barrister Wallace Cameron controls a $150 million stake in Gribbles Group, another highly profitable national pathology company.

In Sydney, the family interests of Dr Edmund Bateman amount to more than $110 million through his share of the medical centre and pathology business Primary Health Care.

With all three, personal fortune has come through a major holding in a listed health-care company that relies on Medicare for the bulk of its revenue.
----------------------------------
A recent report from brokers Burdett Buckeridge Young entitled "Making a Living From Medicare'' suggests the $55 billion Australian health-care system provides "revenue certainty'' and "comfort for investors''. It says that up to 90 per cent of pathology and general practice revenue flows from taxpayer dollars.

Medicare architect Professor John Deeble says that when universal health insurance was set up in Australia in the 1970s, large medical corporations did not exist. "When Medibank was introduced, pathology was still a medical practice ... now it's nothing like that. The regulation of this sector must change. Medical corporates must be treated as businesses, not as medical practices.''

- - - - - - - - - Deeble is concerned that despite the recently introduced caps, now extended to radiology as well, the costs of diagnostic services are out of control. In his view, "owning a pathology business has been a licence to print money''.
----------------------------------
As with pathology and radiology, most general practice revenue comes straight from the public purse. From its inception, Medicare has strongly subsidised the private income of individual doctors. But since the late 1990s, it has been increasingly subsidising shareholder returns as well.
The Rise And Rise Of Medicare Millionaires Australian Financial Review November 20, 2001

Apr 2004 Medicare pays for corporate pathology

In the case of pathology - the most highly corporatised of all the health sectors - only a few independent laboratories remain, and almost four out of every five dollars paid by Medicare for private pathology services goes to one of three public companies.
Grey Expectations Business Review Weekly April 1, 2004

One of the characteristics of health care entrepreneurs has been their supreme self confidence and their faith in the market solutions they espouse. They usually shield themselves from challenge by avoiding publicity and interviews. At the same time they have tended to drive their busineses wth a ruthless single mindedness. They can be very aggressive towards their critics threatening litigation. They have aggressively challenged regulators in the courts. Australian entrepreneurs are no different to their US counterparts and are variously described as publicity shire, private etc.

Nov 2001 Aggressive legal challenges

While personally shunning publicity, Bateman and Cameron have both been aggressive in their dealings with the health authorities. Both have been involved in extended legal tussles with government medical bodies often in cases initiated by the entrepreneurs themselves.
The Rise And Rise Of Medicare Millionaires Australian Financial Review November 20, 2001

The Australian Medical Association was concerned about corporatisation, particularly of General Practice. They were vigorously attacked and criticised when they resisted political and corporate pressures. When they criticised corporate practices libel actions were commenced. As a subscription based professional organizations they simply did not have the resources to take on the industry.

The AMA attempted to negotiate and to set up a code of practice to limit the consequences of corporatisation. This was voluntary and it is worth noting that those GP corporations that signed it have not been profitable.

Aug 2000 AMA comment

"What we are worried about is ... where you have a structure with GPs feeding onto the more lucrative tertiary and secondary services, the diagnostic services like pathology and radiology ...

"I can't name the areas because we have already been successfully sued ... for criticising some of them.''
GPs Inc - Profits Or Patients Sydney Morning Herald August 10, 2000

 
 

to contents

Government and Corporatisation

Government Drives the Process

The process of consolidation had commenced some time before corporatisation. Because of the overheads, the need for staff, and the increasing specialisation pathology and radiology specialists had formed quite large partnerships to provide services - sometimes over a large area.

A number of medical and other entrepreneurs saw the potential for large profits from Medicare through corporate consolidation . They could raise the capital to buy practices and new equipment from the share market. Pathology was the first target and radiology followed a few years later.

As in the USA the relationship with government is ambivalent. On the one hand the steady funding and potential profitability engaged corporate enthusiasts. On the other the dependence on evanescent elected governments with unpredictable policies, and the regulatory strictures imposed to contain abuses, both caused periodic misgivings and concern.

The labour government in power during the late 1980s and early 1990s was not averse to market consolidation which promised to reduce costs. The coalition government elected in 1996 was ideologically disposed to corporatisation and went out of its way to encourage this. The system was fragmented and inefficient, needing change. Methods of accomplishing this were never fully debated n public. A corporatised market system was introduced and government applied pressure to accomplish this.

Fees for services were drastically reduced after a government review in 1985 and a cap was placed on increasing fees. Increased profitability could only come from mechanisation and the consolidation of services into large units which were maximally used. Government in effect wielded a heavy stick to drive the process of corporatisation.

The situation and the many points of view are reflected in press reports over the years.

Mar 1989 Impact of price cuts

Meanwhile, the industry claims it is still reeling from the 25 per cent cut in schedule fees and benefits for pathology in 1986.
NEW STARTER IN PATHOLOGY STAKES Australian Financial Review March 20, 1989

Aug 2000 Nevertheless a good income stream

Pathology businesses are also in the enviable position of having their main source of income underwritten by Medicare. Although the Federal Government has for some years put a cap on its pathology expenditure, it still allows for a 5% annual increase in its total pathology outlays.
Sonic's Boom Comes At A Cost, Business Review Weekly August 18, 2000

Dec 2000 Driving the process

It is a natural force behind consolidation at the end of the day the Government wants a more efficient and professional provision of health services. To that end the revenue cap has been successful,'' Mr O'Connell says.
Sonic Cuts A Swathe In Rationalisation Race Australian Financial Review December 2, 2000

Mar 2001 The driving force negative view

About 85 per cent to 90 per cent of the pathology and imaging sector revenues come directly from the Federal Health Insurance Commission. Alarmed at exploding diagnostic expenses in the early 1990s, in 1995 the Government began imposing rolling three-year revenue caps (averaging 5 per cent annually). In practice that means that, as demand for services rises much faster than the revenue cap, the Government cuts the price paid for each service every 6-12 months.
--------------------------------
Those price cuts really bite. Pathology and imaging businesses have high fixed costs and efficiency gains are difficult to achieve.
Health Risks For Packer And Smedley Australian Financial Review March 10, 2001

Jun 2001 Others see it as benefical for companies

Radiology, like pathology, is a key beneficiary of changing patterns in health-care expenditure.
The Uncanny X-ray Men Business Review Weekly June 22, 2001

Jul 2001 All about consolidation

Growth in diagnostics pathology and radiology has all been about industry consolidation. The market itself is dependent on only small annual rises in government medical funding supplemented greatly by the cost savings and margin expansion potential in corporatising the profession by building large medical empires.
XCHANGE : Sonic boon Sydney Morning Herald July 7, 2001

Sep 2002 The positive and negative views

There are two views on the attractiveness of the private health industry in Australia, which encompasses pharmacy distribution, pathology, radiology, private hospitals, and, of course, health insurance.

The negative argument and the one in the ascendant at the moment is that it is a horrible industry where pricing is dictated by politics.
--------------------------
Of course, the positive argument is that the health industry is a great one for investors because it offers rates of growth in excess of GDP, partly because of the ageing population. But that's not true when the cost of blockbuster drugs and medical technology rises faster than the allowable profits.
Health Care An Ill Mix Of Politics And Business Australian Financial Review September 13, 2002

Apr 2003 The importance of government negotiations

Providers (of radiology) see the outcome (of negotiations with government) as crucial as they collectively recoup about $800 million a year from diagnostic imaging from the commonwealth, including X-rays, CT scans and ultrasounds. An unfavourable outcome when the current agreement expires on June 30 could lead to tens of millions of dollars in lost revenue and drastically alter earnings forecasts.
Radiology industry expecting a boost. Australian Financial Review April 4, 2003

Aug 2003 The power of government

The deal, which must be finalised before next year's budget, will provide about two-thirds of the sector's revenue, partly determining its profitability for the rest of the decade.
--------------------------------
To maintain this high bulk-billing rate, the Australian Association of Pathology Practices says commonwealth spending on the sector should rise by about 6 per cent a year, to a total of about $8.2 billion over five years.

The present five-year deal, which expires next July, is costing the government $6.2 billion, or about 15 per cent of total Medicare expenditure.

Under these funding deals, the commonwealth's pathology spending is capped regardless of how many tests are undertaken. To stay under this cap, the industry has been forced to merge, become more efficient and lower its fees.

However, AAPP chief executive David Kindon said a large rise in the number of tests being undertaken meant the industry was now doing a lot more work for no more gain.

He said this increase was being driven by medical advances and the indemnity crisis, which had prompted doctors to encourage patients to get more tests.

Dr Goldschmidt said: "There's been a huge volume explosion in pathology that we've had to absorb.

"The way we've done that is by consolidating the whole industry and Sonic has been a key part of that."
Bulk - Billed Pathology At Risk Australian Financial Review August 25, 2003

Mar 2005 Still a profitable outcome

O'Connell (Macquarie Bank analyst) says: "The revenue caps have been a key factor in forcing the consolidation. To maintain growth rates while limited to 5% increases in government rebates, the pathology and radiology providers have had to become more efficient. Pathology especially is suited to consolidation because it is a volume business, where big centralised labs offer operating benefits.

That's even with government-imposed "speed" limits. The federal government, which pays for the bulk of pathology tests, has capped annual growth at 5 per cent for the foreseeable future. Dixon (MD of Healthscope) says: "There's not too many investments where you get a guaranteed 5 per cent growth per annum." For some other diagnostic services underlying growth is even higher.
RICH PICKINGS THE PEOPLE WHO GET RICH AS YOU GROW OLD Australian Financial Review March 19, 2005

Oct 2005 Another point of view

The government is crucial in creating a positive environment. The regulation of the diagnostic industry to cap annual revenue growth 5% for a five year term adds stability. Participants generate superior returns by consolidating inefficient operators and delivering service at the lowest cost. The sector delivered more for less and the UK government will follow by opening up its giant bureaucratic National Health Service to private enterprise.
SPECIAL REPORT : HEALTH CARE A TONIC FOR AN UNHEALTHY MARKET. Your Money Weekly October 27, 2005

to contents

Government Looks the Other Way

There has been a striking reluctance to regulate the industry and to prosecute and make examples of offenders. Part of this may be because government has so strongly supported corporatisation in the face of criticism from sections of the health professions and the public. The exposure of fraud or disservice to patients would be very embarrassing for market advocates especally for government politicians. There has been no attempt to update regulations to give them the teeth needed to deal with the emerging problems.

Without prosecutions no one dare publicly expose fraud or speak out without being sued for defamation. It is clear that kickbacks were common during the 1980s and 1990s yet I am not aware of a single conviction which is publicly available. The investigations have never been carried through to a verdict one way or the other.

The ABC Four Corners program on September 6, 2004 suggested that health care fraud was much higher than the 1% estimated; possibly close to the 10% seen in the USA. The suggestion is that regulatory bodies have been politicised and effective action has not been encouraged by the market or politicians. Both had good reason for not wanting to know. In addition investigations are carried out and resolved behind closed doors so that there is no adverse publicity. The absence of Qui Tam and proper whistleblower protection legislation in Australia is a major problem.

One of the most effective means of preserving integrity and protecting citizens has been the requirement that holders of licences be "fit and proper" people. These regulations have been disregarded, ignored and even removed. No attempt has been made to revise them to give them the teeth and the legal power to deal with large corporations against which they are currently almost powerless. They were written for a different era.

HealthSouth a company which admits to a US $4 billion fraud has been allowed to operate in Victoria. Mayne Nickless, a company guilty of deceiving its customers and making secret collusive arrangements not only retained existing licenses but was welcomed and encouraged to expand. Government supported the company giving its staff senior government appointments. It pressured doctors to enter into secret financial dealings with the company and with insurers.

When the commonwealth department licensing pathology was supplied with information about Sun Healthcare it simply sat on its hands and prevaricated until the company sold the facilities. There was no adverse finding and no publicity. The same information supplied to the aged care licensing authority was not acknowledged until they were forced to do so.

Oct 2000 Reluctance to regulate

Despite the fact that these listed corporations are run largely on taxpayer dollars, Canberra has been extremely slow to react to the market's frenetic activity, and so far shown little inclination to regulate it, despite the relevant laws clearly being outdated.
The Painful Opt-out Option Australian Financial Review October 11, 2000

Nov 2001 The importance of political support

With the re-election of a Federal Government supportive of private health care, medical corporations and the personal fortunes of their key backers look set to continue their strong growth.
----------------------------
The pace of market activity, particularly the rapid movement of GPs into large corporations in recent years, has outstripped both community awareness and policy-making alike.
-----------------------------
Despite the sporadic outbursts of public concern over the rapid rise of corporate medicine, politicians on both sides of politics have givena virtual green light to the growth of the new medical entrepreneurs.
---------------------------------
By comparison, the Coalition has taken a softer self-regulatory approach. Just two weeks before the election, outgoing health minister Michael Wooldridge launched a voluntary code of conduct for the medical corporates, which he said would provide an ethical framework for the industry. Highlighting the voluntary nature of the code, two of the key players, including Primary, which had its own, did not even sign on.
The Rise And Rise Of Medicare Millionaires Australian Financial Review November 20, 2001

Sep 2004 Four Corners exposure of fraud

Health bureaucrats play down the problem and claim the amount of so-called "leakage" is less than 1 per cent. This week, Four Corners presents compelling new claims that the figure could be much higher. Reporter Ticky Fullerton speaks exclusively to former fraud investigators who claim the figure is closer to 10 per cent.
-------------------------------------
While the Health Insurance Commission has pursued a number of cases, former HIC insiders, police and public health experts warn that the HIC is well behind the crooks and is soft on penalties.
Summary of "Doctoring the Figures" ABC Four Corners September 6, 2004 Full summary and full transcript with examples of fraud at
http://www.abc.net.au/4corners/content/2004/s1191797.htm

 
 

to contents

Diagnostic Corporatisation

The corporatisation of pathology started in the early 1990s and by 2000 the bulk of small professional businesses had been purchased with few opportunities for further expansion in Australia. Corporatisation of radiology got under way at this time and by the end of 2005 the bulk of radiology was in corporate hands. There were four major players, one concentrating on radiology, one on pathology, and two providing both.

Dec 2000 Corporatisation and business models

Sonic Healthcare's acquisition this week of the privately owned Queensland X-Ray confirmed that medicine in Australia, particularly pathology and radiology, is fast becoming a big business.
-------------------------------
Frenetic acquisition by listed health service companies of private practices suggests only a handful of dominant players will be left once the present spate of rationalisation ends.
----------------------------
Through banding together previously fragmented private practices, a listed company can extract significant profits through cost savings and operational efficiencies.
--------------------------------
Each has a distinct business model and analysts say only time will tell which is the most successful.

Sonic is a two-pronged medical diagnostic business, MIA a pure radiology group, and Mayne Nickless a vertically integrated model with interests in hospitals, pathology and radiology.
Sonic Cuts A Swathe In Rationalisation Race Australian Financial Review December 2, 2000

Jun 2001 The state of corporatisation

(In terms of corporate ownership, pathology is several years ahead of the radiology sector, with 83% of practices in the hands of four groups. Sonic is the largest, with a 37% market share, followed by Mayne with 22%.)
The Uncanny X-ray Men Business Review Weekly June 22, 2001

Oct 2005 The main diagnostic players in 2006

Consolidators in the diagnostic industry deliver favourable margin growth. The number of service providers has consolidated to four major providers, DCA Group (DVC), Sonic Health Care (SHL), Mayne Group (MAY) and Healthscope (HSP).
SPECIAL REPORT : HEALTH CARE A TONIC FOR AN UNHEALTHY MARKET. Your Money Weekly October 27, 2005

to contents

The Corporatisation of Pathology

The Early Years

During the earlier years there were a multitude of smaller private companies which gradually merged and consolidated with larger and more successful competitors. A succession of names came and went. By the late 1980s there was much talk of integration and diversification

Ariadne Australia Ltd was formed in 1987 in Queensland. It had great entrepreneurial ambitions for its health subsidiary Healthcorp Ltd. It started by buying 50% of Sullivan and Nicolaides in 1987 but did not diversify much further. This ultimately became part of Sonic Healthcare.

Oct 1987 Ariadne and Healthcorp

Ariadne property director, Mr Geoff Wilson, said the purchase of a half share in Sullivan & Nicolaides - which he described as "Australia's leading consulting pathologist" - would be the basis of a multi-disciplinary health care operation.
-------------------------------
He said Ariadne had established a new company, Healthcorp Ltd as of July 1 last which "is capitalised at $25 million, which we aim to position in the marketplace to take full commercial and operational advantage of imminent changes in the health care industry".
ARIADNE TAKES ON HEALTH CARE Australian Financial Review October 6, 1987

 Integrated Health operated pathology, radiology and other health businesses in Western Australia. They were purchased by Markalinga Trust in 1989. It sold off some of them when it was under pressure in 1990. Markalinga was purchased by the fraud prone US group National Medical Enterprises (NME) and became Australian Medical Enterprises in 1992. It was acquired by Mayne in 1996.

A conglomerate of interconnected companies supplying pathology and other services came and went in 1989. There was Biohealth (formerly Private Blood Bank of Australia). Medical Pathology Services was purchased by a group Plutius No 28 Pty Ltd. These names soon vanished. Related to these was a group called Regional which had gone into liquidation.

Macquarie Pathology Services formed by Dr Tom Wenkart became a major operator in NSW. It adopted some controversial practices considered by many to be kickbacks and was acquired by Mayne Health in 1998.

Dorevitch, Gribbles, Unipath, and Tresize were large groups active in Victoria in the early 1990s. Dorvitch and Tresize became part of Mayne. Mayne also acquired Western Diagnostic Pathology in Western Australia, and Hampson Sugerman Pathology in New South Wales.

Gribbles continued to grow and became a lightning rod for allegations of unacceptable practices. It prospered acquiring about 15% of the pathology market and also an international empire. It collapsed financially in 2003 and was acquired by Healthscope at the end of 2004.

to contents

The Recent Years

Consolidation and acquisitions continued but by the end of 2000 opportunities were drying up. The extracts give some insight into developments between 1999 and 2006. By the beginning of 2006 there were two large dominant pathology providers, Sonic and Symbion (the new name for the unpopular Mayne Health). Healthscope which bought Gribbles was intermediate and not performing well. General Practice company Primary Health had only 4% of the pathology market but was very profitable. The other General Practice operators had small diagnostic holdings.

Jun 1999 Still consolidating

Nevertheless, there has been a spate of mergers and takeovers in the sector, and the activity is likely to continue. Peter Kempen, national director of corporate finance for Ernst & Young, says mergers have been intense in the pathology area, with Hospital Care of Australia (a subsidiary of Mayne Nickless), Dorevitch, Gribbles and the listed company Sonic Healthcare emerging as large players. "Sonic has had an extraordinarily good growth in its share price."
Health Care, Or Wealth Care? Business Review Weekly June 11, 1999

Aug 1999 Battle for market share

And the fight for market share is fierce, with the top five companies controlling more than 70 per cent of the national market, up from 60 per cent just two years ago. Mayne Nickless is the leader, with a 23 per cent national share, followed by Sonic with 19 per cent. The next three operators are SGS (15 per cent) and Queensland Medical Labs and Gribbles, both with 11 per cent.
Profit-making: it's in the blood SYDNEY MORNING HERALD August 16, 1999

Sep 1999 Small operators squeezed out

Revenue caps are squeezing the smaller players out of the market and analysts suggest only three major operators will survive: Sonic, Mayne Nickless and Revesco (Gribbles).

"Margins, margins, margins" is the mantra for healthcare operators and on this basis Sonic has a proven track record. The 52 per cent jump in annual net profit to $17.45 million was underscored by an impressive gross margin of 20.7 per cent.
Pathological Buyer Does The Right Thing Australian Financial Review September 18, 1999

Mar 2001 Pushing prices sky high

In reality this means the only practical way to expand geographically is to spend lots of money and buy your rival. Over the last three years, more than 30 pathology or imaging businesses have been acquired by larger operators, with most of the vendors walking away with enough to pay several kings' ransoms.
----------------------------
While takeovers don't offer huge savings, and the prices being asked by vendors are astronomical, right now they're the only sure-fire way to maintain profit margins. But the number of targets is shrinking fast.
Health Risks For Packer And Smedley Australian Financial Review March 10, 2001

May 2002 State of play including QML

Pathology was the first area of health care to be comprehensively corporatised. About 80% of the private market is in the hands of four companies, three of which are publicly listed. (In addition to Sonic, the main listed companies are Gribbles Group and Mayne Group).
Health is wealth. Business Review Weekly May 23, 2002

Sep 2002 After Mayne bought QML

Sonic is Australia's biggest pathology provider. Merrill Lynch estimates that Sonic has 39% of the Australian market; the next biggest player is Mayne with 26%. Mayne showed its ambitions to close the gap by acquiring Queensland Medical Laboratory in June 2002. The other big operator in pathology is Gribbles Group, with 8%. That leaves 27% of the market in other hands.
Sonic boom Business Review Weekly September 5, 2002

Jan 2004 market capitalisation

Sector Sonic Health Care has a market capitalisation of $1.7 billion. Its ASX-listed domestic competitors in pathology are Mayne Group ($2.6 billion), The Gribbles Group ($108 million) and Primary Health Care ($530 million).
Sonic Health Care Limited (ASX Code: SHL) The Sydney Morning Herald January 28, 2004

Feb 2005 State of play after Healthscope bought Gribbles

Pathology industry consolidation

  • Other 21%
  • Sonic Healthcare 36%
  • Mayne Group 30%
  • Healthscope 9%
  • Primary Health Care 4%

Source: UBS
Street Talk : THE VISION THING Australian Financial Review February 21, 2005

Dec 2005 Mayne Health becomes Symbion Health

Initially, Sonic focused on pathology, and after several acquisitions, mainly in the second half of the 1990s, it is now Australia's largest private pathology provider. Merrill Lynch estimates that Sonic has 38% of the domestic pathology market, Symbion (previously Mayne Health) 32%, and Gribbles (now owned by Healthscope) 9%.
Path test BRW December 1, 2005

to contents

The Corporatisation of Radiology

The corporatisation of radiology got under way in 2000 but progressed more rapidly than pathology. There were few intermediate corporate groups. Large commercial groups grew rapidly by buying group practices directly from radiologists.

Mayne Health and Sonic were two well established health care operators that started buying into radiology.

MIA (Medical Imaging Australia) was formed by a group of radiologists. It listed on the share market to raise capital and then grew very rapidly by acquisitions. It overreached itself and was soon in trouble.

DCA was a company with multiple commercial interests. It elected to sell off its businesses in order to become almost a pure radiology and aged care company. Its subsidiary I-Med grew very rapidly and prospered. It bought MIA and became the largest of the three radiology corporations which now dominate the sector.

The press extracts give the flavour of what happened as ownership by three dominant corporations grew from 10% at the beginning of 2000 to nearly 70% buy 2006.

 

Aug 2000 The prospects

RADIOLOGY OUTLOOK
Radiology revenues have grown at an industry compound annual growth rate of 7.5% over the past five years (whilst general expenditure on health services has increased at 4.5% pa). This growth has been driven by:
  • advance in technology and more definitive diagnostic testing;
  • increased focus on preventative medicine and early diagnoses; and
  • an ageing population and their increased consumption of medical services.

The private market for diagnostic imaging in Australia is in excess of $1.5bn with government medicare outlays approximately $1.1bn.

DCA is also attracted to the fact that the industry is relatively fragmented (Medical Imaging Australasia is the largest operator yet only has a 12% market share) and the benefits of scale will drive the consolidation of practices over the next few years. These benefits include:

  • improved utilisation of equipment and the ability to support new advanced equipment/procedures;
  • improved productivity;
  • administration savings; and
  • greater purchasing power.

 Development Capital Of Australia Limited (DVC.AX) DCA Expands with Healthcare Acquisition. Australian Stock Exchange Company Announcements August 9, 2000

Dec 2000 Corporatisation proceeding

Mr Vaux (MD of DCA) said despite the scramble for radiology assets now under way, the top three players still only accounted for 30 per cent of the fragmented market.
I-Med turns X-rays on float. The Australian December 5, 2000

Jun 2001 From 10% to 47% in 18 months

In January last year, less than 10% of private radiology business was in corporate hands; that figure is now close to 50%.

The chief executive of MIA, Peter Macintosh, says that even without Radclin, MIA has 17% of the $1.5-billion annual private diagnostic market. Including Radclin would take its market share to 20%. Deutsche Bank estimates that Sonic Healthcare has a market share of 11.5%, Mayne Health 8% and I-Med 7%.
The Uncanny X-ray Men Business Review Weekly June 22, 2001

Jul 2001 Potential for more

But there's still a lot of potential for industry rationalisation, even given the hectic pace of recent years. The top four players, MIA, Sonic, Mayne and I-Med, still account for less than half of the national market.
XCHANGE : Sonic boon Sydney Morning Herald July 7, 2001

May 2002 A year later its 60%

The corporatisation of the radiology business has happened more recently.

About 60% of the national radiology business is held by four public companies: Sonic, Medical Imaging Australasia, Mayne and I-Med, which is controlled by the listed investment company DCA Group. Medicare payments for radiology in 2000-01 were $1.2 billion.
Health is wealth. Business Review Weekly May 23, 2002

Oct 2002 The big players

Medical Imaging Australasia, Sonic and Mayne are the biggest companies in the radiology sector, with market shares of 20%, 14% and 10% respectively.
A sick business. Business Review Weekly October 3, 2002

Mar 2003 Changing distribution

Mayne Group's purchase in February of the last big independent radiology practice, Queensland Diagnostic Imaging (QDI), means that just over 60% of Australia's annual $1.7-billion diagnostic imaging expenditure is now in corporate hands.
-------------------------
After the purchase, Mayne is a close second to the largest radiology provider, MIA, which stockbroker Salomon Smith Barney estimates to have 21% of the Australian market. Salomon says Mayne now has about 19%, Sonic Healthcare has 14% and I-Med, a subsidiary of DCA Group, has 10%.

With 60% ownership in corporate hands, the radiology business has changed dramatically in a short period. Four years ago, the corporate sector owned less than 10%. Even so, radiology is still behind the pathology sector, - - - -
--------------------------
The reason large radiology practices such as QDI can command high prices is that, even with medical budgets under increasing scrutiny, diagnostic imaging is at the very profitable end of the health business.
The rise of the X-ray giants. Business Review Weekly March 13, 2003

Feb 2005 Consolidation

Radiology industry consolidation

  • Other 35%
  • Mayne 19%
  • DCA (I-Med & MIA) 32%
  • Sonic 14%

Source: UBS
Street Talk : THE VISION THING Australian Financial Review February 21, 2005

 
 

to contents

Relationship with Doctors and the Public

The companies employed radiologists and pathologists to carry out the services. The companies were dependent on their ddication. The work came from General Practitioners and other specialists who ordered tests. They were the main customers.

There was also an effort to market screening and other procedures directly to the public, both to bring them directly for screening and to get them to pressure their general practitioners. Generally this sort of scare advertising backfired as doctors did not like it.

Specialist Radiologists and Pathologists - Joint Ventures

Corporations must employ one set of doctors to provide services to another set. Corporations pay radiologists and pathologists far more than the previous market value for their practices. They often pay with company shares. Many become overnight millionaires. Companies also offer them lucrative contracts to continue working for the companies. Most encourage them to own shares or set up the practices as joint ventures. This binds pathologists and radiologists to the corporate interest.

Dec 2000 Radiologists become millionaires

The 52 radiologists that comprised Queensland X-Ray were immediately catapulted into the ranks of millionaires with the undisclosed price tag estimated to be up to $240 million a sector record.
------------------------------
Companies such as Sonic Healthcare and Medical Imaging Australasia are offering private practitioners far larger price tags than if they sold their partnership interests to another radiologist.
Sonic Cuts A Swathe In Rationalisation Race Australian Financial Review December 2, 2000

Dec 2002 Well $3.8 million each

Dr Dubois was one of Queensland X-Ray's 52 radiologists who collected an average $3.8 million in cash and stock last year after Sonic acquired their business for $200 million.
Dubois cashes in on the Sonic boom. Australian Financial Review December 6, 2002

Specialist groups that do not sell out find themselves with powerful competitors who market aggressively to GP’s. They also corporatise general practices and so control the GP referral base, as well as offering all the latest technology.

It is little wonder that these specialists sell out to corporations.

There is a corporeate down side for this in that newly wealthy specialists from whose work the profits come may no longer be as motivated. If their working conditions and remuneration are not congenial they will move elsewhere when their contracts expire. As specialists are in short supply they are in a commanding position. One strategy is to have doctors in senior positions so that the cultural ambience of the company remains unchanged.

Jun 2001 Power of radiologists -- holding shares

A key challenge for management is ensuring that the radiologists who were previously owner-operators do not become disillusioned by working as part of a corporation. Individual radiologists have an enormous amount of power because of their small numbers (about 1100 in Australia) and because Medicare payments are for services provided by the doctors, not by their employers. If a radiologist walks out the door, the company's critical income-earning asset is gone. With only about 15 radiologists graduating each year, employers have a limited pool from which to replace departing employees.
-------------------------------
Radiologists retained 63% of MIA when it was floated. Since then, acquisitions have been made with a combination of shares and cash, and most of the radiologists retain equity.
The Uncanny X-ray Men Business Review Weekly June 22, 2001

Apr 2002 Holding senior positions

At Sonic and MIA, for example, much is made of the fact that senior management positions (in the business units and in head office) are held by medical people. They say that, as a result, their businesses are sympathetic to clinical issues and more responsive to the needs of their clients, who are the doctors that make the decisions about where pathology and radiology tests should be done. So far, in a business in which the main clients are fellow doctors, this has been a popular sales line.
Medicine Man Business Review Weekly April 4, 2002

Apr 2002 Importance of tieing radiologists to the company

In radiology, the picture is brighter, but Mayne's performance is still a long way short of industry best-practice.
----------------------------
In view of some of the poor relationships that exist between medical staff and management, retaining senior doctors is going to be important in Mayne's pathology and radiology divisions in the next few years.

Unlike at MIA and Sonic, which have acquired their individual practices mostly through a mixture of cash and equity, Mayne's doctors do not have substantial equity positions. Most work on contract, and many contracts are due for renewal over the next year or two. Good radiologists can produce turnover of $2 million a year. If they are not tied to an organisation, they would be highly sought-after professionals.
Medicine Man Business Review Weekly April 4, 2002

Jun 2004 Unhappy Radiologists leave when contracts expire

Increasing corporatisation of health services has not suited all doctors. Over the past year, some radiologists who sold their practices to MIA or Mayne have opted out of corporate businesses as their contracts with radiology companies expired and re-established private practices.

One of these is the former chief executive of MIA, Peter McDonald. McDonald was one of the key people behind the consolidation of radiology practices into MIA and its public listing in 2000. He left the company last year after problems in its pathology businesses caused earnings to fall.

A rumor in the industry, denied by McDonald, is that he has recently been talking to radiologists with a view to establishing a new business that could operate in competition with the bigger corporate practices. McDonald says: "The cost of setting up a practice is prohibitive, the equipment is very expensive, and business is more competitive than in the past." He says he and a group of radiologists, whose corporate contracts had expired or who had retired, are working together, concentrating on the area of tele-radiology.
Stitched-up sector Business Review Weekly June 24, 2004

Many doctors are unhappy about handing medicine over to businessmen and particularly about businessmen intruding into care. Some GP’s and specialists have recently tried to set up a competitive cooperative instead of a corporate structure. How this will go remains to be seen. Similar efforts by doctors were attempted in the USA but they were unable to compete.

Oct 2005 Doctors going it alone

A report to the government has also raised concerns that a co-operative of doctors planning to start in NSW next year could encourage overservicing because the doctors would also be approved pathology providers.

The chief executive of the Diagnostic Medical Co-operative, Con Kostakis, said the co-op was designed to prevent overservicing and penalties against it were written into its constitution.

Doctors would be stopped from ordering too many tests because of the threat of losing their pathology provider status.

Still, when asked what the point of the co-operative was, Mr Kostakis said it was to "take back control of diagnostic services for the medical profession", and, in a letter to The Australian Financial Review, he said it would "bring about a lot of public good, not the least of which will be to supplement the incomes of struggling practitioners".
Rapid rise puts pathology under the microscope Australian Financial Review October 28, 2005

to contents

Referring Doctors and Kickbacks

General Practitioners and other specialists order the diagnostic tests and are the main customers of the Diagnostic corporations. Financial success depends on securing their allegiance and their referrals. Corporations have made very effort and employed every strategy to align the interests of the referring doctors with the corporation.

During the 1980s and 1990s there was intense concern about kickbacks - ie. paying doctors for referrals. This is illegal and dysfunctional for patients and the health system. Doctors are required by law to make referrals for the benefit of their patients and not their pockets. From the many allegations made by doctors and particularly the pathology association it is clear that kickbacks were quite common although it was claimed that only a few bad apples participated. There is no clear legal dividing line between illegal kickbacks and business arrangements which are not illegal but which function as kickbacks. They have the same effect. Practices which market thinkers see as desirable, even essential business activities are interpreted as criminal activities within a professional context. As a consequence this becomes a legal minefield. In the examples in the extracts below the company stressed that what they were offering was legal. As they were never successfully prosecuted they may have been correct.

Central to this issue is a failure to distinguish between a blunt and inexact legality enshrining the rights of individuals and marketplace entrepreneural values on the one hand. On the other is the issue of probity encompasing the rights of the community and its members to services driven by a sense of responsibility and by humanitarian values. This is especially so when citizens are vulnerable because of physical or mental impairment.

The difficulty is that these bad apples gain a competitive advantage and those who behave ethically suffer unless they follow suit which the US experience suggests is the norm in the health care marketplace. When we consider the AWB, HIH, and many price fixing scandals in Australia there is no reason to believe we are different.

Pathology kickbacks took many forms. These included paying exorbitant rentals, providing GPs with staff paid for by the corporation, and even payment for participating in research and surveys.

Regulatory bodies made efforts to prosecute kickbacks and some companies, notably Gribbles were very aggressive in challenging both the jurisdiction of the regulators and the accusations. This dragged on for years. As far as I can determine there were few if any successful prosecutions of corporations for kickbacks. If there were fines then they were part of settlement agreements which were not public. In the USA most fraud and kickback allegations are settled in this way - but they are not confidential and are reported in the press. This has not happened here.

Without legal knowledge and inside information it is difficult to know whether the lack of penalties was due to legal difficulties or to the lack of support from the regulator’s political masters. It seems that during this early period regulators did try - but this was before government departments were heavily politicised. The denials and defensive position taken by the HIC’s senior staff on the December 2004 Four Corners program (see below), and the revelations on the program suggest that they are no longer committed to prosecutions.

The HIC certainly did put pressure on these practices and has used other strategies (eg. vetting licenses for collection centres) to ensure that payments made for space in medical centres are not disguised kickbacks.

These seem to have had some success as there have been few if any reports about kickbacks over the last 5 years. In addition the stand taken by the bulk of pathologists and the medical establishment may well have driven these groups out of business.

More recently other methods have been used to align the interests of the doctors with those of the company. These include owning the GP’s practices, encouraging them to own shares, and involving doctors in joint ventures. Joint ventures are more usual with specialists.

Note that there is more information about specific accusations on individual company pages - see Gribbles and Macquarie Health.

Mar 1989 Kickbacks in the 1980s

A most comprehensive analysis of the pathology industry was completed in September 1985 by a Federal Government Joint Public Accounts Committee on fraud and overservicing in the health area.
--------------------------------------
The report also revealed the widespread use of kick-backs and profiteering rackets, and promised to clean things up.
NEW STARTER IN PATHOLOGY STAKES Australian Financial Review March 20, 1989

Jul 1994 Examples of continuing kickbacks

Australia's private pathology industry is booming. So, too, according to doctors and industry insiders, is corruption. Gary Tippet explains how a minority is making big money from rorting the system.

DOCTOR D is a general practitioner in a Melbourne suburban practice with four other doctors. Two years ago he and his partners were approached by a private pathology company seeking their referrals - for which it was willing to pay almost $25,000 and the salary of a full-time nurse for the surgery.

The doctor telephoned Dr Ian Rowe, chairman of the Office Pathology Committee of the Royal Australian College of General Practitioners, for advice on the legality and ethics of such an arrangement.

"He had a contract on the desk in front of him, ready to sign,'' said Dr Rowe last week. "The pathology service had assured him the contract was legal. They were perfectly prepared to take on the Commonwealth on this.''

Dr Rowe notified the Department of Health and the Health Insurance Commission, which runs Medicare, passed on the evidence to the Australian Federal Police and the director of public prosecutions. He has heard nothing about the matter since.

"So I have to conclude that the Commonwealth is frightened to pursue this matter,'' said Dr Rowe. "And I conclude that they are scared to pursue it because they fear they will lose the case. And if they did, all hell would break loose.''

Then there is the case of Doctor B. Two years ago he worked as a general practitioner in a neon-lit, entrepreneurial medical centre in Melbourne's eastern suburbs. The clinic's pathology tests had long been done by a small local laboratory but, virtually overnight, the centre switched to a new, aggressively marketed company.

"Suddenly, in the space of a few days, without any of the medical staff being informed of what was going on, all the old lab's equipment was cleared out and the new company's stuff moved in,'' Doctor B recalled this week.

"Included in the changeover was a direct-line computer and printer which meant that when the pathology results became available they spat out downline into the surgery.

"Normally that might be all well and good, a simple commercial decision with the benefit of new technology - except there was a very strong suggestion that up to $100,000 had been paid under the counter to encourage the changeover.''

Dr B is no longer at the clinic. He rents rooms in a block of medical suites in the CBD. Down the corridor another room is being "leased'' for a substantial sum by a private pathology laboratory. The room is completely empty and unused.

AUSTRALIA'S private pathology industry has long been plagued by accusations of corruption - from kickbacks, bribes and inducements (ranging from cars and holidays to the provision of company-paid nursing sisters in doctors' rooms), and even "sink tests'', where samples were allegedly poured down the laboratory sink but claimed on Medicare. But no doctor or pathologist has been prosecuted.
------------------------------
Sources further say corrupt practices by a minority of operators are also booming. "Unethical practices and overservicing is widespread,'' one private pathologist claimed last week. "Some people are simply using out and out fraud,'' said a doctor.

Dr David Weedon, the vice-president of the Australian Medical Association, said a level of corruption was "alive and well. There are still kickbacks going on in pathology in Australia by some practices.

"What they're doing now is putting sisters into the doctors' rooms,'' he said. "These sisters collect blood for pathology, but when they're not busy collecting pathology they're filing and doing other routine jobs for the surgery. In other words, they're providing a half-time employee free of cost.''

Other inducements allegedly offered to GPs by unethical pathologists include the provision of computers, software, fax machines and medical equipment and the payment of unjustifiably high rents for the space used to collect specimens in return for the GP sending tests to their laboratory. In a case referred to the Australian Federal Police in September last year, it was alleged that one company was leasing space in one clinic, not at commercial rates but at 35 per cent of pathology referrals generated by the clinic.
--------------------------------
"Very few (doctors) would be on direct inducements such as money for referrals,'' said Melbourne pathology consultant Mr Ed Wilson. "But arrangements such as the rental of a broom cupboard in a doctor's surgery for $20,000 a year, in which the pathology provider stores jars and containers so the doctor can collect specimens, are common.''
-----------------------
That task (running them out of the industry) has so far proven to be "beyond the wit'' of the HIC and the Australian Federal Police, according to Mr David Kindon, the secretary of the Australian Association of Pathology Practices, which represents about two thirds of operators in the private pathology industry.

"We have provided evidence to the HIC in the past about some of these things and that's why we've been frustrated,'' he said. "They just seem to disappear into a black hole and once it gets into the system it becomes sub judice and, correctly I guess, we're not allowed to know where the investigation has got to.

"But nothing ever seems to pop out the other end."
----------------------------
An industry source also claimed that 32 such matters had been referred to the AFP since August 1989 with no prosecutions resulting, but neither the HIC nor the AFP would confirm or deny this. "It is policy that we do not comment either way on investigations,'' an AFP spokesman said last week.
-------------------------------
"Whilst in Victoria we have a minority of unethical providers, to maintain their viability all practices are being obliged to become increasingly commercial. And when you put a rotten apple in a box of apples, the other 99 apples don't turn the rotten one good. "
Bleeding The System Sunday Age July 31, 1994

Mar 2001 A strong temptation

Those price cuts really bite. Pathology and imaging businesses have high fixed costs and efficiency gains are difficult to achieve.
-----------------------------------
Paying cash or other inducements to referring GPs is illegal, and could result in jail time. But the temptation to offer inducements is great. I'd venture that it won't be long before a major pathology lab is in trouble with the law over inducements.
Health Risks For Packer And Smedley Australian Financial Review March 10, 2001

Mar 2001 Dealing with the problem using licenses

During the past six months, the HIC is understood to have knocked back more than 30 proposed rental arrangements as part of a tough new approach to enforcing the ban on inducements. In many cases pathology companies were allegedly offering doctors or medical centre operators three times what the watchdog considers market rental.
HIC Crackdown On Offers Of Inflated Rent To Medics Australian Financial Review March 28, 2001

to contents

Marketing to the public and Whole Body Scans

One of the problems with health care entrepreneuralism is the pressure to seize new opportunities and take them to market long before their benefits and dangers have been properly evaluated. The blindly enthusiastic lacking in objectivity, the wishful believers and the out and out crooks all rush to get a first in advantage. Usually these marginal developments have great appeal and are readily marketed to the public. Some of course eventually prove to be genuine advances and early investors make a killing. Others don’t and turn out to be harmful.

Total Body CAT scans using the latest machines potentially offer an opportunity to screen for serious diseases like cancer and detect them at a stage when they can be successfully treated. They have enormous appeal to an anxious public. The problem is that while they can pick up some of the less common cancers they are not very effective for common ones. They also result in large numbers of invasive investigations for shadows which turn out to be innocuous. There are also unacceptable levels of damaging radiation.

These scans have proved very popular with the public but are an idea whose time has not come. They are opposed by radiologist bodies, medical associations, and by health departments who consider them more harmful than beneficial. It is interesting that MIA, which boasted of the influence which its radiologists exerted got into this business briefly. Few of their radiologists would have approved.

Virtual colonoscopy using CAT scanning is also very attractive because it avoids colonoscopy (but not bowel preparation) and some of its risks. It is not as accurate in detecting lesions and there is the problem of excessive radiation. While welcomed by patients it is not recommended at this time.

The extracts give some idea of the way the public falls victim to marketing in areas like this.

Jun 2004 The Total Body Scan debate

Total Health Screening performs whole-body scans of customers. The images produced by the Sydney firm's $A1.4 million computer tomography (CT) machine are studied for signs of cancer, spinal abnormality or heart disease. Total Health is the only company in Australasia still offering CT scans, following opposition from medical bodies. Gabby Freilich, the CEO of Total Health, says five per cent of the 5,000 scans he has checked since August 2002 contained abnormalities requiring immediate attention. Freilich criticises health authorities for preventing CT scanning as "some nefarious activity"
Total Health Screening Time Australia (ABIX Abstracts) June 7, 2004

Sep 2005 Criticism

FULL-body CT scans, which hit the Australian market several years ago promising to detect cancer and other illnesses before they become symptomatic, were slammed by the medical profession but proved popular with patients, new findings show.
---------------------------
The popularity of the scans comes despite criticism of the procedure from the medical profession. In 2003, the scans were made illegal in NSW without a referral from an independent GP and a detailed warning of the risks of the procedure.

The Royal Australian and New Zealand College of Radiologists has raised concerns about the level of radiation used, as well as warning the scans can lead to unnecessary follow-up examinations.
Screen testing Australian Doctor September 9, 2005

Unfortunately the opportunities presented by these potentially lucrative innovations attract the sort of people who are most likely to market them well beyond their real worth. They can be the most unsuitable people. The story of Lifespan Medical Imaging, Gold Coast Healthcare, and a host of related companies tells its own story. Note the names of the companies.

As indicated earlier the expectation that people involved in the care of their fellows would be the sort of people who could be trusted has gone out of the window. The concept of probity has gone and the dregs of the marketplace come trawling the markets for opportunities to make money. They find easy pickings in health. The public has not realised this.

Jan 2004 Lifespan Medical Imaging

FORMER TV medico and real-life GP, Dr Jeremy Cumpston has this week launched Brisbane's first medical service specialising in full-body CT scans, virtual colonoscopies and angiograms.

Dr Cumpston, who played nurse Connor Costello on the Seven Network's award-winning medical drama All Saints, said Lifespan Medical Imaging's new virtual technology could dramatically reduce the number of bowel cancer and coronary heart disease (CHD) deaths in Australia.

"Virtual colonoscopies and angiograms are fast, effective and non-invasive," he said.
------------------------------
Dr Cumptson said the company's Sydney arm had proven extremely popular.

"It is expected we will be booked solid fairly quickly in Brisbane - people really are into knowing exactly how they are travelling with regard to their health and this is a non-invasive, proven way of doing so," he said.
-------------------------------
Australian Medical Association of Queensland (AMAQ) president Dr Ingrid Tall said virtual colonoscopies weren't as accurate as the conventional procedure.

"However, they do have some advantages such as the fact that they're less invasive, no anaesthetic is needed, there's fewer side effects and you don't have the same risk of perforation of the bowel," Dr Tall said.

"But the virtual test still involves the same bowel-cleansing preparation as conventional colonoscopy and involves considerable radiation - more than chest X-rays."

Dr Cumpston said Lifespan's 16-slice CT scanning was the most accurate in Australia and could also be used for virtual angiograms which had the potential to diagnose CHD in patients with no symptoms.
TV medico unveils new virtual reality City News January 22, 2004

Apr 2005 Gold Coast Healthcare - a saga

Back on October 27 last year a company called Gold Coast Healthcare lodged a prospectus with the Australian Securities and Investments Commission in a bid to raise between $2.5 million and $9 million.

Under the offer that opened on November 3 last year, investors were urged to buy redeemable, convertible preference shares in Gold Coast Healthcare so it could buy Lifespan Medical Imaging, which runs a radiology practice in Nerang Street, Southport.
---------------------------
The company boasted a strong board comprising NSW-based orthopaedic surgeon Gordon Slater, John Roberts who helped create the stock exchange listed company Primary Health Care, Bruce Harvey, a Sydney engineering company managing director and Paul Jones, a medical equipment service industry consultant.
--------------------------
In the financial forecasts included in the prospectus, Gold Coast Healthcare was tipped to make $154,000 on revenue of $4.1 million in the year ending on June 30 this year.
----------------------------
However, something has now gone terribly wrong with Gold Coast Healthcare.

On March 16, barely five months after the offer was opened, the entire board was replaced.

Michael Silver of NSW, Stephen Seeto of PNG and Robert of Woollongong became the new directors on that day.
-------------------------------
On March 18, with another seven months to go before the offer closes, administrators were called in - Hall Chadwick's Sydney-based Richard Albarran and Geoff McDonald. Then on March 24 a first meeting of creditors was held.

Mr McDonald says the issue has now led to litigation in the Supreme Court and there are accusations of missing money.
Health care venture's now looking like one sick puppy The Gold Coast Bulletin April 18, 2005

Apr 2005 The corporate tangle unravels -- note the names of the companies.

And it now appears that the collapse might have been the tip of the iceberg.

The corporate doctors who were called in to determine whether the situation could be salvaged - Hall Chadwick's Sydney-based Richard Albarran and Geoff McDonald - also have been appointed administrators of related companies.

A couple? Eleven to be precise.

They are: Prescription Healthcare, Digital Diagnostic Holdings, Penplaza Medical Centre, Total Body Scan, Full Body Scan, DDX Holdings (Penrith) Digital Diagnostics X-Ray, Body Scan Australia, Penplaza Medical Holdings, Lifespan Medical Imaging and Lifespan Medical Imaging (Brisbane).

Mr Albarran, in his latest report, says there appears to have been a few omissions or errors in the Gold Coast Healthcare prospectus that was used to guide investors.

Firstly, there seems to be at least three different versions of the prospectus doing the rounds.

Secondly, the company said it had an informal arrangement with Gold Coast Hospital with regard to referrals. But the hospital says it never did and even lodged a complaint about that version of the prospectus with the corporate watchdog.

But perhaps the most serious omission was that one of the directors and significant shareholder, one Jack Edward Roberts, had previously been a director of companies that had failed, were deregistered or are now under administration.

How many you ask? Well, according to Mr Albarran, a mere 29 companies. Obviously, it must have been an oversight.

The administrators have also found evidence of insolvent trading and preferential payments.
Healthcare probe reveals true hospital case The Gold Coast Bulletin April 29, 2005

The "ADC Group" seems to have been behind some of these companies as a financier and eventual purchaser. How extensive this was is unclear. Note that Stephen Seeto who became a director of Gold Coast Healthcare in March 2005 was also a director of ADV Group.

A quick search reveals that ADV Group is a company which has been on and off the stock exchange under a multitude of names since 1964. It was listed again in 1998 and has had a variety of businesses in Australia and in Asian countries of varying success. It has received queries from the stock exchange on many occasions and has been temporarily delisted for not submitting its reports on time. It is unusual for the public to be aware of the financial groups whose money is invested in health shares and who therefore own the companies, appoint executives and ultimately decide policy. Policy all too often impacts on care.

Oct 2003 ADV director shared with Gold Coast Healthcare

The ADV Group Ltd annual general meeting will be held on Novemeber 28, at Sydney.

Agenda includes: re-election of Stephen Seeto and J Dalco as directors; and to ratify the issue and listing of 500,000 ordinary shares in full consideration of a facility fee in relation to a loan made by Fair Choice Ltd of $150,000 on August 30, 2003 to provide working capital.
ADV GROUP ANNUAL MEETING AUSTRALIAN COMPANY NEWS BITES October 8, 2003

May 2005 Prescription Healthcare was the entity owning Lifespan

ADV Group Ltd has bought the Lifespan Medical Imaging business operations in Sydney and Brisbane from the Prescription Healthcare Ltd liquidator.

Prescription Healthcare was placed into administration by its secured creditor ADV, after it defaulted on loan repayments. Prescription Healthcare was then placed into liquidation by its creditors.
ADV GROUP BUYS MEDICAL IMAGING BUSINESS Australian Company News Bites May 27, 2005

 
 

to contents

Internet Diagnosis

Internet diagnosis is a great advance in many ways. Requests and reports can be made and reports sent out very rapidly. Data collection is facilitated and this is valuable. Unfortunately information obtained from this process can be misused and privacy breached by selling this confidential information on to other commercial interests in what is claimed to be a de-identified form (see Gribbles).

Medical software used by doctors offers vendors an opportunity to beam advertisements into the doctors everyday activities and into clinical consultations. This practice has infuriated many doctors forcing the software vendors to back off.

Images from radiology and pictures of lesions and microscopic slides can be sent to remote experts for diagnosis or second opinion. International authorities are readily consulted. Rural areas without specialist support can secure early expert opinion.

Internet and computer based support for medical practice is something I strongly support but there are dangers and compromises to be made.

It does remove the expert from clinical colleagues and as such impacts on collegiality and clinical discussion. This is particularly so when radiologists in one country are offering services in another simply because the company they work for has tendered for that service more cheaply. Australian companies have targeted the NHS in the UK with plans to report in this way. Some US groups now exploit the time gap to set up offices in Australia. These provide after hours radiology services to the USA. Legally the radiologists must be registered to practice in the USA.

Jul 2002 Tele-radiology to the USA

Online diagnosis is not new, but cheaper and faster internet connection is allowing medical applications to expand globally.

Teleradiology is an example, where x-rays and scans are sent via the net for diagnosis within minutes by a radiologist thousands of kilometres away.

Monte Zarlingo is medical director of Nighthawk Radiology Services in Sydney, a team of seven US radiologists exported to Australia last October to provide after-hours radiology services for American emergency wards suffering from a shortage of experts.

The time difference allows the Nighthawks to work a 10am to 10pm shift from the 27th floor of their George Street headquarters assessing x-rays and scans taken in the US from 8pm to 8am.

"We can get a standard CT head scan sent to us within one minute and we can get the report back in five minutes," said Dr Zarlingo.

"The patient doesn't know if we're in the next room or halfway across the world.
Getting inside your head from half a world away. The Australian July 26, 2002

Apr 2004 Internet ordering and reporting

Health Communication Network Ltd announced a long term agreement with Sonic Healthcare Ltd to enable users of Medical Director electronically to send orders for pathology and radiology tests to Sonic laboratories over the internet.

Under the agreement with Sonic, revenue to HCN will increase as the number of pathology and radiology tests ordered electronically by Medical Director users increases.

HCN has agreements in place with Sonic Healthcare and Mayne Health to produce electronic pathology orders from its Medical Director application.

HCN plans to release versions of Medical Director for specialists over the next 12 months.
INTERNET ORDERING IMPLEMENTED FOR PATHOLOGY AND RADIOLOGY Australian Company News Bites April 1, 2004

 
 

to contents

Standards of Care

Overall diagnostic standards in radiology and pathology in Australia are very good. Accreditation and process works better in these areas than in clinical activities. There are consequently few reports of systemic failures in services. Concern about the standard of reporting of PAP smears across a number of laboratories gave rise to some concern in 2002. The frequency of missed diagnoses did not meet Australian standards.

Mar 2002 Failed PAP smears

Those familiar with the process know it is not a perfect test, which is why they have been reluctant to join the chorus of outrage that has erupted since the revelations over the past 10 days that three laboratories - one in Victoria and two in New South Wales - have been stripped of their licences to conduct pathology testing by the national standards body.

General Diagnostic Laboratories in Melbourne, Medtest, which operates at Sydney's Fairfield and Westmead hospitals, and the defunct Wielebinski Pathology at Lane Cove in northern Sydney are being investigated after claims that up to 30,000 women may have received incorrect Pap smear results for cervical cancer.

The Health Insurance Commission has taken the rare step of cutting off the laboratories' Medicare accreditation, a move GDL is contesting in the Administrative Appeals Tribunal.
In The Eye Of The Beholder The Age (Melbourne) March 16, 2002

 
 

to contents

International Expansion

Health care companies are growth companies. Their share price, and their competitiveness in raising capital is largely dependent on continued growth.

Opportunities for further expansion in pathology started running out in about 2000 and radiology a few years later.

Gribbles was once 50% owned by a Malaysian group but they soon sold out leaving Gribbles wth their regional holdings. Gribbles expanded these throughout the region and more widely. Healthscope acquired them when it bought Gribbles.

MIA purchased a radiology business in the UK and a pathology business soon after. The pathology business was sold to Sonic and DCA acquired the radiology business when it acquired MIA. These two companies have formed an alliance aimed at winning contracts from the NHS.

Sonic has used the UK business as a base from which to expand into Europe, then into the UK, and subsequently the USA.

New Zealand has been a target for expansion in radiology, pathology and aged care.

The international expansion of these companies is addressed in detail on their own web pages.

Jul 2002 Opportunities dry up in Australia

The moment of truth for Sonic Healthcare's management team has arrived. Its "phase II" expansion-by-acquisition program in Australia has come to a close and new strategies are to be employed.

Sonic refers to this new period as "phase III", in which it has promised to expand through rationalisation and overseas growth.

"Acquisition-led growth is over in Australia, which means management now has to deliver on potential," Salomon Smith Barney analyst Andrew Goodsall said.
Sonic enters next phase of growth. Australian Financial Review July 10, 2002

 


 

to contents

Part II : The companies

This section briefly summarises each major company and provides a link to the web pages of those companies which have separate web pages. It indicates where corporate practices have given rise to concern.

There are companies which are primarily diagnostic companies and I will deal with these first. Currently (2006) there are three major corporate providers of pathology Sonic Healthcare, Symbion Health (the new name for Mayne Health), and Healthscope which purchased Gribbles in 2004. There are also three companies dominating the imaging business. DCA's subsidiary I-Med, Sonic Healthcare and Symbion Healthcare.

A second group of companies have been primarily General Practice companies which have also owned some diagnostic subsidiaries to whom they hoped their doctors would refer. Only Primary Health owns a significant slice (4%) of the pathology market. Only a brief reference is given to these groups here. There is another page written in 2002 and recently updated which examines the corporatisation of General Practice as a separate issue.

 
 

to contents

Diagnostic Companies

Sonic Healthcare

Sonic Healthcare's success story started in 1992 when a young accountant Michael Boyd bought into a struggling small company for only a few cents per share. He switched to concentrate on pathology and appointed histo-pathologist Dr. Colin Goldschmidt as CEO.

The company divested its other interests but entered radiology in 2000. Over the 13 years since 1992 Sonic has built a massive global empire spanning Europe, the USA, Asia, New Zealand and Australia. It consistently exceeds its positive financial forecasts. Its performance has been incredible and its reputation for socially responsible conduct impeccable. It is almost too good to be true.

Most worrying about Sonic is its handling of the pressures it faced when the corporatisation of General Practice got under way. Sonic's Goldschmidt had made much of the company's relationship with doctors and its refusal to compete with its referring doctors. It was soon threatened with the potential loss of its referral base as others corporatised its customers.

The response was for Boyd to independently found two companies, Foundation Healthcare, which owned general practices and medical centres, and Lifecare which operated paramedical and related services in these centre's. Sonic took a minor investment in Foundation and reached an agreement which gave it first option in Foundations Medical Centres.

Because Foundation's income came from general practice it was never profitable. The profits came from pathology and radiology and these went to Sonic. Boyd's reputation and market enthusiasm soon boosted share prices to high levels. Foundation rapidly bought General Practices at inflated prices and paid with shares which traded at a premium.

When profits failed to materialise shareholders lost most of their money with shares ultimately trading at only a few cents. LifeCare, which was also in trouble merged into Foundation and they were renamed Independent Practitioners Network. Sonic gave support in a variety of ways and kept the company solvent.

The issue here is whether Boyd and Goldschmidt really believed that Foundation could be profitable from General Practice fees alone - particularly as they paid more than competitors for doctors practices. Alternately was this a cynical deception of investors and doctors to get them to buy and secure Sonic's referral base leaving Sonic's illusion of propriety intact? Boyd had a reputation as a very shrewd businessman and his fortune invested in Sonic was threatened.

Primary Health exposed this sham façade and put an end to it by mounting a hostile takeover of IPN. The majority of unhappy shareholders were only too eager to unload what was left of their investment. Sonic was forced to up the ante and outbid Primary, eventually acquiring the whole of IPN. It is now a wholly owned subsidiary.

The market and business capitalise on the weakness and cupidity of others - that’s the share market and the corporate marketplace. Risk is seen as an integral part of investment. Honesty is a word not a value. This was simply a shrewd business move.

The issue here is whether this is the sort of environment in which health care, a service to the vulnerable and trusting, given at a time when their resourcefulness is impaired, can fulfil its mission.

Mayne Health

Mayne Health originated in a massive trucking company which developed multiple other interests. It had a criminal history and there were multiple other worrying issues. When its practices were exposed it moved to health care and gradually sold off almost all its other businesses. It was primarily a hospital company but soon followed others into pathology in the 1990s and radiology in 2000. It also quietly bought about 50 medical centres. (There is a separate page briefly examining these sectors) It became a massive, integrated diversified health giant and bought into pharmacology as well. The General Practice section was never profitable and Mayne could not find a buyer fot it.

Mayne enjoyed close relations and support from politicians but consistently alienated the doctors on whose support it depended - so consistently under-performed financially. It seldom matched its competitors.

A newly appointed Mr Fixit in 2000 introduced management strategies which doctors considered unethical, compromised care in its hospitals and removed doctors from decision making. Doctors took their patients elsewhere and by 2002 the company was in serious trouble. In 2003 the company sold all of its hospitals to venture capitalists led by a Citigroup subsidiary. Citigroup has an dreadful track record of fraud and of facilitating fraud by its customers.

In 2005 Mayne broke up further with the pharmacology section retaining the name Mayne. The remainder including pathology, radiology and general practice sections assumed the name Symbion Health - presumably to distance itself from Mayne's tarnished record.

Gribbles Pathology

In 1987 Wallace Cameron a tax lawyer and promoter of tax schemes joined Bruce Mathieson, a Poker machine baron in a business venture. They bought Gribbles pathology practice, a private business and embarked on a program of expansion. In 1996 Mathieson sold his share to a Maylaysian company which three years later sold to oil and mining businessman Ian Trahar's Medical Care Services (MCS). MCS was a market listed General Practice company with pathology and radiology holdings. In the process the company acquired holdings in Malaysia and surrounding countries. Cameron's Gribbles listed on the share market by a reverse takeover of MCS in 2001.

Throughout this period the company was guided by Wallace Cameron. It grew rapidly in Australia and in multiple other countries. Cameron's personal record and that of the company was very controversial. It was plagued by scandal, accused of kickbacks to doctors and of a lot of other worrying practices including problems with tax schemes. Throughout Cameron's career he and Gribbles aggressively fought multiple court actions against authorities including the Health Insurance Commission and the tax office. Even though the allegations, confirmed by a senate inquiry date back to the 1980s Gribbles was never convicted of paying kickbacks. Although there is little doubt about the practices it seems that there was difficulty in proving that they were illegal.

It finally all fell apart and by 2003 Gribbles was in serious financial difficulties. Some questionable strategies to get around the problems came unstuck. Cameron was fired and the company was put up for sale. It was bought by Healthscope in December 2004.

During the sale worrying information emerged about Cameron's holdings and his actions as a director - particularly his disclosures to the market. These are currently under investigation by ASIC, the regulating authority.

This is a long and interesting story told on the Gribbles web page.

Healthscope

This was a hospital company which after a long period of losses became very profitable but by 2004 there were few opportunities to expand in Australia. It entered pathology by buying Gribbles. Some analysts had reservations about this move. Initially it claimed profitability and to have integrated Gribbles successfully. In 2006 it downgraded its forecasts and reported difficulties in its pathology operations. This was soon after it had issued an annual report and gone to the market to raise capital. No anxiety had been expressed in the prospectus. The market felt deceived and the share price plunged.

Macquarie Pathology

Macquarie was a pathology empire founded by Dr Tom Wenkart, a controversial medical colleague and early associate of the notorious Edelsten and McGoldrick. Macquarie became the largest pathology business in NSW. There were multiple disturbing matters related to the holding company Macquarie Health and the pathology company. These included allegations of kickbacks to doctors - allegations never prosecuted. By the late 1990s the pathology section was in serious trouble and this section was bought by Mayne Health.

Medical Imaging Australia (MIA)

MIA was formed by a group of doctors in 2000 in order to capitalise on the consolidation of radiology. It listed on the sharemarket, raised capital and expanded very rapidly to become Australia's largest radiology corporation. It seemed to be very profitable and analysts were upbeat. As opportunities dried up in Australia it looked at the United Kingdom and the potential profits to be gained by winning contracts from the NHS. The Blair labour government had adopted a policy of contracting out services. MIA bought into radiology and pathology in the UK.

This all came unstuck with large losses from pathology and disappointment from radiology. It was soon in trouble. It sold its pathology business to Sonic, restructured its management and then sold the entire business to DCA's I-Med in 2004.

It is a measure of the way commercial issues and growth came to dominate this group, which claimed to involve its radiologists, that it bought into Total Body Scanning.

DCA and I-Med

A condition of the acceptance of the post of Managing Director of the commercial investor DCA ,by experienced businessman and entrepreneur David Vaugh in 1998, was that the company sell of its many enterprises to focus on radiology and nursing homes.

The company was consequently cashed up and expanded very rapidly in Australia. Its rapidly growing radiology business, I-Med was very profitable. It used this profit stream to fund its expansion into nursing homes which were less profitable but a sector which Vaux seeks to dominate. DCA entered the international nursing home market buying large holdings in New Zealand.

DCA acquired MIA in 2004 making it Australia's largest imaging conglomerate. With MIA came its UK radiology business. It is now pursuing NHS contracts aggressively.

 
 

to contents

General Practice Companies

The corporatisation of general practice is addressed on another web page. As indicated above much of this corporatisation was tied to some of the large pathology corporations.

General practice corporations also purchased a small number of pathology and/or radiology operations to which their GPs were expected to funnel referrals. Only a list and a few comments are given below.

 

Primary Health

This company was originally founded by GP Dr Edmund Bateman in the 1980s during the Edelsten and McGoldrick era. Unlke Edelsten and McGoldrick's general practice ventures Primary has prospered and made Bateman a millionaire. Like Gribbles Primary has had its share of controversies with allegations of five minute medicine and investigation by the Health Insurance Commission. It has been very aggressive in its legal battle with the HIC and with its critics whom it has taken to court. It has never been convicted. It now claims that its doctors spend adequate time with patients.

Primary owns 4% of the pathology market and also has some radiology. It buys GP's practices for large sums. Unlike its competitors it does not charge patients co-payments so operates in poorer areas where others who depend on co-payments cannot compete. It makes more money by charging less. It seems to have been far more successful in capturing its GPs referrals but how it accomplishes this and becomes very profitable where other fail is not clear. It refused to sign the voluntary agreement on corporate practices agreed to by the government and the AMA. Bateman is highly critical of the business model of his competitors and of the AMA. He has been commercially very successful and is the only group still buying general practices.

Foundation Healthcare/IPN

One of the largest GP companies, Foundation Healthcare was for all practical purposes Sonic's GP referral corporation (see above) created with the illusion of independence. It merged with LifeCare and became IPN and was eventually fully acquired by Sonic.

LifeCare

Also a Sonic related entity it corporatised physiotherapy, dentistry and a number of wellness and health services aiming to locate in Foundation centres. It did poorly and merged into Foundation.

Endeavour Healthcare

This was Kerry Packer and other powerful figures entry into the GP corporatisation business. It merged existing Western Australian GP corporations to form the company in 2000 and listed on the share market. It then expanded into other states. Endeavour owned pathology and probably some radiology services but unlike Primary Health failed to prosper. It eventually gave up and sold its facilities to Sonic and its medical practices to Foundation/IPN.

Revesco - Medical care Services - Gribbles

Revesco was a company acquired by Ian Trahar, a Shell trained businessman who had been in mining. It listed on the share market, bought up GP, pathology and radiology businesses and bought a 49% interest in Gribbles. It did not do well. In 2001 Gribbles executed a reverse takeover of the business and Trahar lost interest.

This section of Gribbles was not profitable but Gribbles could not find a buyer for some years. In 2004 it sold this business to the new National Medical and Imaging Group (NMIG).

National Medical and Imaging Group (NMIG)

This was formed by a number of past Endeavour Healthcare staff who felt that they could make GP corporatisation profitable. The company has not been listed and I have no more information.

Superclinics and Supercare

Superclinics and Supercare operated in the 1980s. Superclinics were founded by the notorious Dr Geoffrey Edelsten who was deregistered and spent time in prison. Almost as controversial a figure Dr McGoldrick, helped him out and was then involved in a bitter battle with him.

McGoldrick founded Supercare another chain of GP clinics where he treated patients while he was not registered as a medical practitioner. His applications to register again, after a long series of medical misadventures saw him resign, had been repeatedly rejected.

Supercare was one of a maze of complicated interlinked companies related to the McGoldrick family. They were characterised by financial problems, bankruptcy, and fraud investigations.

contents

Web Page History
This page created February 2006 by
Michael Wynne