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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
of
Diagnostic Services
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.
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.
Jun 2001 Reliance on diagnostic testing
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.
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.
Mar 2005 Huge overheads
RICH PICKINGS THE PEOPLE WHO GET RICH AS YOU GROW OLD Australian Financial Review March 19, 2005
SKG (Subsidiary of Sonic Healthcare) is buying three 64-slice computerised tomography (CT) scanners, with each unit costing about $1.3 million.
Sep 2005 Costs of equipment
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.
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.
Mar 1989 Pathology corporatisation starts
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
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.
Jun 2001 Rapid corporatisation
Firms fight for $2.7bn in doctors' fees The Weekend Australian June 16, 2001
Health is a booming segment of the economy and Sonic Healthcare has positioned itself perfectly to reap the benefits of this momentum.
Sep 2005 Some did much better than others
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.
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.
Aug 2000 The promise of tele-radiology
Development Capital Of Australia Limited (DVC.AX) DCA Expands with Healthcare Acquisition. Australian Stock Exchange Company Announcements August 9, 2000
"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."
Aug 2005 Collegiality - a US company which survived against corporate might for years
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
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.
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.
Jan 2002 Centralising laboratories
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
Diagnostic testing company Sonic has consistently delivered better margins than market rivals such as Gribbles Group , Mayne Group and MIA Group .
Mar 2004 Sonic's success
Consistent Performers Humming Along Australian Financial Review March 17, 2004
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.
Aug 2000 Looking at the market's potential
Sonic's Boom Comes At A Cost, Business Review Weekly August 18, 2000
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.
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.
Dec 2000 Radiology lags behind
MARGIN CALL : Radiology raid ONE to watch The Australian December 1, 2000
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.
May 2001 The companies buying radiology
Taft Joins A Bigger Picture Business Review Weekly May 11, 2001
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.
Jun 2001 Radiology compared with pathology
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
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.
The Model
Jul 2004 Primary Health's successful 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
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.
Market players Mayne and Primary both follow a more vertically integrated model, where revenue is earned at each stage of a patient's treatment.
Mar 2002 Opportunities to pass the parcel
"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.
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.
Sep 2000 Reason's for GP corporatisation
"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.
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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
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.
Oct 2001 More about reasons and Foundation Health care
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.
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.''
May 2000 Edelsten's views
Big Business Targets GPs In National Buying Spree Australian Financial Review May 23, 2000
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.
May 2000 Vertical integration
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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
"We are talking about fully integrated medical centres so they will have supporting them pharmacy, radiology, pathology and physiotherapy.''
Aug 2000 Response when Foundation's claim to independence was challenged
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
Pathology companies compete on service, not price, and increasing the share of business you do is based on providing a quality service."
Aug 2000 The consequence of geography and owning shares
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
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.
Oct 2000 A dramatic development
The Painful Opt-out Option Australian Financial Review October 11, 2000
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.
2001 Another reason for corporatising
Health Risks For Packer And Smedley Australian Financial Review March 10, 2001
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.
Apr 2001 General Practice corps hungry to buy diagnostic services
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Endeavour has investments in general practice, pathology, X-ray, occupational health and medicine in NSW, Victoria, SA and WA.
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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
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.
Jun 2001 The recipe for success
Firms fight for $2.7bn in doctors' fees The Weekend Australian June 16, 2001
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.
Jun 2001 Some see this as managed care
Script for a profit; The Weekend Australian June 23, 2001,
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.
Nov 2001 Corporate response to criticisms
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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.
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.
Mar 2004 Unable to sell GP businesses
Primary A Picture Of Good Health Australian Financial Review March 5, 2004
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.
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.
Jul 1994 Kickbacks and overservicing
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.
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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.
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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
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.
Nov 2004 There is increasing utilisation for many reasons
Medicare cuts an artery Business Review Weekly November 11, 2004
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.
Jan 2006 Signs that GP corporatisation results in overservicing - hardly surprising
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.
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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.
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"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
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.
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.
Oct 2001 Medicare income
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.
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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.
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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''.
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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
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.
Apr 2004 Medicare pays for corporate pathology
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.
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.
Nov 2001 Aggressive legal challenges
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.
"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 ...
Aug 2000 AMA comment
"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
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.
Meanwhile, the industry claims it is still reeling from the 25 per cent cut in schedule fees and benefits for pathology in 1986.
Mar 1989 Impact of price cuts
NEW STARTER IN PATHOLOGY STAKES Australian Financial Review March 20, 1989
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.
Aug 2000 Nevertheless a good income stream
Sonic's Boom Comes At A Cost, Business Review Weekly August 18, 2000
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.
Dec 2000 Driving the process
Sonic Cuts A Swathe In Rationalisation Race Australian Financial Review December 2, 2000
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.
Mar 2001 The driving force negative view
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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
Radiology, like pathology, is a key beneficiary of changing patterns in health-care expenditure.
Jun 2001 Others see it as benefical for companies
The Uncanny X-ray Men Business Review Weekly June 22, 2001
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.
Jul 2001 All about consolidation
XCHANGE : Sonic boon Sydney Morning Herald July 7, 2001
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.
Sep 2002 The positive and negative views
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.
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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
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.
Apr 2003 The importance of government negotiations
Radiology industry expecting a boost. Australian Financial Review April 4, 2003
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.
Aug 2003 The power of government
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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
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.
Mar 2005 Still a profitable outcome
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
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.
Oct 2005 Another point of view
SPECIAL REPORT : HEALTH CARE A TONIC FOR AN UNHEALTHY MARKET. Your Money Weekly October 27, 2005
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.
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.
Oct 2000 Reluctance to regulate
The Painful Opt-out Option Australian Financial Review October 11, 2000
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.
Nov 2001 The importance of political support
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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.
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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.
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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
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.
Sep 2004 Four Corners exposure of fraud
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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
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.
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.
Dec 2000 Corporatisation and business models
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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.
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Through banding together previously fragmented private practices, a listed company can extract significant profits through cost savings and operational efficiencies.
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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
(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%.)
Jun 2001 The state of corporatisation
The Uncanny X-ray Men Business Review Weekly June 22, 2001
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).
Oct 2005 The main diagnostic players in 2006
SPECIAL REPORT : HEALTH CARE A TONIC FOR AN UNHEALTHY MARKET. Your Money Weekly October 27, 2005
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.
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.
Oct 1987 Ariadne and Healthcorp
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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.
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.
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."
Jun 1999 Still consolidating
Health Care, Or Wealth Care? Business Review Weekly June 11, 1999
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.
Aug 1999 Battle for market share
Profit-making: it's in the blood SYDNEY MORNING HERALD August 16, 1999
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).
Sep 1999 Small operators squeezed out
"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
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.
Mar 2001 Pushing prices sky high
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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
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).
May 2002 State of play including QML
Health is wealth. Business Review Weekly May 23, 2002
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.
Sep 2002 After Mayne bought QML
Sonic boom Business Review Weekly September 5, 2002
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).
Jan 2004 market capitalisation
Sonic Health Care Limited (ASX Code: SHL) The Sydney Morning Herald January 28, 2004
Pathology industry consolidation
Feb 2005 State of play after Healthscope bought Gribbles
- 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
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%.
Dec 2005 Mayne Health becomes Symbion Health
Path test BRW December 1, 2005
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.
RADIOLOGY OUTLOOK
Aug 2000 The prospects
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
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.
Dec 2000 Corporatisation proceeding
I-Med turns X-rays on float. The Australian December 5, 2000
In January last year, less than 10% of private radiology business was in corporate hands; that figure is now close to 50%.
Jun 2001 From 10% to 47% in 18 months
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
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.
Jul 2001 Potential for more
XCHANGE : Sonic boon Sydney Morning Herald July 7, 2001
The corporatisation of the radiology business has happened more recently.
May 2002 A year later its 60%
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
Medical Imaging Australasia, Sonic and Mayne are the biggest companies in the radiology sector, with market shares of 20%, 14% and 10% respectively.
Oct 2002 The big players
A sick business. Business Review Weekly October 3, 2002
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.
Mar 2003 Changing distribution
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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, - - - -
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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
Radiology industry consolidation
Feb 2005 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
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.
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.
Dec 2000 Radiologists become millionaires
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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
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.
Dec 2002 Well $3.8 million each
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.
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.
Jun 2001 Power of radiologists -- holding shares
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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
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.
Apr 2002 Holding senior positions
Medicine Man Business Review Weekly April 4, 2002
In radiolog
Apr 2002 Importance of tieing radiologists to the company