The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.

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The Insurance Dispute


Healthscope had been gearing up to use its leverage to confront the insurers. In 2003 it challenged BUPA. In the bitter conflict which followed the patients were pressured and their interests compromised as they were used to pressure the opposition. Healthscope got a bloody nose and everyone paid a price. This page describes what happened.

 Australian section

The Battle with BUPA




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The Background
Healthscope's medical/surgical hospitals had been a drain on the company. It was too small and did not have sufficient market share to negotiate with insurers in competition with other providers. In
its early years it sustained losses and sold many of these smaller hospitals. Healthscope's subsequent strategy was directed at securing marketplace leverage and then exercising it in its negotiations with insurers. The Battle with the aggressive multinational insurer, BUPA, was what Healthscope had been gearing up to for years.

After is near collapse in the mid 1990s, Healthscope directed its resources into specialty hospitals including psychiatry and rehabilitation. It also bought rural hospitals. There were no local competitors in these areas and it could dictate payments during negotiations with insurers. This strategy was very successful in turning the company around and building profitability, but opportunities for growth and dominance were limited. If it wished to become a major player then it had to reenter areas where it would have to compete. To do so it needed leverage.

Most of Healthscope's medical/surgical hospitals were in South Australia and the Northern Territory. The health insurers in these states and in Victoria, where Healthscope owned most of the psychiatric hospitals, were dominated by the French multinational AXA. AXA sold to the UK medical insurance group BUPA early in 2003. Both AXA and BUPA were economically powerful. They could call on a large global income to carry them through difficult times. They were in a position to resist pressure for increased payment. Healthscope's profitability depended on using its leverage to overcome that resistance.

Sept 2003 BUPA has bought AXA

BUPA which trades as Mutual Community in South Australia and the Northern Territory and as HBA in the other states - -
BUPA, one of the largest funds in the UK, entered Australia earlier this year by buying Axa's health insurance business for $575 million.
Brawl Sparks Big Hospital Bills
Australian Financial Review September 29, 2003

The Adelaide Community Healthcare Alliance (ACHA), a not for profit group was the other major owner of private hospitals in Adelaide, South Australia's capital. It too was under pressure because of its inability to negotiate effectively with BUPA and other insurers.

Eager to gain market dominance in South Australia, Healthscope negotiated a management agreement with ACHA. This gave Healthscope unfettered control of ACHA hospitals. It now had a dominant position owning 40% of private beds in South Australia.

The Challenge
Healthscope believed it was in a position to challenge BUPA. It did so immediately by demanding a large 11% increase in fees. Healthscope had repeatedly indicated its intention to challenge insurers once it had leverage and BUPA must have known that this was coming. It responded with a 2% offer and then both sides refused to budge or to talk.

In the resultant corporate battle the insured patients were the meat in the sandwich, used by both sides to pressure the other into submission. Healthscope had some advantage in that it could claim that BUPA was refusing to give it sufficient funds to provide good care. This is almost certainly true. Whether Healthscope would use extra payments to improve care is doubtful. It had nailed the costly growth flag to its corporate masthead and this rather than care was now its top priority.

In fairness to Healthscope, BUPA was probably the most hard headed insurer in Australia and, because of its size and global resources, it could afford to underfund care and even to antagonise Australians for a while. Its shareholders were in the UK and they would not be aware of bad publicity in Australia or the minimal dent in profits from just one country. Healthscope had all its eggs in the Australian basket and its shareholders were Australian. It had to keep Australian's on side.

(Correction October 2007:- BUPA is a not for profit provident association which does not have shareholders. It sometimes behaves as if it has. A separate BUPA web page has now been added to this site. My apoligies to the UK citizen who pointed this out to me in 2005. I promisd to correct it and forgot.)

The allegations reported in the press suggest that BUPA paid much less to hospitals than other insurers and used its dominance and leverage in South Australia, Victoria and the Northern territory to do so for the benefit of its UK financiers and managers. In one sense Healthscope was the knight in shining armour challenging this profit before care philosophy - if only its practices in serving the community matched the image!

The Cost
BUPA withdrew cover for Healthscope Hospitals on 1st October 2003 and urged those it insured to go to other hospitals. This threatened continuity of care. This disruption of ongoing care in competitive stouches is exactly what happened repeatedly in the USA with hospitals and with doctors - particularly under managed care arrangements.

South Australian patients found themselves without adequate cover. They had to pay large out of pocket expenses if they continued care at their local Healthscope hospital and with their doctors. If they moved to another hospital and its doctors where their insurer paid all the bills then the continuity of their care was disrupted. This could have serious consequences for care. It also adversely affected the relationship of the public to the health system. In the USA similar disruption of care, as a consequence of commercial changes in managed care contracts, became such a serious problem that it required regulation to control it and protect patients. It is clear that continuity of care was disrupted for many South Australians.

Healthscope urged patients to stay with their local hospital and to find another insurer. Many sicker patients did so. Because of Australia's equity regulations other insurers could not refuse them or load their premiums in any way. These insurers were consequently saddled with more costly patients. Those at most risk of costly care were the ones who rushed to change. The risk profile of the insurance pool was markedly distorted and when it was all over these other insurers were forced to raise premiums to cover their additional expenses.

Anxiety among patients was fanned and exploited by each side in order to put pressure on the other. The larger private hospitals providing care-intensive services like cardiac surgery and neonatal intensive care were all ACHA hospitals. Many patients were caught up in an impossible situation. They had no choice other than the public hospital system. It became a battle as each tried to put pressure the community in order to put pressure on the opposition. This also put pressure on authorities to intervene on one or other side. It was a game of brinkmanship in which the patients were squeezed.

Large numbers paid additional fees. Many changed insurer. Others elected to use the free public hospital system so overburdening this already stretched service. Both federal and state politicians sat on their hands waiting for the market to sort itsself out as promised by the theorists. It was the pressure on the public system which finally caused the government to act and force the parties to resolve the dispute.

Healthscope's Strategy
Healthscope had leverage not only in Adelaide but in its regional and specialist hospitals. It insisted on an across the board contracted 11% increase in fees involving all its hospitals. It refused to negotiate separate arrangements in different areas. It used its local leverage to press for increased payments in areas where there were competitors that could undercut it.

At first Healthscope appeared to be winning public sympathy with its claims that BUPA was unreasonably starving it of the funds needed to provide care. It claimed that it was willing to negotiate but that BUPA refused. Initial reports suggested that patients were moving to other insurers. It soon became apparent that many more were going to other hospitals including public hospitals. Healthscope and ACHA beds were empty. Healthscope hospitals were closing beds. Competitors were stressed by the increased workload. BUPA had the global resources to sit this out. Healthscope did not.

All discussions were behind closed doors but it seems that Healthscope was the one that gave away most. The first agreement for a year fully covered care at some of the major Healthscope hospitals - those where there were no alternatives. Patients at other Healthscope hospitals continued to pay additional out of pocket fees. BUPA was particularly unsympathetic to the psychiatric hospitals. It is clear that the strategy of demanding across the board increases covering all hospitals had backfired. This must have cost Healthscope dearly. It did some reorganising to accommodate this setback. A final contract covering all Healthscope hospitals was not negotiated for another year.

When the matter was finally resolved the discussions and the new contract were commercial and in confidence. The citizens who were paying for insurance were left in the dark. They would never know what the outcome of their suffering and anxiety had been. Did this result in better care for them or were one or both companies simply squeezing more profits from the system and leaving less for care?

Wider Issues
There is a wider issue here which perhaps explains why the battle was pushed so far and so hard. The market was being pressured by analysts and economic theorists. They saw it as desirable for both sides to consolidate and prepare for a confrontation. Large corporate giants would battle it out to provide cheaper and better care more efficiently. This was a test case and would establish the parameters and power structure for future negotiations between insurers and providers.

What happened was that both sides suffered financially and lost credibility. The system was skewed and stressed. Young patients gave up private insurance and returned to the public system. Patient's were panicked, their care was disrupted, many paid large co-payments, and the communities trust in the health system was fractured.

Market Theory did not work
This is the marketplace that the
Australian government claimed in 1996 would serve citizens better by providing better and cheaper care. Citizens are the "customers" who were to control the system by shopping around for quality and cost. This debacle is an excellent example of how effectively the patients and the community are shut out of the competitive market process and how their interests and well being are exploited.

If the provision of health care is a Samaritan service to those in need based on trust and integrity, then one must ask about the logic of a system which behaves like this. What sort of people see this as a desirable system?

The press reports
The press extracts tell the story of the lead up to the 8 week confrontation, what happened, and its sequelae. The extracts in each section are sequential - but each section covers roughly the same time period as the others. Look at the dates of each.


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To understand how this came about we need to go back to 1996/7 when our new conservative liberal/national coalition government adopted its US based market model of health care. This was an ideological model of competing purchasers and providers. It was very similar to that advocated by Graeme Samuel, chairman of Australia's National Competition Committee (NCC) in 2000. It imposed this on to a health care system which had been predominantly not for profit and cooperative.

The purchasers (i.e. insurers) would buy health care from providers (hospitals and doctors) who would compete competitively to provide the health services. Australian doctors were familiar with managed care in the USA and resisted multiple attempts by government, AXA and Mayne Health to force them to enter into contracts with business organisations. There was a bitter and acrimonious dispute in which the doctors were accused of self interest. I understand that their independence is protected in the Australian constitution and they could not be forced into contracts. The hospitals protested but did, or could not resist. They were forced into a system in which they negotiated payment for services competitively against one another.

A market is likely to work when the product is readily evaluable, when the customer is the one who both pays for and receives the service, when the customer is competent and knowledgeable, and when the consequences are not life threatening. None of this applies in health care. What happens is that in their eagerness to secure contracts hospitals bid as low as they believe they can get away with and inevitably some bid too low. These are the ones which secure the contracts and they can only profit by squeezing care. The people receiving that care have insufficient knowledge and no power. The system has failure of care built into it and is very similar to the USA.

The harshness of this system is ultimately mitigated to some extent because in competing for citizen's insurance, insurers must provide cover at the hospitals the citizens want to attend. As a consequence insurers must contract with most major hospitals. This indirect leverage exerted by citizens limits the insurers ability to drive costs down too far.

In essence a system focussed on care has been replaced by one focussed on profit. The success of the system in providing care depends on balancing a clumsy selection of indirect theoretical financial levers, each of which is focussed on profit and away from care, in such a way that they neutralise one another.

May 2004 Citizens have some influence

In the US the pendulum has swung to a point where customers decide on a private medical insurance policy based on what private hospitals the fund has to offer. A patient would be unwilling to pay for a private medical scheme that did not give access to use the facilities of the favoured private hospital.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004

The other protection is offered by doctors and nurses when they are prepared to act as a group to confront poor practices, as they did with Mayne Health in 2002. Patients are also protected by the willingness of individual doctors and nurses to risk their careers by blowing the whistle as happened in some public hospitals in NSW. Both these protections work when doctors and nurses interests, their careers, and their incomes are tied to their patients and are not influenced by the corporation. Probably all Australian companies have learned this lesson from Mayne Health's collapse under Peter Smedley. They now follow the US example and devote considerable effort to aligning doctors financial interests and career prospects with those of the corporation.

The original economic theory for health care as expressed by the Australian government in 1996 was that competitive negotiation would be about cost and quality. Customer pressure would ensure this. In practice, as is well illustrated by Mayne's policies and by Healthscope, it is about market power and ruthlessness. Power is attained by size, market dominance and leverage. All are attained by growth. Ruthless hard nosed business decisions accomplish this. As the USA has shown and Healthscope confirms those with these characteristics flourish. Others go under. Customers are the profit bodies processed for profits. They have no control.

Oct 2003 Managed care

Letter C.C. MUNT Novar Gardens
The origin of the dispute, which forced the financial reconstruction of the Adelaide Community Healthcare Alliance and subsequent control by Healthscope, goes back to the late 1990s when special cost-saving contracts were negotiated by Mutual Community with selected private hospitals, including ACHA (now Healthscope), which not only negated members' choice of doctors and hospitals promised for those taking out private health cover, but drastically reduced the rebates paid to private hospitals.
Review health insurance Adelaide Advertiser October 3, 2003

May 2004 Negotiating has little to do with the care of patients

One of Porter's five market forces is the power of the buyer to negotiate. In a fragmented industry with many private hospitals all trying to negotiate for funds from the gatekeepers, the private insurance funds, the ability to negotiate favourable terms is difficult. Consolidation and improved quality of the portfolio (hospitals which citizens want to use) offer better terms of negotiation with the insurance funds. Both RHC (Ramsay Health Care) and HSP (Healthscope) have identified favourable funding arrangements from the insurance companies.
HSP have focused on building up a portfolio of satellite medical and surgical centres, psychiatry and rehabilitation hospitals. This focused approach of differentiating its asset base into a quality portfolio adds to the combined value of the proposition offered to the insurance funds. The insurance industry is also going through a process of change, with health funds consolidating, the entry of new entrants, such as BUPA and the potential sale by the Government of Medibank Private.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004


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Healthscope Positions Itself  

Healthscope has been growing and securing leverage. It has telegraphed its intention to take on the insurers in many public statements and it is clear that this will be centred on South Australia. There had been a number of previous confrontations with insurers and the hospitals had come out of these well. These included a battle between Australian Hospital care and MBF in 2000, and conflicts involving insurer NIB with Mayne in 2001 and Ramsay in 2002.

Aug 2002 Leverage

The company's negotiating position with health funds has been significantly strengthened over the past year due to the major satellite/regional hospital acquisitions. We believe the geographical diversification and clinical mix of our hospital portfolio will enable satisfactory national contracts to be negotiated with all funds.
Healthscope Limited (HSP.AX) Preliminary Final Report. Australian Stock Exchange Company Announcements August 20, 2002

May 2003 Critical mass

Acquiring the Mayne hospitals relatively cheaply has given them (Healthscope) critical mass in the sector, which strengthens their bargaining position with the health funds. We expect the ACHA deal to be the first of a number.
HEALTHSCOPE'S VITAL SIGNS ARE GOOD Sun Herald (Sydney) May 4, 2003

Aug 2003 Add in ACHA

Healthscope took over the former cash-strapped Adelaide Community Healthcare Alliance hospitals in April.
Healthscope, which also operates Modbury Public Hospital for the SA Government, controls more than 30 per cent of the state's acute private hospital beds.
FUND WAR HITS SICK Adelaide Advertiser August 23, 2003

Sept. 2003 Previous examples

Dr Coglin (Healthscope) said his resolve (in Healthscope's dispute with BUPA) was strengthened by two recent cases of hospitals winning insurer contract disputes -- Ramsay Health Care versus NIB at Newcastle in 2002, and Australian Health Care versus MBF Health on the Gold Coast in 2000.
Hospitals healthy despite row The Australian September 18, 2003


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The Two Sides Beat the War Drums

Both sides know what is going to happen and prepare the ground by declaring their positions and threatening. The war is an economic one, about who makes a profit.

April 2003 Threat and counter-threat

The three big private-hospital companies - Mayne, Ramsay and Healthscope - say they need big increases in the rebates they receive from funds. They say these are necessary because their cost base is rising sharply, partly because of the flow-on effect of wage rises granted to New South Wales public-sector nurses, plus steep increases in insurance premiums.

Over the past three years, all three companies have expanded their hospital networks and are in a stronger position to negotiate with the funds. All three have also raised the prospect of charging patients more if they are members of funds that do not pay the rates the hospital wants.

But judging from the comments of the chief executives of two of the country's largest funds, George Savvides of Medibank Private and Richard Bowden of BUPA (previously Axa Health), the funds are determined to extract maximum value from any rate increases. It is also clear that, although consolidation has improved the hospital companies' negotiating positions, the larger funds are also determined to use their market power in setting rates.
"If private hospitals do take the step of excluding members of particular funds, they would be taking a considerable risk."

Bowden says he is not interested in increasing rates simply because hospitals have cost pressures. "We don't work on a cost-plus basis, and we believe the hospitals have scope to do more in terms of their own management efficiencies," he says.

If there was too much price pressure from certain hospital groups, he says they would encourage members to use other hospitals rather than pay the higher rates.

"It is not our preference to break a contract with a hospital, but I believe it would hurt them more than us," Bowden says.
Hospital handpass.
Business Review Weekly April 3, 2003


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 A Battle in Three States

South Australia

With control of AHCA, Healthscope had finally attained sufficient leverage in South Australia to take on BUPA. This aggressive multinational insurer from the UK had, reports indicate, been keeping prices down in South Australia by paying hospitals less than other insurers. The main battle would be fought here.

Hospitals were undoubtedly under pressure and Healthscope probably did have good grounds for demanding more money.

Healthscope opened the battle by demanding an 11% increase in fees. BUPA responded by offering 2% then refusing to negotiate and excluding Healthscope hospitals from its insured hospital list. Patients now had to pay large co-payments if they chose to be treated in Healthscope hospitals.

Aug 23, 2003 Healthscope opens hostilities by demanding an extra 11%. BUPA responds

SOUTH Australians covered by the state's largest private health insurer, Mutual Community, will be hit by soaring out-of-pocket payments for treatment in some major private hospitals from October 1.

They will face much larger bills - such as an extra $7500 from their own pockets for a $15,000 hip replacement - if they belong to the wrong fund.

The move follows a breakdown in contracts between Mutual Community, which has 44.7 per cent of South Australians as members, and Healthscope, the new operators of Ashford, Flinders Private, Memorial, Parkwynd and Griffith hospitals.
A letter posted yesterday to more than 148,000 Mutual Community hospital contributors - covering 300,000 family members - says contracts guaranteeing private rooms and a full "no out-of-pocket cover" no longer apply at Healthscope hospitals.

"Healthscope wanted a double-digit (11 per cent) fee increase from October 1 for treating Mutual Community patients," the fund's general manager, Eric Granger, said.
Healthscope's managing director, Bruce Dixon, said yesterday Mutual Community members would be given the option of joining other health funds which had contracts with the Victorian-based hospital group or paying out-of-pocket charges for treatment.

Mutual Community is controlled by BUPA Australia Health Pty Ltd, a member of the UK-based British United Provident Association Ltd.

Other Adelaide private hospital administrators said Healthscope's action was an attempt to "bust open market share" and topple Mutual from its 45 per cent hold on the SA health insurance market.
FUND WAR HITS SICK Adelaide Advertiser August 23, 2003

Aug 23, 2003 Patients urged to change funds

 Healthscope's managing director, Bruce Dixon, flew into Adelaide from Melbourne yesterday, saying it was time for people to consider changing funds.

A hotline had been established to take inquiries from Mutual Community members.
Switch health funds, say hospitals Adelaide Advertiser August 23, 2003

Oct 1, 2003 The threats are acted on

AS of midnight last night, members of Mutual Community - South Australia's largest private health insurer - lost their right to choice.
Mutual Community state manager Eric Granger accused Healthscope of being greedy.

"They have said unless we give them everything they won't have a contract with us," he said.
Health fund row: now gap widens Adelaide Advertiser October 1, 2003

Oct 2, 2003 Patients to pay

From yesterday, Mutual members who sought treatment at Healthscope hospitals, including Ashford, Flinders Private and Memorial, began to incur gap payments and were being asked to pay upfront for treatment.
Plea for talks on health fund crisis Adelaide Advertiser October 2, 2003


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Northern Territory

There was only one large private hospital in Darwin and BUPA risked losing most of its Northern territory members. Healthscope played hard ball and BUPA gave up accepting the 11% rise

Aug 24, 2003 The battle opens

TERRITORIANS covered by private health insurer Mutual Community will be hit by soaring out-of-pocket payments for treatment at the Darwin Private Hospital from October 1.
Mutual Community is the Territory's third-largest fund and uses the Territory Insurance Office (TIO) as its agent.

A letter posted on Friday to the Territory's 6000 Mutual Community members -- covering 8500 family members -- says contracts guaranteeing private rooms and "no out-of-pocket cost cover" no longer apply at the Darwin Private Hospital.
6000 face health cost hike Sunday Territorian August 24, 2003

Sept 15, 2003 BUPA is snubbed

The boss of a leading private health insurer has been snubbed by Darwin Private Hospital - - - - - .

Mutual Community NT-South Australia general manager Eric Granger flew back to Adelaide on Friday with an unsigned contract containing an offer to increase payments to the hospital by 6 per cent.
"I came to Darwin with an offer on the table, and they didn't want to even meet with me," Mr Granger said.
Hospital general manager Simon Boag has urged Mutual Community members to change funds or face a large gap payment.
Hospital owner Healthscope described the insurance company's offer as an "insult".
Hospital turns back on medical insurer Sunday Territorian September 15, 2003

Oct 1 2003 BUPA gives in at the last minute as the contract expires

A bitter dispute between the Darwin Private Hospital and one of Australia's largest medical insurers was settled yesterday.
Mutual Community general manager Eric Granger said his company had agreed to pay the hospital owner-operator Healthscope's 11 per cent increase in charges.

"Mutual Community will not allow its members to be put at risk," he said.
Mr Granger said the new rates were an outrageous increase

He said Healthscope's threat to charge members up front for treatment was "intolerable".

"To the best of my knowledge, this is the first time any hospital in Australia has attempted to adopt this practice," he said.
Mutual to settle row on hospital insurance
Sunday Territorian October 1, 2003

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Healthscope's main holdings in Victoria were in psychiatry and rehabilitation. There had been rumblings about the costs and effectiveness of some psychiatric treatment for years. These patients were often social misfits and not wealthy. It would hit them hard and Healthscope was vulnerable.

Sept 23, 2003 Negotiations break down in Victoria

HEALTH insurer HBA (BUPA in Victoria) will continue to pay government-regulated benefits for Geelong Private Hospital patients, despite falling out of contract with the hospital.

HBA yesterday said it was unable to reach a fair agreement to guarantee full cover with the hospital's owner, Healthscope.
Healthscope last week claimed psychiatric funding would be cut by at least 40 per cent after the contract expired on October 1.

It said this would leave psychiatric patients $3500 out-of-pocket for an inpatient stay.
Health fund to honour cover Geelong Advertiser September 23, 2003

Oct 1, 2003 Healthscope patients start to pay large gaps

Healthscope Limited, owner of Northpark and La Trobe University private hospitals, has clashed with HBA over funding agreements for the hospitals. While public hospitals are government-funded, private ones are fully funded by private health funds.
Ms Williams said patients insured with HBA would therefore face huge bills starting tomorrow from the hospitals, including Preston's Olympia and Ivanhoe Manor rehabilitation hospitals.

She said the hospitals were not prepared to compromise on quality of care so HBA members would have to pay the gap between what the insurer contributed and the actual cost of their treatment.
Patients face fees blowout in funds war Preston Post Times October 1, 2003


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Pressuring the Public

This battle was fought out in the community and not around the negotiating table. Each sought to cripple the other by frightening patients and potential patients into either changing hospital or changing insurer. If they changed insurer Healthscope would win. If they changed hospital and disrupted the continuity of care and their professional arrangements then BUPA would win. Care and relationships were deliberately set against threats to the hip pocket. Both companies and the heath system would be damaged but they clearly believed that the long term financial advantages to the winner would benefit it sufficiently.

BUPA had the deeper pockets and its other interests could carry the losses. Healthscope depended on the local marketplace. It was more susceptible to pressure from the community and from politicians as it was a local company. It had right and logic on its side and was supported by doctors and nurses, but logic does not win wars.

It is this immunity of multinationals from local control and influence that has made me oppose foreign companies in health care and, when it comes to a Hobson's choice between the two, favour local companies. Once established multinationals have a big competitive advantage. In opposing multinationals I have disseminated information about Tenet, Columbia/HCA, Sun Healthcare and other companies. I supported Mayne Nickless in 1995/6 when it successfully acquired Australian Medical Enterprises from Tenet Healthcare ahead of Malaysian and French multinationals. Mayne operated no differently but because it was a local company we could control it more effectively and it was more susceptible to public opinion. Its shareholders were Australian. That this was so is illustrated by what happened when Smedley introduced policies which challenged Australian health care perceptions. This vulnerability at home may be one reason why Australian companies are so eager to globalise. Healthscope may have learned this lesson in the BUPA dispute. In 2004 it went global by buying Gribbles Pathology in the face of analysts' negative views about the economics of this. A large global holding gives a major competitive advantage.

Sept 7, 2003 Pressing the public

Both are running aggressive newspaper advertisements this week, effectively leaving Mutual members to make a decision between changing insurer, changing private hospitals or paying hefty gap fees.
Healthscope is demanding an 11 per cent increase - - - - - - - Mutual has offered 2 per cent - - - - - .
No backdown in health war Sunday Mail September 7, 2003

Sept 10, 2003 Threatening them

More than 148,000 Mutual Community members have until October 1 to decide between changing their insurer or paying gap fees.

A hotline set up to take inquiries from members is averaging 100 calls a day.
Health fund row grows Adelaide Advertiser September 10, 2003

Sept 19, 2003 Healthscope urges patients to change funds

Ashford Hospital is offering Mutual members information about other funds. "Ninety per cent or more are indicating they wish to change," Ashford Hospital general manager Shirley Willis said yesterday.
Fund row escalates Adelaide Advertiser September 19, 2003

Sept 21 2003 BUPA urges patients to change hospitals

PRIVATE health fund users will be the big losers in the fight between the state's biggest health insurer and its biggest private hospital operator.

Higher premiums, huge upfront payments, hefty gap fees, limited choice of hospital and doctor or changing funds are some of the unpalatable scenarios facing Mutual Community health fund members.
They are still free to go to such hospitals but will have to pay the difference between what the hospital charges and the Mutual Community rebate.

They will remain fully covered for work done in 43 other private hospitals and day surgery centres around the state which have agreements with Mutual.
In an added sting, Mutual members -- apart from emergency arrivals -- will have to pay the full amount for the service when they book before claiming their health fund rebate.

Mutual has labelled the move "disgusting".
Mutual Community state manager Eric Granger accused Healthscope of trying to force costs and premiums up to eastern states' levels.
"Our 2 per cent offer would keep them as the highest paid hospital group in the state -- we want to keep private health cover affordable."

Mr Granger accused Healthscope of using its market muscle in a bid to increase profits for shareholders.
How the health fund battle will hit members Sunday Mail September 21, 2003

Sept 21, 2003 Healthscope urges patients to change funds

Healthscope is playing tough by urging Mutual members to switch funds so they remain fully covered in their hospitals.
However, Healthscope chief medical officer Dr Michael Coglin claimed private hospitals faced financial collapse unless insurance payments were significantly increased.
Information hotlines have been established, Healthscope on 1800 008 611 and Mutual Community on 131 243.
How the health fund battle will hit members Sunday Mail September 21, 2003

Oct 2, 2003 Change insurer or change hospital

Healthscope chief medical officer Michael Coglin repeated his call for Mutual members to change funds, while Mutual state manager Eric Granger said he expected most members to choose other private hospitals where they were fully covered.
Plea for talks on health fund crisis Adelaide Advertiser October 2, 2003


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Healthscope is battling for the public mind and for support. It has some right on its side and expects fairness. It makes most of the effort to publicly justify its position and get the public on its side. But this is the health care market and public opinion is not as critical for BUPA. It has a heavier finger pressing on the insured citizen's hip pockets.

We should not see Healthscope as the white knight battling greedy global insurers to provide better care for its patients. It wants the money for shareholders and to fund growth. Its management want their large bonuses. This is what drives the company. That it can claim fairness and be aggrieved is convenient for them. Will they direct additional funds to care or will they use them for growth and profit? Their policy statements suggest the latter.

Aug 23, 2003 Healthscope explains its action. BUPA pays less than others.

"We simply haven't been able to reach agreement on appropriate reimbursement rates and they, BUPA-owned Mutual Health Fund, pays substantially less than other competing funds," Mr Dixon said.

"So all we're asking Mutual is to pay the same rate as their competitors do."
Health insurers contract negotiations break down. Australian Broadcasting Corporation (ABC) News August 23, 2003

Aug 27, 2003 Others have negotiated with Healthscope

It (Healthscope) said the majority of its agreements with the major health insurers were scheduled for renewal in the first half of 2004 but that negotiations with Medibank Private Ltd, Department of Veterans Affairs and the Alliance Group had concluded on a "satisfactory basis".
Healthscope forecasts improved 03/04 result. Australian Associated Press Financial News Wire August 27 2003

Oct 1, 2003 Others have negotiated with Healthscope

"In the last six weeks we have negotiated new contracts with 27 health funds - all we are seeking from Mutual is comparable prices," he said.

"We are not asking for 11 per cent from the other health funds - they already pay us more than Mutual - that is why we have been able to reach agreement. "The percentage increase is much less for them as it is coming off a much higher base."
Mutual Community say giving in to Healthscope could eventually result in fee increases for all hospitals and higher premiums.
Health fund row: now gap widens Adelaide Advertiser October 1, 2003

Oct 3, 2003 Being naive and expecting fairness - this is the competitive market!

Bruce Dixon MD, Healthscope
Is it fair that BUPA pays hospitals up to 15 per cent less than other health funds? Is it fair that BUPA, which funds 40 per cent of Healthscope's patients in Adelaide, is subsidised by the other 60 per cent of our patients who belong to other funds who pay fair and reasonable prices?
Is it fair that after the expiry of contracts at the hospitals on September 30, BUPA will reduce benefits for some of its most vulnerable members, including the mentally ill and the elderly, by up to 45 per cent?
Fairness Is The Issue At Stake Australian Financial Review October 3, 2003

Oct 9, 2003 Fee increases long overdue

It (BUPA) had not paid any increase since November 2001, he (Coglin from Healthscope) said, while 23 other funds had agreed to new rates. MC said the rates sought by Healthscope would force up premiums.
Healthscope Seeks Help To End Wrangle Australian Financial Review October 9, 2

Oct 10 2003 Both claim a willingness to negotiate but neither does

Healthscope chief medical officer Michael Coglin said negotiations so far had been futile.

"It (mediation) was first suggested by the AMA. We agreed to the AMA's proposal; Mutual said `no'," Dr Coglin said.

"The ombudsman has approached both parties; we have said `yes we are prepared to return to the table to mediate this dispute', we don't know why Mutual won't. We cannot bring the other side to the table if they are unwilling to negotiate."

However, Mutual Community state manager Eric Granger said the insurer was speaking daily to the private health insurance ombudsman and had already held one informal meeting.
Frustrated, but minister stands back Adelaide Advertiser October 10, 2003


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Claiming to act for patients

Care is pressured by funding and it is inevitable that it will be. There is never enough money to provide all the care we would like to receive. It is always a case of making what is available go as far as we can stretch it. Healthscope claims to need the money for care and accuses BUPA of compromising care. It certainly has a point. The issue here though is whether Healthscope will stretch it to provide more and better care - or whether it will stretch care to provide bigger profits and fund more growth? This is the health marketplace and that is what usually happens.

Sept 16, 2003 The high cost of care

Hospital cost increases include salary increases for our dedicated and hard-working nurses and other staff, the cost of new and life-saving drugs and technology, and other hospital overheads, such as insurance.

These costs are met by hospitals, not health insurers.

If the hospital does not keep up with these rising costs, standards and quality of care will suffer.
If this does not happen, Mutual Community members are justifiably entitled to ask: "Where has our money gone?"

One possible answer comes from the purchase earlier this year of Mutual Community by the giant British conglomerate BUPA for $595 million. Mutual Community is a for-profit health fund - the most profitable in Australia.

Respected industry analyst Booz Allen has explained Mutual's profitability on the basis of the fund having the lowest combination of benefits (that is, payments to hospitals and providers) and expenses of any health fund in Australia.

The British owners of Mutual are entitled to a return on their investment, but not at the expense of patients and hospitals.
INSURANCE BATTLE Urgent surgery Adelaide Advertiser September 16, 2003

Oct 2, 2003 Insurers disadvantaging patients

The group of private hospitals at the centre of a dispute with health insurer HBA over fee rises is accusing the company of disadvantaging some of its most vulnerable patients.
Healthscope chief medical officer Dr Michael Coglin says HBA is refusing to accept the high cost of patient care.
Hospitals accuse insurer of disadvantaging patients. Australian Broadcasting Corporation (ABC) News October 2, 2003


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The consequences for patients

The patients insured by BUPA are the meat in the sandwich. They are paying for the war the two giants are fighting. The money comes from their wallets. They are also paying with their health and probably on occasion their lives. The community is not only inconvenienced but is being deprived of essential services. Only those able to immediately make sizable down payments and pay large excesses can access them. Right wing politicians and economic theorists blindly claim that competitive market battles ultimately benefit patients!

Sept 16, 2003 Insufficient services outside Healthscope hospitals

Half of South Australia's private maternity beds and the majority of cardiology/open-heart surgery are located in the AHCA/Healthscope group, while the other private hospitals are at or near full capacity.

Suggestions from Mutual Community that patients' needs can be met simply by going to another hospital are a cruel hoax..
INSURANCE BATTLE Urgent surgery Adelaide Advertiser September 16, 2003

Sept 18, 2003 Everyone a loser

Yesterday the private insurance ombudsman's office revealed the fees Healthscope would charge BUPA members from October 1 and what BUPA is prepared to cover showed gaps in nearly all cases, some substantial.

Ombudsman John Powley said negotiations were unlikely to resume.

"Everybody is a potential loser -- the hospital, fund and patients," he said.
Hospitals healthy despite row The Australian September 18, 2003

Sept 21, 2003 The meat in the sandwich

As the impasse continues and the deadline approaches, people previously referred to as either members or patients find themselves as the meat in the sandwich in a power struggle between two health industry giants.
How the health fund battle will hit members Sunday Mail September 21, 2003

Sept 21, 2003 Continuity of care

NEW parents Rachael and Justin Courtney (left) are weighing up their health insurance options following the premature birth of their first baby, Isabella, at Ashford Hospital last week.
Their obstetrician, Dr Linda McKendrick, practises out of Ashford and Flinders Private - both Healthscope hospitals - and the Courtneys want to stay with her for future children.
New parents weigh options
Sunday Mail September 21, 2003

Sept 21,2003 Maternity costs

MORE than $4000 when booking in for a natural birth and being left with a gap of $1018 after claiming their rebate.
What it will cost Sunday Mail September 21, 2003

Sept 28, 2003 Psychiatry patient costs

THOUSANDS of psychiatric patients insured by HBA will face hospital bills of up to $300 a day from Wednesday.

The cost rise affects psychiatric hospitals run by private operator Healthscope. They include the Melbourne, Victoria and Geelong clinics, and the Northpark psychiatric unit in Bundoora.
Healthscope said HBA had refused a 6.5 per cent claim for increased funding to the hospitals, even though all other medical insurers paid similar amounts.
"They will be left to pay a gap of up to $5328, or about $296 a day," he said.

"Many of these people are very unwell and they have had difficulty holding their jobs while they have been unwell.

"And many of them have had to struggle to pay their health insurance.

"Now they are left with three choices, including seeking admission to public hospitals, even though they have paid private health insurance.
HBA psych costs soar Sunday Herald Sun September 28, 2003

Sept 29, 2003 Premature babies at risk

BABIES will be put at risk by the Healthscope and Mutual Community dispute, hospitals say.

About 1000 women wanting to give birth at Ashford or Flinders Private hospital - both part of the private Healthscope group - are likely to be affected.

Mothers in high-risk pregnancies will be affected as Ashford is the state's only hospital with a level 2B (highest category) neonatal nursery for premature babies - and for birthing problems.
Ashford Hospital - the biggest private maternity hospital in the state - and Flinders Private account for more than 50 per cent of private deliveries.
"It is disruptive for mothers and at a time which is meant to be one of the happiest in their lives," he said.
Hospital payment row `puts babies at risk' Adelaide Advertiser September 29, 2003

Sept 29, 2003 The hip pocket and choice

About one million people, mainly in South Australia and Victoria, could face huge upfront medical fees and limited choice of hospital from this week because of a dispute between their health fund and a private hospital group.
Brawl Sparks Big Hospital Bills Australian Financial Review September 29, 2003

Oct 1, 2003 Paying for continuity of care

Q What happens to members with ongoing treatment?

A If a patient is having continuing treatment, such as chemotherapy, they will be covered until the end of their current course of treatment. If the patient has a recurring problem, such as asthma, they will be required to pay the fee difference, unless they booked into hospital before midnight last night.
Q What is the reason for the dispute? Adelaide Advertiser October 1, 2003

Oct 9, 2003 Emergency care : The problem for the acutely ill

SERIOUSLY ill patients without appropriate health insurance are being forced to pay up-front for treatment in emergency wards or seek help at another hospital.
This has resulted in emergency department staff having to ask patients to make critical decisions about their health care based on their financial position.

Mutual Community members must pay up to $1000 in gap payments for care, or transfer to non-Healthscope hospitals.
"It is a most unpleasant combination to make a critical decision on your health care when you are at your lowest ebb," Ashford Hospital general manager Shirley Willis said.

She said about two or three Ashford patients every day were being forced to make a decision about their coverage.

- - - - - - In the event of a life-threatening situation, Mutual Community and Healthscope have agreed that Mutual members would be covered 100 per cent in a Healthscope hospital. A grey area exists, however, for Mutual members who present to Healthscope hospitals in a serious, but not life-threatening, condition.
EMERGENCY Patients must pay up or move on Adelaide Advertiser October 9, 2003

Oct 9, 2003 A medical tragedy

If the dispute - which hinges on the level of rebates paid to Mutual Community members in the Healthscope hospitals - is not resolved, a medical tragedy is inevitable.
EDITORIAL End hospital impasse or risk tragedy Adelaide Advertiser October 9, 2003


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The Balance of Power and Pressure

Both parties have similar leverage and the battle therefore comes down to the hip pocket, Healthscope's, BUPA's and importantly the patient's. The patients must set the size of their hip pockets against their desire for continuity of care. Healthscope cannot afford to lose too many patients. Australia is a capitalist society. Citizens have been conditioned to shop around and now respond strongly to pricing. They are likely to put financial issues first. Continuity of care and the maintenance of professional/patient relationships are not as important to our citizens as they once were.

BUPA has a deeper hip pocket and Healthscope is more vulnerable to public opinion. This public includes its share holders. The battle initially swings Healthscope's way but the strength lies with BUPA.

Sept 1, 2003 Who has the most leverage

In the past, such stand-offs have fallen in favour of the hospital providers as patients opt to change health fund rather than add to what can be an already lengthy journey to and from hospital.

But this time analysts believe Healthscope could have a fight on its hands, as BUPA, which recently bought the HBA and Mutual Community funds from Axa Asia Pacific, has the financial muscle and regional market share to resist the hospital operator's demands.

"We're in a much better position to sit this out," said BUPA corporate affairs spokesman, Eric Granger. "If we get 10 per cent of their patients into other hospitals, that will hit their margins.

"No doubt it will do damage to our business, but when (the customers) see at rate review time that our premiums haven't gone up because we've not met these demands, that will work in our favour."
Health Insurance Showdown The Sydney Morning Herald September 1, 2003

Sept 2003 Healthscope feels it is stronger

Dr Coglin (Healthscope) said he was confident occupancy rates would be maintained due to Healthscope's strong capacity in BUPA's key markets. In some cases it was the only provider of specialist services.
Fund managers were watching the Healthscope dispute closely to see if private hospitals could stand their ground and justify higher stock valuations.
Hospitals healthy despite row The Australian September 18, 2003

Oct 1, 2003 Accusation and counter accusation - goes to court

The dispute moved into court last week, with both parties claiming "misleading or deceptive statements" had been made over the issue.
The Federal Court hearing between the two entities has been adjourned until March.

Health Minister Lea Stevens urged both parties to sit down and reach a resolution.
Health fund row: now gap widens Adelaide Advertiser October 1, 2003

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Healthscope's all or nothing stand

Healthscope's entire policy since about 1998 has been directed towards securing leverage. It is confidant it can reap the benefit and therefore puts all of its hospitals into a single negotiating package - even those in other areas where Healthscope does not have the same leverage.

Oct 3, 2003 Its all or nothing for Healthscope

Healthscope will only entertain the idea of a new contract if it applies to every other hospital across Australia but BUPA is not prepared to meet those demands especially if it means an 11 per cent increase in its funding to Healthscope.
Healthscope Scores First-round Win Against Insurer The Sydney Morning Herald October 3, 2003

Oct 16, 2003 BUPA tries to split ACHA off

MUTUAL Community has offered to negotiate directly with the Adelaide Community Healthcare Alliance rather than Healthscope in an attempt to break the private health insurance deadlock.

Mutual state manager Eric Granger said private hospital operator Healthscope was "continuing to use ACHA hospitals as a leveraging tool".

"The impasse is a result of Healthscope's insistence on linking fee increases for the ACHA hospitals they manage with demands for the hospitals they own, the vast majority of which are located outside SA," he said.
ACHA yesterday ruled out negotiating with Mutual and said it was "strongly supportive" of Healthscope's position.
Mutual tries to sidestep Healthscope Adelaide Advertiser October 16, 2003

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Healthscope seems to be winning but?

The first skirmish in Darwin went to Healthscope and it seemed to be winning the public relations battle. It was far more ready to negotiate and involve a mediator. While this may reflect its attempt to appear more reasonable it may also reflect its weakness in the face of BUPA's refusal to negotiate on its terms, BUPA's unexpectedly aggressive response, BUPA's willingness to put strong pressure on care, and the number of patients going elsewhere.

Oct 3, 2003 First blood to Healthscope

The funding war between health fund BUPA and private hospital operator Healthscope has officially been declared, although the first battle appears to have already been won by Healthscope.

- - - - - - - - and on Wednesday both parties declared that BUPA's members would no longer be completely covered at Healthscope's hospitals. The stand-off is hitting South Australia the hardest.
In the Northern Territory, however, BUPA appears to have already backed down on the only hospital affected, Darwin Private.

According to a spokesman for Healthscope, the health fund has agreed to cover 100 per cent of the costs of all its members who have no option but use Darwin Private.
Healthscope Scores First-round Win Against Insurer The Sydney Morning Herald October 3, 2003

Oct 9, 2003 Willing to negotiate

Healthscope told the SA government yesterday it was prepared to take up the Ombudsman's offer of mediation to resolve the issue, - - - -.
Healthscope Seeks Help To End Wrangle Australian Financial Review October 9, 2003

Oct 11, 2003 Emergency care suffers

PRIVATE hospital operator Healthscope has called on Mutual Community to widen its definition of emergency cases to ensure everyone requiring hospitalisation is fully covered.

"We believe this situation is not acceptable, which is why we are calling on Mutual Community to immediately widen the definition of emergency patients," Healthscope chief medical officer Michael Coglin said yesterday.
Mr Granger said he wrote to Healthscope yesterday morning to offer to work with them to review the current definition to ensure no patient was at risk.
At-risk patients `have to get help' Adelaide Advertiser October 11, 2003 

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BUPA comes back strongly

The crunch for Healthscope came very quickly. It did well in the public relations battle prior to the deadline. When patients lost their cover on October 1st, they had to start paying more. It was Healthscope that had to demand more from patients, and its staff had to ask for fees and do the explaining. BUPA was in the background. Doctors and patients soon took their custom elsewhere. Beds were soon empty and many were closed. Healthscope could not sustain such losses and in only 3 weeks it capitulated. They had miscalculated and overplayed their hand.

Oct 16 2003 BUPA goes on the attack

Health fund Mutual Community went on the front foot yesterday in its battle with hospital group Healthscope over proposed new charges. The health fund, owned by Britain's BUPA, accused Healthscope of introducing "outrageous" charges for MC members.

MC proposed that ACHA Group, which owns six South Australian hospitals managed by Healthscope, should break the present impasse and ensure a new fee structure applied only to its hospitals.
However, Mr Granger said MC would not accept the 11 per cent "non-negotiable increase demanded by Healthscope" for all its hospitals nationally, as this would cause unacceptable premium increases for members.
Health Fund Accuses Healthscope
Australian Financial Review October 16, 2003

Oct 16 2003 Healthscope bleeding

The latest in the Healthscope dispute with giant private health fund BUPA has apparently turned in BUPA's favour, with reports from within the doctor industry suggesting patients have been fleeing to other non-Healthscope hospitals in Adelaide rather than change their membership.

- - - - - - - - - - the two parties have made quite a spectacle of themselves publicly fighting out the stand-off in South Australia, where private hospital patients are hit the hardest.

- - - - - - - - - - -the latest anecdotes suggest patients and doctors are transferring to other hospitals rather than switching health funds, - - - - - .
Healthscope ill
The Sydney Morning Herald October 16, 2003

Oct 21, 2003 Resolution:- The losses on each side causing Healthscope to give way and BUPA to relent

Mutual has lost about 1000 members as a result but Healthscope has been the biggest loser, with its hospitals losing many patients.

Ashford Hospital has been forced to close up to 60 beds because of the dispute. While the decision is good news in the short term for private patients, the outcome of the talks could still include some gap payments at Healthscope hospitals.
A deal on rates and benefits would give Mutual members "a realistic option" to be treated at Healthscope hospitals "with either affordable gaps or no gaps".
Australian Medical Association state president William Heddle said 40 per cent of his patients who would normally have gone to Ashford over a recent weekend had gone elsewhere.
HEALTH FUND PEACE DEAL Patients' up-front fees suspended Adelaide Advertiser October 21, 2003

Oct 22 2003 Healthscope admits losses to shareholders. Its integrity was later questioned on the basis that it had not adequately disclosed the difficulty it was having in turning around the ACHA hospitals in Adelaide.

Further write-backs on Modbury and a feud with insurance group Mutual Community involving three other Adelaide hospitals could affect this year's results, shareholders were told at yesterday's annual meeting.
Hospital profits need peace pact
Adelaide Advertiser October 22, 2003

Nov 18, 2003 Both sides paid a heavy price and neither really won

But last month, with Mutual admitting it had lost "a couple of thousand" members - and the private hospitals also hurting - negotiations resumed.
Health insurance dispute settled Adelaide Advertiser November 18, 2003


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Pressure on other funds and Hospitals

This short dispute illustrates some of the essential problems of the marketplace. Decisions are no longer made cooperatively for the benefit of citizens but in the heat of conflicts which have nothing whatever to do with care of the sick. As a consequence the entire health system is disrupted and undermined. Everyone suffers; the patients, the doctors, the nurses, other private hospitals, other insurers, the public system, care, trust, continuity of care and the health professional relationship. This is what any reasonable person looking in on the system from outside would expect from the application of competitive market principles in health care.

We should not exclude Healthscope and BUPA from those who suffered. They too are victims of the belief systems they embrace and are simply doing what the prevailing ideology advises. After all competition and conflict for personal advancement is claimed to be beneficial for society, for individuals and for the health system.

Sept 28 2003 Pressure on other insurers - some will not cover gaps for new members coming from BUPA

Health fund Australian Unity has warned Mutual Community members who join will still face gap payments if they are admitted to a Healthscope hospital so as to protect existing members from the risk of increased claims costs leading to premium rises.

Other major funds are offering full cover provided the new members take up comparable policies.
Swapping funds won't avoid fees
Sunday Mail September 28, 2003

Oct 9, 2003 Pressure on other private hospitals and public hospitals

The result has been that some Mutual Community members, fearing they will be forced to pay the gap, are avoiding the Healthscope hospitals, increasing pressure on other private or public hospitals.
But it is not good enough for the Health Minister Lea Stevens to say - as the Transport Minister Michael Wright tried to do with the bus company pay issue - that this is a dispute between private firms and therefore the State Government is not responsible for the consequences.

The issue is now impacting on the state health system, creating a risk to public health and additional pressures on the already extended public hospital system. If current mediation falters, Ms Stevens must intervene or take the responsibility for financial hardship and potential medical tragedy.
EDITORIAL End hospital impasse or risk tragedy Adelaide Advertiser October 9, 2003

October 21, 2003 Pressure on public and other private hospitals

Non-Healthscope hospitals have reported increased workloads in emergency departments and higher admissions.

Wakefield Hospital has seen admission rates by Mutual Community members rise from 46 per cent to 70 per cent this month.

Chief executive officer Cathy Miller said this had put the hospital "under more pressure" when operating at a 100 per cent occupancy rate.

St Andrews Hospital chief executive officer Stephen Walker said he had seen five extra emergency patients a day and the dispute had resulted in "more work and an increase in patients coming through our emergency service".

Flinders Medical Centre spokeswoman Jo Collins said the hospital was admitting extra patients who could have been transferred to Flinders Private.
HEALTH FUND PEACE DEAL Patients' up-front fees suspended Adelaide Advertiser October 21, 2003


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What will we sink to?

Ethics, decency and fairness are not part of the marketplace. Market proponents can find ways to justify almost anything within market theory.

The "money for mouth's" talk back radio scandal a year or so ago illustrates this. Talk back radio is very popular and very influential in Australia. Radio hosts like John Laws exert considerable influence. Some of these hosts who had been critical of some corporate behaviour suddenly changed to making positive comments. The scandal broke when it was found that these hosts were being paid millions of dollars by Australia's biggest companies for making favourable comment on their radio shows. Radio hosts had not disclosed this payment and the listening public had been totally unaware of this arrangement. When the scandal broke the companies and the radio hosts could not understand what all the fuss was about. To them these were normal business transactions.

Ultimately the radio hosts were given a slap on the wrist and barred from this practice - unless of course they acknowledged the payments to their patrons each time they commented.

Restrictions like this are a challenge to the dedicated legal minds in the marketplace. The market will seek to circumvent restrictions in order to reach their objectives. Businessmen and even the mayor of Adelaide paid some radio hosts exorbitant fees for media training. Legally we can only speculate as to whether these fees were intended to cover other services as well.

BUPA was not well positioned in this dispute and was likely to cop a lot of flack on the airways because of its low payment to hospitals, but this does not seem to have happened in South Australia. The following press extract raises some questions about this.

DISGRACED radio host Leon Byner was paid more than $12,000 by health fund giant Mutual Community for undisclosed "media training" late last year.

Documents obtained by The Advertiser reveal that Mutual Community paid Byner $12,400 for "media training, public relations seminars and customer relations feedback" from August last year.

They show that Byner earned $45,500 for media training over the course of last year and give the first indication of the extent of his dealings and of how much money he earned.
"He gave us strategic advice with how to deal with the media," Mr Granger said.

". . . we were buying media services and I made it clear that we weren't buying favourable coverage. "What we purchased is what we got." Healthscope chief medical officer Michael Coglin declined to comment.
None of the deals were disclosed to Byner's listeners.

Byner and FIVEAA general manager Paul Bartlett refused to comment yesterday. The host returned to his talkback show on Monday after an eight-week paid suspension.

He admitted that he had failed to disclose business dealings to his employer and to his listeners.
"I should have disclosed those arrangements and I was wrong not to do so," he said.

"I have let down FIVEAA and my colleagues here . . . I have let down myself and most importantly I've let down you, my listeners."
Health fund giant paid Leon Byner $12,000 Advertiser, The (Adelaide) April 1, 2004


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Outside intervention

There was a major dilemma here for authorities. This was a matter of public interest in which the public were suffering from a commercial conflict which had little to do with them and it was government's responsibility to act to address this. Any such action would conflict with ideology. Market ideology indicated that the market was self correcting and that market forces would see that every one ultimately benefited. To intervene would be to betray their philosophy. Governments past involvement in the marketplace in West Australia and Victoria has been followed by scandal and embarrassment. They did not want to be involved.

Federal and State governments sat on their hands and passed the buck, while medical bodies and the ombudsman who were both powerless offered to help. It became increasingly clear that both parties had locked themselves into positions from which they could not retreat. A higher authority was needed to give them a way out.

It was pressure on the South Australian public hospital system for which the health minister was responsible that ultimately provided both the legitimisation and the pressure to make the minister act - breaking the impasse. She was probably in a position to put greater pressure on local Healthscope than on global BUPA.

Aug 23, 2003 The AMA

Australian Medical Association state president William Heddle has appealed for a compromise.

"The failure of these two major players to reach agreement is likely to impact severely on the public hospital system," he said.
Switch health funds, say hospitals Adelaide Advertiser August 23, 2003

Sept 18, 2003 The doctors and nurses back Healthscope

Australian Medical Association's Dr Dana Wainwright warned yesterday Mutual Community was behaving like an "American-style" health fund by trying to dictate the level and quality of care in hospitals. "There is no place for this sort of interventionist activity by health funds in Australia," she said.
The Australian Nurses Federation has backed Healthscope's demand for higher fees.
US-style tactics not on, says AMA Adelaide Advertiser September 18, 2003

Sept 25 2003 AMA offers mediation

The Australian Medical Association South Australia has offered an independent mediator - - - - - - - AMA SA said yesterday it wanted a quick resolution to the issue.
AMA offers mediation Adelaide Advertiser September 25, 2003

Sept 2003 Ombudsman offers to mediate - Federal government opts out

The Private Health Insurance Ombudsman has been asked to resolve the dispute, but neither side holds out much hope.

Federal Health Minister Kay Patterson said the government would not get involved as it was a commercial dispute.
Brawl Sparks Big Hospital Bills Australian Financial Review September 29, 2003

Oct 1, 2003 State Health Minister

Health Minister Lea Stevens urged both parties to sit down and reach a resolution.
Health fund row: now gap widens Adelaide Advertiser October 1, 2003

Oct 2, 2003 The Ombudsman tries

THE Private Health Insurance Ombudsman has appealed for an end to the stand-off between Mutual Community and hospital operator Healthscope.
Ombudsman John Powlay said he had received complaints from members of the state's largest fund, which is now out of contract with Healthscope hospitals because of a fee increase dispute.

Mr Powlay, who has offered to mediate, said he could only urge the parties to talk.
Plea for talks on health fund crisis Adelaide Advertiser October 2, 2003

Oct 7 2003 Flack in the state parliament but the government passes the buck to the federal government

THE Opposition has called for Health Minister Lea Stevens to intervene in the private hospital health fund row between Mutual Community and Healthscope.
"Although the health fund dispute has the potential to bring the SA hospital system to its knees, all the minister has done so far is urge the feuding parties to resolve their differences."
Mr Kerin (opposition) said if the row escalated further, one in three private hospital beds could be affected.

"It's time she got both parties into her office and helped them thrash out a solution."
"There is no role for the State Government . . . but there is most definitely a role for the new federal Health Minister, Tony Abbott," she (Stevens) said.
Call for minister to settle health fund row Adelaide Advertiser October 7, 2003

Oct 8, 2003 Federal Minister for Health

NEW federal Health Minister Tony Abbott will be asked to intervene in the escalating private health row between Mutual Community and Healthscope.

Opposition health spokesman Dean Brown yesterday said he planned to raise the issue when he meets with Mr Abbott in Canberra today.

State Health Minister Lea Stevens will also refer the issue to Mr Abbott after saying at the weekend she should not be involved.
"Private health is the province of the Federal Government and this is an ongoing issue of real concern here in SA," Ms Stevens said.
Minister to step in as dispute escalates
Adelaide Advertiser October 8, 2003

Oct 9, 2003 Bleeding Healthscope turns to Ombudsman

Hospital company Healthscope has turned to the Private Health Insurance Ombudsman John Powlay to try to end its dispute with health insurer Mutual Community.
Healthscope Seeks Help To End Wrangle Australian Financial Review October 9, 2003

Oct 9, 2003 Federal government ducks again

Federal Health Minister Tony Abbott last night urged Healthscope and Mutual Community to resolve the issue through mediation.

After meeting SA Opposition health spokesman Dean Brown, Mr Abbott referred the matter to the Private Health Insurance Ombudsman for mediation.
EMERGENCY Patients must pay up or move on Adelaide Advertiser October 9, 2003

Oct 10, 2003 State Health Minister under pressure

HEALTH Minister Lea Stevens - herself a Mutual Community member - admitted yesterday she was becoming increasingly frustrated with the insurance fund's dispute with Healthscope.
While she still refuses to intervene, Ms Stevens said she would place "maximum pressure" on the parties in their negotiations with private health insurance ombudsman John Powlay.
"She is health minister for all South Australians, and at the end of the day, someone has to take responsibility for making sure the private health system works," he (opposition) said.
Australian Medical Association SA president William Heddle said the situation was causing distress for patients and doctors, and re-iterated the call for mediation between the two parties.
Frustrated, but minister stands back Adelaide Advertiser October 10, 2003

Oct 21, 2003 State government finally steps in.

Sources close to the negotiations say the SA Government has intervened in a bid to avert increasing pressure on the public hospital system which had to take on patients unable to pay the upfront cost of private treatment at Healthscope hospitals.
Hospital Funds Row May Hurt Patients The Sydney Morning Herald October 21, 2003


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The dispute was resolved with BUPA probably dictating the terms. It agreed to reestablish full no-gaps cover for those hospitals providing essential services (e.g.. Ashford) but BUPA patients admitted to many other Healthscope hospitals still had to pay some of the gap. This would have driven many patients away from Healthscope hospitals. There was some restructuring of the ACHA group which continued to be a problem area. It was a year before Healthscope was able to negotiate a contract with BUPA which provided care without gap payments in all its hospitals.

One can only speculate whether the failure of Healthscope's attempt to secure leverage, and the iron grip which insurers now had on its profits, threatened its ambition to grow and become a major player. Did it seize the opportunity, while its share price was still high, to buy Gribbles Pathology and so break into another area which might support its growth better. But Gribbles is a lesser player in the Australian pathology marketplace. Healthscope may find itself in an even poorer negotiating position.

Oct 21, 2003 Healthscope bows to pressure

UP-FRONT hospital payments for Mutual Community members were suspended yesterday as bleeding hospital operator Healthscope returned to the negotiating table.
HEALTH FUND PEACE DEAL Patients' up-front fees suspended Adelaide Advertiser October 21, 2003

Oct 21, 2003 Healthscope gives way

Private hospital operator Healthscope has been forced back to the negotiating table in a bid to overcome its dispute with private health insurance fund BUPA over a new contract.
Since then close to a million BUPA patients have not been covered for treatment at Healthscope's 26 hospitals around Australia. The dispute had the most impact in South Australia - - - - - .
An interim arrangement has been set up where Healthscope agreed to remove upfront payments for BUPA members and reinstate the former no-gap arrangements in the short term.
Healthscope Back For Talks Australian Financial Review October 21, 2003

Oct 21, 2003 Healthscope will not get what it wants

Patients could be the victims of a thaw in the chilly relations between private hospital provider Healthscope and the big health fund, BUPA.
Following mounting pressure from the Government of SA, the state where the standoff proved most damaging, the two groups have made "interim" arrangements in which Mutual Community members will no longer have to pay upfront for treatment at a Healthscope hospital, and the old system of "no gap" contracts reapplies.

One market analyst said that, in effect, the two parties had returned to their old contract terms while they fleshed out the most contentious and important issue of funding.
But while neither party will expand on just how a compromise on funding will be achieved, one analyst has pointed to Healthscope's statement yesterday which raised the prospect of additional costs not covered under a new compromise agreement being paid for out of patients' pockets.

"The parties will work on an arrangement regarding rates and benefits that will give Mutual Community members a realistic option to be treated at [Healthscope] hospitals with either affordable gaps or no gaps," the statement said.
Hospital Funds Row May Hurt Patients The Sydney Morning Herald October 21, 2003

Nov 18, 2003 A confidential compromise but only patients at some Healthscope hospitals will escape paying gaps

They will now have their no-gap status restored at Ashford and Flinders Private hospitals.

They will pay nothing for treatment at Parkwynd Medical Centre in the city, but will incur gaps for all but neurosurgery at The Memorial Hospital, North Adelaide.

Mutual and Healthscope have agreed to a confidential financial contract to end their heated public battle and provide service to more than 300,000 fund members in South Australia.

Their argument over increased rates hurt both parties and was the worst the Australian Private Health Insurance Ombudsman says he can recall.
While details of the agreement are confidential, it is understood to be between the 2 per cent first offered by Mutual and the 11 per cent sought by Healthscope.
Healthscope chief medical officer Michael Coglin said the increases agreed to by Mutual were "satisfactory".
Health insurance dispute settled Adelaide Advertiser November 18, 2003

Nov 19, 2003 BUPA tries to tempt members back

FORMER Mutual Community members who choose to rejoin the health fund will not face waiting periods before they claim benefits.
Mr Granger said "a couple of thousand members" had transferred as a result of the dispute, which was resolved on Monday..
No penalties if you rejoin, Mutual tells lost members Adelaide Advertiser November 19, 2003

Sept 7, 2004 It is a year before Healthscope is able to arrange no-gaps cover at its other hospitals

A DISPUTE between health fund giant Mutual Community and hospital operator Healthscope has ended, almost a year after an acrimonious three-year deal was reached.

The parties have negotiated a new health insurance agreement which fully covers all member admissions at North Adelaide's Memorial Hospital, which was left out of the deal in November, 2003.
He said the new agreement would restore confidence into the South Australian medical community. "Both parties have recognised that we're joined at the hip and we need to work together," he said.
The contract has now been renegotiated for two years.
Mutual's row with Healthscope over The Advertiser September 7, 2004


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But Tough Conditions for Healthscope

While both claimed to be satisfied it is clear that Healthscope did not come out of it well and has not been as profitable as it promised. It continued to beat up its prospects and growth potential and then at the end of 2004 bought up Gribbles, a money losing pathology group. One wonders if this was a move of desperation because its prospects were not good. Can Healthscope move into an area where it has no advantages by buying a company which has failed and expect to make it profitable. The synergies are limited but presumably this pathology company which is supported by General practitioners rather than hospital specialists will now provide pathology services to Healthscope's scattered hospital empire. Will specialists support this sufficiently to make it as profitable as Healthscope claims it will be?

Nov 19, 2003 ACHA to be "re-engineered"

The Adelaide Community Healthcare Alliance, which appointed Healthscope to manage Ashford, Flinders Private and The Memorial Hospital, would "re-engineer their business" in light of the outcome.
No penalties if you rejoin, Mutual tells lost members Adelaide Advertiser November 19, 2003

Nov 25, 2003 Conflicting views but both claim settlement "fair"

But while rival hospital groups and health funds claim to have been the winners of the bitter dispute over funding, tittle tattle round the market suggests BUPA got a greater toke on the pipe.
Neither party will discuss the final terms but both deny the new terms are anything but fair.
Not too fair for those in Healthscope's psychiatric or rehab hospitals, though. Patients heading for one of them will have to cover a certain portion of the bill themselves.
The new contract has been signed to last for three years, although the pricing arrangement will be set in stone for only 12 months.
Healthscope looks better The Sydney Morning Herald November 25, 2003

Oct 12, 2004 A year later share prices begin to tumble as ACHA hospitals underperform but Healthscope is buying Gribbles

Analysts blamed the rout on the company's inability to extract sufficient margins from its hospitals in Adelaide, managed under the Adelaide Community Health Alliance (ACHA) banner.
Worse, Healthscope also failed to keep the market properly informed about operational difficulties at ACHA and this has fuelled doubts about Healthscope's other promises, he said.
Healthscope is feeling poorly
Australian Financial Review October 12, 2004


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Wider Implications

The reason why this battle was so closely watched and probably so aggressively fought was that it was a watershed case. For years companies like Mayne Health and Healthscope had openly claimed that they were growing in order to gain the market share needed to force insurers to pay them more. The insurers also had been consolidating and making threatening noises about keeping costs down by refusing requests to put up prices. This was the showdown and was likely to set the pattern for future bargaining across the industry.

As it turns out the battle had adverse consequences not only for Healthscope, BUPA, doctors, nurses and patients, but for other insurers, for the private system and for the public system. There were no winners.

Sept 1, 2003 Setting a pattern for the future

If BUPA is successful, more funds could reject demands for funding increases, putting hospitals under pressure to cut costs.
Health Insurance Showdown The Sydney Morning Herald September 1, 2003

Sept 29, 2003 Other health funds threaten to follow

The dispute, which will have the greatest impact in South Australia, comes as the country's biggest health fund, Medibank Private, warns that it too will negotiate more toughly with hospital operators.

This has raised concerns that the BUPA-Healthscope battle might just be one of many over coming years as private health insurers try to cut costs. That could lead to more disruptions for fund members and increased pressure on the public hospital system.
"From the hospitals' point of view, we have a margin squeeze going on brought about by rising costs and the health funds have pressure to keep down premiums," he said.
Mutual Community state manager Eric Granger said: "Healthscope's publicly stated aim is to use their market power to leverage more money out of health funds and we're the first cab off the rank.
Brawl Sparks Big Hospital Bills Australian Financial Review September 29, 2003

Oct 3, 2004 Seen as a watershed

Many in the market regard the stand-off as a watershed case that could see more and more health funds defying the financial demands of private hospital operators.

Medibank Private is believed to have taken a stand recently, saying it will no longer dutifully meet the demands of the hospitals.
Healthscope Scores First-round Win Against Insurer The Sydney Morning Herald October 3, 2003

Oct 18 2003 A threat to the private insurance system

"The AMA has been concerned that younger people with private health will go to the public system, which is under a very heavy workload," Dr Heddle said.

Australian Consumers Association health policy officer Martyn Goddard said "adverse selection" - when younger people leave and older people join - puts added pressure on health funds.
NOT WELL Pressure building on private and public hospitals
Adelaide Advertiser October 18, 2003

Oct 21, 2003 Entire Health system suffering or threatened

"It (the dispute) is really upsetting private health insurance and private health care and has the potential to cause major damage to the private, and inevitably the public, system."
HEALTH FUND PEACE DEAL Patients' up-front fees suspended Adelaide Advertiser October 21, 2003

Jan 14, 2004 Driving insurance fees at other companies up

PRIVATE health insurance premiums for South Australia's smaller funds are expected to rise significantly as a result of last year's fallout between Mutual Community and Healthscope, industry experts said yesterday.

The Australian Medical Association said the public dispute caused the older and higher-risk Mutual members to change funds, leaving their competitors with higher age profiles.
"We would expect other funds to have higher increases than Mutual."
"It is reasonable to assume that there are a percentage who would be high-claimers and may well have an adverse effect on other health funds.
Health funds to lift rates Advertiser, The (Adelaide) January 14, 2004


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The final word

This was the competitive market at work, supposedly battling it out so that all of us would get better care more cheaply - but none of those who were to benefit had any input into this. Even our elected representatives refused to get involved until they had no choice. Instead the patients were squeezed, manipulated, threatened, inconvenienced, their care compromised, and they were forced to pay more for this.

Everyone and every facet of the health system suffered or was pressured. There were no winners. Even the two companies admitted this.

Sept 7, 2004 No one won

"We're not in the business of sending hospitals broke," he (BUPA spokesman) said. "Both parties misunderstood the other somewhat, (but) I think as a consequence of what happened the industry recognised nobody wins out of that sort of dispute."
Mutual's row with Healthscope over The Advertiser September 7, 2004

It is a characteristic of ideologies that common sense, experience and evidence which challenges the ideology are ignored or rationalised away. Six months after this bruising battle major analysts were still writing about leverage and about Healthscope as if nothing had changed. A year later the two senior BUPA executives who so successfully torpedoed and squeezed Healthscope during the negotiations and the battle were poached by MBF. Insurers have been making aggressive noises about pressuring hospitals for some years. Could it be that they are going to further squeeze funding. This is what government wants but it can only compromise care.


May 2004 Analysts :- This typical exposition of economic thinking was written 6 months after the BUPA battle. One wonders if the lessons have simply been ignored by ideologists blind to events - or whether they know something. Could this have been only the first skirmish and the real giants on each side are still to lock horns. Can we expect multiple repetitions of what happened as the two sides continue to battle it out.

The continued consolidation of the private hospital market has swung the pendulum of power from the health insurance industry back to the hospital provider. Peter Smedley known as the Pac Man for aggressively growing businesses through acquisition had one part of the correct business principal of consolidating the hospital market for Mayne. The basic principal of consolidating the market through acquisition and driving synergies through shared services has now been proven. HSP and RHC have acquired a number of new hospitals over the last two years and have increased the operating margins through cost savings generated by combined buying and negotiation power. Unfortunately for Smedley he had the right idea in centralising the functional support structure but he failed to work in partnership with the healthcare professional to implement these changes. HSP acquired six Mayne hospitals and now has a total off 33 hospitals and 2,602 beds under management. HSP is deriving earnings growth through improved operating efficiencies of acquired assets and improved national negotiation power in dealing with the healthcare insurance industry.
HEALTHSCOPE (HSP) $3.62 Your Money Weekly May 6, 2004

Nov 26 2004 MBF poaches managers

The country's third-largest private health insurer, BUPA Australia, has lost two key managers to a major rival, MBF.
The two executives are central to contract negotiations with providers such as private hospitals and were reporting directly to the general manager.

Their departure comes after a bitter dispute last year during which around 1 million BUPA members found they were not covered at Healthscope's 26 private hospitals around Australia.
Executives switch health insurers The Sydney Morning Herald November 26, 2004

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This page created May 2005 by
Michael Wynne