Dangerous Gamble

Insurer or Proift Shortfall?

This week has seen another escalation by the Brookfield-owned Healthscope group, with the announcement that, from 26 November, patients from Bupa and Australian Health Service Alliance (AHSA) funds will have to pay a daily co-payment of between $50 and $100. This fee will be on top of any other amounts payable for hospitalisation, such as the hospital excess.

Once again, consumers will be the victims in this ongoing war over profits, as Brookfield continues to try and pressure health funds into rescuing it from its short-term profit-driven mentality, which arguably has placed them in this position. Perhaps selling off properties and imposing extortionate rental costs on hospital operational budgets was not the stroke of brilliance once imagined?

What is more interesting is Healthscope’s approach of charging members and breaching the contract rules it holds with these insurers. The hospital contracts in place will be explicit about Healthscope not being able to charge these fees, and by doing so, Healthscope will be clearly violating the terms of the contract.

So, why charge these co-payments? If Brookfield is serious about these contracts not being viable, why not terminate the agreements with Bupa and AHSA outright?

My guess is Brookfield knows it’s already on thin ice with consumers. It cannot afford to trigger a termination with these funds, as it is already perceived as a foreign, profit-driven investment firm relying on Australian taxpayers to support its financial return on Healthscope. If Healthscope were to issue termination notices to these funds, it would be too easy for them to be portrayed in this negative light. However, by provoking the funds to terminate, Brookfield stands a chance of re-writing the narrative. By clearly breaching its contracts with the health funds, Brookfield places itself in a win-win situation. Either it secures a concession from health funds that do nothing, allowing Brookfield to exploit Australians at the commencement of treatment, or it triggers terminations from health funds, which enables them to reframe the narrative.

Consumers are now Paying for it.....

This is a dangerous gamble. In the end, this approach may prompt health funds to reconsider whether they really need 90% of hospitals under contract. Could they be better served with a strong relationship with Ramsay and St Vincent’s as backbone network providers, then focus on filling the gaps with smaller groups, day hospitals, and independent hospitals? If Brookfield is going to act as a non-contracted hospital, ignore contractual terms, and continually encourage switching to competitor funds, perhaps Healthscope isn’t as necessary to a health fund's network as once thought. Could Brookfields and Healthscope finally be the catalyst for Australian Health Funds adopting a narrow network approach to insurance?

While Healthscope remains owned by a foreign investment firm, with little regard for health fund relationships, questions need to be raised as to how long health funds will tolerate this behaviour.

These are important questions. And Brookfield may not like the answers. Bupa and AHSA combined make up nearly 50% of Healthscope's revenue. Should one or both groups terminate contracts, Brookfield would face both a significant reduction in revenue and significant payment delays as a second-tier provider. It’s doubtful that the institutions financing Healthscope’s debt would have much sympathy for the cash flow problems this would create.

Any hope that Healthscope has of government support and positive outcomes from the review may also be overly optimistic. My bet is that the government review will reveal what most in the industry already know: that the two largest insurers pay hospitals far less than other insurers, and that the big three to four hospital groups are paid well above all other hospital providers.

If the government has done a thorough job of the review, it will show that insurers do need to pay more to hospitals, but not to the likes of Healthscope and Ramsay. The true viability issues lie with day hospitals, small groups, and large independent hospitals in regional areas. These are the true victims of a health care system that has not ensured correct mechanisms exist to protect high quality and affordable health care service providers.

All that is certain is that, heading into a federal election next year, it is unlikely we’ll see much political will to effect change anytime soon. The question Bupa and the AHSA should be asking themselves right now, as Brookfields continues to box them in to a corner, is do we really need Healthscope in our networks?

Perhaps this time, we wont see a termination end with a contract, and Brookfield may find itself out in the cold with no one but the banks to keep them company. Banks they owe a significant amount of money.