Private Health's "Changing of the Guard"

Mark Fitzgibbon - outgoing CEO of nib Health Funds

The past seven days have seen the announced retirement of two giants of the health care industry. Yesterday Ramsay Healthcare announced the retirement of Craig McNally in June next year, with Natalie Davis to take over the reins from October 2024 as CEO-elect. Mr. McNally has been with Ramsay since 1988, an impressive 36 years, and served 7 years as the Group CEO.

Earlier in the week, nib announced that Mark Fitzgibbon would retire in September 2024 after having served 22 years at the helm. Edward Close, the current CEO of nib's Australian Health Insurance business unit, has been successful in securing the top job, with many having expected Rhod McKensey (current CEO of Honeysuckle Health and one of the longest-serving executives in the nib group) to have certainly,

Natalie and Ed will both face unique challenges in their new roles. Ramsay Australia, historically responsible for 40% of the group's revenue but nearly 60% of its profitability, is currently under significant pressure due to reduced post-COVID activity, high labor and supply costs, and overall industry challenges. On the other hand, the Australian health insurance sector, which Ed will oversee, has been relatively stable and arguably has been saved by the pandemic.

Ramsay Australia has historically accounted for only 40% of Ramsay's Healthcare group revenue, but consistently nearly 60% of the company's profitability. The Australian business is under the highest pressure it has faced in recent times and running any hospitals in Australia at the moment is hard work. The compounding impact of reduced activity post-COVID, matched with the high labor and supply inflation has all but crippled the private hospital sector and there are no signs things will change soon.

The shining light for Ramsay, in Australia, has been the impressive performance by the Ramsay Australia CEO, Carmel Monaghan, who has been relentless in forcing better revenue from health insurers. Natalie will be walking into a business under siege where the share price has not been at its current low since 2014. After having received and rejected an offer of $88 per share in 2022 from a KKR consortium, Ramsay Shareholders are dealing with the reality of a share price sitting at $44.93. Walking into this environment will see Natalie facing one of the toughest challenges of her career.

Ed, on the other hand, will be receiving the keys to a golden kingdom. Unlike hospitals, COVID has been the saving grace for health insurers. It is questionable if many insurers would have survived without Government intervention had the pandemic not reversed the death spiral of PHI, returned some perceived value to Australians from holding their health insurance, and drove down claim's costs through reduced activity.

While Ed has done a phenomenal job in his role running nib's Australian Health Insurance business, smart investment analysts will be watching his initial performance like a hawk. He has not been tempered in the dire days of the death spirals of health insurance and he will face one of the most difficult tasks in redefining what is a unique business culture developed over 20 years by his predecessor. Added to this, Ed entered the nib business at a senior management level before a relatively quick appointment in to the Executive through internal changes with the formation of Honeysuckle Health. He will have to convince his previous executive peers, some of whom have significantly longer histories and track records of performance through far more difficult times, that he is worth following.

At the same time, the market has looked to, and valued nib, on the strength of Mark Fitzgibbon's ability to generate unique and often lucrative opportunities through his deep understanding of the industry, health market, and visionary approach to lateral business opportunities. nib Thrive is only the most recent of these and, while not all ideas have been successful, Mark has been brilliant in showcasing nib as an innovative, fast-moving company that will challenge the status quo. Somehow Ed, through his own unique style, will need to redefine a company that has much of its value based on the perceived vision of what it can do while Mark was leading it.

If Ed isn't able to inspire similar confidence in investors and showcase an ability to not only set a visionary pathway for nib but the whole sector, then he may find that the market radically changes its perspective of the share value of nib. It is a test that will either make or break a career which is shaping to be an incredible one so far. That he has to do this against the backdrop of terminations with St Vincents, and potentially other providers, will only add to the complexity of what will be a fascinating handover.

As the pressures continue to mount, we may see further shifts and announcements on both sides of the market. Recent changes after the CURA acquisition have seen some old faces return to previous roles, while much of the sector is still hoping for some solutions from the government's viability review of private hospitals. For some, this will be too little too late, and we can only wait and watch to see who and how this will impact as the drama of private health care continues to play out in Australia.