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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This web page documents Healthscope's naive beliefs when it entered the marketplace in 1994. It records its near collapse and then its reinvigoration as a ruthless and very successful profit focussed entity with an obsession about growth.

Australian section


The Road to Market Wisdom




This web page charts Healthscope's origins in 1985 from a hopeful group of idealistic medical administrators and businessmen, through its listing on the share market in 1994 and its expectations for rapid growth. The naive illusions about the market were soon dispelled as the company's market performance slid from bad to worse. Institutional and large business investors soon imposed their own managers and their market priorities on the company. It escaped the rigor of the market and the negotiating power of insurers by buying where there was no competition. It expanded into niche markets where it was the only provider. Like companies in the USA in the 1980s it was spectacularly successful in this.

It applied a rigorous market philosophy closing or selling anything that was not profitable and expanding or growing wherever it identified further profit.

The ambitions and pressure for growth remained and it finally returned to the competitive medical/surgical market where it confronted and faced down a major insurer. While still trying to return loss making medical/surgical hospitals it had purchased to profitability, it bought the large Gribbles pathology group acquiring holdings in Asia. It is promising more local and global growth, and claims a prospective profitability which many are questioning.

The company is a high stakes, high pressure entity. Its policies and practices are compared with similar situations in the USA where high pressures resulted in seriously dysfunctional practices.

From a failing minnow it moved to a niche market where there was no competition and it became bigger and profitable. It then seized opportunities, created by the problems of a major competitor (Mayne Health) to take a major stake in the competitive medical/surgical and pathology sectors. It has bought money losing businesses and has focused on the vulnerable not for profit sector.

It remains to be seen whether Healthscope can make these sectors sufficiently profitable, in competitive sectors where it previously failed, to meet its promise? Can it do so without going down the dysfunctional but very profitable US path of patient exploitation and fraud.

Healthscope has embraced vigorous and ruthless market policies and practices which seem inappropriate to those who embrace the Samaritan tradition in health care. There is no suggestion that Healthscope has done anything illegal or unacceptable when its is examined from the perspective of the market and its analysts. I do not believe that this is a socially acceptable perspective.


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The Early Years

The problems:- Healthscope was among a number of health care private enterprises and market listings which were initiated in the late 1980s and early 1990s. At the time doctors and administrators were becoming more and more disillusioned with a public system which was frozen in bureaucracy and burdened with financial restrictions. The freedom from restrictions offered by the private system was enticing. The abundance of funds for medical services in the large US hospitals many visited was evidence of its superiority and the opportunities for all. I visited many leading hospitals in the USA in 1986 and returned with similar views but reservations about the growing corporate role. They were not yet dominant.

The effect of this on the US economy, and the dysfunction on which much of it was built was not apparent. Politicians and manufacturers were acutely aware of the developing problems. Joseph Califano wrote about them in his 1986 book and led the way in curbing the affluence which gave doctors this freedom, so driving the system into dysfunction and fraud.

The private hospital system was seen as a fragmented disorganized and inefficient cottage industry that needed reorganization and consolidation. Many of the private hospitals were so small that it was impossible to provide the sophisticated resources needed for modern medicine. There are no arguments about what the problems were but it is the marketplace for-profit solutions imposed that are now so worrying. Their blind faith in this new market focus led them to buy hospitals which even the aggressive US multinationals had failed to make profitable.

The solutions:- To these people, and to policy makers in government, the market seemed to offer solutions to the problems in both the public and the private systems. There were plenty of messianic advocates for such a system and its success was apparent from the large profits made in the USA. The capital from floats, and the larger payments from insurers would allow everyone to meet needs, practice good medicine and serve the community better - or so the argument went. The new economic thinking was spreading across the world and was seen to be all embracing and self evident.

Businessmen, with the USA example in mind saw the potential for profit and joined with these disgruntled health providers to form companies. The businessmen were looking for profits up to 30% as had occurred in the USA. To raise capital for the necessary growth these new companies soon listed on the share market.

Different starting points:- The problem for both is that profits and the cost cutting needed to achieve them in a system with funding limits are, and always will be, in direct conflict with care and service to the community. Care and service are costly in terms of labour and equipment. Insurers had to prioritize their own profits and were not going to fund both care and large profits for the new corporations. If insurers took similar 30% profits less than half of the money intended for care would filter through to care - as has happened in the USA. The administrators and the businessmen embraced conflicting starting points and had different expectations.

Power structure:- While the companies were still owned by the original individuals the administrators and doctors held significant sway. Healthscope and its medical administrators enthusiastically embraced the idea of Total Quality Management (TQM). Many, including a Healthscope administrator returning from the USA, had become evangelists for TQM. Some feel that in health care this has more to do with words and marketing than real improvements in care (see Kilham HA, MJA Feb 7, 2005 page 119). TQM is well suited to the misty mirrors of verbal delusion which typically accompanies corporate health care. The less directly a person was involved in care the more logical TQM seemed.

Once the companies were listed on the share market the balance of power swung to the powerful institutional investors, the banks and the analysts. They controlled the appointments of boards and managers. The survival of administrators and senior doctors depended on seeing things the market way. In an industry which should have looked to long term benefits the market insisted on instant financial gratification. Those who could accommodate and embrace the new thinking thrived. Those who had difficulty departed.

The press reports about Healthscope illustrate these developments.

Early History

A rapidly growing private hospital group will purchase Mildura Private Hospital for an estimated $6 million. The change of ownership of the hospital, which is losing money, continues the rationalisation of the health-care industry in Australia.

The 50-bed hospital was built and previously operated by American Medical International (Australia) Pty Ltd.

The managing director of the purchaser (which is still in the process of registering a corporate name), Mr Peter Wilson, said yesterday he believed his group could solve some of the problems of Mildura Hospital.
Mr Wilson said his group already had been involved in the rationalisation of the medical industry: - - - - -
While government is decreasing its involvement in the health industry, the private sector is waking up to the industry's potential to realise profits through proven management techniques.
The emergence of aggressive publicly-listed companies in the hospital area would ensure the pace of change accelerated, he said.
Hospital Group Expands Australian Financial Review September 5, 1986

Early History

The Company was incorporated in Victoria in 1985 as Salishaw Pty Ltd and changed its name to Healthscope Pty Ltd the following year. The Company adopted its current name and was listed on the Australian Stock Exchange in 1994.

The Company was formed to acquire The Melbourne Clinic, a private psychiatric hospital.

In 1986, it bought Mildura Private Hospital and Bellarine Private Hospital and, in 1988, opened North West Private Hospital in Burnie, Tasmania.

In 1994, Healthscope acquired SGIC hospitals from the State Government Insurance Commission of South Australia, comprising six hospitals in Adelaide and one in Darwin, for $75 million. Later that year, it acquired Bellbird Private Hospital from the receiver.
Healthscope Limited. Jobson's Year Book January 5, 2004

1986 -- The Business View

Wilson's (business founder) consortium (himself and 19 other investors) already have 200 hospital beds through Healthscopes' flagship, the Melbourne Clinic psychiatric hospital in the Melbourne inner suburb of Richmond, and the Mildura Private Hospital. They have plans to build a $7 million to $8 million hospital at Burnie in Tasmania, a $1 million same-day surgical centre on existing land in Richmond, and to extend the Melbourne Clinic and the Mildura hospital. Wilson says the private healthcare industry is ripe for rationalization and consolidation and he intends Healthscope to play a leading role in the process. He expects Healthscope to have more than 1000 beds by 1990.
Wilson says private hospitals have been around in their present form for many years. "But," he says, "what is new and different is that big business is coming into it and tackling it in a professional way. I think these trends are in the best interests of the industry."

He says investors are moving into the industry because "they can see what a mess the public sector is in and that there is no hope that it is going back to the good old days where public healthcare was all things to all people.

Astute investors believe they can get good returns from private hospitals by introducing sound business practices such as marketing and cost control. Wilson predicts that Healthscope ultimately will achieve a 15 per cent return on its net assets, but others within the industry have said returns from private hospitals can be as high as 30 per cent.
Wilson says the fact that his consortium of 20 Healthscope unit-holders will not receive immediate returns on their investment indicates their long-term commitment to the industry. Indeed, the trust deed includes penalties for investors who want to sell their investment within the first five years.
In 1982, Wilson considered buying the Melbourne Clinic as an extension to Epworth's existing services. The hospital board was keen, but unable to arrange finance, so he dropped the idea. Then in 1984, Wilson heard that the clinic was on the market again and had an interested buyer. If Wilson wanted it, he would have to move fast. This time finance was no problem but the Epworth board did not want to go ahead. Wilson was ready for a change anyway and, when a colleague offered his support, he decided to arrange a consortium to buy the clinic himself.

The consortium involved 20 unit-holders, six of whom have a controlling interest. Control rests largely with the board comprising Wilson, chairman Dr Robert Hjorth (a neurologist), a chartered accountant, a pharmacist, a solicitor and a valuer. Some of the unit-holders from the old management of the clinic have taken up shares in Healthscope.
Getting Set For A Healthcare Boom Business Review Weekly October 3, 1986

1987 Administrators and Doctors

The new companies have taken advantage of the long public hospital waiting lists and have grown from the general consumer dissatisfaction with the public health system. Dreher (Dr Geoffrey Dreher, Medical administrator) is typical of the top professional, frustrated by restrictions from the top and reactions from underneath, who has chosen a new direction. The professionals who have taken the same path as he has include medical people and management people from the top areas of government health services.

The flourishing private hospital industry is luring them to new jobs with greater administrative freedom, new challenges and more money. Hospital sources say that over the past five years big numbers of top administrators have left of their own accord, or have been eased out for political reasons.

Dreher, 49, was in the government service for 24 years, but took little time deciding to move when Healthscope approached him. "I just couldn't achieve my objectives any more - management in the public arena is being strangled and autonomy eroded," he says. He says that decisions are being made by the health department, and hospital administrators are becoming little more than glorified clerks".
New Strength For Private Hospitals Business Review Weekly May 15, 1987

1994 - Market Listing

Unlike previous private hospital floats which had a heavy weighting towards property development the Healthscope float would focus solely on service provision and look to lease its hospitals in the future, its managing director, Dr Geoffrey Dreher, said.
Healthscope is currently owned by 35 Melbourne investors
HOSPITAL GROUP IN APRIL FLOAT Australian Financial Review February 18, 1994

1994 Services

Healthscope's facilities span a range of in- patient and out-patient services, including medical, surgical, obstetrical, psychiatric and rehabilitation services. With the SGIC, the group will have 800 private beds, or just below 10 per cent of the national market.
Hospital Group Goes To Public For $70m, The Age 28 February 1994

1994 The Company Floats

Healthscope's prospectus, registered with the Australian Securities Commission on Monday, is due for release next week. The $70 million raising of 40 million $1.75 shares - underwritten by brokers CS First Boston - will be used to acquire the South Australian State Government Insurance Commission's hospital interests.

The merger-float of the SGIC Hospital group and Victorian-based Healthscope will form a company with net assets of $92 million, capitalised at $113 million upon listing in mid-May. The SGIC is expected to take $60 million in cash from the float and subscribe to $15 million in shares, thereby taking a 13.7 per cent stake in Healthscope, formed in 1985 to operate The Melbourne Clinic - Australia's largest private psychiatric hospital.
Earnings before interest and tax is forecast at $19 million in 1994-95, with the forecast net profit of $10.5 million equivalent to 16.5c a share on the total 64.3 million shares on issue.

The merged SGIC -Healthscope hospital group totals 856 beds, admits 40,320 patients and performs 30,600 operations (and 1,583 births) a year.
$10M PROFIT AIM FOR HEALTHSCOPE Australian Financial Review March 23, 1994

1994 Typical Idealism

The Company's commitment to the establishment of quality hospitals, the provision of the highest quality hospital care, the proactive management of costs and its ability to identify and implement initiatives that raise the profile of individual hospitals and increase admissions has contributed significantly to Healthscope's growth.
The Directors believe that the dedication, depth and calibre of management is a key factor in the Company's success. The Managing Director, Dr Geoffrey Dreher has over 30 years experience in healthcare management.
HEALTHSCOPE LIMITED - PROSPECTUS (Part B) Australian Stock Exchange April 11, 1994

1994 Advertorial including about TQM

The Melbourne Clinic program concentrates on "curing the state of mind'' leading to the disease, with emphasis on developing "living skills", and self-esteem improvement.

The Healthscope group has five hospitals in Victoria and Tasmania and is about to acquire seven more in Adelaide and Darwin for $75 million.

It is also building a new hospital at Wangaratta and a medical centre in Burnie.
TQM Disciple Is Manager At Melbourne Clinic The Age April 16, 1994

1994 Media release re acquisition

Following its recent successful float and acquisition of the State Government Insurance Commission Hospitals in South Australia and Northern Territory, and acquisition of Bellbird Private Hospital in Victoria, Healthscope's Managing Director, Dr Geoff Dreher, announced that the Company has purchased the Queen Victoria Hospital site in Adelaide. The option to purchase the QVH site was granted by the Minister for the Environment and Natural Resources to SGIC in June 1993.
HEALTHSCOPE LIMITED: PURCHASE OF QUEEN VICTORIA HOSPITAL SITE (Part A) Australian Stock Exchange Company Announcements June 17, 1994

1994 Optimism and Consolidation

We remain optimistic about the future of private health care operations in Australia. We see a continuing need for private purpose built high quality hospitals. We also see further opportunities to provide management services in Australia.

We believe that further consolidation of the private hospital sector is inevitable and this trend will assist us in our plans for expansion.
HEALTHSCOPE LIMITED: CHAIRMAN'S ADDRESS (Part A) Australian Stock Exchange Company Announcements November 22, 1994

Disillusionment:- The Float was not as successful as claimed. Shareholders got their first of many shocks when the price promptly fell 15 cents then dropped another 40 cents in the next 3 weeks. From there the share price went steadily down and down until it was only a fraction of its original value. Healthscope had expected its revenue to rise from 29 million to over $80 million with a net profit of 10.8 million. Instead it made large losses.

The quality of the hospitals:- This was a collection of several previously failed hospitals picked up by this group before listing, and some government owned not for profit hospitals acquired when floating. They operated across a wide range of medical services and had few strengths in any of them.

As more sophisticated and costly facilities for major surgery and sick patients were required, doctors would have moved their patients to larger hospitals where such expenditure was justified. These small hospitals would have become less and less viable. In addition private health cover was at an all time low so there were fewer patients. These hospitals could not compete.

Corporate Australia had embraced the colocation of private hospitals on public hospital campuses. Public hospitals were not usually located in affluent suburbs where most private patients resided so that the commercial expectations from proximity were often disappointing. Many made losses. Some became embroiled in legal disputes with the government when the companies tried to sell them.

Healthscope’s smaller hospitals were soon performing as before - badly. Plans for rapid expansion foundered on the economic rocks. It was to be years before Healthscope’s share price recovered. It would eventually become a very different sort of company. When Healthscope later moved back into general hospitals in big cities it bought larger hospitals.

1994 Disappointment

It was a sickening feeling for shareholders in Healthscope Ltd yesterday when the share price of the hospital group dipped on debut on the back of another market slide.

Healthscope opened at the issue price of $1.75, but steady selling during the day pushed the price to $1.60 at the close of trading, with 767,000 shares changing hands.
The initial top 20 shareholders list showed that First Boston retained 1.9 per cent of the stock, with the State Government Insurance Commission the largest shareholder at 13.7 per cent.
FIRST DAY SICKNESS Australian Financial Review May 5, 1994

1994 Past failure

The two newly listed entrants, Alpha Health Care and Healthscope, are reincarnations of operators which ran into debt problems during the past decade.

Healthscope, which listed in May, is a bundling together of the South Australian SGIC Hospitals and a number of Victorian hospitals, giving it a total of 836 bed licences. Its prospectus says that to remain at the forefront of the industry it will be essential to increase the number of beds under management to 2,000 over the next five years.

1994 Development programs

Development programs underway, as described in the Prospectus, which are proceeding to completion are:

  • The construction and operation of the Wangaratta Private Hospital in Victoria due to open in November 1994, on time and on budget.
  • The construction and operation of the North West Medical Centre in Burnie, Tasmania, due to open in January 1995, on time and on budget.
  • The acquisition of the Queen Victoria Hospital site in Adelaide which is proceeding.

Other projects in Adelaide, Darwin, Victoria and Tasmania, are under discussion with the relevant authorities or are the subject of invited tender by Healthscope.
HEALTHSCOPE LIMITED: Periodic Reports Prel.Final (Part C) Australian Stock Exchange Company Announcements September 8, 1994

Privatized public hospital in Modbury:- The boundless faith in the ability of the market to run the public hospital system better and more cheaply than government led Healthscope to capitalize on its relationship with the government in South Australia. Modbury Public Hospital board wanted a colocated private hospital on the campus. Instead the government contracted the running of the public hospital to Healthscope. In the disaster that followed the colocated private hospital was never built. Instead Modbury was lumbered with Healthscope and its problems.

The company had agreed to financial terms and conditions which it could not meet. It proved to be a massive drain on profits. This was a major factor in driving the company towards bankruptcy - probably only averted when the SA government relented and renegotiated the agreement. Government had saved millions of dollars and refused to release Healthscope from the agreement. It did not want it to go under. The privatization of the Modbury public hospital is addressed on a separate page.

1994 Modbury contract

"The South Australian Minister for Health has today publicly announced that our Company is the Government's preferred tenderer to construct a colocated private hospital and manage the delivery of public hospital services at Modbury Hospital. The target date for assuming management responsibility for those public hospital services is January 1995. Healthscope and the South Australian Health Commission (SAHC) (on behalf of the South Australian Minister for Health) are currently finalizing Heads of Agreement to enable us to assume full management responsibility from 1 January 1995.
This overall project will add significantly to the number of hospital beds under our management and we believe will also result in significant cost and efficiency savings both to government and the general public.

The original administrators go:- A little more than a year after the company floated its shares the differences in perspective between the market and the medical administrators reached breaking point. Resignations and repeated restructuring took place. It took 5 months to find a replacement for its managing director.

1995 Management break up

Healthscope md, Dr Geoff Dreher, quits the board of the Vic-based hospital operator just 15 months after its debut on the Aust sharemarket
Chief quits troubled Healthscope The Advertiser August 26, 1995 (from ABSTRACT by Australasian Business Intelligence)

1995 Management break up

The chairman of Healthscope, Kevin McCann, sites a difference in visions between the company's board and the former md, Geoffrey Dreher, as the reason why Dreher departed from the firm
Faulty vision November 1, 1995 (from ABSTRACT by Australasian Business Intelligence)

Losses:- It soon became clear that the company would fall short of its $10.8 million financial targets by about 38%. The share price fell to 50% of its original $1.75 value and eventually as low as 66 cents. Healthscope was short listed to manage the Sir Charles Gairdner hospital in Perth, but the government backed away from this privatization. Healthscope was even seen as a takeover target for Mayne Nickless. The company went through a series of Managing Directors as it searched for someone to do what was required to make profits.

1997 Losses and asset sales

Hospital owner and operator Healthscope Ltd has slumped to a $22 million interim loss and signalled a $25 million asset sale program to slash its debt load by half.
Healthscope Looking Sick Australian Financial Review March 12, 1997

1997 Modbury

Managing director Mr Bill Kricker said the $38 million-a-year outsourcing contract for Modbury Hospital was "bleeding the company of profit and management time".
Healthscope Looking Sick, Australian Financial Review March 12, 1997

1997 Another MD goes

Troubled hospital group Healthscope Ltd yesterday announced the sudden departure of its managing director and chief executive, Mr Bill Kricker, and a restructure that will involve the sale of a quarter of its hospitals. Healthscope CEO Agrees To Resign Australian Financial Review April 22, 1997

1997 Share prices

- - - shares in Healthscope hit an all-time low of 53cents.
Thorn In The Side May Prove Lethal, Australian Financial Review July 18, 1997

More losses:- It was not only Modbury hospital which was losing money. By 1996 private health insurance was at an all time low. Competition was intense so that general hospitals were bleeding. Alpha and Healthscope were not competing successfully. In the second half of 1996 Healthscope lost $22 million. It wrote down $24 million and started restructuring and planning for a $25 million asset sale. All the talk about care and services disappeared as the imperatives of the market took over.

1996 "Restructuring services"

- - - - - the company has declared that assets which fail to generate acceptable returns or do not fit into the future strategy could be restructured
Healthscope reviews SA operations The Advertiser November 26, 1996 (from abstract by Australasian Business Intelligence)

Targeting doctors and selling assets:- Healthscope adopted the US formula, increasing its marketing activities and targeting doctors. In little more than a year the new M.D. had gone and the company had gone through three managers. It put up 4 of its Victorian hospitals for sale, Mildura, Wangaratta, Bellarine and Bellbird private hospitals. It closed its loss making Ulverstone hospital in Tasmania, the Hutt Street hospital and the Vales Private Hospital, both in Adelaide. It sold its Kiandra Private Hospital.

1997 Strategic review - marketing - doctors

Healthscope's managing director Bill Kricker said today the group was currently carrying out a major strategic review which may result in selling off hospitals.
"To this end, the company has stepped up its marketing program and undertaken new initiatives with doctors and surgeons to improve earnings," he (Kricker) said.

1997 Attracting doctors

He said attracting doctors and surgeons to its private hospitals and turning some of its general hospitals into specialist providers was the key to staying on top of technological change and improving earnings.
HEADLINE: Healthscope Looking Sick Australian Financial Review March 12, 1997

Healthscope sold its Mildura and Wangaratta hospitals but after renegotiating its contract for the Modbury hospital it withdrew the others. During 1997 it lost $21.6 million. The restructuring was effective and by February 1998 four years after it listed it was able to record its first $1.75 million profit. This was in spite of a poor performance by its colocated Darwin Private Hospital.

Profit briefly:- In August 1998 it posted a year's profit of $A3.6 million. Healthscope's M.D. claimed that the improved figures were the result of harsh cost cutting and the stopping of loses previous experienced at the Modbury Hospital

But the Modbury hospital continued to lose money with a potential June 1999 overrun of $1.8 million. It October 1998 Healthscope went back to the government cap in hand, but the government was increasingly unsympathetic. In March 1999 the company announced a loss of $11.1 million to accommodate this.

1999 Losses

Australian private hospital group Healthscope is making a $A13.5m abnormal provision for losses on March 1, 1999. Healthscope says the provision is due to its Modbury Hospital contract, which it admits will continue to make losses until the end of the contract in 2010.
Hospital pact a millstone, The Australian March 2, 1999 (quote from ABSTRACT by Australasian Business Intelligence)

Management changes:- Healthscope’s investors ran through a selection of senior managers before the institutional investors appointed the sort of hard headed, business focussed managing director they wanted from one of their own companies in November 1997. Over subsequent years they built up a board of directors which sounded like a who’s who of Australian corporate directors. These were people with multiple directorships.

As Managing Director they appointed Bruce Dixon from their largest shareholder, Spotless Services Ltd. - the company that cleaned and bleached the hospital linen. This was a group which understood the dynamics of the marketplace and had become Healthscope’s largest shareholder. Dixon understood the market and would do what was required to give investors their profits.

Policy changes:- Instead of talking about care and services Dixon was into cost cutting, and closing hospitals which were unprofitable. He was soon talking of expansion and consolidation which is what institutional investors wanted. He gave it to them. His plans for expansion followed the commercial needs of the company rather than the needs of the community.

Dixon, one must assume, knew that the money came from patient care and was mediated through doctors. While he realized that care had to be maintained and that doctors and their patients had to be kept on side it is clear that he also realized that these were not key competitive issues. Competition itself was detrimental to profits. The real competition was when negotiating fees with large and powerful insurers. Gaining market leverage over competitors and so having negotiating strength when setting fees would enable Healthscope to keep profits rolling.

Healthscope never lost its focus or its faith in consolidation and size. It became more aggressive in its pursuit of profits. Non performing hospitals were closed or sold off, even when the local community and doctors saw a need for services. This is a key difference between the philosophy of for profit services which follow the money, and not for profit services which are established to meet community needs and stretch the money to do so.

Under Dixon, Healthscope avoided more complex general hospital care which was costly and where there were large powerful competitors. Instead it concentrated on niche markets, particularly hospitals in psychiatry and rehabilitation where there were only a few in a region. There was no competitors to undercut them in negotiations. It also concentrated on rural hospitals where there were no other competitors in the towns. When it did go back to general hospitals it tried to secure regional dominance. It did so successfully in South Australia where it had a show down with the major insurer. Market analysts were delighted. The competitive market was working for investors by avoiding competition between providers!

1997 Dixon for MD

Hospital group Healthscope Ltd has snapped up a new chief executive officer from one of the divisions of Spotless Services Ltd. Mr Bruce Dixon, - - -
HEALTHSCOPE SPOTS NEW CEO Australian Financial Review November 21, 1997.

2000 Rationalization

Some analysts see rationalization of the sector as inevitable, with the assets of small operators such as Alpha Healthcare and Healthscope coming into play. They are expected to face increasing pressure as health funds impose tougher performance benchmarks on hospitals.
The Prognosis For Health-care Stocks Australian Financial Review 5 January 2000

2002 Market leverage

"However, given the insurance funds control over revenue growth, hospitals need to be able to display some sort of comparative advantage to extract more margin from the insurance funds. In this light, Healthscope has good geographic coverage, with dominance in regional areas allowing the company to have more leverage over the insurance companies.
Plenty of scope in health. Shares Magazine April 1, 2002

2002 Services

Healthscope owns and operates private hospitals throughout Australia. The hospitals provide psychiatric, medical, surgical and obstetrical services. Other services include plastic surgery, orthopedics, ophthalmology, gynecology and oral and dental surgery.
Gympie Heads Rising Sector : This month's projections Shares Magazine May 1, 2002


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A New Direction

The situation which existed in 1998 was not dissimilar to that which existed in the USA in the mid 1980's. The response was the same. The Australian government and insurers were closely monitoring services in general hospitals. DRG's were being introduced to counter the cost blow out associated with fee for service payments. Private insurance was at an all time low and the government's rescue package had not worked. All this combined with the competitive pressures made it difficult to make a profit.

The company had started following the USA and would continue to introduce practices successful in the US system. Like Tenet/NME, and the nursing home chain Sun Healthcare in the USA, it branched out into markets which were more easily exploited, where patients were not discerning, where there was less oversight, and where there was little or no competition. These included psychiatry, substance abuse, rehabilitation and rural hospitals, areas where there were few competitors. It upgraded some South Australian Hospitals (e.g.. Parkwynd Private Hospital) and converted other small hospitals into psychiatric units. Bellarine Private Hospital became The Geelong Clinic, a psychiatric facility. Funding decisions and support were based on current or projected profits and the needs of the community were seldom mentioned in this context.

1998 New focus

On 27 October 1998, hospital group, Healthscope, announced plans to focus on rehabilitation and psychiatric services. Chairman, Kevin McCann, said the decision had been made after unacceptable results from its mainstream hospital operations.
The direction change will also reduce Healthscope's reliance on revenue from private health insurance funds
Diagnosis is for a full recovery, The Advertiser October 28, 1998 (quotes from ABSTRACT by Australasian Business Intelligence)

1998 Growth

The company's managing director, Bruce Dixon, later foreshadowed moves for Healthscope to become a national player.
Health group ready to expand Herald Sun October 28, 1998 (Taken from ABSTRACT by Australasian Business Intelligence)

1998 Following the money

Hospital operator Healthscope Ltd will spend $2.3 million expanding its Griffith Rehabilitation Hospital in Adelaide's south-western suburb of Hove. (the only recognized private rehabilitation hospital in South Australia.) - - - - - the 55-bed hospital had been an outstanding performer for the group - - - - .
BRIEFS : Griffith hospital to expand, Australian Financial Review December 2, 1998

1999 Acquisitions

Hospital operator Healthscope Ltd has bought the 120-bed Ivanhoe Manor and Olympia group of private rehabilitation hospitals in Melbourne for $11.5 million. It marks a swing towards rehabilitation services for the company,
Companies And Markets Briefs, Australian Financial Review February 11, 1999

1999 Escaping the insurers

The company has shifted away from its dependence on health funds, by acquiring the Ivanhoe Manor and Olympia Group of rehabilitation hospitals for $12 million, selling facilities in South Australia and downsizing Modbury.
Healthscope Hopes For Quick Recovery,
The Age (Melbourne) October 27, 1999

Privatization:- This strategy proved successful and the company started to make money for the first time. In spite of its experience with Modbury, Healthscope was still "focusing on public hospital management opportunities in Victoria" in February 1998. In December 1998 it tendered for the Royal Darwin public hospital. Privatization of public hospitals was proving a disaster area for both parties and governments were already backing away. The Northern Territory soon followed.

Darwin:- Healthscope's colocated private hospital in Darwin was performing poorly. The company had a close working relationship with the Northern Territory government who were pursuing privatization enthusiastically and rather unrealistically. This flawed policy was later abandoned.

Healthscope solved its problems in Darwin by restructuring its management. When someone has difficulty in making a profit the market appoints someone who will find a way of doing so. All too often they don't realize, prefer not to know, or connive in what their new managers are doing to produce what they demand. We don't know how it was done.

Healthscope reached a deal with Indonesia's largest health insurer to send patients to their hospital in Darwin. It joined the state in developing a Cardiac catheterisation service for the Northern Territory and this clearly helped.

1998 Darwin Private Hospital:

Hospital operator Healthscope Ltd will sign an agreement today which paves the way for Indonesia's largest health insurer, PT Askes, to send patients to Darwin for treatment at the Australian company's 150-bed hospital.
Companies And Markets Briefs, Australian Financial Review April 17, 1998

2000 Darwin Private Hospital:

Darwin Private Hospital will be able to provide cardiac catherisation diagnostic services. Northern Territory (NT) Health Minister Steve Dunham said in the NT Parliament on 11 May 2000 that the service would be a joint venture of the NT Government, Healthscope and NT Cardiac Services.
$1.5m boost for NT's heart centre, Northern Territory News May 12, 2000 Friday (quotes from ABSTRACT by Australasian Business Intelligence)

2003 Darwin Private Hospital:

Following a complete restructure of the hospital's management, Darwin Private Hospital experienced an encouraging turn-around in activity with bed occupancy levels increasing during the second half of the financial year.

Growing cooperation between the public and private sectors was a key factor in the hospital's performance. More consultants are now working across both sectors, compensable admissions are being shifted from public to private facilities, and a number of services are being jointly developed.

Darwin Private Hospital worked with the state government to set up a cardiac angiography facility, which services both public and private patients. This became operational in the beginning of 2001. Healthscope Limited. Jobson's Year Book January 20, 2003

Looking for opportunities:- Healthscope started talking about expansion and of targeting aged care and retirement villages. I can find no record of their actually buying them. Their interest was in the potential for profit and not the needs of the elderly.

1998 Aged care and a nice flat income

Hospital operator Healthscope Ltd is set to diversify into aged care and retirement villages as part of an expansion phase which also includes plans to acquire private hospitals in Melbourne and Adelaide.
Healthscope owns or operates 13 hospitals in Australia and Mr Dixon said aged care was a priority as it would produce "a nice flat income" and was not subject to the volatility of hospital earnings. - - - - - - The company was conducting a feasibility study on turning its Kiandra 40-bed hospital in Adelaide into an aged care facility - - - -.
Ailing Group Targets The Aged
, Australian Financial Review April 24, 1998

1999 Losses and deals

The company tried to sell the Darwin Hospital to Ramsay and buy Melbourne hospitals from them but Ramsay backed away when the Northern Territory government threatened to privatise five public hospitals.

Modbury continued to be a problem and dragged the company into a $11 million loss for 1998/99.

Healthscope would have recorded a profit but for an abnormal loss of A$ 19.305 million associated with future losses from the Modbury Public Hospital contract in South Australia, a write down in the value of The Geelong Clinic and other costs.


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Money and growth

Doctors:- It was not until well into 2000 that the support which government had given to private insurance filtered through to the hospitals and they began to make money. That is all except Mayne Nickless. Never popular with doctors Peter Smedley's appointment as Mayne MD in 2000, and his cost cutting and aggressive business solutions frightened doctors away. They took their patients elsewhere. By 2002 Mayne Nickless was in serious trouble as a consequence. The much smaller Healthscope and Ramsay Healthcare undoubtedly benefited from this by picking up patients, perhaps more than they did from the increased funding for private care. Both boasted of their good relations with doctors so encouraging more to defect from Mayne. Healthscope could move into the vacuum created by Mayne's misfortune.

Profit:- Disillusioned Healthscope shareholders were initially skeptical when Healthscope reported a $5.9 million profit for 1999-2000 and the share price hesitated before rising. Modbury had broken even probably the result of cost cutting and bed closures. Healthscope's turnaround was due to its psychiatric, rehabilitation and extended care dominance.

2000 Profits at last

HEALTHSCOPE surprised long-suffering investors earlier this week by revealing that its earnings in the half year just ended will at least triple those of the same period a year ago, yet its share price barely moved.
Still, Mr Dixon believes government initiatives are fixing the problems by encouraging people to take up private health cover.
XCHANGE :: STILL AILING, Sydney Morning Herald January 21, 2000

2000 Focus and growth

While two of the smaller listed hospital operators, Healthscope and Alpha Healthcare, have flagged healthier first-half results following restructuring last year, they remain under pressure to remedy their languishing share prices.

In the case of Healthscope, a board shake-out - - -
Healthscope managing director Mr Bruce Dixon identified psychiatric care, rehabilitation and extended care as growth areas for the company.
Health industry ills, Australian Financial Review January 29, 2000

2000 Shares double

Victorian-based hospital operator Healthscope, 20 per cent-owned by businessman Ron Evans (Spotless owners), has enjoyed a sudden bout of investor confidence for almost the first time since it went public. The shares have almost doubled in little more than a month.
A run sans news, Sydney Morning Herald August 4, 2000

2000 Profitability

Healthscope, based in Melbourne, has been attracting interest because of its vastly improved profitability. In 1998-99, the company reported a loss of $11.6 million.
Private Hospitals In Recovery Ward, Business Review Weekly 17 November 2000

2003 Glenhaven Extended Care Centre

The Glenhaven Extended Care Centre and numerous community houses provide a number of step-down community housing options for long term acquired brain injury patients and their families to enable semi-independent living while remaining within the rehabilitation program. Healthscope Limited. Jobson's Year Book January 20, 2003

A buying spree:- After its $5.9 million profit in November 2000 Healthscope went on a buying spree. It bought Victoria House Private Hospital in Melbourne. This was associated with a sports medicine centre and orthopaedic surgeons specialising in a number of areas. The attraction and the enthusiasm were for the potential profit rather than a desire to serve the community.

Healthscope bought Queensland's largest private psychiatric hospital, the Palm Beach Currumbin Private Hospital at Queensland's Gold Coast, and Dubbo Private Hospital in central NSW from Sun Healthcare when they left Australia. It then bought The Sydney Clinic, a private psychiatric hospital. It opened a drug and alcohol rehabilitation unit in the former Warburton Hospital in Melbourne. Its public relations blurb promoted this as Australia's own version of the United States' Betty Ford Clinic.

Psychiatric pitfalls:- An innocent sounding company release reminds one of Tenet/NME's activity in the 1980's. Tenet/NME used marketing and public education to fan anxiety. It capitalised on the community's anxiety about drug abuse and teen-age behaviour by exploiting the commercial possibilities of hot lines and screening mental health programs.

One is reminded particularly of the many US psychiatric hot lines funneling gullible patients into the psychiatric fraud. In Chemical abuse there was the "800 Cocaine" hot line promoted by the highly suspect Dr Gold in his book of the same name. The sole purpose of this hot line was, not to help addicted youngsters, but to funnel unsuspecting inquirers into Tenet/NME's New Jersey and Florida hospitals where Drs. Gold and Pollock worked and where the patients' insurers were fleeced. As a 1993 report on Tenet/NME by the West Australian Health Department revealed there is a real danger that this sort of thing will happen in Australia when large corporations operate and control hot lines or screening programs. Healthscope set up a hot line for psychiatric care in Melbourne.

2000 Victoria House

Victoria House is unique in its degree of specialisation in musculoskeletal and sports medicine. While providing a strong revenue stream for the company. Acquisition of Victoria House Private Hospital, Company News - AUSTRALIAN ASSOCIATED PRESS November 30, 2000

2001 Queensland and NSW

Healthscope's purchase of the 78-bed Queensland Palm Beach/Currumbin private psychiatric hospital and the 58-bed regional Dubbo Hospital in NSW represented the Melbourne-based company's first foray into NSW and Queensland
Alpha talks of new suitor The Australian April 27, 2001

2001 The Sydney Clinic

National private hospital owner/operator Healthscope Ltd today announced the acquisition of The Sydney Clinic, a private psychiatric hospital licensed for 34 beds located in the prime Eastern Sydney suburb of Waverley.
Healthscope is a major provider of private psychiatric care. It owns Australia's largest private psychiatric hospital, The Melbourne Clinic as well as The Geelong Clinic in Victoria and Palm Beach Currumbin Private Hospital on Queensland's Gold Coast. With hospitals in Victoria, SA, NSW, QLD, Tasmania and the NT, the acquisition of The Sydney Clinic marks Healthscope's entry into Australia's largest private health care market - - - .
"Healthscope's growth strategy is based on the company's traditional strengths in the fields of psychiatry, rehabilitation and regional hospitals" Mr Dixon said.
Acquires The Sydney Clinic, Company News Release AAP NEWSFEED May 18, 2001

2001 NSW

"Dubbo Private Hospital provides exceptional facilities and lacks competition in its market catchment.
Acquires hospitals at Palm Beach Qld & Dubbo NSW, Company Release to ASX 26 Apr 2001

2001 Northpark Private Hospital

Private Hospital operator Healthscope Ltd has snapped up Mayne Nickless Ltd's Northpark Private Hospital in Melbourne's north-east, with no plans to slow its buying spree.
Healthscope added 345 new beds to its 17-strong nationwide hospital network in the past year.
Latest hospital buy won't slow Healthscope's shopping spree AAP News November 21, 2001

2001 Sydney's South West Private Hospital

PRIVATE hospital operator Healthscope continued its spending spree yesterday, picking up Sydney's South West Private Hospital.
The 102-bed Sydney South West, at Liverpool, becomes Healthscope's largest Sydney facility and is one of the city's largest private hospitals
Hospital chain buys 7th private facility this year. Adelaide Advertiser December 19, 2001

PACMAN activity:- Traditional humanitarian private hospital groups founded by motivated people in the community were at the mercy of the health insurers and could not survive in the new corporate marketplace. Healthscope recognized this and like Columbia/HCA and Tenet Healthcare in the USA specifically targeted this vulnerable sector. In the USA this rapid gobbling up of community centred services was known as PACMAN activity because the greed so resembled this computer game. It has been a bone of contention across the USA stemming from the unhappiness of the communities. They saw services directed to their interests replaced with ones directed to profits. A separate page has been devoted to Healthscope’s PACMAN activity

2002 Brisbane in Queensland

National private hospital owner/operator Healthscope Ltd announced today the acquisition of Peninsula Private Hospital (86 beds) and Riverview Private Hospital (60 beds) in outer metropolitan Brisbane. The hospitals were acquired from an independent family company, - - - - .
There are now 20 hospitals in the Healthscope group as Healthscope continues to enhance its reputation as a consolidator in a previously fragmented industry.
Healthscope Limited (HSP.AX) Acquires Peninsular Private & Riverview Private Hospitals. Australian Stock Exchange Company Announcements May 28, 2002

Shares recover:- By March 2001 the price of Healthscope shares had risen to $1.20. This was sufficient for the South Australian government agency to disengage from Healthscope and sell its 10% share in the company - recovering some of its losses. It had started at $1.75.

By July 2001 the shares exceeded their 1994 listed price reaching $1.84. By now analysts were full of praise and the banks were investing in the company. It raised $10.7 million from the market and went looking for more acquisitions.

Healthscope went on to buy Northpark Private Hospital in Melbourne from Mayne Nickless, a general hospital in Bundoora, and Sydney's South West Private Hospital from bankrupt Sun Healthcare which had vacated Australia. It had purchased 7 hospitals in less than a year.

2001 Profit

HEALTHSCOPE Ltd has boosted full year net profit 10 per cent and says it will consider further acquisitions after a flurry of hospital purchases over the past few month Healthy growth Courier Mail August 29, 2001


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Becoming a Major Player

Market leverage:- The company became an increasingly strong advocate of consolidation in order to increase negotiating power. After recovering in 2000 Healthscope adopted an aggressive growth strategy that progressively changed it from a small niche company hiding from competition into a competitive predator.

During 2002, 2003 and 2004 Healthscope’s policies proved themselves in the marketplace. They went from strength to strength. Share prices only fell slightly when other sectors of the health care marketplace ran into trouble. This was in large part due to the largesse of the federal government. There was money and plenty of it given to the insurers. If you had the market leverage you could force them to hand it over and Healthscope was well placed.

2002 Government support

The three big hospital companies - Mayne Group, Ramsay Health Care and Healthscope - all benefited from the Howard Government's policies on pushing people into private health insurance, with Ramsay and Healthscope showing significant rises in their total earnings and profit margins.
Leaders Of The Pack Business Review Weekly April 24, 2002

Legitimacy:- Ramsay and Healthscope’s policies were repeatedly compared positively with the disaster that Mayne Health had become, so giving their policies and practices greater legitimacy. They had not antagonized the medical profession. They made much of their good relationship with doctors in their public statements, no doubt drawing the support of many Mayne doctors in the process. They grew and grew, promising better and better profits, until analysts expressed doubt about their ability to meet the targets they had set themselves - but they regularly did so. Investors worried about their ability to integrate new purchases and turn loss making facilities around but Healthscope met its own and exceeded the market's projections.

2003 Proves analysts wrong

We were expecting HSP's profit margins to deteriorate significantly in 1H03 as the company absorbed underperforming private hospitals ahead of management improving their performance, but this did not happen.
We thought the effect would be more negative than it was.
HEALTHSCOPE (HSP) $2.11 - Private Hospitals
Your Money Weekly March 13, 2003

Looking for red flags:- Healthscope’s may well have superior management skills and be able to do better than others. If we look to the US experience for red flags warning of possible problems then we should remember another company with a similar name that always met its own and analysts market projections - HealthSouth. Its chairman is charged with fraud. It is claimed that he simply handed accounting documents which did not meet company projections back to his accountants and told them to adjust them. Over 17 years they added a fraudulent US $4 billion to profits and hid this in multiple complex takeovers. HealthSouth rapidly expanded to totally dominate its marketplace. This was US $4 billion that did not exist.

Bankers:- Investors in HealthSouth allege that compliant bankers played their part. Bankers like Citigroup and UBS have played their part in many frauds using what they call "structured finance" to manipulate company accounts so that losses appear as profits. Citigroup has set aside US $6 billion to settle their involvement in the Enron and other frauds. The Parmalat receiver in Italy is suing Citigroup alleging their involvement in that fraud. These financiers and bankers operate in Australia and we should be critically aware of the potential for problems when companies do unexpectedly well.

Explaining success:- In 2003 Dixon had a simple explanation for the company’s remarkable success. In the absence of conflicting evidence we must accept it. It is nevertheless wise to do so with an open mind about behaviour in the sector and the nature of relationships between financiers and the companies they support and advise.

2003 Why profitable

Dixon says he is often asked why the company is in the business of turning around under-performing hospitals. He believes it is a question of simple economics that allows it to boast the highest margins in the private hospital sector.

The average replacement cost of each new hospital surgical bed is between $400,000 and $500,000 and some of Healthscope's acquisitions have come in between $120,000 and $150,000. In contrast, the company picked up Mayne's hospitals for $50,000 per bed.
Healthscope to bed down new hospitals. Australian Financial Review February 14, 2003

More growth:- Modbury remained a drain on the company and the government refused to take it back. Healthscope continued its growth.

2002 Modbury

Healthscope has offered to hand back management of the hospital (Modbury) to the State Government without penalty and the issue is being reviewed
Contracts stay, The Advertiser May 30, 2002

2002 Growth policy

Healthscope managing director Bruce Dixon said the company would not be easing back on its growth strategy despite acquiring nine hospitals in the past 18 months, and it continued to look for more acquisitions.
Healthscope seeks buys, Townsville Bulletin May 29, 2002

2002 Expansion plans

* Significant expansion of the group during the year through the acquisition of five Satellite/Regional Hospitals (404 beds) and of four Psychiatric Facilities (178 beds) in Victoria, New South Wales and Queensland.
The satellite hospitals acquired significantly enhance our negotiating strength with health funds.
Plans to expand bed capacity at The Melbourne Clinic and The Sydney Clinic are now well advanced.
Plans to expand Northpark Private Hospital and Ivanhoe Rehabilitation Hospital are in the concept stage and await Board approval, - - -
Healthscope Limited (HSP.AX) Preliminary Final Report. Australian Stock Exchange Company Announcements August 20, 2002

2002 Acquisitions

HSP has indeed moved quickly to consolidate the private hospital industry. FY02 saw the acquisitions of: Dubbo Private Hospital, Northpark Private Hospital, Sydney South West Private Hospital, Riverview Private Hospital, Peninsula Private Hospital, Sydney Clinic, Palm Beach/Currumbin, Warburton Clinic, and Victoria Clinic. The first five were medical/surgical hospitals with a total of 404 beds. The last four were psychiatric hospitals with a total of 178 beds. HEALTHSCOPE LTD (HSP) $2.26 - Private Hospitals Your Money Weekly September 12, 2002

2002 Raising money

TRADING in Melbourne-based private hospital operator Healthscope has been suspended for a day while the company raises $25 million to help fund expansion plans.
Healthscope now has 20 hospitals in Queensland, NSW, Victoria and South Australia. And managing director Brian Dixon said the company was still on the acquisition trail.
"With more size you certainly get better leverage with the health funds, and you also get some savings through economies of scale in areas like finance and supplies."
Healthy, wealthy and eyes for more buys. The Australian August 21, 2002

2002 Consolidation

"We predict that consolidation of the industry will accelerate as stand-alone hospitals lack the scale benefits of the larger groups," the group (Healthscope) said. Healthy Healthscope raising $28m. The Sydney Morning Herald August 21, 2002

2002 Development program

Healthscope also intends to continue on the acquisition trail, although growth will also be fuelled by $15million in developments adding 58 beds to capacity at the company's Melbourne and Sydney clinics by 2004.
Investment - Healthscope off the critical list Australian Financial Review October 9, 2002

2002 Latrobe University Private Hospital

National private hospital owner/operator Healthscope Limited announced today that it has entered into an agreement to acquire La Trobe University Medical Centre Private Hospital (LUMC-PH) at the La Trobe University's Bundoora campus. The agreement is subject to a number of conditions, including transfer of the hospital licence and obtaining a number of third party consents.
LUMC-PH, which is currently owned by Independent Practitioner Network Limited (IPN) (formerly Lifecare Health Limited), - - - -
Healthscope Limited (HSP.AX) Agreement to Purchase LaTrobe Uni.Medical Centre Private Hos. Australian Stock Exchange Company Announcements December 24, 2002

Mayne's loss making hospitals:- By 2003 Mayne Health was in deep trouble and sold off a package of 6 money losing hospitals. Healthscope snapped the package up at a low price even though there were some it would rather have done without. As some of these were colocated private hospitals and one a privatized public hospital there were complex issues and disputes between government and the previous owner to resolve. Healthscopes successful business philosophy of escaping competition is clearly spelled out by its MD to justify buying these money losing entities.

Later in 2003 Mayne had all its hospitals for sale. Healthscope was interested in some of them but Mayne elected to sell them as a package to a Citigroup linked consortium of venture capitalists.

2003 Sixpack from Mayne

Mayne Group Limited has reached an agreement with Healthscope Limited for the sale of six hospitals. The hospitals are Hobart Private, St Helen's Private, Mersey Community Hospital, National Capital Private, Geelong Private and Mosman Private.
The agreement is conditional on licence transfers and agreement from government authorities with responsibility for assigning leases and transfer of operating agreements.
Mayne Nickless Limited (MAY.AX) Divestment of 6 hospitals&Assoc writedown&Significant items. Australian Stock Exchange Company Announcements February 3, 2003

2003 Sixpack from Mayne

The disappointing performance of the six hospitals meant Healthscope got an attractive package deal, paying about $50,000 per bed, compared with previous acquisitions in which it had paid more than $120,000 per bed.
Mayne Cuts Out Rot For $90m Australian Financial Review February 4, 2003

2003 Sixpack and leverage

Buying Mayne Group's hospital division amputations was a "very big deal" for Healthscope but the low-profile operator is confident it can make money where the industry giant could not.

The six hospitals to be acquired will lift Healthscope's network to 27 hospitals with almost 2100 beds.
"They fit ideally with Healthscope's strategy of developing a quality portfolio of regional/satellite medical surgical hospitals, psychiatric and rehabilitation hospitals."

Mr Dixon said Healthscope's hospitals had been selected on the basis that they did not have much or, in many cases, any competition from other hospitals. This gave the company extra clout when negotiating insurance reimbursement rates with the powerful health funds.

He said Healthscope's medical and surgical hospitals were in regional centres such as Darwin and Dubbo, where they were the only private hospitals in town.

When Healthscope hospitals were in larger cities, they offered specialised services such as psychiatry and rehabilitation that were not offered by the other operators.

"The key to the whole industry is the rates you get off the health funds," Mr Dixon said.

Healthscope has good bargaining power with the powerful health funds, he said.

"The hospitals are all in very strong positions and it is essential for a health fund to have a contract with Healthscope if it wants to write business in, say, Darwin, Dubbo or Burnie.
(In reference to a general hospital near Melbourne)
"It's too far for people or doctors to travel to Melbourne so, like in Darwin, we have a captive market."

While Healthscope's psychiatry hospitals are in Melbourne, they are the only ones and the company does "pretty well" all the psychiatry in Victoria.
Healthscope happy to play the monopoly game. The Sydney Morning Herald February 4, 2003

2003 Leases

The acquisition of the National Capital, Geelong, Mosman and Hobart Private Hospital businesses involves the transfer of leases for the land and buildings and purchase of all equipment and leasehold improvements.
In regards to Mersey Public Hospital, Healthscope will takeover Mayne's role under the management agreement to operate the public hospital and also purchase the hospital equipment.
Healthscope Limited (HSP.AX) Acquires 6 Mayne Hospitals. Australian Stock Exchange Company Announcements February 4, 2003

2003 Sixpack and leverage

What is interesting about the Mayne hospitals is how well they fit into Healthscope's portfolio. If Dixon had been able to choose a preferred group of hospitals to buy from Mayne, he could not have done much better than those he ended up with. Since 1997, Healthscope has been creating a portfolio of hospitals that have a strong or dominant market position. Its hospitals are either in regional areas, where there is usually only one hospital, or, if in the metropolitan area, they are set up to provide a specialist service not otherwise available in the same area.
Hospital Pick-me-up Business Review Weekly March 13, 2003

2003 Problems with leases

Healthscope Limited advises - - - it has now completed the acquisition of - - - -

Hobart Private Hospital
St Helens Private Hospital
Mersey Public Hospital.

The completion on the other 3 hospitals, - - -has been delayed due to delays in the assignment of various leases.
Healthscope Limited (HSP.AX) Completes acquisition of hospitals from Mayne Group. Australian Stock Exchange Company Announcements April 14, 2003

2003 Leverage

And, unlike most other industries, it is not the biggest operators who have the most bargaining power. It is location that counts, and Ramsay and Healthscope have built their networks around this principle.
Health returns on the mend. The Age April 18, 2003

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National Capital Private Hospital

The sudden sale of their colocated hospital ruffled some feathers in Canberra. Negotiations with Canberra dragged on for 6 months and Healthscope had to agree to new lease conditions improving services before they were granted the lease. Whether these were to plug areas exploited by Mayne to reduce costs is not clear.

2003 Government

The ACT Government has been treated like a 'rubber stamp' in Mayne Group's secret negotiations to sell six hospitals, including National Capital Private, a spokesman said. But Health Minister Simon Corbell said yesterday the Government would investigate the proposed lessee's credentials and protect the community's interest
The Government - which leased the building to Mayne Group and had to approve changes to the agreement - was disappointed to learn about the deal via a media release.
Private hospital sale to be investigated.
Canberra Times February 4, 2003

2003 Delays

The ACT Government is yet to give the green light to the sale of National Capital Private Hospital, five months after the owners announced plans to sell the facility. - - - - - A spokeswoman for ACT Health Minister Simon Corbell said yesterday Healthscope had to meet conditions and provide certain services to secure Government approval for the sale.
Sale held back The Canberra Times July 15, 2003

2003 Completed

Mayne Group Ltd advised that the company has completed the sale of National Capital Private Hospital to Healthscope Ltd. This completes the sale of all seven hospitals announced earlier in the year.
Australian Company News Bites August 25, 2003

2003 Conditions

Healthscope had to agree to new lease conditions such as providing 24-hour medical coverage, developing an anaesthetists roster in partnership with Canberra Hospital and setting up a high-dependency unit. It would work as a transitional unit for seriously ill patients moving between intensive care and the general ward. National Capital Private Hospital would now handle patients with more complex conditions, improving options for private health insurance members and potentially relieving pressures on the public system.
"National Capital Private Hospital was our target in the whole group [of six hospitals sold by Mayne Group]," Mr Dixon said.
National Capital Private sale a boon for patients, says Corbell. Canberra Times August 26, 2003

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Geelong Private Hospital

This colocated hospital sale in Victoria was soon embroiled in a conflict with the local Barwon Health Authority which had to approve the sale. Barwon Health claimed that Mayne had not met the conditions of its agreement and in particular had closed its intensive care facilities, throwing the burden and cost onto the public hospital. The courts found that the authority had no right to block the sale - a precedent setting victory for the market and a defeat for the community. As was done with the National Capital Private Hospital Healthscope compromised by setting up a high dependency unit but this is a much less costly substitute which escapes the very costly ICU patients. It takes some pressure off the public hospital ICU. This is not a criticism as ICU's require the sort of staffing and organisation which private facilities have more difficulty in providing. Duplication on the same campus simply dissipates limited resources and skills. This moves the costs from the private to the public system. The latter is so severely underfunded in Australia that they have difficulty in providing adequate services. The private operator does not pay their share.

2003 Transfer lease denied

Barwon Health is refusing to reassign the lease because it is disappointed with a Mayne decision to close the intensive care unit at the Geelong Private hospital.

It is also concerned that there is no doctor constantly on the premises at Geelong Private, according to a memo written on February 3 by the chief executive of Barwon Health, Sue de Gilio. Mayne Hospitals Sale Stalled The Age (Melbourne) February 11, 2003

2003 To court

The legal battle over the sale of one of Mayne Group's loss-making private hospitals ended on Friday - - - - -
The court ruled on Friday that Maybury Craft (Mayne linked vehicle) did not have to seek Barwon Health's consent to transfer the sublease to Healthscope, clearing the way for the sale.
Mayne Gets Its Hospital Discharge
Australian Financial Review June 14, 2003

2004 Compromises

The high-dependency unit will open its door on Monday as part of a $500,000 overhaul of the hospital.
After-hours medical cover will also be re-introduced next week, with doctors in the hospital 24-hours a day.
Growing surgical areas at Geelong Private include orthopedics, urology, vascular surgery and more complex general surgeries.
Modern unit for hospital Geelong Advertiser February 27, 2004

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Mosman Hospital in NSW and Mercy Hospital in Tasmania

NSW is the state where colocations and privatisations were intensely disputed. The state government has been opposed to the whole concept and has been in repeated conflict with Mayne in regard to the privatised Port Macquarie Base Hospital which they bought back from Mayne when it sold its other hospitals to Affinity Health. Allegations suggest that Healthscope wanted to turn the Mosman hospital into a psychiatric hospital but it denied this. It took 6 months to renegotiate the lease of this hospital and we do not know the nature of these negotiations. What happened at Mosman Hospital is such a good illustration of the way the market operates in its own rather than the community's interests that I have given it a separate page.

Click Here to go to the Mosman page

The Tasmanian labour government did not hold up the transfer of the leases of the loss making Mercy Public Hospital or the colocated Hobart Private Hospital. It seems obvious that after Modbury Healthscope did not really want another loss making public hospital and the government was happy to let Healthscope hold the leaky baby. The hospital was soon in crisis with the community, the nurses and the doctors up in arms, all putting intense political pressure on the government. Government eventually took the hospital back without penalty. One can only guess that Healthscope were delighted. This too is an excellent illustration of the thinking of the corporate sector and the clash between it and the interests of the community. I have created a separate page.

Click Here to go to the Mercy Hospital Page


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Other Expansion

Adelaide Community Healthcare Alliance

Healthscope had targeted individually owned community hospitals and not for profit groups. Its growth and success in gaining negotiating leverage was accomplished by including these groups. The largest and most successful of these was the management agreement with the loss making Adelaide Community Healthcare Alliance, a large group of community hospitals in Adelaide, South Australia.

The hospitals were subjugated to the ruthless rigor of the marketplace and became part of Healthscope's negotiating block so securing better payment for services. From a market perspective it was a win win situation for both but whether it was anything like that for the community and the patients remains to be seen.

It is too early to tell whether this PACMAN activity in Australia will have the same consequences as it did in the USA where Columbia/HCA, Tenet Healthcare, and Sun Healthcare, all companies that tried to set up in Australia, were among the prime culprits. I have therefore devoted a separate page to the ACHA agreement and the events surrounding it.

Click Here to go to the ACHA page

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The insurers

The ACHA management agreement gave Healthscope the leverage in South Australia to take on its largest health insurer, the UK giant BUPA. In the bitter commercial dispute which followed the patients became the meat in the sandwich and the ultimate victims of this competitive marketplace - one which theorists claimed would serve them so well. It illustrates the way the market operates so well that I have given it a separate page. It seems likely that success in this dispute was a key element in making these ACHA hospitals profitable, something the not for profits were incapable of doing on their own. The two were interdependent.

Click Here to go to the page on the dispute with insurers.

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Matters of Concern

Growth for growths sake:- Healthscope's success seemed to go to its head and served to fuel its self confidence. Its public statements were initially at variance with the concerns of analysts that it was overreaching itself and would be unable to turn around so many money losing facilities. They would have to spend money on them. There was some ambivalence about its growth and concern about "growth for growth's sake". It was praised for its policies but it was considered to be a high risk investment. It was now on a par with Ramsay Healthcare in size and in negotiating leverage.

Negotiations:- Healthscope was at this time facing upcoming negotiations with insurers and also with nurses who were demanding a large pay increase. Large profit projections would not be in its interest at these negotiations and it reduced its projected profits for 2005. Whether these negotiations were the cause of this or whether they understood and acknowledged the difficulties is not clear from the reports.

Competition:- The other problem for Healthscope was that it now owned many more medical/surgical hospitals. These were more costly to run and there was greater competition. They were less profitable. Healthscope was venturing back into the competitive corporate marketplace. This marketplace had nearly destroyed it in 1994/5 and its success was based on escaping from this competitive market.

Psychiatry and Rehabilitation:- Because of the nature of the problems dealt with it is often difficult to show objective data proving benefit for many psychiatric treatments such as psychoanalysis with its long consultations. Such benefits may be obvious to patient and therapists yet be difficult to measure objectively. It is easy to exploit the opportunities presented by this situation. Corporations in the USA had made vast profits by giving as much worthless treatment as they could squeeze into 24 hours for as long as the insurers paid up. Australian insurers were threatening not to fund or to reduce payments for many psychiatric treatments.

Rehabilitation therapy is vulnerable to overservicing as treatment can be continued long after any real benefit is likely. This can be done as deliberate fraud or in the hope of some benefit. Terminating treatment can be a crushing blow to a still hopeful but crippled patient and knowing that the patient would not have to pay is a carrot for providers to continuing care. This is another opportunity for the unscrupulous.

In the USA the rehabilitation system was extensively exploited for profit. When the payments for excess therapy given in step down facilities in the USA was restricted in 1997, the volume of treatments plummeted, therapists were fired and most of the large corporate chains in this sector entered bankruptcy. They could no longer service the loans they had raised to fund their rapid growth into this lucrative market. Many were charged with fraud. In early 2005 the US rehabilitation giant HealthSouth paid US $400 million to settle allegations of Medicare fraud. I have no information of any Medicare fraud or of a threat to restrict rehabilitation services in Australia.

One can only speculate as to whether a threat to Healthscope's psychiatric and rehabilitation niche profits along these lines prompted the sudden return to medical/surgical hospitals, the diversification into pathology and the challenge to BUPA.

2003 Threat to psychiatric funding during dispute with BUPA

HBA (BUPA in Victoria) is proposing to cut funding for psychiatric inpatient treatment by nearly half and will pay nothing for patients who receive treatment as a day-patient at several of Victoria's most highly regarded psychiatric hospitals - The Melbourne Clinic in Richmond, the Victoria Clinic in Prahran, The Warburton Unit in Ivanhoe, Northpark Private Hospital in Bundoora and the Geelong Clinic.

They account for about 70 per cent of Victoria's private psychiatric beds, - - - - - - -
HBA's Changes Will Affect The Most Vulnerable (by Professor Isaac Schweitzer, The Melbourne Clinic, Richmond) The Age September 27, 2003

Corporate culture Note that Healthscope trains its own management. Tenet/NME, a US provider of psychiatric, rehabilitation and chemical dependency services also trained its own management staff. They were brought to company headquarters for this. This training was essentially a process of immersing them in a dysfunctional corporate culture which placed profit before care and justified practices which misused patients for profit. As a consequence thousands of patients who did not need hospitalisation, many of them normal children, were conned into hospitals where they were kept for long periods and misused for profit. Many were harmed. The market was ecstatic in its praise and these successful managers were soon tempted away by competitors spreading the culture and practices across the industry.

Note also that Healthscope usually fires the management of the companies it purchases or manages and appoints its own internally trained staff. It did so with AHCA and then later with Gribbles. This ensures that any conflicting local culture is changed and is possibly replaced by a culture which places Healthscpe's corporate interests first. In fairness it could also be remedial when the target has a culture which tolerates dysfunctional practices.

Corporate thinking:- Note the statement in one of the press extracts that Healthscope runs "some of the best private hospitals in Australia". This is exactly what was said by analysts about Tenet/NME's US hospitals in the early 1990s. What they meant was that these hospitals were among the best at making profits. That the market equates making money with the provision of high quality care is clear from US documents. Tenet/NME itself did this. Internal documents show that when managers went to evaluate hospitals this evaluation was made, and quality was reported, on the basis of indicators of profitability. These quality reports were used to refer to quality of care in reports to their own staff and in their marketing to the public. This was not deliberate deception. It was simply that the market was unable to distinguish between profitability and care. If the profits were high then care must be good. To them the two were interdependent. This was asserted in meetings with staff in order to bind them to a dysfunctional corporate mission which compromised care.

2003 Growth compared to rival Ramsay

The group has more than doubled in size in the past 18 months and is gaining market share on the No.2 operator in the private hospital sector, Ramsay Healthcare.
Mr Dixon said the increasing size of the group gave it more collective clout in contract negotiations with the private health funds that are due to begin around mid year.
Healthscope was in a strong position because of the strategic regional placement of its hospitals.
Acquisitions boost hospital group profits. Australian Financial Review February 20, 2003

2003 Mental Health and Consolidation

The demand for mental health services continues to grow. Our facilities are experiencing strong demand and we anticipate this will continue to grow into the foreseeable future. The division was expanded during the reporting period, with the established psychiatric services at the Pine Rivers Private Hospital (previously Riverview) servicing the northern suburbs of Brisbane.
We anticipate the consolidation of the industry will continue to accelerate. We believe that we are well positioned to maintain our consolidator role in the market.
Healthscope Limited (HSP.AX) Half Yearly Report & Half Year Accounts.
Australian Stock Exchange Company Announcements February 20, 2003

2003 Making new acquisitions profitable - and insurers

From about 1500 beds now, and assuming the Mayne and ACHA contracts are signed in a few weeks, Healthscope will soon have 31 hospitals with almost 2700 hospital beds (about 9% of the national private-hospital market) and be providing medical, surgical, psychiatric and rehabilitation facilities. The company will then be about the same size as the second-biggest private-hospital company, Ramsay Healthcare.
The big challenge for management, led by managing director Bruce Dixon, is to quickly improve the finances of the new hospitals at a time when operating conditions for private health care are tightening.
If Healthscope can quickly improve the operational efficiency of its new hospitals and obtain higher payments from health funds, it will be a big achievement. Dixon is sure that Healthscope will be able to meet the demands, although he acknowledges the concerns of many market analysts that the expansion will test management abilities.
"Health care is all about management. We have always preferred to train our own people, we have always had pretty high expectations of them, and so far it has worked out."
Hospital Pick-me-up Business Review Weekly March 13, 2003

2003 focus

HSPs focus for the next two years will be on integrating recent acquisitions, managing cost increases and negotiating hard with health funds. We expect the market will continue to focus on the risks to hospital margins in an environment where financially constrained health funds are reluctant to grant the rate increases hospital operators would like. Maintain REDUCE recommendation.
HEALTHSCOPE LIMITED (HSP) $3.14 - Health Care Your Money Weekly September 11, 2003

2003 Costly fued with insurer BUPA not won by Healthscope

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

2003 ACHA - will have to adapt to Healthscope's failure to get what it wanted from BUPA

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

2004 Growth for growth's sake

Sydney Southwest Private, located in Liverpool, was acquired from a receiver and management has underestimated the time to turn around the operation. This perhaps indicates a management group interested in growth for growth's sake rather than ensuring the asset can quickly achieve adequate returns. In contrast is the proprietorial discipline practiced by the Chairman of RHC, Mr Ramsay, who holds a 51% stake.
HSP is fully valued. We are concerned over the ongoing level of capital expenditure that may be required to revitalise the quality of its asset base. Alternative companies represent better value, Hold.
Your Money Weekly May 6, 2004

2004 Interest in buying Benchmark hospitals

Benchmark also received bids from Affinity Health and Healthscope. - - - - - - -while Healthscope tendered only for the Victorian hospitals.
Benchmark operates six hospitals in Victoria and four in South Australia.
Ramsay Beds Down Another Purchase
Australian Financial Review May 25, 2004

2004 Medical/Surgical Hospitals - Upcoming negotiations

Healthscope's hospital portfolio, accounting for 2400 beds nationally, is now dominated by medical/surgical hospitals including six acquired from Mayne Group in February 2003.

Mr Dixon said the margins on these were still half that of Healthscope's existing hospitals, and reiterated it would take two to three years to turn these around.
Healthscope's stance is also fuelled by not wanting to be seen as too confident in the lead up to negotiations with health insurers and enterprise bargaining agreements with nurses in Victoria, Tasmania and South Australia.
Healthscope's patchy diagnosis The Australian August 19, 2004

2004 Holding back on predictions

Private hospital operator Healthscope was forced to rein in bullish market forecasts of a 20 per cent increase in profit this year, replacing it with a more modest prediction of a minimum 15 per cent rise in earnings for the financial year.
Healthscope had adequate reserves and balance sheet strength to swallow a sizeable acquisition this year, the CEO said.
He declined to comment on market speculation that Healthscope had made an informal offer to buy the listed pathology business Gribbles.
Low margins need treatment
Australian Financial Review August 19, 2004

2004 A market wary of the best hospitals - Note ACHA not profitable after battle with BUPA collapsed

Despite the rush for anything with an exposure to the sector, investors have given Healthscope a wide berth, despite the company running some of the best private hospitals in Australia.
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.
- - - - we are impressed with the management at Healthscope and their concentration on hospitals with particular skills, excellent locations," Barker said.
Healthscope is feeling poorly
Australian Financial Review October 12, 2004

2004 Managers

For one, on its ambitious expansion trail in recent years, Healthscope acquired 20 hospitals, to 13 of which it appointed new managers (a stockbroker for instance). The stock had a majestic run on this spending spree before the market worked out that new acquisitions took time to bed down.
Margin Call : Too much scope The Australian October 20, 2004

2005 A new hospital in Sydney

Healthscope Ltd has entered into an agreement with Caversham Property Pty Ltd a division of Futuris Corporation Ltd for the development of a new private hospital in Campbelltown, NSW. On completion of the development Healthscope will own and operate the private hospital.

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Psychiatric public bed shortages

As a matter of policy governments across Australia have, over the years, closed psychiatric institutions returning permanent patients to the community. But they have not funded adequate community structures to properly care for them. As a consequence many are housed in inadequate residential and semi institutional hostels. It is estimated that up to 50% of the large number of homeless living on the streets of our largest cities have psychiatric illnesses.

One of the consequences of this has been a greater load of psychiatric patients for acute services and a lack of psychiatric facilities to send them to. Healthscope was only too eager to step into the breach, assuming of course that they were well paid but others had some doubts about this as a permanent solution.

2005 Public psychiatric care

THE State Government will consider using private hospital psychiatric beds to ease the pressure on public hospitals.

The Age revealed last week that Government-commissioned research showed mentally ill patients had spent up to five days in emergency departments because no public psychiatric beds were available.

Health Minister Bronwyn Pike said yesterday the Government was open to the idea of using private hospital beds for psychiatric patients.
One option that may be explored is transferring voluntary patients in public psychiatric wards to private beds, freeing up public mental health beds for involuntary patients.

The national manager of psychiatry at private provider Healthscope, Sue Williams, said there were 350 private psychiatric beds across the state and the Government should consider them. "Most of the private hospitals have capacity to take more patients," she said.
Australian Medical Association Victorian president Sam Lees said, as a short-term measure, it was a good idea to alleviate pressure on emergency departments, "but it mustn't be looked at as a long-term way out for the Government".
State looks at private bed cure for shortage The Age February 22, 2005


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Buying Gribbles Pathology

(Note that in Jan 2006 a page examining the controversial Gribbles Group and its history was added to this web site. This contains more information about this purchase. It examines Gribbles peculiar history and conduct more closely)

At a time when analysts were worrying about Healthscope's ability to cope with all its purchases and turn them around Healthscope went off and made the largest of its many purchases, buying the large multinational pathology group Gribbles - a group with a checkered past that was facing bankruptcy. No one else wanted it. I have written about Gribbles elsewhere and will deal here with this purchase as it applies to Healthscope. Healthscope had recently burnt its fingers by challenging BUPA a multinational insurer. It would have recognised the competitive advantages of operating in countries where the citizens are not your shareholders. Unsavoury commercial enterprises, generating adverse local publicity in other countries do not impact on stock value.

The financiers:- The giant financial institutions make large profits from managing mergers and takeovers. They thrive when there is a merger and takeover frenzy in the market. They are the authorities on the marketplace and advise corporations through seminars and conferences. Their bankers and analysts attend board meetings to advise on market strategies. They promote consolidation and growth.

This is entirely self-interested as they raise the loans and the money for these companies, charge fees, and then hedge themselves against the consequences. The extent of this self interest was revealed in the recent Wall street scandals and the Dotcom collapse. Bankers and analysts in Citigroup, UBS and many others were largely responsible for the advice which resulted in the financing and rapid growth of companies which had poor prospects and little ultimate prospect for profitable operations. Their share prices were artificially maintained by deceptive analysts richly rewarded by their banker employers.

The financiers assisted their corporate clients in setting up fraudulent financial arrangements, under the guise of "structured finance", so maintaining the bubble and their profits. Ultimately the bubble burst and everyone except the bankers and others involved in the strategy lost money. The extent to which this has or is still happening in Australia is not known.

The lack of insight shown by Wall Street financiers, their subsequent implication in more scandals in countries like Japan and Italy, and their extensive operations in Australia must raise concerns about the advice Healthscope is getting.

A similar thing happened in the nursing home and step down care industry in the USA. Corporations, already supported by large loans entered into massive costly mergers and purchases in order to secure market leverage. They were then unable to generate the profits they expected resorting to fraud instead. They collapsed when their excesses were controlled in 1997 and by 2000 it was difficult to find anyone to give a nursing home to.

Again one can only speculate on the extent to which this is happening in the consolidating Australian health care market in 2004/5.

2005 Financial institutions

Australia's investment bankers and stockbrokers shared in a record feast of $US90 billion ($115 billion) in corporate takeovers and capital raisings last year, and expectations are high that 2005 will also produce strong activity.
Takeover frenzy: $115bn...and hungry for more
Australian Financial Review January 5, 2005

Gribbles history:- Gribbles was the fusion of Shell trained Ian Trahar's Revesco/MCS, and Wallace Cameron's Gribbles Pathology. Gribbles was founded by a group including Wallace Cameron. It provided veterinary and human pathology services in Australia, New Zealand and in Asia. Cameron and Malaysian groups were the major shareholders. Gribbles was in repeated conflict with Australian authorities during the 1990s in regard to financial arrangements with doctors which many considered to be kickbacks.

Trahar had taken the failed mining company Kiwi Gold, renamed it Revesco and entered the general practice corporatisation market in Western Australia. It also bought Pathology laboratories and radiology. In 2000 Revesco became Medical Care Services (MCS). It was never very profitable and in 2001 it did a reverse takeover of Gribbles, assuming the Gribbles name.

Trahar seems to have retreated from the scene and sold his holding. Cameron was left to manage the company. He controlled the largest block of shares, a little under 50%.

Gribbles has been dogged with ongoing problems culminating in concerns about governance and about adequate disclosures of interest in 2004. The board eventually fired Cameron as CEO, and set about trying to sell what was now a large debt ridden hulk with a rapidly sliding share price. Mayne and Sonic would have had competition issues with the ACCC and decided they did not want Gribbles. Only Cameron attempted to raise the capital to buy back his company but he did not have the market's support. Healthscope was the only bidder.

2004 Gribbles comment

GRIBBLES chairman Bernard Wheelahan wore a black tie yesterday to mark the pathology company's last annual general meeting, - - - -
He said Healthscope's $284.6million takeover offer of 63c a share was a satisfactory outcome for investors and employees. "We could have disappeared altogether," Mr Wheelahan said, describing the past year as "trying and traumatic".
In a statement to the AGM, Healthscope managing director Bruce Dixon said "culturally the companies are complementary and we predict a smooth transition".
Gribbles chairman talks up takeover The Australian November 30, 2004

2004 Debt ridden

Healthscope instigated its offer for Gribbles in October after the debt-ridden pathology group declared itself up for sale.
Healthscope almost has Gribbles in its blood The Age December 14, 2004

The takeover and the doubters:- Nobody else was interested in buying Gribbles except Walter Cameron the recently displaced CEO. He controlled the major share holding group in Gribbles but lacked the credibility to raise the finance needed. He held a blocking stake and used this to force Healthscope to raise its bid from 60 cents a share to 63 cents.

Healthscope made what many considered to be excessively optimistic projections for the additional profits which would be developed from the synergies obtained by buying Gribbles. Analysts expressed strong reservations.

The press extracts tell the story of the purchase.

2004 Cameron vs Healthscope

A $270 million takeover battle for pathology company Gribbles will begin soon, after the board received indicative bids last week from health sector players believed to include hospital operator Healthscope and private equity firms linked to deposed Gribbles chief executive Wallace Cameron.
It (Healthscope) has no pathology division and is keen to gain exposure to that end of the health industry, which is experiencing massive growth in demand fuelled by the greying of the Australian population and increasing use of diagnostic tests by GPs.

Pathology is a high-tech, high-volume business; modern laboratories can process thousands of tests a day.

Gribbles is one of Australia's biggest pathology businesses. It has 30 laboratories, more than 1000 staff, several thousand doctor clients and tests more than 3 million patients each year.
Battle for Gribbles set to begin Australian Financial Review October 11, 2004

2004 Critical mass

Healthscope is on the lookout for acquisitions, and has reached the critical mass that would allow for pathology it now outsources to be brought in-house.
Analysts said Healthscope was a more likely contender than Mayne Group or Sonic Healthcare, which are said to have looked at buying Gribbles, but would face competition issues.
Gribbles future still foggy The Australian October 12, 2004

2004 Cameron

Sources told The Age yesterday that Gribbles founder Wallace Cameron and his private equity partners had withdrawn a rival bid. However, it is not known whether they plan to re-emerge and trump any offer endorsed by the Gribbles board.
In balance-sheet terms, Gribbles is about $110 million richer in shareholders equity. If Healthscope succeeds in a bid, it would inherit about $61 million in current debts.
Cards on the table for Gribbles, but founder could trump The Age October 16, 2004

2004 Healthscope offer

Gribbles Group Ltd has entered into an agreement with Healthscope Ltd under which all shareholders in Gribbles will receive a cash takeover offer of 60c per share, valuing Gribbles at $271 million equity value and enterprise value of $415 million.

2004 Gribbles board accepts offer

Healthscope, advised by Gresham Advisory Partners, said it would fund the acquisition with bank loans, underwritten by Australia and New Zealand Banking Group Ltd., and a renounceable share issue, underwritten by Macquarie Bank Ltd. and Goldman Sachs JBWere.

Gribbles, advised by Global Markets Capital Group, has agreed to pay a A$2.7 million break fee if Healthscope is outbid, EC Medical Investments does not accept the bid, or the independent directors withdraw their recommendation.
UPDATE 3-Australia's Healthscope bids A$271 mln for Gribbles. Reuters News October 20, 2004

2004 Doubts

TO mental health and making a new start. From its birth (float) as an operator of psychiatric hospitals, Healthscope's early years were troubled. But it got through corporate pubity and found its real self, got its act together and grew into an impressive market performer.

But it is Frank Sources' gut feel that taking on Gribbles could be a shocker. Well, 'problematic' was the epithet that Sources used.
Margin Call : Too much scope The Australian October 20, 2004

2004 Optimistic forecasts

Healthscope yesterday forecast extra revenues of $35million a year by 2006 through synergies and an 11.8 per cent rise in earnings per share if the takeover is successful. Cost savings are forecast at about $4 million. But analysts told The Australian that projected synergies seemed overly optimistic. "They'll be lucky to achieve what they are pitching," said one analyst.
Healthscope bid gets wary diagnosis The Australian October 21, 2004

2004 Justifying forecasts

Healthscope management presented at a GSJBW lunch in Melbourne on Friday, spending a lot of time explaining why it could achieve the $35 million in modelled revenue gains by migrating its hospital's pathology work to Gribbles.
Street Talk : Pathology push hits price rise hurdle Australian Financial Review October 2004

2004 Some more optimistic

The synergies will enhance the combined group. The merger will cause a drop in earnings for FY05 but will significantly enhance earnings from FY06 onwards. Assuming acceptance we expect the value of the combined business to increase.
HEALTHSCOPE LIMITED (HSP) $3.66 : Acquisition of Gribbles Your Money Weekly October 28, 2004

2004 Cameron under pressure

Winning the support of Mr Cameron, who founded the company and was its managing director for 15 years, was always going to be a challenge. He was the only director not to support the Healthscope offer publicly when it emerged two weeks ago and has made no secret of his wish to privatise the company.

However, it is believed that Mr Cameron, who is being investigated by the Australian Taxation Office about $10 million in dividends that have flowed to ECMI over the past two years, has been facing pressure from his advisers to sell.
Healthscope's 5% lift in offer quickens Gribbles' interest The Age November 3, 2004

2004 Cameron accepts

Cameron has now recommended the revised offer (63c up from 60c), in the absence of a superior proposal, so it is now unanimous.
Looks like a healthy rivalry is narrowed down to two The Australian November 4, 2004

2004 Doubts remain

But analysts and fund managers remain sceptical of Healthscope's ability to extract the $35 million in synergies promised by fusing together 28 hospitals and a sprawling pathology business.

George Raftopulos of Constellation Capital Management said Healthscope was already under operational pressure due to a number of underperforming hospitals, while the higher price paid to win Gribbles considerably inflated its earnings risk profile.
But Mr Raftopulos was unsure Healthscope would deliver on its earnings promises. "Some larger and possibly better operators than Healthscope have struggled to deliver, so how will these guys do it? I would suggest that the risk of delivering earnings has gone up.

"My view is that before the acquisition, Healthscope had their hands full with some operational issues which they still had to demonstrate to the market they had got on top of, be that acquisition of hospitals from Mayne or issues over some existing hospitals," he said. "Operationally, they had a lot on their plate. Now, with this acquisition, the risks of them delivering or not delivering operationally has increased because not only do they still keep what they had on track which was a reasonably challenging task but now they also have a business which is different to what they've had in the past."
Healthscope win raises doubts Australian Financial Review November 4, 2004

2004 Doubts remain

Scepticism over private hospital operator HealthScope's forecast benefits from its takeover of pathology group Gribbles continues to rumble along, with UBS downgrading its forecast on HealthScope over concerns about management's claimed benefits.
Business : Under the Scope The Sydney Morning Herald December 7, 2004

2004 Successful takeover

Healthscope Ltd has achieved the 90 per cent acceptance level for Gribbles Group and intends to declare the bid unconditional.

It will also today launch the renounceable pro-rata equity issue of 3 for 4 at $3.10 per share to raise $207.9 million, underwritten by Macquarie Equity Capital Markets Ltd and Goldman Sachs JBWere Pty Ltd.

Management replaced:- Healthscope's first action was typical of its past practices. It fired all of Gribbles top management and put in its own people.

2004 Replacing Gribbles management

A FORMER Australian Business Woman of the Year, Judith Slocombe, is one of several Gribbles Group executives to lose their jobs in a clean-out of senior ranks under new owner Healthscope.

While the hospital provider made no secret of its plans to cut staff to save costs, it is believed some redundancies have come as a surprise. It had been widely assumed that Dr Slocombe's role as manager of pathology would have given her a key role in integrating the company's operations into the Healthscope business.

Other members of the group's executive committee to be ousted include its interim chief executive, Andre Carstens, chief financial officer Chris Lloyd and human resources manager Faye Shelton.
Healthscope has promoted its Victorian manager of hospitals, Steve McAllister, to head the pathology division.
Healthscope cleans out Gribbles' upper ranks The Age December 23, 2004

2005 More replacements

THE clean-out of former Gribbles Group executives continues under the pathology provider's new owner Healthscope, with Malcolm Stringer the latest to be shown to the door.

Dr Stringer was the company's national operations manager until last week, and his departure follows that of former manager and one-time Australian Business Woman of the Year, Judith Slocombe, chief executive Andre Carstens, financial officer Chris Lloyd, human resources manager Faye Shelton and general manager Ray Doyle.

While a Healthscope spokesman tried to downplay the situation by saying Dr Stringer's was just an "operational role", we understand he was actually kind of important.
FULL DISCLOSURE The Age May 9, 2005

2005 Manager sues for wrongful dismissal

A FORMER Australian businesswoman of the year, Judith Slocombe, is suing a major health group for more than $300,000 in wages and bonuses she claims to have lost after being dismissed last year.
Documents filed at the County Court claim Healthscope allegedly breached her employment agreement by dismissing her in December after she was told her position had been made redundant.
Former executive seeks $300,000 for sacking The Age August 10, 2005

Asia:- Healthscope had originally indicated that it would hang on to Gribbles operations in Malaysia, Singapore and probably India. It soon decided that India was losing too much money and decided to get rid of it.

2004 Asian holdings

Healthscope Ltd. (HSP.AX) has no plans to sell the businesses that its takeover target Gribbles Group Ltd. (GGL.AX) owns in Malaysia, Singapore and India, or its analytical lab arm Amdel. "There's certainly been no decision to exit any of the businesses, including India," Healthscope Managing Director Bruce Dixon told analysts and media - - - - -
Healthscope has no plans to sell Gribbles Asian arms. Reuters News October 20, 2004

2005 Asian holdings

The Gribbles offshore operations had been reviewed.

Healthscope had confidence in the pathology businesses in Malaysia and Singapore and expected that these businesses had further revenue and profit growth potential.

The company was moving to reduce its exposure to the loss-making Indian pathology business.
Healthscope to focus on Gribbles after record profit (update) Australian Associated Press Financial News Wire February 16, 2005

2005 Sells in India

Healthscope Ltd (ASX:HSP) will sell its shares in Pathnet India Pvt Ltd to Metropolis Health Services (India) Pvt Ltd.
Healthscope to sell Pathnet India Ralph Wragg Australian Business News August 4, 2005

Doctors and Gribbles:- One of the concerns about Gribbles profitability is that it has not been viewed positively by the specialist community and has perhaps not attracted the sort of recognized pathologists hospital specialists would use. Its business practices with doctors, like those of Primary Healthcare have attracted the attention of authorities and quite possible of the medical establishment.

Gribbles has not offered many services to hospitals in the past. This is now to be reversed. It is very doubtful that specialists will immediately change their referral practices in regard to important diagnostic procedures. Doctors establish links with pathologists whose strengths and weaknesses they know. They deal directly with them in making decisions about care. When a surgeon removes a specimen at operation he specifies to whom that should be sent and Healthscope cannot prevent that or legally exert pressure on doctors to do otherwise. Gribbles will probably pick up much of the routine work, provided they maintain standards.

2004 Doctors and pathology

With those concerns over the immediate benefits of integrating the deal and concerns that doctors will continue to send their pathology work to their current providers, UBS said there were "risks associated with HealthScope achieving its synergy targets".
New lease of life after GPT The Sydney Morning Herald December 7, 2004

2005 Doctors and pathology

The first move is for Healthscope to switch in-house pathology collection centres in its 22 medical-surgical hospitals, previously operated by either Sonic Healthcare or Mayne Group, to its new pathology division. Dixon is also keen to develop more professional relationships with GPs and specialist doctors. Partly because of its history, Gribbles has always been regarded as something of a fringe operator and struggled to attract the top rung of pathologists to work for it. That has meant it has not carried out much of the specialised pathology work required by hospital doctors.
GRIBBLES SAGA NOT OVER Business Review Weekly January 27, 2005

Medical records for sale:- Another emotive issue relating to the medical profession is the confidentiality of medical records. Gribbles has been a prime offender in selling medical records, obtained from the doctors who refer to it. They might get away with it from the small section of general practitioners that support them but most of the profession would hopefully revolt in disgust. This will be an important issue for hospital specialists. Dixon has not made a commitment on this and it remains to be seen whether he will have the insight to condemn the practice and abandon it. Alternately will the lure of more profit outweigh his common sense. His initial comments suggest that the only issue of any concern to him is whether the data has commercial value. (Update Oct 2005 Dixon elects to divest this business)

2005 Selling medical records

Healthscope is also facing tough questions over an arrangement between Gribbles and referring doctors, in which the company has been paying them for "patient data". The unusual deal came to light as part of the financial analysis of the takeover bid. The explanation given was that in the previous 12-15 months, Gribbles was buying the data from doctors with a view to eventually selling it to, for example, pharmaceutical companies that might be interested in learning about doctors' prescribing practices.
Any pathology company involved in financial dealings with referring doctors is in a difficult area.
Queried about the patient data arrangement, Healthscope's managing director, Bruce Dixon, says it is being reviewed. So far, none of the data collected has been sold. "Ultimately, it comes down to whether we can sell the data, how commercial the data is," he says.
GRIBBLES SAGA NOT OVER Business Review Weekly January 27, 2005

Aug 2005 Business divested

Healthscope put the difference in the numbers down to the loss of $7 million in revenue from a data sharing business, Med-data, originally set up by Gribbles.

A competitor, thought to be Mayne Group, has taken on the staff and marketing employees of the scheme.

This resulted in Healthscope effectively exiting the business, the nature and ethics of which was questioned by some market observers when Gribbles was acquired.
Healthy hint on scope to acquire The Australian August 18, 2005

Promising more growth:- Healthscope's success seems to have gone to its head. Dixon is soon talking about further expansion, beating up the opportunities nationally and globally. This is long before he has had a chance to fully assess Gribbles performance under Healthscope. To those who have watched the growth of corporate medicine in the USA the overblown rhetoric is all to familiar. It is a bit of a shock when you realize that this is not simply to impress the market and push up the shares. They really believe it themselves. The problem for the health system comes comes when one company controls so much of the market that their collapse would have major consequences for the community. They go to the government cap in hand claiming inadequate funding. Government, threatened by the political fallout then rescues them and the rhetoric is self fulfilling. This happened in aged care in the USA.

Only 4 months after buying Gribbles, Healthscope increases Gribble's holding in Singapore by buying the diagnostic group Quest's laboratories there. Quest was the group formed when the US giant Dow Corning spun off the laboratory division which was caught up in the "labscam" frauds. Quest later entered Australia. Vista Healthcare bought the Singapore business and BUPA (United Kingdom) then bought Vista in 2001.

2005 Gribbles expands services

Gribbles Molecular Science (GMS) -- a subsidiary of the Gribbles Group -- has launched a new service offering genotyping, full sequencing, sequencing cleanup and separations to researchers. Gribbles launches genotyping and sequencing service Australian Biotechnology News January 28, 2005

2005 Going global

PRIVATE Hospital operator Healthscope may take its aggressive acquisition strategy offshore after the successful purchase of the Gribbles Group pathology business.

Unveiling a record interim profit yesterday, managing director Bruce Dixon said the company's $285 million acquisition of Gribbles had created excellent growth prospects, particularly in South-East Asia.

He also hinted that more hospitals could be built in deals similar to the agreement struck earlier in the week with Caversham Property, which is developing a greenfields site into a 50-bed private hospital in Campbelltown, near Sydney.

"One thing we're not short of is growth options - they're coming at us from everywhere," Mr Dixon said.

"The key is making sure we don't overpay, and making sure that it is the right acquisition. And that could be in hospitals, pathology or molecular biology. All those areas are growing."
Healthscope looks to Asia buys for growth
The Age February 17, 2005

2005 Global holdings

The acquisition means HSP now has international pathology operations in five countries. These operations located across South East Asia are well positioned to grow in fragmented pathology markets.
HEALTHSCOPE LIMITED (HSP) $4.20 Your Money Weekly February 24 2005

2005 Buying Quest facilities in Singapore

Healthscope Ltd has acquired through its Gribbles Pathology Group 100 percent of the shares of Quest Laboratories Pte Ltd in Singapore for $S4 million ($A3.2 million).

Quest is the largest operator in the private non-hospital based pathology market in Singapore with annual revenues of $S7 million and a wide client base.

Healthscope has repeatedly looked to the money making US marketplace for inspiration. Once again it adopts a US model for its pathology service to hospitals. Australian companies are increasingly following the US corporate business protocols using the big US banking institutions from the fraud ridden Wall Street for advice, assistance and funding. Primary Health uses UBS, Affinity UBS and Citigroup (part owner), and Healthscope Global Markets Capital Group.

2005 Following the USA

HSP strategy is to establish laboratories at key hospitals. This will translate into a competitive advantage: turnaround time. Blood tests are assumed to be 100% accurate so the ability to deliver the result to the doctor quickest wins the business. The model of in house testing is predominately used in the US and contrasts to the popular model developed by Sonic Healthcare of building a centralised big box testing facility.
HEALTHSCOPE LIMITED (HSP) $4.20 Your Money Weekly February 24 2005

2005 Takes advice from Wall Street

Global Markets Capital Group, a New York investment bank which focuses on life sciences and biotechnology, provided advisory services on a number of transactions last year, including:

* the largest takeover bid in the Australian healthcare sector, in which it advised Gribbles on Healthscope's $285 million public takeover offer;
(AECHF) Charter Pacific receives $1m payout from Global Markets Australian Business News March 2, 2005


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Buying Nova Health

Healthscope no sooner promises than it acts. Nova Health, a small company which had similar problems to Healthscope after floating has sold off most of its smaller hospitals and has made itself profitable enough to be a tasty morsel. The previous head of ACHA Geoff Sam has fattened it for takeover by selling 8 of its 14 hospitals. Sam was the man who tried to take ACHA into a joint venture with Columbia/HCA in 1997 and then did so with ACHA in 2003. Nova realises that it is too small to make it in this aggressive marketplace. It does not have the leverage to negotiate with insurers. It looks for a buyer.

Both Ramsay and Healthscope have been drooling about the opportunities that the aging population and the wealth of the baby boomers will create. The Gold Coast is where wealthy Australians retire and Nova has several facilities here.

Ramsay looked at Nova but with Affinity coming on the market it decides not to buy. Healthscope makes the takeover offer and it is accepted.

Analysts admire the daring but consider all the expansion very high risk. ACHA is not fully profitable after 2 years trying, and Gribbles is an unknown quantity - despite Healthscope's claims to rapid and successful integration.

2005 Healthscope buys Nova

Healthscope, with 2400 beds and the third-largest private provider in Australia, has a market capitalisation of $685 million while Nova, which boasts five facilities and 422 beds, has a market cap of $81 million.
Analysts describe Nova's main Allamanda hospital on the Gold Coast as its "jewel in the crown", with a 50-bed extension completed in February 2003 and work on another theatre extension under way.
Healthscope, Nova getting into bed The Sydney Morning Herald March 30, 2005

2005 Policy

A takeover by Healthscope would be in line with the company's recent strategy of underpinning its growth plans and delivering multiple growth paths.
Healthscope may get into bed with Nova Australian Financial Review March 30, 2005

2005 Moving into Queensland

Private hospitals operator Healthscope Ltd has moved to expand operations in the high-growth market of Queensland through a $72 million takeover of fellow hospitals operator Nova Health Ltd.
Healthscope makes $72mln takeover bid for Nova Health Australian Associated Press Financial News Wire March 30, 2005

2005 The Nova story

"We were considered the ugly duckling in the industry because many of our hospitals were underperforming before I was appointed to clean up the company," Nova managing director Geoffrey Sam said.

A year ago Nova had 14 hospitals, many of them losing money, with debt of $45 million on the company's books.
The company then offloaded its underperforming hospitals for about $28 million, which helped cut debt.

"We realised that once we've cleaned up the company we would become a potential takeover target and be attractive to a bigger player," Mr Sam said.
Hospital group in $85m bid for Nova The Australian March 31, 2005

2005 Seizing the moment

But managing director Bruce Dixon, - - - - - - said the number of quality assets in Australia was fast running out. "This is the last opportunity to grab some quality hospitals," he said. Nova's hospitals "fit hand in glove", he said.
Nova is a rush but it's too good to miss The Sydney Morning Herald March 31, 2005

2005 Ramsay not interested

The current price is probably a fair assessment, since the well-cashed up Ramsay Health Care is understood to have also done some due diligence on a potential Nova bid but walked away.
Investors over-optimistic about state of Nova's health Australian Financial Review March 31, 2005

2005 Advantages for Nova

"It [the Gold Coast] has a booming population. We could not get better demographics to have a hospital in than over there," Mr Dixon said.
Nova operates hospitals and day surgeries in Queensland and NSW. They include Allamanda private hospital and surgicentre, Tweed day hospital, Pacific private hospital, River City private hospital and Brisbane Waters private hospital.
Nova coup for Healthscope Australian Financial Review March 31, 2005

2005 Analysts consider its risky

Additional hospitals in Queensland were an "irresistible bolt-on acquisition for Healthscope, CSFB analysts said, warning its portfolio of Adelaide private hospitals was still in turnaround mode.
Investment bank UBS remained cautious on Healthcope's rapid expansion in its bid to overtake Ramsay Healthcare in the sector.
Positive outlook at health group The Advertiser April 4, 2005

2005 Criticism

Healthscope doesn't sit around waiting for deals but grabs at opportunities without hesitation and has copped a caning from some analysts and fund managers for that itchy trigger finger.
Analysts felt the same and, while applauding the deal, expressed fears management might be overstretched.
Acquisitions draw health warning Australian Financial Review April 8, 2005

2005 Sale completed

VICTORIAN health group Healthscope had a healthy boost yesterday, announcing it would compulsorily acquire the remainder of shares in Nova Health.
Healthscope nabs Nova The Gold Coast Bulletin May 20, 2005

Is there more to come?

Ramsay buys Affinity Health, the original Mayne Health's hospitals in April 2005. Affinity is the largest hospital group in Australia, larger than Ramsay. There will be competition issues and it will have to sell off about $400 million worth of hospitals. Healthscope is the obvious buyer but is not in a position to take this on so they will not get a good price.

Instead the original Affinity managers and the Citigroup linked venture capitalists elect to keep some of the group and also buy 14 Affinity hospitals and run them. They will get a better price if they wait.

2005 Ramsay buys Affinity

Affinity has a large portfolio 53 hospitals and if it is acquired by Ramsay which holds 35 hospitals there may be a few hospitals that will be sold off to third parties.

Healthscope would be the obvious candidate as long as it has access to capital.
Healthscope opportunity Australian Financial Review April 2, 2005

2005 Competition Issues

While Ramsay may run into concerns from the competition regulator, there is speculation that private hospital operator Healthscope could pick up any assets Ramsay has to divest.
Ramsay ready to tilt for Affinity The Sydney Morning Herald April 13, 2005

2005 Affinity keeps some hospitals

Mr Grier said Ramsay did not seek offers from other prospective buyers for the 14 hospitals to be divested, despite "quite a few knocks on the door".
Ramsay, Affinity hop into bed Australian Financial Review April 15, 2005


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Final Comments

The West Australian general practice and radiology division had been sold and the purchase of Gribbles did not include any residual GP practices in WA or any radiology businesses. What is clear is that Healthscope has now abandoned its policy of niche markets and has adopted the diversification model employed by Mayne and by many in the USA. Its portfolio is dominated by general medical/surgical hospitals (51% of income) and by pathology and it has gone global. Both are highly competitive areas and it will have to compete.

It will be in direct competition with Ramsay Healthcare which is now a much bigger giant, as well as the large pathology groups including Sonic Healthcare, Mayne health and Primary Health. It is still struggling to turn around its medical/surgical hospitals, and analysts are questioning its ability to do so.

It is taking on a very much bigger turnaround project. Its confidence in its ability seems to border on megalomania and many are questioning this. As I indicated earlier one can only speculate whether there are other reasons. As a general rule corporate managers actually mean what they say when they are on top. This changes when they are under pressure and need to justify their actions. In this instance Healthscope have succeeded spectacularly in their long held ambition to grow and this may well have obliterated other issues as they continue along this path. Dixon very probably means exactly what he says.

The claim that Australia is running out of opportunities is disingenuous. Only weeks ago they were making much of the opportunities and those Affinity hospitals will soon become available.

It may be that Dixon and his team have the skills needed and can raise the capital to accomplish all his plans, increase profits to meet all expectations, and even expand further. What interests me is what will give if they don't. Their self esteem, their survival and their whole future depends on being successful in this. How will they respond to these existential pressures? Will they listen to their Wall Street advisers and go down the US path?

Will they cut care to take more profit? Will they be tempted into fraudulent practices? Will they adopt unethical practices in dealing with doctors? Will they market deceptively or use community screening to feed their services? Will they overservice? Will they use their bankers skills in "structured finance" to create illusionary profits? Will they rationalise and justify their actions blaming someone else?

If they can't meet expectations will they be objective early on? Will they protect care against falling profits? Will they accept the blame and minimise the large losses which shareholders will experience?

Experience with their peers in the marketplace, and especially the health care marketplace, is that they are likely to do all of these things except the last few. Companies have to collapse, or someone has to risk their own future by blowing the whistle, before anything happens and then everyone suffers. All too often it is government and the regulators, blinded by their commitment to market processes, that prop dysfunctional companies up and support them. These are the people who should be monitoring and controlling the health system.

2004 ? Structured finance

Deutsche reckons the deal won't add to earnings per share in 2006 like HealthScope predicts, and forecasts falling earnings in the next two years from all Gribbles divisions, in part on learning it has been capitalising some expenses to prop up profits.
Market Wrap : Gribbles bid is in but HealthScope faces hard yards Australian Financial Review October 22, 2004

2005 Success

Regional hospitals and health services operator Healthscope Ltd will focus on completing the integration of the Gribbles pathology business over the next six months, after a strong performance from its hospitals produced a record interim profit of $11.6 million.
Healthscope said the improved profit for the six months to 31 December 2004 - up 34 per cent on the net profit for the previous corresponding period - was largely due to a positive contribution from hospitals acquired from Mayne Group Ltd, improved management fee earnings from the ACHA hospitals and continued improvement in results from medical and psychiatric hospitals.
Healthscope said the integration of Gribbles, which it acquired for about $285 million in December 2004, was progressing in line with expectations.
"The company has reviewed its forecasts contained in the prospectus dated 17 December 2004 and confirms it expects that they will be met."
Healthscope to focus on Gribbles after record profit (update) Australian Associated Press Financial News Wire February 16, 2005

2005 Or existential pressure?

Hospital operator Healthscope announced a record interim profit and maintained its guidance that the newly acquired Gribbles pathology business would drive profit growth this year.

Investor nerves about its $285 million purchase of Gribbles in December were more than soothed when managing director Bruce Dixon said not only would the integration deliver forecast revenue and profit targets in full, but there could also be some extra cream on the top.
Healthscope stock rallied more than 6 per cent to an intra-day high of $4.30 before closing up 24 ¢ at $4.24.
But Mr Dixon said that beyond the mooted synergies, Gribbles had all the hallmarks of a growth engine that would catapult Healthscope onto the world stage.

"With Gribbles, we've gone from a one-service offering to a company that has a presence in five countries, from a domestic player to an international one."
Gribbles to be growth engine Australian Financial Review February 17, 2005

2005 Too early to tell

The acquisition of GGL raises a concern that adding a pathology business to a hospital business will stretch management and synergies will be difficult to obtain. It is still too early to rule on the success of this acquisition but all indications are pleasing.
HEALTHSCOPE LIMITED (HSP) $4.20 Your Money Weekly February 24 2005


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Update October 2005
More Growth

Healthscope, if its claims are correct has confounded its critics by integrating Nova and Gribbles very rapidly and making both profitable.

July 2005 Gribbles a success

Confirmation this week that Healthscope (HSP) would exceed its original prospectus forecast has prompted Credit Suisse First Boston to increase its target share price from $5.20 to $5.80 and lift its rating from neutral to outperform.
The stockbroker said the Gribbles takeover had been a success and Healthscope was well positioned to take advantage of further consolidation in both private hospitals and pathology.
Healthscope in better shape BIG PRICE MOVERS The West Australian July 23, 2005

Aug 2005 Exceeding forecasts

Healthscope, which to the surprise of some has made a tremendous fist of its recent Gribbles Pathology acquisition and is exceeding profit forecasts, - - - - - -
Street Talk Australian Financial Review August 12, 2005

Healthscope has continued to grow by seizing acquisition opportunities. Ramsay Health bought Affinity Health but had to divest 19 of these to meet ACCC requirements. Ramsay had arranged to sell at least 14 back to Affinity. When there were some difficulties in the negotiations, and when Affinity's key manager resigned the sale ran into trouble. Healthscope stepped in and offered 20% more for the hospitals. Affinity's appeal to the courts to stop this failed and the ACCC approved the sale. Healthscope also negotiated for the other 5 hospitals but this fell through.

Healthscope acquired several large high quality hospitals extending its scope into all states. It now owns 17% of the private hospital marketplace, not far behind Ramsay's 27%. Together they own almost the entire for profit section of the hospital market. This sale is described on the web page describing Ramsay's purchase of Affinity Health. Healthscope also continues to grow by buying into the primary care and profitable skin cancer fields.

Aug 2005 Robert Cooke leaves Affinity

Healthscope's Bruce Dixon must be grinning like a Cheshire cat after Mayne Group's announcement that Robert Cooke will run its domestic operations.

That's because Cooke was due to run the Affinity Health hospitals that Ramsay Health Care is selling back to Affinity to ease competition concerns.

And as hospital watchers were rushing to point out last night, what private equity-backed business is going to get funding for an operation that just lost its main man?

- - - - - Healthscope's chances of picking up around 20 hospitals just got a whole lot better.
Just one Cooke spices this broth The Sydney Morning Herald August 10, 2005

Sept 2005 Consequences for Healthscope

Australia's second largest private hospital operator, Healthscope Ltd, says its $490 million purchase of 14 hospitals from rival Ramsay Health Care Ltd will transform it into a "major operator" in every Australian state.
The hospitals - eight in Victoria, four in New South Wales and once each in Western Australia and Queensland - will take Healthscope's total to 46, with more than 4,000 beds, and lift its market share from 10 to 17 per cent.
Ramsay to sell 14 hospitals to Healthscope Australian Associated Press Financial News Wire September 5, 2005

Sept 2005 A leading provider

It will make Healthscope a leading provider of health services in every state and nearly doubles its beds to 4200, providing a platform for the company's burgeoning pathology business.

The deal marks the final move in the consolidation of the hospital industry.
Healthscope extends its reach Australian Financial Review September 6, 2005

Oct 2005 Buys into skin cancer clinics

Healthscope has paid an unspecified sum for Primary Care Skin Cancer Clinic Group, which has a portfolio of 11 clinics in metropolitan Sydney and regional NSW.

Primary also has a related pathology service specialising in the diagnosis and treatment of skin cancer, which will be joined with Healthscope's pathology division, Gribbles Pathology.
Healthscope takes on skin cancer role Australian Financial Review October 6, 2005

Oct 2005 A new corporate section

Healthscope said the acquisition would provide the base for a new operating division to be established within Healthscope specialising in primary care and day surgeries.
Healthscope acquires skin cancer clinics Australian Associated Press Financial News Wire October 5, 2005

Healthscope is still promising more growth with consolidation in Australia but in the absence of major opportunities in Australia is looking at expanding internationally.

Aug 2005 Still consolidating

PRIVATE hospital operator Healthscope has hinted it will make further acquisitions in the year ahead as consolidation in the healthcare sector continues.
Healthy hint on scope to acquire The Australian August 18, 2005

Sept 2005 International growth

Healthscope, Australia's second largest private hospital owner, is reaching the limits of its growth in Australia, with the market consolidating and regulatory approval likely to be harder for the company to secure. Dixon says he is interested in Singapore and Malaysia, predicting that in "three to five years" the bulk of Healthscope's growth will come from investments in those countries.
Scope for hospital growth offshore The Australian (ABIX abstracts) September 23, 2005


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Update January 2006
Healthscope Crashes

There were hints of serious problems. Company statements and promises of expansion were tempered with words like bedding down, growth through expanding capacity. At the same time Healthscope closed maternity at its Allamanda hospital on the Gold Coast and that was a service valued by the community. Worse than this it destroyed its reputation for good staff relations by scheming to avoid paying their termination bonuses. It sold off the analytical and testing services business, Amdel which it had purchased from Gribbles. It seemed to be looking for money.

Oct 2005 Slowing down acquisitions

AUSTRALIA'S second largest private hospital operator Healthscope says it is not seeking any more major acquisitions as it works to integrate new assets into the company.
Chairman Kevin McCann said the company had grown at an unsustainable rate. "We can't continue to grow at the rate we have grown in the last 12 months," he told shareholders at yesterday's annual meeting.
Healthscope puts new buys on waiting list The Age October 26, 2005

Nov 2005 Closing services

Dissatisfaction by midwives over the closure of the Allamanda maternity unit culminated in a two-day hearing of the Queensland Industrial Commission in Brisbane last week.

Midwives said they had not been offered redundancy packages if they chose to leave the hospital when the maternity unit closes next month.

If they stay, they are being offered retraining to work in other wards - no longer as midwives.
Turmoil strikes three hospitals Gold Coast Sun November 23, 2005

Jan 2006 Claim entitlements denied

MIDWIVES who left Allamanda Private Hospital following the closure of the maternity unit at Christmas are still awaiting their full severance entitlements, according to the Queensland Nurses Union.

Midwives, who did not wish to be named for fear of reprisal, said they were determined to keep pursuing the full amount of severance pay to which their long years of service entitled them.

However, Allamanda CEO Libby Shakespeare said the midwives had been paid in full all their entitlements and she had not received notification of any further claims.
QNU spokeswoman Chris Jensen said Allamanda shut the unit two weeks before the midwives could complete the statutory period of notice of five weeks.
Finally, they were disappointed at having to leave without their years of service and loyalty being recognised.
Nurses' bitter exit Staff loyalty `overlooked' Gold Coast Sun January 18, 2006

Dec 2005 Amdel told

Private hospital operator Healthscope has found a buyer for its medical testing and analytical business, Amdel, for $60 million.
BROKERS' TIPS : HEALTHSCOPE (HSP): Buy Herald-Sun December 22, 2005

In spite of this analysts were caught by surprise and there was panic on 16 January 2006 only a year after Healthscope bought Gribbles. It announced a large profits downgrade and hinted at more because of problems in its pathology business. This sent its shares plumging nearly 25% and the another 5%. Management was attacked and criticised. The company had only recentlky raised money from the market and its recent annual report had not revealed problems. The market felt betrayed and managements credibility took a pummelling. The manner in which the company had assured critical analysts that their concerns about Gribbles were unfounded, predicted synergies and large profits - and then claimed that these were happening a few months later were not forgotten. Gribbles had overestimated the prospects and analysts expected more problems.

There was a strong perception that there was worse to come. Some analysts wondered if this was symptomatic of problems in the whole marketplace. Other companies rushed to reassure the market but their shares fell too.

Jan 2006 Profit warning

Healthscope's shrare price hit the wall yesterday, plunging 23.5% after the hospital operator dropped a surprise profit bombshell and hinted at a possible further warning.

- - - - Bruce Dixon - - - - announced just halfway into the new financial year that the company's 2006 net profit after tax forecast would be about $50 million, well below market expectations.
That outlook stands at odds with comments by chairman Kevin McCann in the latest annual report, where he said that significant progress had already been achieved on the capture of pathology revenue synergies and the company expected to meet its prospectus forecasts for the 2006 financial year.
Healthscope Poorly after Profit Scare The Australian January 17, 2006

Jan 2006 Analysts early doubts vindicated

INVESTORS wiped more than $300 million off the market value of Healthscope, Australia's second biggest private hospital operator, after the company yesterday admitted its much-hyped acquisition of the Gribbles pathology business had failed to boost earnings as promised.

And investors fear there is more pain to come, after Healthscope left the door open on revising earnings from 14 hospitals it recently acquired from Ramsay Health Care.
Healthscope acquired Gribbles in late 2004 amid much fanfare over plans to install pathology labs in its hospitals, offering doctors quicker and more convenient pathology services that generated revenue for the company rather than competitors.

Analysts had immediately questioned the company's estimates for pathology forecasts but at its most recent update last August, Healthscope reassured the market that "capture of Gribbles's revenue synergies are well advanced".
Healthscope sinks 23% after warning The Sydney Morning Herald January 17, 2006

Jan 2006 Many caught off guard

"We just didn't think the synergies were ever going to be as good as they thought (from the deal)," Citigroup analyst Andrew Goodsall said. "The numbers they presented to the market were ambitious."
The downgrade caught others in the market by surprise.

Only a week ago Macquarie Bank upgraded its earnings forecasts for the hospital operator and diagnostic services provider by 13 per cent for 2007 and by up to 20 per cent for 2008.
Shares plunge 23 per cent Healthscope ails Herald-Sun January 17, 2006

Jan 2006 More trouble ahead

Credit Suisse raised the concern that Healthscope would announce further profit downgrades, noting the adage that downgrades come in threes.
Healthscope downgrade may be bad news AAP Bulletins January 17, 2006

Jan 2006 Analysts attack management

Some analysts admitted they had been caught by surprise and criticised the company for the lack of detail that accompanied its downgrade.
"However, the magnitude of (the) downgrade came as a surprise to us, and, it appears, to the market . . . in light of this, it may be some time before the market is able to restore its confidence in the clarity of management's forecasts."
Prognosis worse for ailing Healthscope The Courier-Mail January 18, 2006

Jan 2006 Credibility gone

ANALYSTS have questioned the credibility of Healthscope management after the private hospital operator's profit warning stemming from its Gribbles pathology acquisition.
"Our view is the magnitude, the timing and the lack of detail have blotted management's reputation," Credit Suisse analyst Moira Daw said.

"This is made even more telling by management's overt enthusiasm for the pathology business: assuring the market that it had bought well, that it had delivered on its promises. To us it looks like a crisis of confidence that will take time to fix.
He said he was concerned competitor Symbion was ramping up its pathology business and could be stealing market share.

"The more burning question is the extent to which it represents a structural change in industry competitive dynamics.
He said there was a "possibility" of a Mayne-style backlash by doctors against the company.
Analysts scathing of H'lthscope forecasts The Sydney Morning Herald January 18, 2006

Jan 2006 Dixon's scalp

Questions were also raised about the future of Healthscope managing director Bruce Dixon, and how he could have dropped the ball so badly.
Probably most unhappy about the company's crisis is Healthscope director and AFL chairman Ron Evans who, according to the latest annual report, has 18.8 million shares. After the carnage yesterday, his paper losses come to just under $30 million.
Analysts trying to work out what is going on weren't helped by the fact that Healthscope is in a "blackout period" until the first-half result is released in coming months.
Street Talk : Sceptical analysts put Healthscope on examination table Australian Financial Review January 18, 2006


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Quick Update September 2006

There seems to be bad blood in the pathology sector with Healthscope the target of both Symbion and Sonic from whom it has won contracts. Sonic apparently lodged complaints about Healthscope's Gribbles paying kickbacks to doctors and has passed veiled comments about the quality of its services. Healthscope strongly denies the allegations but Medicare Australia is prosecuting the case so there may well be some grounds for the action. Whatever Healthscope has done it is proving profitable and its shares are doing well.

Gribbles has in the past been a second tier operator and there have been many concerns about the nature of its operations which have drawn a lot of criticism. The question here is whether Healthscope is continuing those practices and whether they are being successful in undercutting competitors because the governments granting contracts couldn't care less about standards and only look at costs. Alternately could this be sour grapes by companies that are being undercut. Sonic has in the past been very straight and up front in its professional dealings and in maintainng standards.

Jul 2006 Criminal charges in Tasmania

HOSPITAL group Healthscope faces criminal charges over allegations its Gribbles Pathology business indirectly paid kickbacks to doctors in a bid to increase business in Tasmania.

Medicare Australia has taken legal action against Gribbles Pathology Victoria, a subsidiary of the publicly listed Healthscope, alleging Gribbles twice breached the Commonwealth Health Insurance Act by paying inflated rent to landlords in return for pathology referrals.
The Age believes that Sonic, which has a monopoly on pathology in Tasmania, brought the allegations to Medicare's attention and will be asked to submit or lodge witness statements during the case. Sonic chief executive Colin Goldschmidt was unavailable for comment yesterday.
The charges are another sign of the cutthroat pathology industry. Healthscope is being sued by Symbion Health in the Victorian Supreme Court over claims Healthscope is squeezing its rival out of the market.
Gribbles Pathology accused of paying kickbacks The Age July 14, 2006

July 2006 Wins large contract ahead of Sonic in NZ

HOSPITAL group Healthscope has wrangled a multimillion-dollar contract to provide community pathology services in New Zealand from its rival Sonic Healthcare.
Its statement to the Australian Stock Exchange last night contained a thinly veiled swipe at the quality of services provided by its competitor.
Healthscope pathology contract gets under competitor's skin The Age July 15, 2006

Jul 2006 Sonic to take legal action

Sonic Healthcare is expected to pursue legal action over the loss of a key contract in New Zealand that will slice $65 million off the pathology group's annual revenue.
The win was sweet for Healthscope, given Sonic was behind a complaint that resulted in Medicare taking Healthscope to court over allegedly inflating rents to "medical entrepreneurs" to win referrals.
Sonic may sue over lost contract Australian Financial Review July 17, 2006

Jul 2006 Healthscope accuses Sonic

Mr Dixon said Healthscope's major competitor had been behind negative press and market comments, including rumours about its financial position and publicity surrounding a legal action being taken by Medicare against Healthscope's subsidiary, Gribbles, in Tasmania.
Claims of unhealthy rivalry over deal Australian Financial Review July 18, 2006

Aug 2006 Healthscope's profits soar

SHARES in private hospitals operator Healthscope rocketed almost 16 per cent on the back of a 97 per cent jump in annual net profit.
Healthscope shares soar The Courier-Mail August 25, 2006

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Web Page History
This page created May 2005 by
Michael Wynne
Updated October 2005, Jan 2006, Sept 2006