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

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The page describes Mayne's foray into hospitals, its relationship with doctors and the issue of patient care versus profit.

Australian section     

The Health Care Story
Mayne Nickless

THE managing director of the Mayne Nickless hospital operations, Mr Barry Catchlove, explains the rationale behind the investment. "Firstly we believe that by providing quality care in a tightly run business, we can make a satisfactory return. Business Homes In On Health Care Investment, The Age 13 June 1992



The story of Mayne Nickless in health care is not a story of providing care to Australian citizens. It is the story of making money out of health care. The directions taken were driven by perceived opportunities to make money and not by the needs of the community.

Dr. Barry Catchlove was one of the driving forces behind the corporatisation of health care in Australia. He very probably did believe that the market and its rigorous emphasis on efficiency and profitability would address the problems he perceived in health care. Many in the USA held similar beliefs. The reality however is that the market has a dominating will of its own. It dictates what will be done. Idealists are forced to serve the market rather than their ideals and when they fail to do so the market spits them out. Catchlove was no exception.

Mayne Nickless bought a part interest in the NSW health care company Hospitals of Australia (HOA) in 1986. This grew by acquisitions. In 1991 Dr. Barry Catchlove became managing director and the same year Mayne Nickless purchased HCA from Hospital Corporation of America. At this time the rate of private insurance was falling as it could not compete with Medicare. The corporate sector had the strong support of the coalition party which opposed Medicare. They planned to reverse this trend. The market expected the coalition to gain power in Canberra in 1993. Coalition governments held power in the states and were talking up privatisation.

In 1995 Mayne bought Australian Medical Enterprises so extending its operations into Western Australia. It was unsuccessful in buying National Medical Enterprises' (NME) other international operations in Asia and Europe.

At the time Mayne's transport operations were still under a cloud because of its December 1994 guilty plea to fraud. The decline in private health care insurance was continuing. The coalition government did not win federal power until 1996 and then only after promising not to dismantle Medicare. Its initial attempts to boost private insurance rates were unsuccessful. The corporate health care market was under pressure.

Mayne turned to international expansion. Australian government agencies had identified global health care opportunities particularly in Asia and Mayne jumped on the bandwagon. It entered into a number of health care arrangements with local companies in Indonesia. In 1997 it attempted to buy Generale de Sante Internationale (GSI), the largest hospital owner in Europe but was unsuccessful. Mayne also looked at expanding into Canada. Its executives spoke to government officials and at one time they were interested in hospitals in Alberta.

Its Asian holdings were soon caught in the Asian economic crash. The market and coalition politicians embraced the privatisation of public hospitals and the colocation of private hospitals on public campuses as the next profitable venture.

Despite the election of a federal coalition government in 1996 the flow of patients away from private insurance continued. The states started electing labour governments that were opposed to the privatisation of public hospitals. The privatisations were mired in controversy and were not successful for either government or corporation. The adverse publicity was not welcome. Colocations were going ahead but once again they were not as financially successful as had been anticipated. The penny was slowly dropping that the money to be made in hospital care was limited and would be kept so by government and insurer.

The company now expanded its holdings in radiology and pathology becoming a much more diversified provider of health services. The income here depended on doctors referrals and the ability to charge Medicare. It was a potentially lucrative business and proved more successful. The success of these ventures depended crucially on the support of doctors.

Mayne dabbled in fast food general practice clinics of the Edelstein type and was criticised on National Television programs. It did not pursue the option of buying GP practices nearly as actively as some of its radiology and pathology competitors. These other groups bought up GP's practices and located the GP's in Medical Centres where they were supported by the company's radiology and pathology services as well as a host of corporate owned ancillary medical services. It is likely that this competition for GP's support cut into Mayne's margins.

Catchlove had reduced nursing and costs as much as he could without seriously compromising care. Mayne's health care model had not worked and by the end of 1999 it was in serious trouble, although Mayne did not lack capital. It was not profitable.

The market brought in Peter Smedley, the corporate fix it and takeover king to replace Catchlove and Dalziel. His very presence caused Mayne's shares to shoot up. The coalition's measures to increase private insurance rates had at last worked and Smedley was assisted by increasing throughput during 2000 and 2001.

Smedley lost no time in firing staff, reducing management and in cutting into nurses. He fueled market enthusiasm by immediately going on a buying spree. He acquired Australian Hospital Care (AHC), then not long afterwards Fauldings Pharmaceuticals. He started a move into Asia. His business strategies were brilliant. The concerns are about the consequences for patients and for the health system.


Mayne Nickless and Doctors

The new Federal Government 30 per cent tax break on private health insurance has been hailed as a "green light" to the $12 billion private health-care sector, which claims it can now boost fund membership levels by 15 per cent to 45 per cent of the population.
This will see more innovative products being offered and also a greater move towards striking deals with doctors and private hospitals to cap premium increases.

The funds are now planning to routinely include in their product line-ups new "no-gap" and "known- gap" policies. Rescue Triggers Health Blitz, Australian Financial Review, December 12, 1998

The Australian Medical Association said yesterday it was only willing to co-operate with part of the Government's plan to reduce gap payments, prompting a fierce attack from key Independent senator Brian Harradine, who was pivotal in pushing the deal through parliament.

AMA president David Brand said doctors would support the Government's plan to provide fund members with information on gap payments but would resist "unfair" contracts, which involve getting rid of the gap.
"We have indicated we will work co-operatively to eliminate gap payments.

"But the AMA will not accept US-style managed care contracts, which seek to eliminate the gap but dictate the treatment of the patient."

Dr. Brand said the gap was not the fault of doctors but had been caused by consistently falling rebates paid to doctors by the Government. Doctors revolt at gap deal The Australian 12 December 1998

Because of its primary focus on market and money Mayne Nickless has been viewed negatively by the medical profession. While they are interested in money and support private medicine they have a traditional primary focus on care. Mayne's welfare depends on the goodwill of doctors who use its facilities, yet it has not courted that good will. Instead it has joined government in an attack on the profession and in an attempt to undermine professional solidarity.

Both labour and coalition federal governments, and the insurers were determined to contain costs by controlling doctors right to treat patients as they thought clinically indicated. This is the US system for controlling costs. Both attempted to force doctors, particularly specialists who were the big spenders into managed care type arrangements. Medical independence is enshrined in the Australian constitution and they could not be legislated into compliance. Doctors refused to enter into these contracts. Mayne joined the politicians and the insurers.

Australia's largest private health-care operator, Health Care of Australia, yesterday unveiled a radical plan to make the private health system more attractive by reducing out-of-pocket expenses for health-fund members.

HCoA will trial new collective billing procedures, which if successful, will be adopted across its 36-hospital network and could be an enormous fillip to the private health system.

But the Australian Medical Association's Federal President Dr. Keith Woollard immediately condemned the initiative, urging doctors at Melbourne Private Hospital to boycott the scheme. He said the AMA had obtained legal advice that the proposal could breach provisions of the Health Insurance Act and National Health Act.
However, it is understood that legislation introduced yesterday by the Minister for Health, Dr. Michael Wooldridge designed to foster competition in private health insurance and to encourage co-operation between private hospitals and health funds, would put beyond doubt the legality of HCoA's new billing system.

Dr. Wooldridge immediately hailed the new system as "a very significant gain for patients of Melbourne Private Hospital", saying "it would eliminate out-of-pocket expenses". Plan For Single Hospital Bills, Australian Financial Review, November 28, 1997

Mayne Nickless destroyed any chance of getting doctors on side when it joined the insurer National Mutual (which trades as HBA in Victoria and Mutual Community in SA) in offering doctors lucrative financial contracts. These involved a single billing system and the abolition of the publicly disliked and unpopular gap payments. It persuaded doctors in the Melbourne Private Hospital into this scheme and attempted to bring it to Queensland. The move was strongly supported by Dr. Wooldridge the federal minister for health. When the AMA produced legal opinion that the proposed contracts were illegal Wooldridge promptly took the legislative steps necessary to make them legal. The doctors involved were supplied with a collection of press cuttings in my possession. These described Mayne's past conduct and its business policies at that time.

THE nation's third-largest health fund conceded yesterday that premiums could rise by as much as 6 per cent if a scheme designed to eliminate out-of-pocket expenses was adopted nationally.
In an attempt to resolve one of the biggest gripes of health fund members -the unknown gap in doctors' fees which health funds have traditionally been prevented from covering -HBA has agreed to pay participating doctors at MPH up to about 140 per cent of the scheduled fee.
Health fund  pays fee gap,  risks higher  premiums, THE AUSTRALIAN December 18, 1997

At the same time National Mutual made much of an agreement with Obstetricians to provide no gap obstetric care and another with a group of orthopaedic surgeons in South Australia. National Mutual claimed widespread support for its Ezyclaim insurance product. It seemed as if specialist solidarity had been breached.

According to Boffa, the fund is taking hefty initial losses to pay doctors above the scheduled fee. "Because it adds value to our product, we were willing to do that for our members," he says, adding that the direct billing system is "universally popular" with patients and participating doctors. Private V Public: The Great Hospital Debate, Australian Financial Review March 7, 1998

The AMA strongly opposed these contracts and the bulk of the profession soon recognised that they were the bait being used to trap them into managed care contracts, - the first step in restricting the care they gave to patients. Despite a barrage of negative publicity and accusations that they were only interested in their own hip pockets the majority of doctors stood firm. They maintained that the large gaps were a consequence of the government's direct squeeze on doctors incomes - their failure to increase Medicare remuneration to keep pace with the cost of living.


Mayne Nickless and Care

"Its my experience that the good private sector is more committed to quality, to training staff, than the public sector. It's a much better employer." Under Doctors Orders, The Australian 9 Jan 1998(Quote by Catchlove)

The private sector is shielded from the exposure of deficiencies in care by commercial in confidence and by the ownership of available data. Doctors take up these issues internally and the matters seldom reach the public. It would be bad business for both.

The hospital admitted that since it (Port Macquarie public hospital) opened in early November it had received about a dozen complaints concerning waiting times for accident and emergency treatment. Wrong Patient For Hospital Launch, Sydney Morning Herald 24 January 1995

It is not surprising therefore that concerns about services, staffing and standards should surface first in the privatised public hospitals. The public have traditionally been more involved in oversight and accountability. Even the commercial in confidence agreements with government could not shield them here. In addition to this the communities concerns about for profit public care would have caused citizens to look more closely.

One of Catchlove's boasts was that he could provide the same care as public hospitals with far fewer nurses. His statement is reminiscent of Andrew Turner's "fat in the system". The only evidence he produced was a claim that there had been no complaints. There had been.

One of its (HCoA) key performance measures is the number of hours devoted to every patient per day. Across the HCoA group the average is 11 hours a day, compared to 15 hours at many public hospitals.

"If you increase that 11 hours by point-one of an hour, to 11.1 hours, it takes $2 million off our bottom line, that's how sensitive it is," He (Catchlove) says. "And when we've taken over (public hospitals) and reduced the average hours per patient to 11, there was no complaint about the quality or the service. So there are huge inefficiencies." Under Doctors Orders, The Australian 9 Jan 1998

There were concerns expressed at the Mayne operated Port Macquarie public hospital from an early stage. In 1995 the NSW Nurses Association accused Mayne of cutting theatre staff to reduce costs and so "putting profit before human life". They called on the NSW government to investigate. (Sydney Morning Herald 20 May 1995) There were soon concerns about failures to provide care and excessively long waiting lists. These escalated in 2000 and 2001 after Smedley took control. The hospitals own board and the hospitals medical committee passed motions of no or low confidence in the company. The community called on the government to buy back the hospital.

Concerns about a lack of process for ensuring patient safety are emerging at Port Macquarie and can be inferred from a string of standards of care issues in Mayne's Joondalup public hospital in Western Australia.

Click on the names for more information about these issues at Port Macquarie public hospital in NSW and at Joondalup public hospital in WA.

Although there were some grumblings about business practices from doctors standards of care and rationing for profit did not become public issues until after Smedley took over in 2000. As Catchlove so graphically indicated in the extract above. If Smedley was to reduce costs sufficiently to turn a profit then he needed to reduce the cost of nursing.

Private hospital giant Mayne Nickless is planning a controversial new staffing scheme aimed at slashing costs.
According to one executive, who did not want to be named, the company has targeted cost savings of between $15 million and $30 million a year, or 5 to 10 per cent of nursing costs.
An internal company document, dated November 2000, outlines a plan to restructure its hospital care, with much greater reliance on nurses who provide "lower'' levels of care, such as assistants in nursing (AINs).

While registered nurses require at least three years of formal training, AINs are not required to have any Mayne Targets Nursing Costs, Australian Financial Review 21 December 2000

Within a very short time plans to deskill nursing by replacing trained nurses with untrained nurse aids were leaked to the media. This was the way US companies had gone and the consequences for care were very serious. There was publicity and an outcry by the nurses, primarily at Port Macquarie and Joondalup where Mayne had less direct control over what was said by employees. The Victorian nurses union took industrial action and extracted a deal from Mayne Nickless. It is not known how much of Mayne's plan has been implemented in its private hospitals.

Doctors at some of Mayne's major hospitals have become increasingly disturbed by the aggressive money centred business approach to the care of patients. Mayne has abolished ambulance transfers for patients and is alleged to be charging extra facility fees at some hospitals. Like Columbia/HCA reports suggest that it has stopped unprofitable services in its hospitals, a form of cherry picking.

In the long term, a critical issue is going to be keeping the medical staff onside. Quality health care depends on having quality staff, but among some Mayne doctors there is resentment towards the hard-numbers men in the new management team, and their effect on the delivery of health care. How this will be dealt with is one of the big questions - not just for Mayne but for the entire industry. Expansion Is The Mayne Game, Business Review Weekly 29 June 2001

It has also sought to discontinue lower margin areas of operation. In some cases, that has stretched relationships with some of the practicing doctors and specialists and staff but it is showing up in better profit margins. Hospitals Bed Down Better Margins, Shares Magazine 1 Sept. 2001

A major complaint about care has been made by the Australian Medical Association. They have done a survey of their doctors and report that Mayne has been cherry picking cases. Mayne denies the practice. Cherry picking is a big problem in the USA.

Cherry picking refers to the selection of patients who pay well at the expense of those who don't. Corporations like Vencor in the USA considered this legitimate, and interestingly so did the state regulators. It required an angry backlash from the community before a federal agency took up the matter. The company paid a $270.000 fine.

It will be interesting to see whether Australian government agencies consider this legitimate in health care. In the marketplace it is not illegal to refuse to provide services to those who can't pay. Corporations are not charitable institutions.

In Mayne Nickless case the charge is that it is selectively admitting healthy patients who require defined treatments which pay well and do not need prolonged hospitalisation. Mayne is accused of turning away the elderly and the seriously ill as these patients have multiple problems, often requiring prolonged hospitalisation. While their need is greater they are unprofitable as payment does not cover the expenses incurred.

The Australian Medical Association has launched a bitter attack on the $6 billion health giant Mayne Nickless, accusing it of cherry-picking profitable patients for its private hospitals and turning away the elderly and chronically ill.
Dr. Mukesh Haikerwal, told The Australian Financial Review: "The evidence presented to me by my members shows Mayne Nickless is discriminating against people with complex medical problems, in favour of people needing straight-forward surgery.''
In a memo to Mayne Nickless management dated August 12, seven specialists expressed dissatisfaction with care at the corporation's Warringal Private Hospital in Melbourne,
Doctors Take On Mayne, Australian Financial Review 22 Oct. 2001

There is further discussion of the impact of Smedley's practices on care on the page dealing with his management of Mayne Nickless.

Corporate conduct cannot be separated from government policy or from the DRG system which pays fees on the basis of service provided rather than the needs of particular patients and the time they spend in hospital. The elderly and the seriously ill are unprofitable in this system. What would happen in a competitive market system was easily predictable by anyone who understood how the market operated or who had examined the US system.

To counter a squeeze on their profit margins, many private health insurers reduced their risk by compensating private hospital operators with episodic funding, where payment is a predetermined amount based on the patient's medical condition for a complete episode of hospital care, irrespective of the length of stay of a patient within the hospital. Unlike per diem payments, which compensated hospitals for each day a patient occupied a bed, episodic funding made hospital operators incur the risks associated with an increased length of stay.
It (Mayne Nickless) has also sought to discontinue lower margin areas of operation. In some cases, that has stretched relationships with some of the practicing doctors and specialists and staff but it is showing up in better profit margins.
Hospitals Bed Down Better Margins, Shares Magazine 1 September 2001

In the heat of the election campaign, the claims of cherry-picking brought vociferous denials from Mayne as well as considerable community outrage. But asylum seekers and national security ultimately overshadowed the plight of those chronically ill old people apparently unable to use their private insurance.

But with premiums rising, hospitals' profits booming and the federal Budget under pressure from the multibillion-dollar industry subsidies, private insurance is again under intense scrutiny.

And the allegations of cherry-picking are serious because they threaten to undermine the key planks of John Howard's reforms.

Since 1996, there have been two fundamental promises underpinning the Coalition's health agenda.

The first was to offer Australians the choice in health care, by turning around the decline of the health funds. The second was to take pressure off public hospitals and thereby maintain Medicare.

But what sort of choice exists if those in greatest need can't access private hospital beds? And if those people are pushed back to overstretched public emergency wards, how can that be taking pressure off the public health system?
Most disturbing are allegations that at a time when the system is awash with cash, the corporations running private hospitals are less and less interested in treating elderly patients with complex conditions despite their private insurance and more focused on the predictable profits of elective surgery.
How Healthy Are Howard's Reforms? Australian Financial Review February 28, 2002

(Note that there is additional information about management style, management practices and the conflict with nurses, doctors and the community on the page examining the privatisation of Port Macquarie Base Hospital by Mayne. There are illuminating press extracts )

Update August 2004

Comments by Smedley in March 2002 suggest that he saw nothing wrong with providing care selectively to those who paid well. Some analysts expressed similar views. Interestingly none of them saw the link between this and the accusations of cherry picking described above - a wonderful illustration of the way the marketplace compartmentalises its thinking.

The discontent among the medical profession referred to on this page resulted in a massive walk out by the medical profession. Mayne's business practices were totally out of step with medical traditions and the ethos of medicine in Australia. Doctors, who no longer had any input into policy decisions affecting care understood the consequences for the care provided to patients. They simply took their patients and their referrals to competing hospitals and Mayne's occupancy rates fell dramatically.

Smedley seems to have been blind to what was happening and it was not until financial reports arrived from the hospitals in mid- 2002 that the massive loss in the hospitals division and less than desired performance in Diagnostics was recognised. Investors fled and Mayne's share price dropped to levels lower than before Smedley arrived.

Smedley's hospital manager was fired and someone with hospital experience was appointed. Smedley's policies were reversed and many of his Colonial appointees were replaced by people with health experience. By the end of 2002 the Smedley image was in tatters and the man himself had gone.

The 1999 move by Citigroup to break up Mayne became a reality. Towards the end of 2002 and during 2003 the company was gradually broken up. Citigroup, the financiers at the centre of the Wall Street scandals, and heavily involved in the US health system got their way. Logistic and transport divisions were sold off. A Citigroup venture capital subsidiary, CVC Asia Pacific led a consortium of Asian and Australian Venture Capitalists in buying Mayne hospitals. They structured it as a management buyout - a strategy which markedly increases the financial pressures on managers. The new entity was called Affinity Health. The focus has now shifted to pleasing doctors and forming financial arrangements with them, something which Citigroup knows has worked successfully to align the profession with market interests in the USA.

At this time Mayne claims to be primarily a pharmaceutical company with a large diagnostic division. It seems likely that the latter will be sold or else spun off as a new company leaving the name Mayne with the pharmaceuticals.

What happened to the hospitals in 2002 and 2003 is integral to the failure of Smedley's policies and the collapse of Mayne. This is addressed in greater depth on another page.

CLICK HERE to go to the page "MAYNE CRASHES 2002 and 2003"

The new company Affinity Healthcare is examined in more detail on its own page. The tangled web of companies, their lack of health care experience and the deception of Australians which surrounding Citigroup's role during the purchase is described on a page analysing the purchasers. Citigroup's tarnished track record and its mode of operation is summarised on a Citigroup page and analysed in more detail on linked pages. Citigroup's conduct and thinking gives a remarkable insight into the heart of the marketplace - a heart on which health care corporations depend for advice and assistance.


Web Page History
This page created March 2002 by
Michael Wynne
Updated August 2004
Format changed Nov 2005