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 the hope and surge in share prices as Smedley embarked on a program of marketplace restructuring, cost cutting, and rapid expansion by takeovers of hospital and drug companies. Doctors in contrast felt that care was being compromised and walked away from the hospitals causing financial collapse and Smedley's demise in 2002.

Australian section     

Mayne Nickless
The Smedley years June 2000 to Dec 2001


The Sources used:- There are so many sources, mostly press reports that I have not referenced them all directly. Instead I have tried to use sentences and phrases from these original articles and put them in inverted commas. To find the relevant extract, similar extracts and sources open the reference page in another window. Copy and paste the phrase or key words from it into the browser's find box and search for the phrase or uses of the words. Please remember that the extensive extracts I have used are copyright material - from the sources quoted.

Click, hold and select here to open the References page in a new window.


The Sources used


Impressions from the press reports

The Health System in 2000

Analysts Prescriptions

The Smedley Style in Mayne Nickless

Smedley Rewards

Emerging Problems in Care

Mayne Nickless, corporatisation, politicians and globalisation


The trend to the generalist change-agent manifested last July in the appointment of Peter "Pac Man" Smedley as CEO of healthcare and logistics group Mayne Nickless. Having worked for Shell (petroleum products) and Colonial (life insurance and funds management), at the time he was hired, Smedley's knowledge about private hospitals, pathology, trucking and warehousing would have fitted snugly inside a thimble.
The Mayne board replaced Smedley's predecessor, Bob Dalziel, not because of differences over strategy but over speed of implementation. The ability to implement - not strategy or industry savvy - won Smedley the job.
I think that the new management generalists are doing a far better job for their shareholders than ever before, and that's because they are not in love with the industry they grew up in.

"Frankly, we don't care which industry Australian companies are hiring their chief executive from. The question is whether they have proved themselves and whether they can compete in an international environment. After that, just about everything else is irrelevant."
The Wrong Stuff, Australian Financial Review 24 March 2001
(so is care and a commitment to serve the community irrelevant too?)


Smedley had built up a reputation for ruthlessness, a successful business model, and for aggressive takeovers before he came to Mayne Nickless. The market felt he was just what Mayne needed. An examination of his career gives a good indication of what would happen to Mayne under hs rule.

CLICK HERE for a page describing Smedley's career.

Background:--The Dalziel page described Mayne Nickless fortunes and thinking during the Dalziel/Catchlove era, 1995 to 2000. The single most striking finding was the power of the marketplace and the market analysts to determine the general way in which the business would be run. The series of levers go back from patients, through staff, through administrators through the board to the market. When profits failed to meet expectations, the market frowned. The levers and cogs responded. If the market did not get what it wanted then heads rolled.

The market called the tune and their demands and expectations had to be met. In the modern era where fund managers own an ever increasing slice of corporations they hold more power and can demand more profit. Major institutional investors were consulted in 1995 by Dalziel, Mayne's new MD and their approval sought when planning strategy. It is a ruthless and demanding system. This era illustrated well what happens when managers don't meet the demands put on them - even when those demands are unwise.

In response to the market's demands Dalziel and Catchlove sold off Mayne's share in Optus and also large sections of the transport business. They expanded into multiple facets of health care. The press later blamed them claiming they would have been wiser to stay with Optus. Dalziel carried out a massive reorganisation and made many promises of eventual profit. These proved to be empty. Dalziel's term was characterised by a falling share price and increasing losses. "A thousand dollars invested in Mayne Nickless in July 1997 was by mid 2000 worth about $598". What the market felt was required was a massive cut in costs. Dalziel and Catchlove had both in the past demonstrated an ability to deliver. They set up their plan to make money from health care and then inexplicably sat on their hands. They simply did not cut costs so did not deliver. Why?

His predecessor, Bob Dalziel, is given little credit by the market. But the favourable results Smedley delivers will owe a good deal to Dalziel's spade work.
New Surgeon's Mayne Task, Australian Financial Review 07/08/2000

Perhaps the most telling thing Peter Smedley said last week at the unveiling of Mayne Nickless' strategic review was that, in effect, for a corporate basket case, Mayne was in surprisingly good shape.
The Smedley analysis of Mayne prompts the question why, if the strategy for improving Mayne's performance was so obvious, it wasn't pursued earlier.
The answer probably lies in a mix - - - - and, ultimately, the absence of the absolute single-mindedness, even ruthlessness, that characterises the Smedley approach. Smedley doesn't listen to excuses, let alone accept them.
Mayne Job For Smedley: To Turn Growth Into Performance, The Age 29 Nov 2000

Why did they not do the obvious? Catchlove was a doctor and had once been chairman of the Australian Council on Health Care Standards. He knew what happened when there were insufficient nurses or when they lacked basic skills. Every doctor practising in public hospitals has some experience of this. The single major cost in hospitals is nursing and the sort of profits generated in the USA, the sort of profits the market wanted could not be generated without attacking nursing.

My assessment is that the full human consequences of what he was required to do to meet the market's demands had gradually dawned on Catchlove and then on Dalziel. I am not sure that this inner conflict was ever articulated at a conscious level but the consequence was a profound loss of confidence and at the management level total inertia. Dalziel's plan had been made and the market had welcomed it. When it came time to deliver, the hard decisions needed to make money were not made and actions were not taken. Management were paralysed. I have characterised this as not being sufficiently closed minded to fully maintain the illusion in the face of reason and evidence. When he was replaced Dalziel could not conceal his delight at being relieved of his cross. A company report showed he "was paid $A2.42 million in the 13 months to 31 July 2000, including a $A1.22 million termination package".

Click Here to read about the Dalziel Era

Social Darwinism:- The market responded to market failure as it had in the USA. It ejected both Catchlove and Dalziel. It went looking for someone who would be ruthless enough to do what was necessary to make a profit regardless of the costs. Smedley had demonstrated his ruthlessness in cost cutting and restructuring, as well as an ability to make massive profits for shareholders. Several analysts indicated that he was just the medicine Mayne needed. When he took over he largely followed Dalziel's plan, but in his own style. His reputation caused Mayne's shares to jump even before he took over.

Click Here to read about Smedley, the man, his past business strategies, and his likely approach to Mayne Nickless.

Impressions from the press reports

Overall impression of Smedley's management:- Smedley claims to keep the market informed, but plays it close to his chest. As a consequence there is much speculation among analysts.

Smedley's management of Mayne is what you would expect. He is very intelligent and knows the market well. He delivers immediately and delivers spectacularly. He reorganises, fires management and cuts costs with his usual ruthlessness. His takeovers are daring and truly masterful but he pulls them off. After a little more than a year predictable problems in the delivery of services to patients start to appear. Doctors and nurses are up in arms. He still has some critics and doubters in the business community. He is not yet powerful enough to ride over the opposition which this engenders in nurses and doctors. He seems to compromise and placate his critics - temporarily at least.

Analysts speculations reveal market thinking:- More revealing, are the points of view expressed in the press - their recipes for success. These are included in speculative reports about Smedley when he first took control of Mayne and repeatedly during the subsequent years. They speculate about Smedley's thinking and his next steps. They closely follow similar reports by enthused analysts in the USA when they reported on psychiatric hospitals during the boom of the late 1980's and early 1990's, on Columbia/HCA subsequently, and on aged chair chains like Sun Healthcare. Business practices, which made so much money could not be wrong. The practices they urged on these companies and applauded in the USA were severely dysfunctional, unethical and immoral in the health care context. The reports about Mayne Nickless are little different. They are revealing in what is left unsaid.

The reports from the business sections of all the major newspapers display a remarkable compartmentalisation. The consequences of corporate policies and practices for the care of citizens gets no attention. Only the financial consequences are considered. The only reference to the common good is an angry outburst by Smedley when the ACCC temporarily blocked one of his takeover's. In this instance it was not the common good that was at stake but Mayne's profit and Smedley's reputation. Allegations about patient care are reported in the press but quite separately, as if they had no relationship.

Economic power:- The reasons for this become clear when we search for the use of the words consumers and customers. These people are not part of the market equation. The market analysis is quite open and this is expressed in phrases like "Their problem is that the funds own the customers".

But a typical private hospital has just five or six customers that count - State and federal government instrumentalities, and the big five health insurance funds - who are committed to paying less for more.
Ramsay Health Care, Shares Magazine 1 July 2000

Health funds own the customers and the hospital owners are commodity suppliers who are forced to increase spending to keep their doctor base but are reliant on the funds to pay for their services.
Battle For Medi-money Hots Up, Australian Financial Review 8 August 2000

The customers of hospitals are the government, the insurers and sometimes the doctors. They pay and they refer the consumers from whose treatment profit is extracted. These people "own" the consumers (sometimes called customers) of health care. The "owners" are evaluated by analysts as market entities wielding economic and market power. Health care is provided to meet the economic agendas of the various powerful market entities including Mayne Nickless. Profit after all is why they have entered health care. Decisions are based on the market power of the stakeholders. In health care consumers do not have much market power.

The problem for hospitals is repeatedly identified by analysts in market terms. They are squeezed by low fees from insurers who have more negotiating power. At the same time they have to spend heavily on equipment and staff to keep the loyalty and support of doctors. Patients have no power and their needs do not enter the economic equation. Money is spent for their benefit only to please the doctors.

Controlling the doctors and insurers:-- In the USA the corporations solved this problem by gaining control of the doctors. They did so by marketing to the public and so capturing the patients. They then controlled referrals to doctors and by doing so their incomes. They found additional ways of controlling doctor's incomes and of crushing the nurses. They even attempted to buy the insurers and so control their own payment. The US community rebelled and stopped this. Insurers (HMO's) continued to squeeze care until very recently. A massive political backlash from the community, accompanied by Qui Tam law suits taken by motivated citizens on behalf of government has now forced some limited changes in the USA. With the possible recent exception of General Practice, Australian doctors and nurses have resisted efforts by corporations to secure their allegiance.

The battlefield:- The various Australian press reports read like a crowd at the Coliseum in Rome - cheering on their favourite gladiator, analysing his style and prowess, his footwork and his power as he dismembers his opponents. Smedley is described as having a "crash-through-or-crash management style". I urge you to step outside the excitement of the economic battlefield as you read about Mayne Nickless. Read the reference titles and skim the extracts. Consider that this is the care of society's sick, aging and vulnerable citizens they are battling about. With so much effort devoted to the contest how much is left to care for them?

Smedley's Colonial strategy was simple: buy at least one competitor every six months and chop the tripes out of the merged company's costs.
New Surgeon's Mayne Task, Australian Financial Review 8 July 2000

Click Here to read the references and extracts - else do it later.

The Health System in 2000

The analysts saw the health system not as burdened by the costs of supplying a reasonable standard of care in an area where the costs of doing so was spiraling, but as "burdened by complexities of government control and powerful vested interests" which is undoubtedly a reference to the medical profession and perhaps the nurses - those whose efforts protect the patients. The complaint about government control mirror's that made by Sun's Andrew Turner in 1996. Experience with corporate health and aged care in the USA, particularly Turner points to the need for very tight government control and oversight.

Because insurers squeeze private hospitals, they are seen as a "commodity business, with margins to match". As such they must be rationalised and costs cut to the bone. Past managers were blamed for not doing so. "Most of the fall in private hospital margins" could be blamed on the "combination of excessive optimism and bad management". Co-location had not produced the anticipated profits. This was because in the rush to build co-located hospitals "all the major operators paid insufficient attention to the high capital costs and the difficulty of negotiating contracts with health funds".

The battle between cash-rich private health insurers and profit-poor private hospital operators moved into outright war yesterday when Australian Hospital Care threatened to boycott MBF-funded patients at its Gold Coast hospitals.
Battle For Medi-money Hots Up, Australian Financial Review 8 August 2000

By 2000 the massive subsidies which the federal government had given to private health insurance were beginning to pay off. The number of people covered by private insurance had increased dramatically. The previously impoverished health funds were rolling in money and, as the waiting periods were exceeded, admissions to hospitals started picking up. The health funds would no longer be able to plead poverty. Hospitals expected to get more of the pie and started to flex their muscles.

At the time that Smedley took over "thanks to those developments, Mayne Nickless' hospital business" was on the "brink of a two to three-year profit recovery". This was exactly the situation which existed in insurance and superannuation when Smedley took over Colonial. His critics claim that it was this and not his skills which were the reasons for his success. Despite this he had exploited this situation brilliantly and would do so again. The "company's future" looked "decidedly medical".


Analysts Prescriptions

Analysts misread Smedley:- By the time Smedley took over Dalziel and the board had already established the broad direction in which the company was going. They went looking for someone who would implement the general plan and make the tough decisions. As a headline in Business Review Weekly put it "Mayne's New Man Has Got His Orders". There was nevertheless a great deal of speculation and some of it was wide of the mark. It is nevertheless very revealing of the way the marketplace thinks and acts.

- - - - - one thing is certain about Mayne Nickless: the diversified logistics and healthcare company will have to be broken up and most of the pieces sold, closed, floated or overhauled. - - - - - The plan was delivered to the board by managing director Bob Dalziel in May.

Two months ago, the Mayne Nickless board ratified a plan to break up and redirect the business. The plan includes the sale of its British express courier business, its remaining "time critical" business overseas - Loomis Courier Service in Canada - and its local ports operations; joint-venture deals for its Asian logistics business; and the creation of a new entity that will offer an alternative funding mechanism to the health insurance funds.
For months, industry observers have speculated that if Mayne Nickless wants to be a vertically integrated health service provider, it should buy a health fund. Bill Kirk, the new managing director of the health division, confirms that the company has looked at buying a health fund or buying a stake in a series of health funds. He also confirms that there is work going on to create a new financial model that could offer an alternative to the health funds.
With the potential sale of assets valued at more than $800 million, a mooted float of the diagnostics business and a push into e-commerce, Smedley might be able to ensure the company's survival.
Mayne's New Man Has Got His Orders, Business Review Weekly 14 July 2000

And this is why the betting from the analysts' community is on Smedley attempting to build a much larger business in hospitals and wrest pricing control away from the funds and into his hands.
Flying In A Different Direction, Sydney Morning Herald 2 Nov 2000

Smedley did continue to sell off unrelated enterprises to raise capital but refused to sell off logistics. He had his own plans to coordinate and integrate the various health care divisions and logistics. His allfinanz skills were in integration, not dismemberment. He was an acquirer and integrator, not a seller. Dalziel also planned to go into e-health, a project not apparently high on Smedley's early list. The resignation of a Mayne director in August 2000 because he was chairman of a competing e-health provider indicates that this was still on Smedley's agenda. That "big savings and efficiencies will be made by using e-commerce" was confirmed in February 2001.

Negotiating with funds:- Analysts wanted Smedley to get into health insurance and so address the problem of negotiating power when setting fees - much as Columbia/HCA had done in 1996. Smedley indicated that he had no intention of doing this and to date he has not done so. Instead he has adopted the strategy of becoming bigger and so having more negotiating muscle.

In December 1999 the ACCC "moved to ban private hospitals from collectively negotiating fees with health funds". It is not clear what happened to this. Somehow Mayne were allowed to abolish the system where hospitals negotiated fees with insurers individually. The group's hospitals were now able to "negotiate as a block to gain more power when agreeing on fee structures with health funds". They had previously been in the same position as doctors who are still powerless in their negotiations with corporate entities as they must negotiate as individuals. The law forbids any form of association and collective action by doctors as anticompetitive. Mayne now negotiates with insurers as a company. Size and wealth count.

Harnessing general practitioners:- General Practitioners are seen by analysts as the gatekeepers. They refer the patients, they "own" and order the tests, which make money. Getting their custom and support was seen by the market as a key to success. Paying doctors for the referral of patients was illegal and this had to be accomplished by other means. Australian corporations have therefore bought doctors practices for more than they were worth and then re-employed the doctors. Analysts were full of praise.

If a medical centre has, for example, 10 full-time general practitioners, each generating $200,000 of Medicare income a year, they are also generating on average $3.2 million a year in downstream specialist billings. If a substantial part of that is picked up by businesses or specialists who work in the same corporate group, it is a good income stream.
Corporate Medicine Business Review Weekly 29 Sept 2000

Doctors working in corporate centres can't be forced to use company facilities but are clearly expected to do so. They are set up in centres, which often contain the company's pathology collection centres, their diagnostic businesses, the paramedical services owned by the company and often the specialists who use the company's hospitals.

Government has placed enormous burdens on General Practitioners by keeping a tight cap on their Medicare earnings and by imposing a large regulatory and administrative burden. The company attends to all these facets of the practice lifting the burden. The doctor can concentrate on practicing medicine. In the process the company is able to closely monitor the GP's financial performance and so decide whether to continue employment. The money comes from referrals, not from the services the GP provides herself.

While buying a "captive market" of referring GPs may be part of the answer in the long run, for big pathology and imaging groups such as Mayne, Sonic Healthcare and Medical Imaging Australia there is relentless short-term pressure to increase volumes and efficiency.
Paying cash or other inducements to referring GPs is illegal, and could result in jail time. But the temptation to offer inducements is great. I'd venture that it won't be long before a major pathology lab is in trouble with the law over inducements.
Health Risks For Packer And Smedley, Australian Financial Review 10 Oct 2001

Consolidation in the health services industry is frenetic, with listed companies staging a battle royal to attract private practices into their folds as the sector rapidly becomes corporatised.
Doctors On Call To Go Corporate, Australian Financial Review 30 August 2000

He says it is the economies created by this concentration of services under a single banner that have attracted institutional investors, which in turn, has allowed medical centre operators to offer large sums to doctors willing to move their family practices and work in the larger centres.
By the time the public wakes up to what has happened, it is going to be all over. There is not going to be a local independent GP.
GPs Inc - Profits Or Patients, Sydney Morning Herald 10 August 2000

Macquarie Bank has raised the possibility that the company will emulate smaller rivals, such as Sonic Healthcare and Revesco Ltd, by entering corporate arrangements that encourage GPs and specialists to favour them as a provider of high value-added healthcare services.
Mayne Sells Logistics For A Sterling Price, Australian Financial Review 2 Nov. 2000

Apart from using hospital assets more efficiently, there are two things Smedley must do at Mayne to get more profits out of health: first, he must even up, if not flip, the balance of power between private hospitals and health insurance funds; second, he must harness the power of the GPs.
But harnessing the power of GPs is potentially far more lucrative for Smedley and Mayne's shareholders than hospital and pathology rationalisation. GPs are the gatekeepers of the health industry: a group of 20 generates about $50 million a year in healthcare expenditure on drugs, pathology, diagnostics, surgery and hospital care.
There are two ways for Smedley to tackle the GPs: influence them by providing information technology support and practice management services, or own them. Given Smedley's track record, I'm betting on the latter. - - - - - - - GPs are at the centre of the health web.
Smedley's Prescription For AHC by Alan Kohler, Australian Financial Review 25 Nov 2000

My guess is that Smedley may try to find some legal way of turning general practice into a franchise. This is the latest trend in the USA. Franchising increases the pressures on participants to increase profits. The pressures and incentives are larger. A doctor in the USA described the generous financial arrangements between doctors and corporations as golden handshakes, which became golden handcuffs binding the doctor to the corporate market mission.

Mayne Nickless did run a small number of Primary Care General Practice Centres when Smedley took over. Some reports suggested that Mayne did not join the rush to buy up General Practitioners. When Smedley was challenged on this he simply indicated that he was addressing the issue of doctors and referrals. Another report in February 2001 suggests that Mayne staff have been out there quietly trying to buy GP practices. One suspects that Smedley would like to franchise their practices to sell his health care products but wonder how he could make this work legally.

Doctors are wary of Mayne:- The problem for Mayne is that it has had a poor reputation among doctors for years. Doctors frown on advertising because it misleads patients, raises unreasonable expectations and can result in exploitation. It has never been condoned by the bulk of the profession and was considered unethical. Government regulations have forced doctors to lift their ban on marketing. Smedley and marketing are peas in a pod.

A series of adverse television reports over the years featuring Mayne Nickless have not helped endear it to doctors. Mayne's close alliance with Dr. Wooldridge in support of managed care, and Dr. Catchlove's appointment to the HIC created intense distrust. It seems that the GP's are not biting. The recent accusation that Mayne is turning away the unprofitable frail elderly is not going to help.

Over the past three months representatives of Mayne Nickless have been quietly approaching doctors that own large general practice clinics around the country, offering millions for some practices.

The move by Mayne - already the country's largest private hospital operator and second largest pathology group - came swiftly after the appointment last July of Smedley as chief executive.
Mayne's "health care network" business model sees big synergies from owning general practice clinics, pathology and imaging labs and private hospitals under one roof, with each part of the network generating additional revenue for other parts of the group.
Health Risks For Packer And Smedley, Australian Financial Review 10 March 2001

Smedley, who has just come from revolutionising the financial services business, reckons doctors are just like independent financial planners. While you can put together networks (clinics) of them as he is starting to do the main task is to butter them up and get them onside.
There are plenty of stories around that specialists are revolting over the Mayne corporatisation
Smedley says that's not true, but, just in case, he is taking them to the football, inquiring after their families and grasping them earnestly by the elbow as he shakes their hands. He says he is winning them. Time will tell.
Smedley After Another Big Fix, Australian Financial Review 2 June 2001

Hospital operators say Mayne is having less success than it would like in buying a presence among the country's 6,500 GP practices, as doctors are often wary of closer links to corporates. This is despite the establishment of relationship managers to help keep Mayne popular with GPs and specialists.
Smedley Has A Healthy Outlook, Australian Financial Review 23 May 2001

The Smedley Style in Mayne Nickless

In the case of Mayne Nickless, there is constant speculation about the direction of the company under its new chief executive, Peter Smedley. Since his appointment on June 26, there has been an exodus of senior management from the hospital and logistics divisions. Most of these executives have been replaced with people who worked with Smedley when he was chief executive of the banking and finance group Colonial. The new general manager of the hospitals division, Paul Tissot, is a former Colonial executive.
Private Hospitals In Recovery Ward, Business Review Weekly 17 Nov. 2000

This group has been operating in the past as at least seven separate companies,'' he (Smedley) said. "The philosophy that is going to underpin the group going forward is it's run as one company.''
Smedley Targets Costs As Mayne Plunges Into Red, The Age  31 August 2000

Rationalisation of staff and structure:- Smedley's first step was to carefully select 20 members of middle management and appoint them to a committee charged with identifying the reasons why Mayne was not making money and formulating a plan to fix it. The committee was under "chief financial officer Mr. Peter Jenkins and chief operating officer Mr. Stuart James". James is Smedley's right hand man from Shell and Colonial so was likely to come up with Smedley style solutions. Smedley soon "signaled some sweeping internal changes". Soon after they reported to him Smedley terminated senior management and appointed members of this committee to implement and make their plan work. He spent $A5.8 million in retirement or departure payouts to terminated executives.

A seven strong executive team now sits above the operational heads four are ex-Colonial staff. Mr. James, who came to Mayne Nickless with Mr. Smedley from Colonial, is expected to drive the company's restructuring.
Mayne Nick Execs Quit, Australian Financial Review 5 September 2000

The extent of the management clean-out at Mayne Nickless became apparent with the release of the group's annual report yesterday, which revealed that all but one of its six highest-paid managers last year have now left.
Mayne's Bonuses After Loss, Australian Financial Review 15 Sept., 2000

A business plan was prepared in six weeks and the team returned to normal activities. Subsequently, divisional heads were replaced with the specialist team members. The corporate re-organisation was achieved in three months.
Smedley's gain without pain lifts Mayne, The Australian 31 Aug 2001 ::: from abstract: by Australasian Business Intelligence:

Redefining the situation:- Smedley immediately did a massive write down of assets. He announced "$249.5 million in abnormal charges" in his first financial report. Profits were down. The press put it this way "Yesterday's earnings crash at Mayne Nickless underscored the extent of the disarray at the healthcare and logistics conglomerate." Smedley said that "it highlighted the imperative to address the company's cost base and pursue strategic cohesion". He promised the " clearly 'articulated group strategy' which the market has long demanded"

Cost cutting:- Smedley then embarked on cost cutting and reorganisation culling large numbers of managers and administrative staff. "Many roles at individual hospitals" were "abolished and centralised. Around 40 executives were believed to have been made redundant" by the end of September 2000. He started to turn a profit.

Greater efficiency through a more urgent and ruthless approach to managing its healthcare portfolio, of course, would create better earnings and financial flexibility.
Smedley Cashes Up In Europe, Now For The Mayne Game, The Age 2 Nov 2000

Predictions of a significant turnaround in the fortunes of the private health industry, coupled with managing director Mr. Peter Smedley's political connections and management skills, were the driving forces behind a dramatic investment upgrade on Mayne Nickless by Deutsche Bank
Deutsche Upgrades Outlook For Mayne Shares, Sydney Morning Herald 30 October 2000

In his speech to shareholders in November 2000 the MD described how control and management including all expenditures had been centralised to decrease costs.

Columbia/HCA illustrates one of the problems of a corporate health system controlled and administered centrally by executives removed from the local content and focussed on profits by management pressures and large incentives.

Health services which in the USA have been community services responding and perceptive to the community changed dramatically. A raft of allegations indicated that instead of serving the community Columbia/HCA exploited the community for the benefit of Columbia/HCA and its shareholders. Services which were unprofitable were simply closed - a legitimate corporate decision but quite unacceptable in the context of community and health. This is not the way a civil society operates.

Expanding into wellness:- Smedley continued Dalziel's growth strategy seamlessly. In July 2000 he purchased Corporate Wellness Solutions (CWS), a company which supplied annual medical checks, pre-employment examinations, health advisory services, as well as testing and health support for staff. Corporate "health services and wellness products" were seen as a growing area. CWS had a "respected and established name and long standing relationships with major corporate clients".

It complemented a "number of pathology and diagnostic imaging wellness initiatives" which MNDS was currently involved in. Dalziel had pointed to health care screening as an area for expansion because of the profits from screening investigations.

This strategy of targeting healthy people's needs is congruent with accusations made a year later that Mayne was turning away sicker patients because they were not profitable. Mayne is following the dollar rather than the needs of patients. I am not arguing against preventive medicine but against the marketplace reasoning and also the hype that is used to promote this.

The abuse of wellness:- Wellness services are a fertile source of referrals to corporate hospitals. Tenet/NME used wellness programs in this way. They ran community and school screening services in order to persuade citizens, many of them children needlessly into psychiatric hospitals for long periods of time. In a report to their health minister in 1993 the West Australian department of health stressed the danger that similar practices would be introduced into cardiac and other screening programs if and when they were bent to the corporate profit mission in Australia. This is exactly what seems to have happened in California where one Tenet hospital has already paid out US $54 million for carrying out unnecessary cardiac procedures including bypass surgery. It marketed its cardiac screening service widely. Other Tenet hospitals are being scrutinised.

Critical Mass:- Smedley wasted no time in setting out to create a massive integrated health system building it to a critical mass. He sold UK holdings for A$535 million on 1 Nov 2000 then demonstrated his speed and skill in undertaking complex takeovers. Within 3 weeks he had bid for Australian Hospital Care (AHC), a large competitor. The ACCC barred the takeover as it would give Mayne an uncompetitive advantage in Melbourne and the Gold Coast. The ACCC claimed that it would create a "situation where the merged party gets such a degree of market power that they can start raising the price and there's just no competitive restraints on them". Mayne undertook to sell a number of hospitals in these areas to competitors. The ACCC agreed.

Mayne yesterday foreshadowed it would cut head office costs, rationalise non-clinical functions with a group structure, reduce medical and surgical supply costs, and deliver labor-mix improvements at the non-psychiatric hospitals.
Mayne's Grab For Hospital Lead Role, The Age 23 Nov 2000

Rationalisation:- The AFR indicated that Smedley "wheeled Australian Hospital Care Ltd into his operating theatre, anaesthetised it and performed a headofficectomy." After this it was absorbed into Mayne Nickless centralised group structure. Smedley gave his first oblique hint that he might tackle the thorny problem of the mix of trained nurses and nurse aids a proven method for cutting both costs and care. Nursing salaries make up over 50% of hospital costs. Four weeks later a confidential document describing plans to deskill and reduce trained staff was leaked to the press.

The corporate plan:- The announcement of the takeover of AHC largely overshadowed the release of the much publicised and eagerly awaited corporate plan. In fact it said little new and largely followed Dalziel's plan. It was short on detail and specifics. Smedley was playing it close to the chest but with this recent success no one complained. Instead the share price rose 14%.

Mr. Peter Smedley has unveiled his strategy - - - - pinning the company's growth on cost-cutting and improved marketing before seeking to expand in Asia. - - - he would look at buying health and transport assets offshore, particularly in Asia, to improve earnings.
He will also rebadge Mayne Nickless' disparate range of brands under the name "Mayne'' for marketing purposes.
Mayne To Cut Costs Then Expand In Asia, Australian Financial Review 24 Nov 2000

Since announcing that Mr. Smedley was replacing Bob Dalziel - - - - the company's share price soar more than 90 per cent, adding close to $1 billion to its market value and placing it just outside the top 50. - - - - - Mayne Nickless was now armed with a dangerous amount of financial capacity, with plenty of room to grow after deciding to stick to its established model of health care and logistics.
Expansion, Rebadging Are Mayne Game Plan, The Age 24 Nov 2000

More broadly, the strategy is predicated on creating an acutely cost-sensitive culture throughout the group.
Mayne Job For Smedley: To Turn Growth Into Performance, The Age 29 Nov 2000

His blueprint is remarkably similar to one proposed by his predecessor, Bob Dalziel, in May last year (BRW, July 14).
Smedley has confirmed to the market that Asia will play a substantial role in expansion opportunities for Mayne Nickless, and that big savings and efficiencies will be made by using e-commerce in the healthcare business.
The Mayne Game, Business Review Weekly 16 Feb 2001

Takeover fever:- By March 2001 quarterly reports showed that profits were increasing. Smedley was "attacking the Mayne cost base from every side" and, in the process, was "starting to open up its margins". There had been "a notable pick-up in the performance of the hospitals in particular". Performance of course referred to profit and not care.

There was intense speculation about Smedley's next takeover, many predicting that he would buy AXA's health insurance or even Medibank Private. If Mayne did so then "the sky will be the limit, because the company will not be held hostage to the whims of the private health funds to refer patients to the hospitals". Smedley himself kept them guessing by talking about Asia. The analysts predicted that he would buy Parkway Holdings in Singapore as it was a" a strategically enticing entry point".

The Fauldings Takeover:- Instead Smedley went for a South Australian pharmaceutical company, Fauldings in June 2001. In an extremely complex conditional deal he successfully sold off those sections he did not want and bought only those he did. His skills left him with a potential war chest of about $2 billion for future takeovers. This was a company that was in dire trouble when he took over a year earlier and it was still not actually making a lot of profit. For more information about these takeovers and the skill displayed by Smedley examine the extracts on the reference page and go to the original articles.

In his dreams, Smedley can see upside in helping his logistics business with the Faulding account to deliver drugs and consumer products like Nature's Own and Banana Boat to some 2,000 chemists.

Taken a step further as he gathers doctors in Mayne-run medical centres, Smedley can see a game where the centres are pharmacies with red Mayne dots on them as he works out what to do with all that spending power he gains in the deal.
Smedley Scheming And Dreaming, Australian Financial Review 1 June 2001

This takeover is so cute and so cheeky that, if successful, Mayne will walk away with Faulding having paid not a cent in cash and will receive at least $US550 million ($1.08 billion) for selling its oral drug business. In other words, it's a takeover and a fund-raiser all tied up into one neat package.
All that would be needed for the full service health care suite of assets would be the general practitioners, clearly Mayne's next target.
Far Too Cheap But Very Clever, Sydney Morning Herald 1 June 2001

The good thing about AHC and Faulding is that Smedley's predecessor at Mayne, Bob Dalziel, knew he should have had a crack at them both and did a lot of work on them, but couldn't quite get to the wire - - - Anyway, the files were in the cabinet when Smedley moved into Dalziel's office, as was the corporate strategy he is now implementing.
Smedley After Another Big Fix Australian Financial Review 2 June 2001

The Smedley plan was an attempt to integrate the logistic arm of Mayne Nickless with its health division. Its logistic business had been losing large customers. One of Fauldings major operations was the delivery of health products and drugs to pharmacies and hospitals. This was a logistics exercise. Fauldings had a large franchising network of pharmacists. Quite what Smedley's model is and how it will work is not yet clear. "Mayne argues that on this basis there is a strong strategic fit". It gave Mayne " a health logistics business". This gave it an integrated business "that it could use as a springboard for offshore expansion. The market buzzword became " health logistics".

The buzz word is "health logistics'', with Faulding representing another distribution channel to bring health products to the market and just as "allfinanz'' was the Colonial theme, this will be the "glue'' through which all future acquisitions will be sold.
Smedley The Shareholders' Hero, Australian Financial Review 18 July 2001

Large US corporations, particularly those in aged care owned pharmacy businesses. They used these to sell drugs through their nursing homes and hospitals where they owned the consumers and could set prices. The elderly use large numbers of drugs. By this strategy they could harness this business and also encourage the use of medication and other pharmaceutical products. It was part of the US model of integration. Sun Healthcare even opened a division of its Sunscript pharmacy business in Australia when it bought here.

The Faulding's purchase took a long time as it was complex and some large institutional shareholders held out. Mayne had to increase its offer after considerable doubt and brinkmanship. The purchase only went through at the end of September 2001.

Where next?:- At the present time Smedley is absorbing Fauldings and playing things close to his chest. Analysts speculate about the way he will spend his war chest. He is rumoured to have been in discussion with the health insurer, AXA in the past. He has hinted at small purchases in Asia - in the form of greenfield expansion. He has rejected suggestions that he will buy an insurer. Analysts see him as making a bid for Singapore's Parkway Holdings. It is a takeover target as it is not doing well. He denies this. Others anticipate a major expansion into Europe and this has not been denied. Some analysts do not see many more opportunities for large health care takeovers in Australia but others have hinted at a takeover of Revesco or another of the large GP corporations.

Critics say it's management on the run designed to maximise short-term growth with aggressive accounting policies. This group is watching closely to see if, as rumoured, the Commonwealth Bank does take a big writedown on the Asian insurance arm it acquired during last year's Colonial takeover.
The sceptics may say Smedley will, via acquisitions, window-dress his way to huge shareholder gains in the next two years before he exits, leaving his replacement with a disaster.
Smedley The Shareholders' Hero, Australian Financial Review 18 July 2001

There are critics:- Despite the frenzy some analysts remain cool about Mayne and Smedley. There is a hint that the Commonwealth took over Colonial before it developed problems and that there have been digestion problems since. The similarity with Colonial's allfinanz policies is noted. Others question the viability of his integrated model. At least one analyst likens Smedley's model to the hated US HMO's which are now being dragged through the courts by angry citizens. The US government has been forced to legislate to protect citizens from exploitation by those they have paid to arrange their care.

The doubters are justified in raising questions. The closest model - but with major differences - to the kind of company Smedley is trying to construct is what is dubbed a health management organisation (HMO) in the United States.
Smedley may have dreamed up this takeover, but make no mistake: you, the taxpayer, would pay for it in the end.
But once Mayne owns a private health fund (and most in the industry now regard this as inevitable) Smedley will have essentially built a giant HMO that owns most of its service providers.
Smedley's Faulding Play Has Its Headaches, Australian Financial Review 9 June 2001

Mayne Nickless chief, Mr. Peter Smedley, has secured the critical mass for his planned launch of the group into Asia after yesterday winning support for a $2.5 billion break-up of FH Faulding & Co.
Mayne's Size Allows For Asian Expansion, Australian Financial Review 13 July 2001

"Effectively what he did through this deal is done a capital raising, it gives him the balance sheet capability to go on and fund further acquisition growth and keep the further earnings momentum story going," he said.
Mayne shares seen continuing upward momentum - analysts, AAP News 13 July 2001

Smedley indicates his plans:- Analysts were soon speculating on Smedley's next target. Smedley suggested he would take a year to bed down Fauldings before expanding again and that Mayne did not "need to own a health fund in order to have an integrated health model". He indicated "brownfield" expansion in Australia and "greenfield" expansion in Asia. He spoke of "new low-acuity facilities" in Australia and of "medical centres, which are able to cater to patients requiring straight forward, less specialised treatment". The market continued to speculate about Parkway - which Mayne was unsuccessful in buying in 1995 when it had to content itself with Tenet/NME's Australian holdings.

The significance of the statement about "new low-acuity facilities" goes to the heart of the problem with market listed corporate medicine. The money is in simple quick fix medicine and not in serving those seriously ill and genuinely in need. Services follow the money. In this the market model differs from the medical and community view that health care is provided to serve the needy. When we are truly in trouble then the system is there for us. Those most in need receive priority. In other words when care must be rationed the truly ill come before those with minor inconvenience. This difference in understanding lies at the root of the conflict between the doctors and the corporations and the recent claim of "cherry picking" by the AMA. Financial pressures dictate that the healthy receive priority and the sick must wait. To those who practice medicine this is immoral and totally unacceptable. That the Australian market is totally insensitive to considerations like this is revealed in the way they express these policies in public (see below). In the USA most were perceptive enough not say it publicly.

It (Mayne) 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

Cherry Picking:- What happens is that corporations market their wares to the young and fit while discouraging and rejecting the old and frail. Government and insurer funding is averaged to allow for a mix of healthy and frail patients. Healthy patients are disproportionally profitable and corporations woo them. The frail patients are left to the not for profit community hospitals which are there primarily to serve the community. They do not turn the sick away. They are often treated there at a considerable loss. Unless these groups follow the corporate model and adopt the same marketing and cherry picking strategies they get into financial trouble and can no longer compete. This is what has happened in the USA. Vast numbers of not for profit services have been taken over by the market listed companies. Those that survive do so by operating in the same corporate way.

The marketplace considers not for profit frames of understanding to be obsolete and are disparaging in their comments. That they see no future for the not for profits is well illustrated by Sun Healthcare's Andrew Turner. The same attitudes can be detected in the comments of analysts in Australia.

In both the USA and Australia not for profit organisations and their Samaritan traditions have provided the backbone of the private health system. They still operate the majority of hospitals. It is the dominance and credibility of these traditions in Australia which constrain the market. They make it difficult for Smedley to take on the medical professions and the nurses who embrace this tradition. He is unable to bend them to his profit priorities. He does not yet have enough "critical mass" to do so.

Analysts have predicted a long period of rationalisation of the industry which is still largely in the hands of not-for-profit, church and charity organisations.
Australian health sector fighting fit as takeovers mount, AAP News 31 May 2001

The figures are distorted by the role of churches and other organisations in running non-for-profit facilities. Nonetheless, there remains a huge reserve of takeover/rationalisation targets.
Hospitals Bed Down Better Margins, Shares Magazine 1 September 2001

The community should act:- This is why privately insured citizens as a group should consider supporting the not for profit and community services whenever possible. Corporate "branding" should be a warning sign. They should indicate this preference when they consult with their general practitioners so that they can be referred to specialists who are not locked into the corporate hospitals. They should make their preferences clear to insurers negotiating contracts with hospitals. They should consider whether they want to be treated in facilities where the money, which is being paid for their care is the primary motive, or in one which has been created with the primary intention of helping them when they are in trouble?

Who determines the future of health care?:- To doctor's Smedley is a threat. To the market Smedley remains a hero and in modern Australia the Smedley's call the shots. To the extent that they do so our democracy is eroded. The headlines tell us where the priorities are. "Corporate Surgery Pays Off For Mayne", "Mayne's shareholders have emerged from financial drought", "Smedley's Doctoring Brings Mayne Back To Good Health", "Mayne Nickless Feels Better".

This week marks Peter Smedley's profitable first year at the helm of Mayne Nickless in which company shareholders have seen their stock value increase by a factor of 2.2 times and the man himself is sitting on a paper profit of $7.2 million.
Smedley The Shareholders' Hero, Australian Financial Review 18 July 2001

Healthcare and logistics company Mayne Nickless Ltd staged a stunning $335 million turnaround in 2000/01, partly fuelled by a federal government-inspired increase in hospital admissions.
The chief executive officer, Mr. Peter Smedley, said: ``We are seeing sustainable improvements in the performance of our hospitals' business arising from internal efficiency initiatives.''
Mayne business booms as more Australians go to hospital, AAP News 29 August 2001

Much is written about Smedley's grand health strategy, but in essence it is simply an attack at the market from every possible angle.
All this improves the operating business, but Mayne's big gains will come through its acquisition strategy. It is, as the House of Were argues, a capital allocation play and the bet is on how Smedley will spend the company's money.
Market Uncertainty Over Mayne Nickless, Australian Financial Review 31 August 2001

Negotiating with the funds:- In June Smedley signed a " nationwide deal with Medibank Private detailing how the insurance company will pay the hospital group for the full range of services". The head of Medibank Private " Mark Burrowes, just happens to be a former Shell and Colonial colleague of Smedley's". He would have liked Smedley's system of "centralised services".

Mayne has now become a company whose success and market value is based on growth rather than profit. As such it resembles Columbia/HCA and Sun Healthcare. Like Columbia/HCA and Tenet/NME marketing and branding has become one of the most important components for marketplace success. Mayne is even planning to change its name from Mayne Nickless to Mayne Group Ltd. to aid in branding. We should remember the excesses to which these patterns of thought ultimately led and the way marketing was used to misinform and increase admissions by fanning community anxiety in the USA.

The group has certainly been valiant in building its brand, with a high profile TV campaign offering the image of a tech-intensive health provider. In the December 2000 half, the group took a $12 million charge against brand creation.
Hospitals Bed Down Better Margins, Shares Magazine 1 September 2001

Waiting for the next move:- Speculation about expansion has now turned to Europe but Smedley keeps talking about Asia, while claiming he is not planning a big acquisition there. Analysts don't believe him as it would be difficult to build "greenfield sites" in many markets there. Parkway has a good grip on the market and would "give Mayne Nickless a reasonable footprint in Asia". "Few believe the Pacman will sit idle with an estimated $2.5 billion sitting in the Mayne Nickless war chest".

Local profits have increased and one report suggests that the negotiating power has enabled the enlarged Mayne to wring a 5-8% increase in payments from insurers in behind closed doors negotiations.

Everyone is waiting to see what Smedley does next.


Smedley Rewards

In addition to his large salary Smedley was given an interest free loan of $A5.8 million by shareholders to buy 2 million shares at below $3 prices. With shares running at over $7 in October 2001 that adds up to something like over $4 profit a share or over $8 million.


Emerging Problems in Care


A page about care:-Separate pages are devoted to a number of aspects of Mayne's activities directly related to care. These include privatisations, co-locations, conflicts of interest as well as matters relating more directly to care. I touch on some of these here because they relate so closely to the policies and practices described on this page.

Reducing nursing costs:- Cost cutting policies in the more established US health care marketplace have resulted in deskilling and understaffing in hospitals, step down facilities and in aged care. Care has been downsized.

Care which patients were given was tailored to the profit mission of the corporations rather than the needs of patients. They have variously been over-serviced, denied care or neglected depending on which direction the profit pressures were blowing at the time. Citizens have had to demand laws to protect them from exploitation by those to whom society has entrusted their care. We need to ask ourselves whether the same things are now starting to happen in Australia.

Nursing salaries make up over 50% of the costs of running a hospital. If costs are to be cut then the cost of nursing is the largest and also the easiest to cut. It is not immediately apparent to the community. The way this is done is to replace trained nurses with untrained nurse aids and then reduce the numbers. Experience from the USA shows that this cannot be done without progressively compromising care. Nurse Aids are paid very poorly and in the USA are often drawn from the dregs of society. A number have criminal histories - some of violence. If wealthy Australia really does not have enough money then we may have to do it and accept the consequences for care. To do it to make more money for citizens who are already wealthy is disgraceful.

Mayne reduces nurses:- A paper leaked towards the end of 2000 revealed that Mayne Nickless was "planning a controversial new staffing scheme aimed at slashing costs". The plan had "raised strong concerns about damage to the quality of care at Mayne's 46 hospitals across the country, which would be forced to rely more heavily on lesser-qualified nursing staff". This plan was targeted at "cost savings of between $15 million and $30 million a year, or 5 to 10 per cent of nursing costs". It outlined 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)". AINs are not required to have any formal training.(see Mayne Targets Nursing Costs, Australian Financial Review 21 Dec. 2000)

Mayne claimed that "Any model wouldn't be about cost-cutting, it would be about maintaining and enhancing patient care''. The internal Mayne document predicted that "nursing resistance will pose the greatest risk to the changes". Australian nurses are well aware of what has been happening in the USA, particularly in nursing homes. They have been supplied with documents.

There is currently a shortage of nurses and the nursing union reacted strongly. Mayne was forced to increase remuneration to nurses in Victoria in a favourable deal which was competitive with conditions at public hospitals.

Mayne Nickless has been dealt a major blow in its attempt to slash $30 million from costs through a radical shake-up of nursing practices in Victorian private hospitals, after making a raft of industrial relations concessions.
Nursing costs, which make up more than half of all hospital costs, have been identified by Mayne Nickless as a key source of potential cost savings.
Nurses Give Mayne A Bitter Pill, Australian Financial Review 22 Feb. 2001

The self-interested response of the union representing nurse aids is revealing of the self interest and divisions in the health care work force. They strongly supported Mayne. Their counterparts in the USA have been in bitter disputes with US corporations following similar policies over pay, overwork and conditions of service.

Doctors are unhappy:- In the USA doctors have been seduced to join the corporate mission by both golden handshake agreements and coercion - a carrot and stick approach. They have lost the power to protect their patients.

The medical and the nursing professions in Australia are still powerful and influential. Politicians and the market, steeped in economic theory and Adam Smith's claims of collusion fail to understand that these groups do have a genuine interest and a big commitment to the good of their patients in addition to their own welfare. Unlike economic theory it is part of a culture going back at least 2000 years. The market listed groups control only 35% of private hospitals and the public sector is much larger.

As a consequence the corporate ability to bind the medical profession to the corporate profit mission is limited.

But some analysts are still worried about political risk in an industry dominated by powerful doctor and nursing lobby groups.
Smedley Has A Healthy Outlook, Australian Financial Review 23 May 2001

Those doctors who succumb to corporate inducements in Australia are a minority. They are not highly regarded. Any attempt to involve doctors in financial deals involving patients is immediately attacked. Mayne sided with Wooldridge in taking on the doctors and he failed. The profession are not sympathetic. Mayne will have to get far larger and find some way of controlling their incomes if it is to force its practices on them. Like it or not Mayne Nickless hospital and diagnostic divisions depend on their support. Doctors are already highly suspicious of Mayne Nickless and they have good reason to be. It cannot afford to cross them.

Experience has shown that concern for the economic and physical wellbeing of their families is the only thing doctors will consistently place ahead of their duty of care. Califano advocated using this lever in 1984. US corporations have used it with great success ever since. The great danger for the doctors and their patients is that corporations will use marketing to recruit patients and then control their referral to doctors. Government is likely to support this. It must be resisted at all cost. In the present consumer's rights and anti-doctor climate the public is likely to support Mayne and the government if this is presented to them as their choice.

The profession must somehow convince the public that it is interested in their welfare and then prove it by involving them. The market has identified doctors as a problem and intends to deal with it - no doubt in its own market centred and profit directed way. Everyone should be very wary.

Another potential problem is the reaction to Mayne's aggressive vertically integrated model. Industry sources say the Smedley regime has already ruffled some feathers, one instance of which is friction between management and doctors at its St George private hospital in Sydney.
Why Mayne Wants To Give Pharmacists A Big Red Dot, Australian Financial Review 8 June 2001

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 39 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

It was inevitable that the aggressive statements and Smedley's culture of fear would soon trickle down to the hospitals. The profit centred carrot and stick approach would create a very different attitude to patients. Doctors would inevitably be upset by this. Many Australian doctors are very well informed about the US situation. We were almost burned by Tenet/NME, Columbia/HCA and Sun Healthcare. Large numbers of reports from the USA have been doing the rounds. Many have visited the USA and have close contacts there.

A number of reports including that above have indicated that Mayne was following Columbia/HCA and Vencor (recently renamed Kindred Healthcare to escape its tawdry past) in seeking healthier and better paying patients, rather than the sick and truly needy. Cherry picking like this is illegal in the USA but apparently not in Australia. In the USA HMO's are prosecuted for doing this, but have found ways of doing this which are not illegal. The corporate trick is to market in places attended by the young and healthy, while avoiding venues where the elderly gather.

This sort of behaviour is total anathema to the medical profession. It is not surprising therefore that the medical profession collected data to show how Mayne selected for the healthy and discriminated against the sick then went on the attack.

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,
Their resignation letter from late last year, obtained by the AFR, says the hospital directions are profit-driven, are in conflict with "what we believe is quality medical care'' and ``it appears medical patients are being downgraded''.
A former director of emergency medicine at Mayne Nickless' John Fawkner hospital, Dr. Richard Waller, says some "private hospitals are turning away patients who are not profitable''.
Summing up a common sentiment within the healthcare community, one Mayne Nickless specialist told the AFR: "With massive subsidies, private hospitals should be doing what is needed by patients and the community rather than what serves the interest of shareholders.''

On top of the $2 billion, the Federal Government has also spent more than $25 million on pro-private advertising campaigns. And last year the industry funded a TV advertising campaign promoting private hospitals called "Always there with Extra Care'',
Doctors Take On Mayne, Australian Financial Review 22 Oct. 2001

The difficulty for society is that the marketplace addresses the letter of the law rather than its spirit - the words of legislation rather than the value systems which it upholds. The response to any accusation is that the conduct is not illegal. The market has created a subculture which protects it from the morms and values of the wider community. It is consequently resistant to the social pressures in the community. These provide a much more finely tuned system for controlling dysfunctional behaviour. This plays a major role in a civil society. The extent to which the market deviates from society's norms is well illustrated in health and aged care - also in Australia by the money for mouths scandal and by the way in which the Olympic games was organised.

Discontinuing community services and charging insured individuals more:- Traditionally private hospitals have sought to serve the community. In Australia many assisted patients by providing ambulance transport home or to nursing homes on discharge if it was needed. Mayne has cut costs by abolishing this.

The operator of Hobart Private Hospital and St Helens Hospital, Mayne Health, has informed patients it will not pay for ambulance transport home after they are discharged. The new policy includes elderly patients returning to nursing homes.
Ambo fee shift leaves patients out of pocket., The Mercury 3 Sept 2001 ::: From abstract by Australasian Business Intelligence:

One way to increase profits is to charge more. I have heard anecdotal accounts that some co-located hospitals are charging an extra "facility fee".

Mayne Nickless, corporatisation, politicians and globalisation

We should never forget Wooldridge's policy speech to the AMA meeting in Canberra in May 1995. As he promoted the government's marketplace vision of health care he did not once mention the words corporate or sharemarket - particularly to doctors already well informed about corporate medicine. Unless you were very familiar with the agenda you would not have realised what he was talking about. The governments view on health care was well set out by Graeme Samuel, chairman of Australia's National Competition Council (NCC) in his disturbing speech to the world bank. Incredibly these people really do think like this. To them this sort of one eyed theory makes sense.

Before and since that time conservative federal and state governments across Australia have quietly and consistently promoted, protected and welcomed corporate for profit market listed health care companies and given them contracts to run both co-located and private hospitals.

The deceptive way in which Wooldridge brought Sun Healthcare, a company already tarnished by a host of disturbing allegations into Australia in 1997 illustrates the government's true agenda and the depths to which politicians will sink when their economic prescriptions are unlikely to win public support. Wooldridge's patronage of Mayne Nickless, by passing laws which allowed them to make managed care like contracts with doctors, and his appointment of Catchlove to chair the HIC speak for the government's agenda as well as Wooldridge's lack of frankness and candour when he addressed the AMA.

The reasons for this subterfuge are not hard to find. Marketplace globalisation has been on the agenda for over 10 years and this government has been an eager advocate. This is what modern economic theory prescribes. The public, which experiences the pain is decidedly ambivalent about this. Australia has aligned itself closely with the USA. In the USA and at the WTO all services are considered to be economic products to be liberalised under international treaties and then provided by the global corporate market. There are no exceptions. Health care is not excepted.

The government has refused to deny that the globalisation of market medicine is on the agenda. If this is so then they must first establish a health and aged care marketplace which can be opened to global competition when the time comes. It is clear that this is what they have been doing.

The US government is acting to create foreign opportunities for US corporate health care groups including disturbing HMO's like Aetna Healthcare. US agencies in Australia have been reporting back on opportunities in Australia at least since 1992. This was when Tenet/NME entered Australia.

To sell a policy like this to the public would be political suicide. Medicare is too popular. People must first be coerced or bribed into the private sector by under-funding public hospitals and giving financial incentives to take out private insurance. It is therefore being done by subterfuge. In this Australia differs little from other western nations like Canada and the UK. The strategies to liberalise, privatise and contract out differ because of the existing differences in health systems.

Mayne Nickless undoubtedly recognises this trend. Smedley's agenda to expand into Asia and possibly Europe reflects his knowledge that unless Mayne does so it will be too small to compete. It will face competition in Australia from much larger and perhaps even more ferocious multinationals.

The important lesson from all this is that we should distrust our governments. We should view every policy statement and decision they make with extreme distrust. The only market muscle we have is the ballot box and we have squandered that. We need to think further back than the latest political carrot.

Click Here for more about the globalisation of marketplace medicine through the WTO.

Medicine was already a business when John Howard led the coalition into government in March 1996. But six years ago, it was a cottage industry, dominated by doctors working individually or in partnership groups. The landscape now is very different, and health is less a cottage industry than an industry dominated by big business.
Under the Howard Government, health has become a big area of business because of direct government funding and other specific government initiatives.
On the increasing corporatisation of medicine, the Government has been quiet. It has not bought into any of the discussions by the medical profession and others canvassing concerns about corporate involvement.
Health's Changing Landscape. Business Review Weekly 25 Oct 2001

Click Here here to open the References page with extracts.

Smedley's Reign Ends in Rain

The page above written in late 2001 documents the beginning of a savage backlash by the medical profession who simply walked away from the company. This resulted in the collapse of Mayne Nickless shares to below pre-Smedley levels. Smedley was forced out and the financiers who had wanted to break up Mayne finally got their way. A page written in August 2004 describes what happened and the disastrous consequences of Smedley's reign.

CLICK HERE to continue with the Mayne/Smedley story as it unfolded in 2002 and 2003.

(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 )


Web Page History
This page created November 2001 by
Michael Wynne
Last Modified August 2004
Format changed Nov 2005