Big Medicine Inc

13 minute read

  Are our big healthcare companies focusing too much on making keeping their investors happy at the expense of patients? The ongoing debate about over-diagnosis and overtreatment is in large part driven by concerns over the degree to which some medical decisions are being guided by financial, as opposed to clinical, reasoning. Much of the […]


Are our big healthcare companies focusing too much on making keeping their investors happy at the expense of patients?

The ongoing debate about over-diagnosis and overtreatment is in large part driven by concerns over the degree to which some medical decisions are being guided by financial, as opposed to clinical, reasoning.

Much of the discussion has focused on an essentially medical conundrum: access to better technology and more detailed data forces physicians to take account of a wider spectrum of risk when delivering a prognosis and recommending treatment.

While most things in countries such as Australia are more expensive than in the developing world, in medicine the disparities can often give one pause.

For example, IVF treatments in Australia typically costs around $8,000 per cycle, while couples in developing countries can have a shot at creating a child for a fraction of that cost.

One of the reasons medical procedures are more expensive in the west is that doctors and specialists have access to, and, importantly, have often invested in expensive state-of-the-art technology; investments that need to be recouped somehow.

One of the best examples is the Da Vinci Surgical System, developed and manufactured by US company Intuitive Surgical.

For the past few years, oncologists in Australia and elsewhere have been performing prostatectomies using Da Vinci robots, with the procedure marketed by its maker as “greatly mitigating against the risk of infection, impotence and incontinence after prostate surgery”.

But according to Associate Professor Ian Haines, with the Melbourne Oncology Group, the Da Vinci robots don’t deliver better results.

“The Da Vinci robot is sold as a ‘sexy way’ of doing the procedure without cutting nerves but the severe morbidities with this technique are virtually identical and the costs to the patient are much, much greater than doing it non-robotically.”

Robotic prostatectomies are vastly more expensive than traditional surgery, with one Sydney practice informing The Medical Republic (TMR) that total costs – including surgery, anesthetist and after care – can be as much as $28,000. Alarming as that fee is, the fact that the robots themselves are sold by Intuitive Surgical for around $US2 million each helps to put it in some perspective.


But arguably the most emotionally charged area of medicine is that of fertility treatment.

Australian IVF pioneer Professor Allan Trounson has been a vocal critic of the high prices being charged for IVF programs in Australia with desperate couples often seeing money as no object when it comes to creating a family.

Founder of the Low Cost IVF Foundation Professor Trounson has worked to develop and deliver fertility programs run out of Africa which cost couples less than $300 per cycle, compared with Australia where couples can be out of pocket as much as $3,000 even with private health insurance and after receiving a Medicare rebate.

While he admits comparing the Australian and African situations is to a degree about apples and oranges (African couples tend to be younger and therefore have different gene traits while the cheaper treatments they receive have a lower success rate), questions still remain about the prices being charged here.

“There is certainly an element of profitability in this,” he says. “But it’s in the private sector so why would you be surprised?”

The high costs of IVF programs in Australia has been a sore point for many people for many years, especially as women often need to endure two or more cycles of treatment without any guarantee of success. For many couples it’s simply too expensive.

However, some fertility clinics have started marketing themselves as low-cost alternatives. “We are committed to offering IVF at an affordable price,” states the Fertility Centre on its website.

The centre boasts it can provide IVF treatment for as little as $2,500 per cycle, less than a third what the highest-charging clinics ask. The lower cost is achieved through a combination of bulk-billing arrangements and fact the centre doesn’t handle “complex’ fertility cases, such as women in their mid-40s. Most notable, however, is the fact the Fertility Centre openly advertises that it uses “lower doses of medication that still give you an excellent chance of pregnancy”.

It’s interesting to note the Fertility Centre’s two clinics are both in working-class areas: the outer west Sydney suburb of Liverpool, and the small city of Wollongong about 90 minutes south of Sydney.

So how do fertility clinics in other areas justify charging three-times as much?

A 2013 investigation into the British IVF industry revealed a worrying trend of overcharging, including for new technologies marketed as more effective despite the lack of scientific evidence.

Former head of the UK’s Health Protection Agency (HPA), Dr Justin McCracken was tasked to produce a report recommending ways to reduce the costs of regulating the fertility industry in Britain. He highlighted a new technique known as Pre-Implantation Genetic Screening (PGS), whereby clinics can scan embryos produced by a successful IVF cycle for particular genetic abnormalities, implanting only those presenting as normal.

PGS is generally aimed at older couples given the higher risk of genetic abnormalities in their sperm and eggs. And it is a lot more expensive than more traditional IVF procedures, often running in the thousands of pounds.

However, Dr McCracken’s report was inconclusive as to whether the technique is any more effective, while also raising concerns it might pose risks for the safety of individual embryos. Moreover, with the lack of robust scientific evidence, he cautiously concluded there was grounds for suspecting clinics promoting PGS were motivated by commercial interests.

Just how much money is up for grabs in the British IVF sector was brought into sharp relief a few years back when prominent London specialist, Dr Mohamed Taranissi achieved unwanted fame after it was discovered his clinic made £25 million in 2012.


Long-serving Sydney GP Dr Andrew Byrne has seen the writing on the wall for some time, noting that today there are essentially two tiers of medicine in Australia.

“There’s regular doctors [like me] and then there’s specialists and a handful of GPs earning a bomb, sometimes more than $1 million a year.”

“A cardiologist doing technical balloon angioplasties can earn $10,000 before lunch. Yet some non-procedural physicians or psychiatrists might take a week to earn that much, barely covering practice expenses.”

Also of concern to Dr Byrne is the clustering of services within large medical centres all operating for the same business.

“You’ve got GP practices in the same building as pathology, radiology clinics and pharmacies,” he explains. ‘It’s very easy to write out an x-ray form and say ‘see me next Tuesday’, but it might not be good medicine at all.

Dr Byrne also questions the regularity with which patients are required to present for follow-up checks and procedures – sometimes for years – even in cases where the risks and dangers have for all intents and purposes been completely removed.

The way the system works now is that should a patient wait 12 months or more after their last visit to a specialist, they must return to their GP to get another referral. This means specialists are able to repeatedly charge the “initial consultation” fee, which is typically double the normal consultation charge, regardless of whether they spend two minutes or two hours with the patient.

GPs can, however, grant “repeat” or “ongoing” referrals, however the Medicare rebate in these cases is less for patients. And besides, many specialists actually refuse to accept ongoing referrals.

It’s a problem costing the Australian taxpayer millions, says Dr Bastian Seidel – chairman of the RACGP in Tasmania and principal of the Huon Valley Medical Practice – while contributing to the already heavy burden of out-of-pocket expenses shouldered by Australians every year.

“Patients with diabetes may be seeing an ophthalmologist every year for eye check-ups,” he notes. “Yet even if their diabetes has not changes and they remain on the same medication, the specialist is still able to charge this initial consultation fee repeatedly.”

Part of the problem lies with the fact specialists’ consultations are not time-based, while for GPs they are.

TMR asked the Federal Department of Health (DoH) whether any action was being considered to address this issue but had received no response at the time of publication.

Dr Seidel sees the problem as symptomatic of a general shift within healthcare whereby money and profits are being put ahead of quality patient care.

“As GPs we are concerned the medical industry is talking less about ‘patients’ and more about ‘consumers’ and ‘clients’,” he says.

“When we finish med school and become GPs we know our income potential is limited so we enter the workforce thinking about we can sustain ourselves for 30 years without getting burned out.

“But the big healthcare companies on the other hand think more about making strong profits over the short term and making their shareholders happy.”


And they’ve been doing a pretty job of doing that too.

The S&P Healthcare Index, which is a basket of 17 listed healthcare and medical products companies headquartered in Australia, approached 20,000 points last year, more than double the average of 8,000 points in 2014.

According to Michael Gable, director of Sydney brokerage firm Fairmont Equities the Australian healthcare sector has significantly outperformed the general market.

The major healthcare services providers performed especially well, with Ramsay Healthcare reporting a 50% rise in full-year revenues to $7.4 billion, with profits up 19.1% to $412 million. Smaller rival Primary Healthcare saw a much smaller revenue increase of 6.2% to $1.6 billion, yet reported 20% growth in net profit $136.5 million. Sonic Healthcare reported an almost 10% rise in net profits to $345 million, on revenues of $4.2 billion, which rose 7.3%.

And one of Australia’s largest ophthalmology practices, The Vision Eye Institute (VEI) had a very good year indeed, managing a 22.6% increase in net profit (before significant items) to $14.5 million, with only a 2.1% increase in revenues to $112.8 million.

The high fees commanded by ophthalmologists in Australia has long been a bugbear for policy makers and advocates for greater fairness and transparency. And the experiences of former Labor health minister Nicola Roxon when she attempted to rein-in costs were a perfect example of the sorts of powerful forces at play.

Roxon was determined to cut Medicare deductions for ophthalmology by $50 million, the reasoning being the availability of more advanced technology slashing the time needed to complete procedures.

But following an aggressive advertising and PR campaign by ophthalmology advocacy groups, the government backed down and settled for half.

Again, TMR asked DoH whether there were any plans to resume scrutiny of ophthalmology in Australia, but received no response by the time of publication.

Gable notes there is a general feeling amongst investors that rising demand for healthcare services is a pretty sure bet.

“There is a perception out there that there will greater demand for services with an aging population.”

However, many companies on the index, especially Ramsay, Primary and Sonic, are seen as vulnerable at the moment given their shares are trading up around their highs and are now seen as expensive stocks.

“The market is expecting these companies to always impress and always produce strong returns,” Gable notes. “They can’t afford to skip a beat now which puts them under pressure.”

This vulnerability was especially apparent in early 2014 when news of the federal government’s proposed medical co-payment broke, along with growing uncertainty surrounding the MBS freeze, both of which triggered significant selling as analysts questioned where new revenue was going to come from.

The financial pressures currently facing Australian healthcare companies is something the Australian Competition and Consumer Commission (ACCC) is acutely aware of, having intervened in a number of cases over the past few years.

In October last year it ruled in a dispute between independent physicians using the premises and facilities of Little Company of Mary Health and Calvary Healthcare Riverina (jointly known as Calvary). For several years Calvary had imposed so-called ‘by-laws’ stipulating medical practitioners wishing to establish competing day surgery facilities risked losing their accreditation to work at Calvary locations. The ACCC ruled these by-laws restricted the ability of independent practitioners to charge lower fees and ordered Calvary to remove them.

It’s also been busy on the M&A front, blocking a number of proposed mergers in the local market, which it notes is already dominated by a handful of big players.

Mid-last year it blocked Healthscope’s bid to buy Brunswick Hospital in Melbourne after concluding the deal would significantly limit customer choice in the south of Melbourne. In 2012 it blocked Sonic Healthcare’s bid to buy Healthscope’s pathology business in Queensland which it said would “substantially lessen competition” in favour of the former and Ramsay Healthcare, the other market leader.

Once upon a time, medicine was a simple, respected and humble profession. Yet in certain sectors all three of those attributes are coming under threat due to vested corporate interests.

Watch this space and watch the money.




Something worthy of further scrutiny in the Australian healthcare market is the arrival of new entrants looking for opportunities in the space.

Telstra for its part has made significant investments developing its digital platforms for health services in Australia. Last month it launched a new platform it hopes will become the defacto image storing and sharing service for radiologists and radiology businesses in Australia. Rival Optus also has skin in the healthcare game, albeit on a smaller scale.

The most recent new entrant is Qantas, which announced in November last year a partnership with health insurer NIB tying its frequent flyer program into with Fitbits and digital health data to announce a suite of products directed towards the two companies eventually grabbing 2 to 3% of the local health insurance market.

While not a play for healthcare per se, the deal is interesting in terms of its potential for helping the two companies amass large volumes of patient health data. And it’s the potential commercial value of this data, business analysts say, that is attracting new companies from outside of the sector.

This poses tricky questions in terms of data protection and privacy, especially as organisations holding larger volumes of health data are prime targets for hackers.

It’s something Huon Valley’s Dr Seidel is especially concerned about.

“This is clearly a play for accessing health data,” he says, adding that big corporates getting into the health space need to be held more accountable for data security.

The security of health data is an especially controversial issue in the US following several serious privacy breaches last year alone, while specific concerns have been raised about large technology companies, in particular Google, entering the health space, given the industry’s (read Facebook, Apple et al) poor track record with privacy.

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