Pilot could get stuck on tarmac; $1.5bn aint $8bn

12 minute read

Adele Ferguson’s spin on the Philip review and a rocky investment runway for a text-based prescribing tech co.

If you’re feeling a bit glum about being a GP or practice owner (or both) going into Easter this year, spare a thought for the founders of our fastest-growing digital health company, which looks like it might hit a pothole or two soon.

Why? Because

  • Its business model for its short and spectacular life so far has been focused on targeting the insecurities of young people in areas like weight and hair loss and  erectile dysfunction with a high volume of largely asynchronous text-based consulting, which the Medical Board and the biggest medical insurer don’t love
  • It passionately preaches that it’s all about patient access in the midst of our GP problem, but when you do one of their surveys (which we did), you end up getting asked for $400 a month, with the assurance that the weight-loss drug they are going to prescribe you will save you money on food and booze
  • Ultimately it wants to hoover up every low-hanging insecurity-based consult in the country at scale and speed without a care in the world for what that might do to the existing (albeit slow moving) vital GP infrastructure in the country, let alone, I’d suggest, the actual health of these people.

The Eucalyptus line to the public about its great intentions for the health of the nation and how it’s just disrupting us all for the greater good (just like Google, Faceboook and Amazon) feels like it might be wearing a little thin following several weeks of negative reporting by major consumer media media outlets and the medical media, including stories on SBS news, the ABC morning AM radio program, Media Watch on the ABC, Seven’s Sunrise, The Australian newspaper and Nine’s A Current Affair.

Much of the major reporting is not only questioning the safety of the high-volume asynchronous business model but also giving voice to some seriously dissatisfied customers, some of whom feel they’ve been sold a pup.

Eucalyptus founder Tim Doyle responded a lot in social media saying the group was misunderstood and doing a much better job than the old-world health system.

In one social media post addressing an ABC story he says:

“There is strand false narrative emerging here. There is this idea that obesity is currently being treated in a comprehensive and high quality fashion at the moment. We know this is not true. We know there is no continuity between GP’s, Pharmacists and Dieticians. We know there is limited follow ups, and we know the outcomes are nothing short of terrible.”

He goes on to say his group’s digital-first model more or less solves all these problems with all these professionals working together and that these stories are failing patients by “scaring them away from treatments that present them with the opportunity to make meaningful change to the most significant health challenge our society faces”.


Although he’s not exactly a health expert and his company is really a tech company, not a healthcare company.

For the TMR story our journo went on to the site, answered a questionnaire and got offered Saxenda (liraglutide) over text within an hour, for about $400 a month, with the suggestion that despite this seemingly large upfront cost for the service, they would save money because they would end up eating and drinking less.

To get to the $400 Saxenda offer, the journo had just answered questions – there was no video for a visual check of whether they were actually obese or even overweight, and not even a phone or other audio chat.

Notably there was no cross checking of any of the answers given against the identification data provided. So literally our journo could have been a desperate anorexic or other problem case telling a few porkies to get the drug.

Surprised, TMR asked the big boss at the Therapeutic Goods Association whether all this was legal.

If Eucalyptus dots its i’s and crosses its t’s it could be.

Someone who identified themselves as an FRACGP got back within an hour saying they’d assessed the questionnaire and our journo was good to go.

Apparently that’s pretty much all you need.

As part of that text spiel this doctor spruiked the service, saying it was the best weight loss program they’d seen more or less. It came across as very TikTok weight loss promotion, if you’ve seen any of that wild west stuff.

There is no way anyone could check if that doctor really did check the journo’s questionnaire in person or if some junior checked it against an algorithm, or indeed, if it wasn’t just an AI chat bot that said “good to go”.

Surprised, anyone?

Thankfully, some of this might all be about to change.

The Medical Board of Australia doesn’t like the asynchronous consulting model and is proposing guidelines which would stop a lot of it.

On top of that in January this year, based in part on these draft guidelines, Avant, our largest medical indemnity group, said it wouldn’t insure doctors who consult asynchronously.


That’s a bit of a problem if a big part of your business model is pumping out high volume asynchronous consults with a couple of doctors checking them off as you go.

If you’re still wondering how the government can still let groups like Eucalyptus get away with what they do (note: there are about 12 other groups in Australia doing the same thing – Instant Scripts, Medmate, Medinet, Midnight Health and Mosh are a few others that come to mind), then if the board’s guidelines don’t slow things down it looks like good old market forces might end up doing the job for them.

Eucalyptus looks like it might have some serious money problems on the horizon, despite it being the most highly funded digital health startup in the country’s recent digital health startup history.

In its short life so far the group has attracted funding of around $90m, including $60m just last year in its latest round.

That round occurred just before the tech sector started crashing and laying off people all over the world. With that crash a lot of easy money started to dry up very quickly.

The big funding round Eucalyptus got before things started going south is both a good and bad thing.

As a consumer-facing scale-up play, its business model requires enormous amounts of  money early on to scale, so its burn rate (the rate at which the company deliberately loses money to build its new business out) is the fastest and highest of our top startups and scale-ups in digital health.

That it secured $60m in its last funding round just over a year ago might give investors some comfort, but the size of the round also gives you an idea of its required burn rate.

It’s big and hungry.

The problem is that in tech land funding has been drying up rapidly for the past year as the tech sector has been hit globally, and this all escalated again big time a few weeks back when Silicon Valley Bank hit the wall.

With funding getting seriously harder to secure, a group like Eucalyptus needs a pretty clear runway to success for its future funders to feel comfortable to let more big money go.

But there’s an increasing number of rather large bomb craters forming in that Eucalyptus runway.

For starters, all of this bad press will not be encouraging backers of the group to keep pouring money into the venture at the rate they have been as it could easily affect the rate of patient acquisition which would slow their cashflow and increase their burn rate.

Add to that Avant’s decision to not insure asynchronous consulting and the board’s asynchronous consulting guidelines. These are bigger craters than even than the bad press, probably.

And then we have perhaps the biggest bomber in the country taking off to soon fly over this market ready to drop a lot of heavy ordinance.

Just over a week ago Woolworths announced its entry into the market as likely future competitor in the space, a space which already boasts what feels like too many local competitors already for everyone to survive.

Woolworths has very significant and obvious advantages over Eucalyptus in available capital, data and access to its existing customer base, and there is no unique technology in play in Eucalyptus’s business model.

The problem for Eucalyptus in the near to mid term is going to be whether its backers, who are more strapped for their own funding than at any time since the 2008 global financial crisis themselves, are prepared to keep pouring money into the customer base build with so many significant market factors starting to line up against the group.

Of all the markets you can invest in, medical markets, with their regulation, unique doctor-influenced culture, tight government oversight, and emotion (it’s literally life and death), have always been the most risky.

Adele Ferguson’s take on the Philip Medicare review is interesting

If you’re lazing around taking a well earned break this Easter then I can recommend reading these two documents side by side and trying to reconcile them for a bit of fun.

One is the press release from the Health Minister’s Office about Dr Pradeep Philip’s review of Medicare rorting commissioned by the Department of Health and Aged Care and the other is investigative reporter Adele Ferguson’s interpretation of said release and report published in Nine newspapers this week.

(Here is the full report if you’re that way inclined – there’s good stuff in it about what to do to help doctors and Medicare reduce the waste ­– and here is our story about it.)

You get Ferguson’s tone and drift pretty quickly in the heading of her op ed: “Medicare review blows apart the AMAs ‘nothing to see here’ argument”.

Does it though?  

If you read the press release one of the standout findings reads as follows:

“Dr Philip … found no evidence to support the $8 billion figure highlighted in some media reporting.
“The Review found that the likely cost to Australian taxpayers is $1.5 to $3 billion a year, with a significant part stemming from non-compliance errors rather than premeditated fraud. But without concerted action this figure could increase.”

Did Ferguson reference this finding in the way it was very clearly put and any of the more detailed assessments arriving at the same conclusion in the detailed report?

Not quite.

She framed the $1.5 to $3 billion figure as some sort of disaster only brought to light by her series of stories claiming that there was up to $8 billion missing.

But that was never the case.

The conservative estimate was known and largely accepted as being fairly standard for a system like Medicare, and the National Audit Office had previously identified the figure, well before the Nine and ABC $8 billion rants.

Here’s the wording of Ferguson’s very first story in the Nine newspapers as a reference point of how Nine and the ABC were initially targeting doctors (emphasis added):

Revealed: $8 billion Medicare Scandal

Billions of dollars are being rorted from Medicare each year by medical practitioners making mistakes or charging for services that aren’t necessary or didn’t even happen – including billing dead people and falsifying patient records to boost profits.

Here’s what she said in her op ed this week:

“The $8 billion figure was put forward by Dr Margaret Faux, who has dedicated most of her career to Medicare. She has completed a PhD into its compliance regimes and has been at the coalface of administering Medicare bills for decades for hospitals and doctors in all clinical settings.

“Her estimates were backed by another PhD, as well as by Dr Tony Webber, the former head of the Medicare watchdog [aka the PSR], who saw first-hand evidence of a system that had become a basket case.

“Importantly, Faux’s figures were consistent with international estimates including the World Health Organisation which has reported that waste including through fraud and errors leaks 20 to 40 per cent from health systems.”



Surely the fact that the report’s author said outright the $8 billion was rubbish is a bit more important?


The ABC’s 7.30 gave the $8 billion finding by Philip’s pretty similar treatment on Wednesday night this week, while also taking credit for the report finding what everyone knew: Medicare is a an out-of-date clunky mess that is hugely complicated to navigate so doctors make errors in claiming.

We used to think the ABC and Nine (which bought Fairfax papers) were the only major media outlets left we could trust to tell things straight in this country.

It’s a big worry.

We asked Media Watch to read all these documents side by side and see if they think that their employer and Nine are playing a straight bat here, and if they aren’t, is that a good thing given that they have probably set back the GP profession quite a few years in the eyes of the public with their giant non-existent $8 billion rorting scoop?

We aren’t holding our breath.

Have a relaxing Easter break, everyone.

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