9 August 2017

Working for the man … and jellybeans

General practice KnowCents

Running a practice effectively and doing medicine well aren’t mutually exclusive, but, increasingly, it’s becoming a stressful dichotomy for many GPs. Might this help usher in a new era of corporate growth?

Whenever you find yourself in a deep discussion about GPs and corporates, inevitably the “jellybean accounting” story gets told.

It arose from an exchange between founder and then-CEO of Primary Health Care, Dr Ed Bateman, and a defence barrister, during a Supreme Court action Primary was taking against one of its doctors. Primary, back in the day, did that a lot.

And you are checking the orders from the Belmont clinic are you? Yes.

Personally? Personally.

Was it you who vetoed the jellybeans? Yes.

Was it you who changed the type of teabag? No.

Who did? I don’t know. I didn’t know the teabag was changed.

Was it you who vetoed the water cooler? We generally don’t provide water coolers.

Just answer my question, sir? No, I didn’t personally.

Who would have vetoed the water cooler? I don’t know.

Did you veto the order yourself? I veto those orders, yes.

Did you veto that order? I can’t specifically remember that order.

But you do recall the jellybean episode, don’t you? No, no, there are certain things we provide and there are certain things we don’t provide.

Do you recall the jellybean order? No, I don’t.

Why did you say that you did veto that order? Because I just veto them.

I beg your pardon? I veto them. I don’t remember that order.

You don’t regard that as petty? It’s just routine.

How much money did you save by vetoing the jellybeans? I’ve got no idea.

What is the annual profit of Primary or the EBITDA? EBITDA?

Yes? About 320, I think.

$320 million? Yes.

You don’t know how much you save by vetoing jellybeans? I don’t think we save much. It’s the principle, we don’t provide jellybeans.

No one remembers if Primary won this case. But this simple exchange possibly did more damage to the brand of the business, and of the GP corporate sector in general, than any other single blunder.  The worst of corporate culture in a medical world seemed to be laid bare by the attitude of Primary, at that time, towards what was then, and is now, its core asset – its GPs.  At least as they pertain to Primary’s GP practice businesses.

It’s hard to imagine just how much corporate brand damage was caused by a simple, and inexpensive, jar of jellybeans

It’s hard to imagine just how much corporate brand damage was caused by a simple, and inexpensive, jar of jellybeans

Primary was a loathed brand for other reasons. Basing most of its business on volume-based bulk billing, the company would move into a suburb, and Bunnings-like drive down patient costs – to free in this case – and along with it drive out many other local practices.

Primary through those years gave much ammunition to the those that believed that mixing healthcare and profit motive rarely, if ever, has acceptable outcomes for employees, patients or the community.

“…corporate executives are employed by shareholders, not patients. Ultimately the laws of market demand and allegiance to profit over health, and the laws of the land require corporate officers to maximize shareholder’s returns. Should such organisational imperatives govern healthcare?” 

(JS Boyd, et al, The Lancet, July 8, 1995 p64)

We are in age old and complex territory here as far as health is concerned. If you want to see what giving healthcare too much over to private enterprise can do, look no further than the US, say many commentators. It’s a mess.

And it is. But it’s unlikely the spirit of private enterprise alone is to blame.

In Australia, we are, in relative terms, light on private involvement in healthcare. But imagine where corporates might be today if so much brand damage hadn’t been done by Dr Bateman and a few others through the 1990s and 2000s. Dr Bateman may have done everyone a big favour by causing doctors and policymakers alike, to think much harder about corporate medicine. Corporates might have been a much larger stakeholder in general practice than is the case today.

It could still be, though. In fact, it looks likely from here on in.

Despite all the issues, in the last 10 years, corporate GP businesses in Australia continue to grow and continue to be more and more popular among GPs. In relative terms, corporates still employ only about 26% of all regularly practicing GPs. But that figure has more than doubled in the last decade. Will it double again?

A crackdown on the MBS has been a bit of a roadblock to continuing growth in the last two years. But that is likely only to be a short-term blockage, as most of the majors have reviewed their portfolios and shifted their ambitions upstream to mixed-billing practices where they can dilute the issue of the MBS and a reliance on bulk billing.

Quite simply, as medicine winds itself up on red tape, technology, risk, professional learning, governance, data requirements, and the realities of managing a looming chronic-care crisis with the need to be tightly networked with other professionals and institutions, the concept of economies of scale is far too compelling for some practices to ignore.

Says Dr George Quittner, a GP who built up a very successful practice in Mosman, Sydney, and has sold to IPN: “The sad fact is, that the only way you can do it [run a practice] in the modern era is if you are supported by a corporate entity.

“You might be a truly energetic and enthusiastic individual, who manages to join up with a dozen like-minded individuals to pursue your ideals, but even as this idealistic entity grows, it will end up as a form of corporate in this day and age,” he told The Medical Republic.

Franchising, though fraught with difficulty, and a long history of spectacular legal battles, is one of the most-effective models for efficiently organising sector-based small businesses around the world. If you do it right, both parties will benefit and the relationships can be very long term. McDonald’s is testament to that.

Our corporates aren’t running a franchise model, as such. Healthcare, per se, is not being franchised. Not yet, anyway. But delivering the back office of medicine in an increasingly complex healthcare ecosystem lends itself strongly to the principles of franchising. And in a lot of respects, that is the model that is being applied here.

In the case of GP corporates, a win-win looks like a group of doctors paying a licence fee of some sort for an umbrella group to look after all the complex and difficult parts of running a GP practice. That is, technology, branding, marketing, real estate, payroll, recruitment, legal protection and so forth. And that fee being in a sweet spot for the GPs and their “franchisor”. A spot where the practice saves itself time and money over doing it themselves, and doctors can get on with what they became doctors for: helping patients.

The ways and means that “fee” is obtained remains quite different, and the source of some ongoing issues. Upfront payment for ownership of practices had been a long-time model for Primary. One which got it into lots of trouble over the years when managing their doctors.

These days, the manner of the fee, can be quite flexible. From a simple payment for back office services all the way to full acquisition of a practice and it’s patient footprint. But no matter what the nature of the fee, the concept is simple and franchise-like. The practice gets to focus on the medicine, and the umbrella group takes care of much of the rest. And both benefit financially. The practice benefits because it couldn’t achieve the efficiencies for the same price – time is money, remember. And the umbrella group benefits, mainly because of scale, particularly with reference technology platforms, real estate leverage, marketing and buying power.

That’s the theory, anyway. As we’ve seen over the years, particularly in some spectacular and public legal battles between some corporates and their employees, it hasn’t been smooth sailing for all.

But if do you accept the basics of what this deal is meant to deliver, it’s hard to see why a correctly and ethically managed corporate GP outfit wouldn’t be a good idea for many GPs and their peers, at all sorts of stages in their careers. As well as for shareholders wanting to invest in these businesses.

“We need to prepare for a future in which primary care is delivered in a variety of different formats,” says IPN CEO Dr Ged Foley.

“Our opportunity in this space relies on the intelligence and experience of our staff and the GPs who work with us. We have the ability to explore how existing and emerging technologies can improve the connectivity between patients and their treating medical team and improve the patient experience and patient outcomes.”

Balancing employee satisfaction and shareholder returns is an eternal battle in the commercial world. I’m definitely a cynic. I was once a CEO of a relatively large local arm of a big global corporate, and I seem to remember giving disgruntled staff the blunt, but fair, advice from time to time. That advice was that which Baron Thurlow used to give to his constituents, as far back as the late 1700s, about the dangers of working for a corporation.

“Did you ever expect a corporation to have a conscience, when it has no soul to be damned?”

Yet, if you sit in the boardrooms of either of our major GP corporates these days – I’m talking about IPN and Primary in this case – there is something very unusual in the air. You could be fooled into thinking there was a soul swimming around somewhere in the room.

Both seemed to have cottoned on to the idea that general practice is, first and foremost, a “people” and then a “communication” business. To be fair to IPN, it figured this out a long time before Primary did. And for this, IPN must still be given a lot of credit. Especially given that Sonic, originally Douglass Pathology, was more or less forced into the corporate market by the rapid expansion of Primary and its predilection of sucking away Sonic’s pathology business via its rapidly expanding GP network.

But the changes at Primary in the last 12 months, have been nothing short of amazing. The last few weeks aside, Primary is a company attempting, and largely committed to, a significant transformation – one where, in the case of the GP businesses, it has placed employee satisfaction squarely at the centre of its strategy.

If you want to be cynical about business, the Primary and IPN strategies, which both now strongly focus on their employee as key assets, are nothing out of the box. It’s still all about profit and shareholders in the end. But it is a strategy which has some very high-profile success stories over the last 20 years, which might now be informing our GP corporates to some degree.

You don’t have to be nice to your employees and your customers as a corporate to make money. I used to work for a global corporate publisher which is still growing strongly, but treats its customers, scientists and doctors with a reasonable amount of disdain. The company can do that because it has a near-monopoly market position.

Fortunately, the opportunity for those corporates to do that is narrowing, mainly as a result of digital technologies and communication. Customers and employees are rising in power, at least in developed countries. And technology is starting to level the playing field and create new competition for old monopolies. Primary is only changing, in the end, because it has to.

The poster child for “look after your employees first” is Virgin’s Sir Richard Branson.


Virgin’s Sir Richard Branson is the poster child for the “employees-first” business strategy

“… if the person who works at your company is 100% proud of the brand, and you give them the tools to do a good job, and they are treated well, they’re going to be happy,” Branson says.

Look after your employees, they will look after your customers (patients in this case), and they will look after your profits (shareholders), is one of Branson’s key propositions. In other words, he is appearing to put profits last. He is, but only in the sense that it comes last in the sentence. Profit is why his businesses still exist at the end of the day.

Purpose is important as well, of course. The two aren’t mutually exclusive. A business can exist with a major purpose that sets the scene for it making profit.

Take technology giant Apple, for example. If you asked the late Steve Jobs why does Apple exist, he was never going to say to make money. He did say that Apple existed to “make great products that people love”. In a sense Jobs, as bad interpersonally as he turned out to be, gave Apple a soul. Maybe that is going to part of Dr Malcolm Parmenter’s job spec at Primary.

Branson also says: “Train your people so they can leave, but treat them well enough so they don’t want to.”

The employment of Dr Parmenter as the new CEO of Primary, who had for many years led the charge at IPN for better engagement with its GP staff, has done much to add to the idea that Primary is very serious about its change in outlook.

He hasn’t started yet. And there is much speculation that he is walking into something a little messy. But what might be important for doctors trying to make a choice in the future, is the idea that Primary has crossed the Rubicon in the hiring of Parmenter. There’s not much room to retreat from the direction it has now set. Dr Parmenter is a “people person” and believes that this is the manner in which businesses succeed. This, and having a purpose.

If you talk to people in both IPN and Primary, you find yourself talking to people who believe in people, who have been at the coalface themselves and so understand the trials, and who aren’t entirely corporate. Or at least don’t feel it. Both Primary and IPN are now going to be run by GPs, who’ve been there, done that, and do care.

If this is real – genuine empathy and self-reflection on having GPs as employees and wanting to work in a genuine partnership with them to succeed –  what is there to worry about?

Would a corporate, over time, really keep sharing the benefits, or would it slip back into its old ways?  Are there other forces at play which could still prevent this seemingly ideal world from succeeding? You know, the normal business stuff of competition, regulation and technology disrupting this strategy.

As those insightful people at the Lancet point out, healthcare and business aren’t natural bed partners for all sorts of reasons.

The question whether Primary, IPN and others are just being strategic, and are the same wolves but in sheep’s clothing is, possibly, academic. Of course, they’re being strategic. But caring too. Which is strategic.

Is there a soul in there somewhere? Baron Thurlow would surely warn you “no”. But then, look at Apple with Jobs.

Dr Foley at IPN and Dr Parmenter are both are easy going, intelligent and soulful people.
Although big corporations with decent cultures sometimes do begin to feel like they have some soul and higher purpose, you should remain cautious always. Let’s take Apple, again, as an example. Stripped of its playmaker Jobs, I find myself hating the company these days. Why? Not so much because it charges so much for a simple replacement cord, but because it doesn’t make cool stuff anymore. Apple’s failing on the reason it exists.

Is there a greater purpose beyond profit and shareholders required in healthcare which a fully privatised company can’t ever attain? Or, can business just be business, and a profit motive live in harmony with good health outcomes?

Maybe none of this is the point.

CORP PIC 2 p14

Lawyer and politician Baron Thurlow became Britain’s Lord Chancellor in 1778


So long as the “doctor side” of this new deal is a good and has longevity, isn’t that what is important? Sometimes business and medicine can live in harmony, with all parties benefiting in some manner. I guess it’s just how long does that balance and good outcome last, given the forces of commercial imperative.

At present, it feels like the deals for GPs are better than ever. Part of this is that competition is starting to ramp up among corporates. Has anyone noticed the presence of some aggressive new players in the corporate market, such as Qualitas? Competition is going to get hot soon.

Technology may also up the ante on the corporates. While IT is a massive headache now, if the tech providers can get their act together on cloud-based products, especially the patient management systems, then setting up virtually connected practices to compete with the corporates will become much easier.

GPs who are interested, like in any major venture, will need to do stringent due diligence to be certain the type of relationship they have with a corporate is one that suits them. But the great thing is, they are getting ever more flexible.

Dr Quittner is a reluctant convert to corporates. “I believe in diversity and competition in all areas of life and commerce, but I think a medical practice, ideally, should be a small business within a suburban community where the doctors are an integral part of the community,” he told The Medical Republic.  He doesn’t think this model is going to survive though. “The idea that down the hall in the shoppig centre are 37 officies, occupied by all sorts of people practising medicine, is just not the same thing,” he said.

At one end of the spectrum, some people would never work for a corporate. At the other, it’s a simple and convenient lifestyle choice that is very easy for some doctors to make.  The difference now is, much like the middle class through the last 30 years of the millennium, in corporate medicine, the middle seems to be getting much bigger, faster.

This is occurring because, as businesses get much smarter at leveraging technology and scale, they can offer clever ways of partnering with doctors, ways in which both sides really do seem to benefit. Under this scenario we might soon see quite a bit of growth in the corporate market.

Of course, if you are reading the financial papers, you will probably realise that there is going to be a lag for some, if not all, players, while they adjust their businesses to a post-MBS review world where the return for bulk-billing practices is much lower. Primary is in that bucket. It’s results are due out about now, and those results probably won’t be that good.

In the case of Primary, this adjustment is significant and underpins the reasons for big changes in strategy and senior management, cuts in some divisions, and the relatively soft launch of a higher-end mixed-billing brand, Health & Co.

If you are deciding on a corporate in the near future, once you have done the detailed comparison of contracts and conditions, and price et cetera, and you end up with a close call, then you might find yourself thinking more carefully about how these businesses might be affected by changes to the regulatory environment, technology and demographics, particularly those around chronic care.

And then try to decide which one has a vestige of a soul. My tip for working that out? Get an audience with the CEO somehow and ask them why they are there.

Something to say?

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2 Comments on "Working for the man … and jellybeans"

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Karen Price
11 months 7 days ago
Interesting article. Economic models are fundamentally a part of the General Practice landscape. However professional autonomy, practice ownership and gender remain issues that play into that market. The reliance on a good franchise manager for instance, who understands the business of ethical practice, but has limited lived experience of it, may be difficult to detect through a contract alone. There is also the old chestnut of contracting services to a single entity and the apparent stand-off between the ATO and State Revenue Offices over the interpretation of a contractor. Much to work out in the workplace of General Practice. Primarily… Read more »
11 months 9 days ago

Pharmacy whinging about the focus on budget savings instead of social outcomes when all they want is to expand their supermarket model by undercutting already under cut GPs ? The irony!