It’s great to put my time into patient care rather than admin,” says Primary Health Care doctor Asha Nair in an advertisement on the cover of Australian Doctor, last week. Inside the issue and that of its sister title Medical Observer, there are now lots of ads recruiting doctors for Primary, and using much the same […]
It’s great to put my time into patient care rather than admin,” says Primary Health Care doctor Asha Nair in an advertisement on the cover of Australian Doctor, last week. Inside the issue and that of its sister title Medical Observer, there are now lots of ads recruiting doctors for Primary, and using much the same line: “Come to Primary and let all the anxiety of admin and finance wash away behind you… balance life and work.”
But if life is so good in a Primary Centre, why are they bleeding doctors at a rate that has several industry analysts sufficiently alarmed to say it’s a major reason they have decided to significantly downgrade the stock?
Shares in the company plummeted last week to a three year low of $3.33 after the group issued a profit warning, including a note that all of its business units, including medical centres, were under revenue pressure.
Macquarie analyst Craig Collie said after the downgrade that: “Of most concern to us is the GP headcount issue, which we believe can only be explained by high churn, given that the company spent a record $90 million in F15 [the year to June 2015] on upfront doctor payments.”
The strategy of Primary’s Medical Centre Division (and all its other divisions) has two pillars: Invest for Growth and Improve ROI.
There has been some solid investment by Primary in improving the lot of its doctors; the group founded its own professional learning centre for doctors as a commitment to quality of employment and of patient care, and they have resolved to make their employment contracts more flexible and attractive. It also took a significant bath ($105 million) on behalf of its doctors with the Australian Taxation Office (ATO) who were facing bills of up to $250,000 each when the ATO declared that upfront payments paid to doctors to sign onto Primary were inducements, rather than payments for medical practices.
Primary is also spending a hefty sum on advertising. But that isn’t an improvement. It’s a massive recruitment drive, presumably to offset the churn. Now the trick is retention.
The company’s most recent investor presentation attempts an air of revenue momentum. It says that after five years of adding almost no new major medical centres to its network of 58, it is about to start growing again. It recently acquired a site for development in Corrimal and says it has identified five new sites in NSW. According to the strategy, there is room to “grow market share” and “accelerate the rollout” of centres from a “flat base”.
But analysts aren’t all buying the growth story. Some suspect that any gain from growth will be offset by other factors, including impending cuts to the MBS and changing patient sentiment.
Primary CEO Peter Gregg’s comments last week probably didn’t improve the situation when he admitted that “the key pressure is revenue”, and therefore the company “will have to be more aggressive on costs”.
Primary doctors and those thinking about joining might be forgiven for questioning the ability of Primary to meet its core promise of a nest egg for surgery acquisition, followed by a less stressful life where all your admin, education and financial needs are handled by the company.
The seemingly inevitable revenue loss and subsequent aggressive cost cutting does not align well with the promise.
However, a spokeswoman for Primary was upbeat. “In addition to the old model (being a significant upfront payment – which remains an option), we are offering GPs a higher share of revenue and a shorter contract period with no upfront payment. In between there are a range of options that allow flexibility in terms of hours, days in the clinic and the remuneration model,” she told The Medical Republic.
More bad news for Primary doctors might be that it’s not just the Medical Centre division that is under pressure, but all four divisions. The situation is starting to look like Primary might be about to face its perfect storm.
Stresses Primary might soon face include:
• Medical Director, its Patient Management System business, is currently for sale or seeking a partner who can help the business re-engineer its aged core software business to face the threat of agile new cloud based competitors. That threat may significantly denude the value of that business and threaten its dominance.
• All other divisions outside of the Medical Centre group face major revenue challenges. Regulatory uncertainty is retarding the Imaging group, and fee cuts to key scheduled items such as vitamin D tests are causing the Pathology group to slow.
• Digital disruptors are biting at Primary’s heels with technology that may threaten the long-term viability of the Primary Corporate Centre Model and its Medical Director business unit.
Any way you look at it, the core promises to GPs that Primary has built its Medical Centre empire on are starting to look fragile, despite its best efforts.
Primary has been drifting downwards now in market sentiment, revenue momentum and share price for over eight months. It lost its iconic founder, Ed Bateman, in September. Given the issues it faces, it might be time for the group to stop and admit that it has a big problem which may take a lot of time, money and potentially transformational thinking to fix.
It’s something bold like this, which while no doubt painful financially in the short term, might shift its image and its potential to attract doctors and keep them.
