A surprising tour inside our largest corporate GP private equity play reveals interesting nuances in some unfolding debates.
Not long after writing a piece criticising the logic of the NSW governmentâs 80% bulk billing rebate for general practice, I got a call from the CEO of ForHealth, Andrew Cohen.
Iâd taken a pretty big detour in that article to point out that the NSW government had unwittingly (we hope) significantly increased the value of the private equity-owned group by effectively removing any historical and forward payroll tax liability for the group, because nearly all of its NSW centres are already above the 80% city and 70% country thresholds to get a rebate.
Meanwhile, a large group of medium-sized practices that had built up their mixed billing profile were going to get smashed because they fell under those thresholds. I had a few emails and calls directly with stories of how that was already happening to some practices.
If the NSW changes were just a policy thought bubble it would be stupid but understandable, but NSW compounded its stupdity quite a lot by legislating around the change.
The legislation essentially shores up and significantly increases the value of any centres with existing high bulk billing rates above the 80% and 70% marks â a large proportion of which are run by corporates, some owned by private equity â and dooms a large proportion of practices in âthe mixed billing middleâ, to facing up to paying the tax moving forward and other consequences that might follow from signing up to pay.
This not only creates an artificial new cost of living tax for the patients of these âmiddleâ practices, it creates significant new risk for all these practices for how medical liability is viewed and handled, and for potential future ATO audits of their doctors based on the grounds that they have never been contractors or tenants running their own business entities, but are effectively employees (âdeemedâ employees).
More insightful readers might have wondered, just a little, if my dig at ForHealth â I said it had increased in value for âno good reasonâ essentially â might have been hubbed in that subconscious thought many of us tend to have about private equity: that they can only be bad for a market in the end.
Put another way, was I overlooking the fact that, free kick or not, at the very least (very very least given the bipolar nature of the effect of the policy across the spectrum of practices in the NSW), all those existing 80% and 70%-plus bulk billing practices do become more sustainable so something good has happened?
Why should I care that some of the practices benefitting were owned by private equity or big corporate entities?
Quick declaration here.
I once was the CEO of a company that was acquired by private equity and was a willing, invested, and even enthusiastic, participant in all the plans for future glory we jointly planned for that company. I got fired about 18 months later (of course). But it gave me just a little insight into the inner workings of the sector.
Back to Andrew Cohen.
You might have expected that he was pretty upset and planning to give me a good bollocking for unfairly singling out his group based on the potentially irrelevant fact that his group is private equity-owned.
After all, nearly every GP practice around the country is a for-profit business and a good proportion are not owned by GPs. Whatâs the real difference?
He wasnât angry â heâs a smart and articulate operator who has experienced a lot of weird media coverage over the years so I donât think this piece fazed him particularly â but he was pretty frustrated.
And he didnât particularly want to take the âwhy are people so unfair to private equity lineâ either.
He just wanted to point out a few things he felt I missed in my arguments about practices that bulk bill and UCCs and that I seemed to be confusing ForHealth with its dim and dark past under previous ownership.
He then invited me to go and see some his centres â Maroubra in southeast Sydney (near Prince of Wales Hospital) and Wentworthville in western Sydney (near Westmead Hospital), including co-located UCCs, so I could make up my own mind better about what he was saying.
Which I did a couple of weeks back.
I also went to two other centres myself and sat and watched was happening in the waiting rooms as a sort of a double check against my chaperoned tour, although the person who chaperoned me revealed a lot more to me than I think I would have in his role (heâs someone Iâve known for many years, who has worked for the company since its Primary Healthcare days and through its Healius phase and is a pretty straight shooter).
One sure way to confuse the media is to be disarmingly transparent.
Iâll come back to what I learned on my tour, but Iâll first summarise some of Cohenâs points (my take on his points, not his words):
- Bulk billing, despite the GP practice financial crisis, is still the major consult type across the country, is not likely to ever go away as the base of the system. It is not, contrary to what I wrote, generally delivering a faster, poorer form of consult with less continuity of care than practices that mix bill.
- ForHealth practices look, feel and operate vastly differently to past iterations of the company.
- It was unfair of me to assume ForHealth practices had higher volumes of consults per doctor than your average nearby mixed billing practice (3.4 consults per hour for Maroubra and 3.8 for Wentworthville if you want to compare) based on my knowledge of past iterations of the business model.
- A lot of bulk billing practices are doing a good job and fulfilling an important need, especially in areas where patients canât afford to pay gap fees. He felt that deliberately or not my article had tended to smear bulk-billing practices in general with some of the sins of past operators (for the record, I think he is right in this assertion although I hadnât intended to do that).
- UCCs, for which ForHealth might soon have about 40 contracts (state and federal):
- are being used extensively by patients, are triaged on strict and well recorded criteria between co-located GP services and even local hospitals (my tour confirmed this)generally have very close ties to local hospital EDs and work in sync with them as much as possibleare proving very popular after hours and meeting a significant need
- are based on very successful models of âbetween a GP and a hospital EDâ service in Canada and New Zealand.
Thereâs quite a bit to unpack here but Iâll try not to rant too much.
To start with, I think Cohen is making some good points.
Bulk billing is a key base component of the system which is not going away, and not all bulk-billing centres are the doctor sweatshops (and patient factories) of past mythology, just in case I had given that impression.
Bulk billing and the groups that maintain high bulk-billing rates are important system components and a proportion of these businesses are doing a good job.
It isnât their fault that the NSW government has given most of them a free kick and increased their sustainability and often overall value as businesses.
But the NSW position does remain problematic, because by artificially trying to force practices to return to bulk billing for largely short-term political purposes, they are going to ruin, or at least at significantly add to the financial stress of, a lot of non-bulk-billing practices.
If the intention was to reduce stress on the hospital system, NSW has likely done the opposite in the mid to long term.
As to ForHealth specifically, the tour (formal and informal) was surprising and enlightening.
For one thing, if you accept the volume of consults per doctor they are quoting, the business model is no longer mainly based on throughput, but something entirely different that makes for some pretty smart business logic.
For a whole lot of reasons, payroll tax being a giant recent one, command and control and high throughput no longer makes the business sense it once did for a corporate like ForHealth.
Reading between the lines of what Cohen and my tour guide were telling me, the business model now seems to be hubbed in the following thinking:
- Doctors are your anchor tenant around which you build a series of adjacent revenue streams: pathology (rent), dental (synergies with general practice), pharmacy (again rent) and any other co-located allied health opportunity that makes sense, e.g. psychology
- For the whole thing to work the doctors have to be happy, which definitely was not always a part of the old business model.
How do you make your tenant doctors happy?
Compare the current ForHealth contract with what it used to be and thereâs no resemblance.
Doctors at ForHealth, at least according to their contracts, are free to do what they want in their day-to-day servicing of their patients â including private billing them if they see fit.
Relevantly, contracts like this one are probably the main form of protection against getting nabbed for payroll tax â doctors need to be provably in charge of their own business and destiny and simply renting space and services. Yet perhaps ironically, in NSW and one other state at least, this probably is no longer a problem for ForHealth based on new payroll tax rulings or legislation.
Related
All the doctors I met on my tour loved the place, but Iâd have been disappointed in ForHealthâs organisational and PR capability if I ran into a disgruntled one.
According to Cohen and my tour guide, the doctor retention rate has improved significantly in the past couple of years (21% turnover in 2023 to around 15% this year). Now there are no longer any nasty clauses on exit or non-competition in their contracts (they can leave at short notice if they want), doctors working at ForHealth seem happier to stay.
Of course one part of the business model of ForHealth which we didnât discuss but which is obviously a major part of its value proposition should it come up for sale is its growing suite of UCC contracts.
So far it has 33 state and federal government contracts and it will probably get seven or so in the next year.
The UCC contracts are only three years, but if UCCs become an established ongoing part of the system â from the perspective of the federal government it looks very much like itâs going that way â and ForHealth maintain a good standard of service for their client (the federal government in the case of most of their contracts) then these are very long-term contracts and of significant ongoing value to the company and the companyâs ultimate valuation.
Can you hold this dynamic against the company, especially if, as Cohen is arguing, the centres are meeting a pretty significant patient need? Itâs just good business at scale really and so long as they do meet a need and are well run, should we care who owns it or who sells it for a tidy sum (more of that below)?
The RACGP doesnât like UCCs one bit, saying they are unfair subsidised competition to local GP practices and that there is no evidence that they are working.
The competition argument doesnât really stack up:
- There is no evidence at all so far that UCCs are causing local GP practices to lose patients (at the ForHealth Maroubra site, a big new competitor practice opened up shop across the road just a few weeks ago, so they didn’t think the competition was that tough).
- UCCs employ an increasing number of GPs anyway, so isnât that just GP vs GP in the end?
- Yes, UCCs are subsidised but UCC contracts are open tender PHN by PHN across the country. Any GP practice can tender for them if they want that as part of their business model and value.
As to whether theyâre working, itâs true there is no evidence for UCCs reducing demand at local EDs, and strangely, the Department of Health and Aged Care isnât planning on reviewing and producing any evidence that they do for another 18 months or so.
But we do know that at least some UCCs are talking regularly to their local ED and trying to co-ordinate patient flow in some way between the two entities.
ForHealth UCCs generally on-refer about 2% of their patients and some EDs do send patients to their UCCs, so there is some sort of dynamic starting to develop between the two services.
What we do know is that, regardless of ED impact, there is plenty of evidence of patients wanting and needing the services of UCCs, especially after hours.
In case youâre interested, below are the figures for ForHealth commonwealth UCC use in August, supplied by ForHealth:
- 24,600 services in its 24 locations, not including the interactions with patients that did not meet the inclusion criteria of the UCC. These patients are still supported in finding the right âfront doorâ within the healthcare system such as a local GP practice or pharmacy.
- 797 patients a day across the network, or an average of 33 patients per day per clinic (most clinics only have one or two GPs) with peak times after 4pm and across the whole weekend.
The clinics are all in different phases of ramp-up within their communities. Some such as Maroubra opened in July last year while Cessnock opened in mid-December.
While Iâm now on this somewhat awkward roll of seemingly selling the merits of UCCs and private equity-owned corporate GP businesses, hereâs a few other things to mull over:
- ForHealth has essentially restarted the availability of bulk billing to the Rockhampton community by rescuing a once thriving bulk billing practice that was about to shut up shop, and co-locating a UCC with that service. Cohen maintains that other centres are shoring up GP services in rural areas where they might otherwise have easily disappeared.
- Last year the group provided rent and services to 1022 GPs in their GP centres and this year that figure is up to 1108 GPs. In the same two years they employed 73 and 267 GPs respectively in their UCCs.
OK, that was awkward.
However, maybe not as awkward as how the RACGP has so far viewed UCCs and increasingly, most of the GP corporates from afar.
Halfway through my tour, as I was becoming increasingly surprised at just how much I really didnât know, it struck me that surely senior representatives from the RACGP must have taken the same tour?
Nup.
The offer has been made a few times apparently, and so far the college hasnât deigned to do âthe tourâ.
Which feels like pretty bad thinking on the collegeâs part.
How could it hurt?
It would surely provide some information and perspective on how they want to deal with what they see as an emerging competitor for their members (forgetting that most of the GPs working at ForHealth are members of the college too).
Keeping your enemies close is always smart in business.
All of this does suggest an often asked question about private equity and profit-making entities in medicine.
Can profit and the motivation of private money sometimes be good for healthcare?
Iâm going to try to not take my own bait and answer this question, at least not in black and white terms.
But when you think about the question yourself, remember that nearly every general practice in the country is a profit-making entity, and not all are owned by GPs.
When I worked for private equity, plan A was definitely to build something much better for clients because that was the easiest way we all saw to prove new value and onsell the business at a much better margin. We even invested quite a bit into that plan (it didnât work).
Sometimes private equity goes the other way â it sees opportunity to make quick money in slashing and burning, or breaking assets up and selling them individually with all the collateral people damage that goes with that, to realise value form what many would see as value destruction.
But that does not seem to be Cohenâs plan or his style if you look at his past successes with company builds and turnarounds.
So far, I think heâs thinking: if my tenant doctors are happy, I have a basis to build other good stuff around that using good logistics and scale, including developing a suite of successful UCC centres.
Of course, heâs also good at reading the tea leaves and moulding his business to what federal and state governments want in the future, and â Iâm guessing â getting some key political figures to look into his eyes and think what he wants them to think.
A recent comment on a piece I wrote amusingly referred to The Medical Republic as âextreme left wingâ, I think maybe even âcommunistâ. I think they were attempting some sort of compliment but I couldnât really tell.
As a communist (not) Iâm going to say that all profit-making enterprises are bad and things get much worse when youâre trying to profit from medicine.
One part of this statement rings true: making profit from medicine is an extremely fraught game.
But given GPs have to make a profit in our current funding paradigm for primary care, and their survival is tightly linked to the future sustainability of our whole healthcare system, and many specialists are often making âsuper profitsâ these days thanks to a breaking down MBS, and each of the pharmaceutical, imaging and pathology industries are all profit-making but key components of our system, Iâm thinking maybe, in this particular instance, I may have laid into private equity just a tad too much.
