4 September 2020
Why is big money circling general practice and will it help or hinder the sector?
Private equity and insurers are circling general practice with a view to transforming it and cashing in when its value goes up – but do these players really get GPs?
In early April 1995, a smartly dressed, young and bright advertising CEO was presenting to the local board of major global information and data provider Thomson (now Thomson-Reuters) on the future of health information. He’d spent about 20 minutes in his preamble, building to the “deal” slide. But when that slide dropped into the projection slot from the Kodak projector carousel, the local Thomson CEO, a cranky old-timer, wasn’t impressed.
He groaned and rolled his eyes.
The slide was a complex spoke-and-wheel diagram in which all points of the Australian healthcare system emanated or passed through one major hub: general practice.
On the general practice box was identified the central acquisition in the plan, a new and emerging electronic scriptwriting software business called Medical Director. Into and out of the GP hub box (or Medical Director) passed most of the major patient transactions that health analysts see as vital today – referrals to specialists and various allied health professionals, hospital patient summaries, scripts and other data to chemists, patients’ health records, payments to Medicare and private insurance, even a direct referral for patients from an emerging cable TV health network that had worked out how to talk directly to their customers through their cable service.
The agency guy heading the presentation described what he saw as no-brainer developments of such a system, such as GP-to-chemist electronic scripts, automatic referrals and direct Medicare and insurance company payments through the MD desktop software. Back then MD only did script management, not payments. Its acquisition price, by the way, according to the slide, was just $2m, quite away off the $140m that private equity player would pay for the product 20 years later.
The slide was spaghetti to the Thomson boss, who was still making most of his money from print information and data products – but to the eloquent and visionary ad agency guy, the slide was a work of pure clarity.
The secret to the efficient management of healthcare in Australia lay in what he saw as obvious and emerging digital networks connecting healthcare providers so they could talk to each other. And the most important transaction point in this network of the future was the GP. The GP hub, he said in a flurry of imagery, was like the 5th century city of Rey (today Tehran) on the Silk Road. All trade had to pass through Rey. It was the major trading stopover, for the most important goods on the most important trading route in the world.
GPs, explained our agency guy, were going to keep the ageing and chronically ill out of a rapidly blowing out and costly hospital system, and manage the complexities of emerging chronic health issues through their networks. They would do this via suitable connectivity and arrangements with all points in the network. GPs were at the hard centre of everything.
“Own this hub,” the ad guy told the boardroom, pointing to the GP box, “and you will own the future of healthcare information and transaction in the country. GPs are the centre of our future healthcare universe.”
On many of the other boxes on that slide were suggestions for other important contributing acquisitions to the entire vision. It was a big, bold and expensive plan.
The Thomson CEO wasn’t buying what the slick agency exec was selling.
He probably should have.
That 26-year-old slide, with a few updates to take into account the march of technology, would be just as relevant today in a private equity boardroom.
Things like the iPhone and global consumer digital distribution platforms such as Apple, which is moving to centralise much of its future growth plans around health, the advent of cloud, of Amazon and of massive global network connectivity have filled out that slide vision. It might have added a few other interesting local healthcare software vendors which have positioned themselves around consumers (eg, HealthEngine and HotDoc), doctors (BP, MD, Genie and the like) and infrastructure (Telstra Health).
In a Zoom call this week with the editor of one of our specialist groups I asked, as I do most doctors I chat to these days, how he was finding the new telehealth regime. To give me a very quick idea he said that last Thursday night, he was feeling just a bit scatchy in the throat, so he decided to do all 28 patient meetings the next day via Zoom to be COVID-safe. It all went reasonably smoothly. While some of the older patients struggle and there are still some issues with technology use on their side, the patients are becoming familiar with the protocols. And they are loving it.
Overall, his practice has shifted from doing virtually no telehealth to doing about 65% of all their consults that way. He says everything is much more efficient for him, the business and most of all, for his patients, who don’t wish to get into a car, wait in traffic, find a car park and then sit in the waiting room, for something that could easily be handled via phone or video, often in a very short consult. When he needs to see his patients, it’s obvious. And he gets them in. But that is only about 35% of his consulting time now.
If the government retains universal telehealth on an ongoing basis in a reasonably robust form, even this one anecdote provides a reasonable clue of just how seismic the transformation healthcare businesses are likely to undergo in the next couple of years. The opportunity for efficiency gains in all parts of the system are almost incalculable.
Converging with the introduction of telehealth, which many analysts now see as a likely common technology platform around which new digitally enabling technologies can aggregate, is the rise of a whole range of web-based connected technologies.
A big reason that technology is rising in a sector where it’s been extremely difficult to get agreement and traction on technology change is COVID. In a crisis, many government departments drew up new risk equations and decided to deploy new technologies in order to connect, scale and deliver much more effectively.
Prior to COVID, such digital technologies were eyed warily by government and regulators as too much too fast for such a risky and highly complex and regulated sector. Much of that attitudinal barrier to the introduction of this technology has been swept away now.
Even local tech vendors, who haven’t had the capital to transform their legacy systems to open architecture, cloud and web environments at speed are starting to realise that the market is moving faster now and they will need to move soon too. Everything is gaining momentum.
That private equity is starting to circle the core services of general practice is therefore not that surprising. They see that if it were taken seriously as the locus where the shift from acute to chronic care management can be best managed, general practice could end up being far more powerful in our healthcare system than it has been given credit for by the most important system payer: government.
They also see that technology is likely the secret to transforming the sector in a manner that will be both be valuable and acceptable to government, and still create great returns for their businesses. Patients might even get a look in on the fruits of such transformation, and as such, the private equity firm could lobby future government with the multi-pronged win-win pitch of their presence being good for everyone. Less relative cost to the government, far more effective engagement and management of patients, happier connected doctors, and, last but not least, a transformed general practice business many times more valuable than what they paid for a few years back.
Adding momentum is that it’s not just private equity eyeing off general practice as a business of the future. Most of the big private health insurance players are trying to figure out whether they can vertically integrate by buying into downstream healthcare services, to gain a lot more control of their members’ healthcare journey. They figure that if they own or control the journey, from the GP, through allied care, and upwards into the hospital environment, they can take a lot of cost out of what is today a very inefficient system. In some ways they are looking to emulate what some of the better health management organisations (HMOs) do in the US, where the can manage the entire patient journey and determine how to deliver every aspect of their care from allied through to tertiary and back. Although the US is seen often as a crackpot health system, these enclosed private health insurance ecosystems can be models of highly effective and efficient care. They just aren’t available to most Americans, unfortunately.
At the moment the private health players are fiddling at the edges of trying to manage their customers’ health journey, although in the case of some of them, it’s some pretty expensive fiddling. Acquisitions and partnerships typically include large at home care providers, telehealth services, private hospitals, virtual care providers and increasingly technology providers capable of improving their customer experience.
Some are getting heavily into AI and algorithmic health assistance services, and there is talk of one or more launching a Babylon-type service in Australia. Babylon is a UK health business that provides remote consultations with doctors and healthcare professionals via text and video messaging through its mobile application, which relies heavily on AI in its process. The company has been accused of taking all the low-hanging consultation fruit from the primary care sector in the UK, creating funding havoc within the NHS. But others say the group is just disrupting an inefficient system and bringing less expensive, more efficient and faster services to a certain patient demographic. This might be borne out by recent moves by the NHS to subcontract the group to manage some of its regional services in the UK.
Private health insurers in Australia have for years been paddling against the current of an ageing population, the march of chronic disease and rapidly depleting younger membership brought on by an inability to provide value in a highly regulated environment. An obvious strategy is to significantly reduce cost by better controlling costs through the healthcare journey of their patients. Outside of controlling networks of allied health, at-home care and virtual care, the obvious pivotal network which would help is general practice. The ideal arrangement would be to have a network of GPs, allied health services and private hospitals, where the private insurer could optimise the journey of their customer. Such optimisation would of course create great cost synergies for the insurer and patient.
Atlhough there are significant complications for a private health player entering the GP market in this manner, it is understood that some gave serious recent consideration to acquiring the Healius group of GP medical centres.
The irony of the popularity that general practice is starting to garner with big money is the way that government still seems to view it, which is more as a troubled child than a future prodigy.
But big money or not, what’s in it for individual GPs if things start moving this way?
It’s not like the success of Primary Health Care under Ed Bateman advanced the working lives of many GPs across Australia, so will the development of a new era of GP corporates under private equity or private health insurers be any different?
There are a lot of moving parts to transforming a gig like Healius both on the people side and the technology side. And both are likely to clash in any decent attempt at transformation unless those leading the transformation really understand what they are trying to do, and what they are up against.
From a people perspective, it’s hard to imagine that a few years of being told “we actually like you and want to treat you much better” by the likes of Dr Malcolm Parmenter and friends – who swooped in from rival Sonic a few years back, promised the earth, and then swooped back out on the sale to PE firm BGH last month – is likely to have healed a culture steeped in walk-in fast-throughput bulk-billed servicing. There is likely a lot of scar tissue through the organisation from its days as Primary Health Care, including a core of hardened, and likely, cynical old-timers who are smart and tough. Such staff wouldn’t be hard and smart if they were still there. They’ve survived, and continued to make money. But try and change their ways in any meaningful manner? That’s going to be one hell of a people problem for the new owners.
It’s hardly a fertile bed on which to practise the sort of people transformation you would be requiring if the new owners are to take advantage of new technologies, including telehealth, but also cloud-based patient management, to build a completely new, higher-value model of care across the organisation.
Part of BGH’s logic in acquiring Healius must have been in the opportunity that lies in transforming how they do business through replacing an antiquated, expensive to maintain, server-bound desk top patient management protocol throughout the organisation, that was shaped more and more over time to optimise the old business model of walk-in and bulk-billing. It’s technology that doesn’t serve the business well any more and the older it gets the more expensive it gets to retain.
But even if the new owners could wave a magic wand and install the best technology for all their doctors next week, nothing would change. It would likely be a huge mess, as GPs refused to use systems not designed for how Healius doctors are used to doing business. And no technology transformation is that seamless anyway.
So does BGH know what it is really up against here?
Classically, this is a “it’s not the technology, stupid” problem. It’s a people transformation problem first and foremost. The technology is there now, if you can form your people around it. In digital transformation terms, with the sort of culture, processes and technology that exist in Healius today, it’s a problem with a 9/10 difficulty rating.
But as they say, with big risk usually comes big return. If they can do it, there will likely be massive return. And not just for BGH. If it leads the way, others will follow. It will likely lead to increased values of GP practices, and it might even get the government thinking a bit harder on just how valuable the sector really is.
So how might Healius pull it off, if it even realises what it’s got itself into?
While BGH has the reputation of being the smartest PE in town, and one of its partners has had healthcare experience in the private hospital sector, its overall capability and knowledge base in health is relatively low.
We’ve seen some pretty disastrous forays by PE into the health sector in the last few years. For instance, on spec, the $140m acquisition of then leading patient management software vendor Medical Director, by the Affinity Group five years ago, may have seemed an expensive but clever bet, at a time when it seemed the Australian healthcare sector would move to platform-based delivery of services and MD could position itself as the major hub of that. That was likely the key sales story.
But whether by mismanagement or misunderstanding of the sector, that acquisition has seen no value accrued to the company (probably net loss), a failed and expensive foray into a cloud version of their core product, and what might be an eventually fatal loss of share to its major competitor Best Practice. Given the price paid for the business five years ago, you’d have to say that the PE owners messed up quite a bit.
When you look at what went on between MD and its major competitor BP, the single defining difference between the businesses was that the owner of BP is a doctor, and he and his staff are very close to their market. They understand the culture.
Like Affinity, BGH has paid a premium for Healius on a bet of how the healthcare system and technology will unfold in the coming years. Probably the biggest initial question is does it really understand enough about the people in the business: that quirky and frustratingly independent thinker, the GP?
Although the COVID crisis may have assisted BGH by advancing the cause of many of these new technologies, particularly in the eyes of government, and perhaps most importantly, by establishing telehealth as a technology hub, the relationship between GPs, their working lives and technology has always been a complex and frustrating one.
For instance, when the first cloud-based patient management systems arrived on the scene some four years ago now, it was thought there would be a race on to grab share in the GP market, as GPs would undoubtedly see the value and utility of such systems to their practices, like small business owners and accountants saw the transformational capability of Xero, the first cloud-based accounting system.
But that never happened. Not even close.
It turned out that the comparison to other cloud-based professional services was largely chalk and cheese, and doctors won’t change a thing unless they see very obvious and quickly adoptable value (which they didn’t).
Helix, the cloud version of Medical Director, got installed and rapidly uninstalled in several major practices, as the promise didn’t meet the sales hype, and quite simply, busy doctors and practice managers did not have the time to learn a new way of doing things. MediRecords, which was the first to market with a cloud product, and which likely spooked Medical Director into launching Helix without enough proper testing or functionality, also experienced similar early GP rejections.
GPs aren’t early adopters of technology. Or even middle adopters. That’s not because they aren’t tech-savvy, it’s because they have a day job where time is literally money. Interrupting a well established work flow to completely re-engineer how you work, or how your doctors work if you run or own a practice, is a very big deal and much more disruptive than in most businesses.
Having said this, cloud applications like MediRecords are now finding a lot of market traction, but not in the manner that analysts originally thought it would. Its growth today, which is quite robust, is coming almost exclusively from business ventures which are planning or starting from the ground up with completely different workflows that take optimal advantage of the cloud-based technology.
It’s a subtle but vital point for a business like BGH to think about. It has bought a legacy of culture, infrastructure and set of processes, which are increasingly dysfunctional in today’s world. Rather than attempting to take an entire business and all your people with you in one big-bang transformation, it would be better off regrowing the business around select groups of willing and energised staff, going at high speed in those separated pods or groups of practices, and migrating its old business over time around this emerging new core, as it gains traction.
It’s a strategy employed by the few large legacy businesses that eventually managed to transform amid agile digital competitors. But it takes time.
“Takes time” isn’t a phrase that most PEs love. But the risk of one single transformation event for a business like Healius, rather than spotting the transformation in the places you know it can grow, and taking the rest with you over time, is huge.
A big-bang mega-failure would be bad for everyone – not just the GPs and owners, but general practice overall, probably, as it would depress the value of GP practices everywhere. Success on the other hand, even over time, would likely see the opposite effect.
If the big health insurers ever decide to take the plunge into controlling GP practices (there are several regulatory issues they’d need to resolve but it’s possible, apparently), then that ownership might prove much better for GPs. Although stressed today, the larger insurers have deep pockets, lots of capital to deploy, can bring a lot of customers (Medibank Private has about 3.7 million of them), will benefit from owning other links in the healthcare journey, and technically, for the larger ones at least, they are “too big to fail” as far as the government is concerned. The entry of private health might really shake things up over time.
The final and most interesting aspect of this collision of culture, money, people and technology, is that the environment for entrepreneurial GP start-ups may never have been better.
The major competition to the likes of BGH over time, or a private health group, will likely come from some smart younger GP entrepreneurs who won’t have any legacy to deal with, and who now have available to them a range of inexpensive, smart and scalable technologies upon which they can build their own new models of care. Such models will likely include 24-hour services, AI chatbots, telehealth, virtual at-home services, access to various allied health groups, and, of course, some form of face-to-face consultations.
We haven’t seen much of this yet, but the opportunity is certainly there now for such services to blossom.
As always in health, things are a lot more complicated and fraught with people and communication issues than anyone ever guesses.
But with big money circling the general practice sector more now than ever before, substantive change will come over the next few years, one way or another.