HEALTHCARE SECTOR: BEYOND 2021 The growth of aggregated specialist practices

1 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Welcome

New synergies for specialists in aggregated models Perhaps no sector has been more dynamic than healthcare in recent times.

Even before COVID-19 put healthcare In this report, ‘Reset for growth: What’s These are exciting times. Despite the on the frontline of a once-in-a-century the prognosis for aggregated specialist shocks and diversions of the past 12 global emergency, the industry was practices?’, Commercial Bank months, 2021 is widely touted as a major already being profoundly reshaped by takes a close look at the evolution of opportunity for a rethink across all digital disruption and the emergence this trend and its drivers, from increased sectors, and Westpac is delighted to be of an array of new technologies. competition in some specialisations to working with many specialists to support its potential to power up tech innovation their aspirations for moving into private Simultaneously, the healthcare sector is – allowing specialists to share costs for practices, building private day surgeries Louise McCann confronting massive growth in demand leading-edge equipment, better data and short-stay hospitals. National Head of Healthcare for services to meet the needs of analysis and to meet patients’ post- Westpac Commercial Bank ’s inexorably ageing population. pandemic expectations for telehealth, Our special thanks to the healthcare Add to these, the pressures of rising for instance. commentators and Westpac customers healthcare costs, both for patients who have shared their compelling and practitioners and, like a perfect insights on the pages that follow. storm, the confluence of these trends is Like a perfect storm, prompting many progressive providers a confluence of trends is I hope you enjoy reading the report to actively explore new operating models. and look forward to your feedback. prompting progressive A standout is the concept of aggregated practice – formerly the province of GPs providers to actively explore and allied health groups – which is now being embraced by growing numbers of new operating models. specialist practitioners across the country. Aggregated groups inevitably look to The emergence of smaller, specialist-led, economies of scale. But funding these private short-stay hospitals, in particular, capital-intensive projects is complex as is redefining how specialist modalities individual investors, private equity, banks can work together to deliver better and doctors themselves seek certainty patient outcomes and more efficient of returns from the wide range of models use of healthcare resources. now emerging.

2 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Introduction

Reimagining the medical practice Why the collective approach to healthcare is gaining momentum.

The global pandemic has created an healthcare, says that while aggregation unprecedented public health emergency is more advanced in the US market, new and placed additional pressure on opportunities are emerging in Australia. a system already under strain from an ageing population, an increasing The consolidation of private incidence of chronic disease and growing customer expectations for medical practices … may present more personalised, digital, integrated care experiences. a smart model for the future.

Some of these challenges have exposed “It is becoming increasingly attractive weaknesses in traditional models of for good clinicians to engage on this operation and, like a number of other basis due to unneccessary duplication of industries this year, many healthcare technology, increasing subspecialisation, specialists are reassessing their business to encourage cross referrals and the approach. The consolidation of private multidisciplinary approach to disease medical practices, via group investment, management. Health is also acquisition of smaller practices, or offering greater incentives to specialists acquisition by corporates, may to minimise patient gaps where clinicians present a smart model for the future. take responsibility for the total episode Aggregation may alleviate high costs of care, ” Adams says. for sole practitioners, while facilitating the provision of high-tech equipment, This report examines the drivers, services and systems to deliver better advantages and challenges of the health outcomes and more efficient specialist aggregation model and practice management. includes case studies of healthcare professionals who have successfully Carl Adams, Managing Director of SMS come together to deliver integrated Healthcare and Industry Advisor in specialist care to the benefit of their Mergers and Acquisitions for Australian patients and their businesses.

3 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Aggregated practice: the model of the future

Promoting greater efficiency and better outcomes The trend that gained traction for GPs is now being adopted by specialists.

Aggregation of healthcare is a well- where practices or practitioners are established business model in countries coming together with the same goal like the US. to create consistent clinical care with greater efficiency and shared services,” The trend accelerated in 2010 with the says Louise McCann, National Head of introduction of the nation’s Affordable Healthcare, Westpac Commercial Banking. Care Act (ACA), widely known as Obamacare, which created incentives for providers to coordinate care and “One of the strongest drivers is an oversupply adjusted payments to make mergers a smart financial option. in certain specialities, which causes more

In 2018, analytics company Definitive specialty groups to merge and probably more Healthcare tracked 803 healthcare mergers and acquisitions and corporate ownership to come into play.” 858 affiliation and partnership Carl Adams, Managing Director, SMS Healthcare announcements across the US. and Industry Advisor in Mergers and Acquisitions in Australian healthcare In Australia, the aggregation trend has been led by general practitioners taking advantage of opportunities to Joining the competition share overhead costs, invest in new technologies at scale and provide Australia has more doctors than the optimal healthcare within an evolving, OECD average and Adams says high digitally-enabled work environment. competition is a driving interest in Now, the model appears to be gaining consolidation. momentum among specialists. “One of the strongest drivers is an “We’re seeing more aggregation of oversupply in certain specialities, specialists, particularly in areas like which causes more specialty groups to ophthalmology, radiology and psychiatry, merge and probably more corporate

4 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Aggregated practice: the model of the future

ownership to come into play,” he Aggregated practices can leverage says. “There’s also the drive to reduce overheads – it’s not so much about their size to implement wide-scale, increasing revenue.” quality improvement measures, such as Adams expects the combination of short-stay facilities with specialist electronic medical record systems group roll-ups to be “the model to enhance coordination of care. that will fly”.

“It reduces the personal excursion, Institute: Applied Economic provides a better exit mechanism for and Social Research at the University the specialist, and a greater throughput of Melbourne, notes that a potential within the short-stay hospitals, with the drawback for patients is higher fees doctors being associated as owners charged by aggregated groups. and part of the corporate structure,” he says. “We are currently doing some research into the drivers of fees charged Benefits and pitfalls by specialists and we’re finding that specialists who are a part of a Aggregated practices can leverage company, rather than another business their size to implement wide-scale, arrangement, are more likely to charge quality improvement measures, such higher prices.” as electronic medical record systems, to enhance coordination of care. This Despite potential drawbacks, Adams presents benefits for practitioners and notes that, when executed well, patients. However, the model also has aggregation can serve the interests of potential downsides. medical practitioners, allied healthcare specialists and patients, alike. “Approaches to surgery may be very different among practitioners, which can “It’s very early days in Australia, but cause conflict,” says Adams. “Owners I think it will gain momentum more may also be competing with each other, and more.” despite the collegiate environment.”

Professor Anthony Scott, who leads the Health and Healthcare theme at the

5 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Aggregated practice: the model of the future

Case study: The Toowoomba Clinic How a team effort in Queensland is delivering treatment and driving down costs.

The Toowoomba Clinic is a 27-bed called Heal All Pty Ltd; Heal All Service mental health facility formed by Industries, which leases consulting Richard Lavack and a team of rooms; and The Toowoomba Clinic. mental health specialists. “Depending on how much each investor It opened in October 2020 and, in put in, they received a percentage of addition to hospital beds, it has shares in Heal All Pty Ltd and they are consulting rooms, which can be the same shares that they have in The leased to other practitioners. Toowoomba Clinic,” says Lavack. “The Toowoomba Clinic creates the revenue Lavack and his wife, Dr Andrea to pay off the mortgage.” Boros-Lavack, were running private practices in Toowoomba and Caloundra and struggled to get patients into local “Many patients were having to go to hospitals due to a shortage of beds. Brisbane, Caloundra or the Gold Coast to get “Many patients were having to go to into hospital and we could see a need here.” Brisbane, Caloundra or the Gold Coast to get into hospital and we could see a Richard Lavack, Director, The Toowoomba Clinic need here,” he says. Lavack adds that The Toowoomba “We had to get a group of investors Clinic gives patients easier access to together to have a certain percentage care. “For patients who can’t afford to of the bill before a bank could approve see a psychiatrist in person, or to travel the loan. We had trouble finding a bank long distances for an appointment, our who would fund us, but eventually we psychiatrists use telehealth, which is bulk came to Westpac and that’s how we billed. If a patient requires referral to got it to happen.” hospital, our practice has mental health nurses that monitor and care for them The business comprises three entities: until their hospital admission, with no a self-managed superannuation fund additional cost.”

6 Healthcare sector: Beyond 2021 supplied Image: The growth of aggregated specialist practices Telehealth and the digital upswing TELEHEALTH BY NUMBERS, OCTOBER 20201 16.4 million Total number of reported medicare benefits schedule The future in practice (MBS) consultations. 4.1 million How aggregation powers up technology innovation. Total number of reported telehealth consultations: The COVID-19 pandemic has accelerated easier and increase time for actual care the uptake of digital health technologies of the patients in front of us, rather than across Australia. messing around with clunky systems or work-arounds that we now use to 92% 8% by phone by video Electronic prescriptions have been communicate.” fast-tracked and attitudes toward data- sharing are evolving as digital health Innovation on the horizon records become more ubiquitous. In 2018, the global digital health market 36.3 million Total number of telehealth consultations More than 90 per cent of Australian was valued at around US$86.4 billion. since COVID-19 (March–October 2020). public hospitals and 53 per cent of By 2025, it is estimated to increase to private hospitals with inpatient facilities US$505.4 billion. were using the My Health Record system IN OCTOBER 2020 THERE WERE: as of 30 June 2020. “We are seeing aggregated practices The greatest game-changer for digital health in Australia, however, has been lean into these models where there the uptake of telehealth in response to is enough scale for them to spend the pandemic. In June, 2020 4.7 million telehealth consultations were conducted money on interoperability and save across the country, with just over 28 per 11.8m 2.4m 1.0m General Specialist Mental health cent of them listed under the Australian money on resources.” practitioner consultations. consultations. Medicare Benefits Schedule. Nick Therkelsen-Terry, CEO, Max Kelsen consultations. Australian Medical Association Vice President, Dr Chris Moy says that further Nick Therkelsen-Terry, CEO of uptake of digital health may encourage Max Kelsen, an Australian artificial 28% 18% 32% interoperability of clinical systems intelligence and machine-learning by telehealth. by telehealth. by telehealth. between different providers. solutions company, says aggregation

of specialist groups provides the scale SOURCE: 1. Snoswell, C.L., Caffery, L.J., Hobson, G., Taylor, M.L., Haydon, H.M., “This will enable them to talk with each to invest in innovative technologies. Thomas, E., Smith, A.C. Centre for Online Health, The University of Queensland. Telehealth and coronavirus: Medicare Benefits Schedule (MBS) activity in other and would make communication Australia. Published May 19, 2020.

7 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Telehealth and the digital upswing

“If you’re a company looking to bring critical care path of patients. “But, it only new products to market, you’ve typically makes sense if the person entering the got to ask a clinician to put their hand in information at the front desk isn’t a fixed their pocket to pay for it, or convince the cost for you,” he says. health minister to add it to the PBS,” he says. “But the economies of scale with “Where we are seeing people leaning into aggregated groups make investment these models is in aggregated practices, much more attractive.” private hospitals and pathology providers where there’s enough scale for them to spend money on interoperability “Smart medical practices and save money on resources.” will be making decisions based on data.” Katrina Otto, Managing Director, Train IT Medical

Katrina Otto, Managing Director and Owner of medical software training company Train IT Medical, says innovations in data analytics look set to transform practice management.

“It’s the way of the future,” she says. “Data analytics dashboards can analyse ratios in doctor’s waiting rooms, waiting times, cost per patient per day. Smart medical practices will be making decisions based on data.”

Meanwhile, data sharing between medical providers is in its infancy, but Therkelsen-Terry says that signs of growth are starting to appear, with the emergence of platform players who are connecting more of the parties in the

8 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Aggregated practice: the model of the future

Case study: East Sydney Private Hospital Short-stay may deliver better outcomes for all.

Peter Kalish, an ear, nose and throat the much shorter stay and no need to (ENT) surgeon, built East Sydney Private pay for rehab, it is prepared to pay the Hospital with a group of private investors surgeon and anaesthetist a little more to in 2014. compensate them for not charging an out-of-pocket cost. So, it works well for In August of 2020, Medibank Private took everyone concerned.” a 49 per cent minority shareholding and provided an initial investment of AUD 8.8 million to fund the capital “The objective of Medibank Private is to investment and operational costs required for the hospital to scale its try and reduce the costs to members, as new short-stay model of care. well as to the health system in general.” “The objective of Medibank Private is Peter Kalish, founder, East Sydney Private Hospital to try and reduce the costs to members, as well as to the health system in general,” he says. The hospital has five theatres, 32 beds and a close observation unit. It specialises Kalish explains that the short-stay in orthopaedics, spinal surgery, plastic program utilises the Early Rehabilitation surgery, ophthalmology, eye surgery After Surgery (ERAS) program, so and ENT. “Normally, we do just under patients may be up and moving within 500 procedures in a month, and we hope hours of surgery and sent home the to increase that by at least 10 per cent,” following day, with in-home support says Kalish. and no need to spend time in a rehabilitation facility. “Our objective is to take another level of the building and Medibank Private is “Medibank Private has signed an very keen to support this. We’re looking agreement with the participating at going into cardiology and urology, surgeons and anaesthetists that they will which would have been difficult for not charge the patient an out-of-pocket me on my own, or certainly even with fee,” explains Kalish. “And, because of private investors.”

9 Healthcare sector: Beyond 2021 supplied Image: The growth of aggregated specialist practices Aggregated healthcare groups: see how they run

Taking advice on practicalities Successful operations are created with foresight and support.

Approaches to aggregation vary. Funding options Planning and set up require advice from experts including accountants, banks, The right balance of debt and equity lawyers, specialist advisers and practice is vital, especially in the current management consultants. economic environment.

“Aggregation models can be difficult to “What COVID is teaching us is that execute, largely because specialists are businesses that are overburdened by a referred network and being part of too much debt are really struggling, a group doesn’t necessarily mean an whereas those with strong cashflow who increase in referrals or economies of have been more conservative on debt scale sufficient enough to justify groups are doing much better,” says McCann. to be formed,” says Carl Adams. “Aggregated groups often want to release Assessment of integration risks and some of their equity for further investment, cultural alignment are important in but that’s got to be replaced by something, partnerships. Corporate structures may and it’s either private equity or its debt,” be more attractive for specialists who adds McCann. “If you add too much wish to control a broader healthcare debt, problems arise when there are value chain, says Mac Stark, Relationship income shocks.” Director, Health and Social Services, Commercial Banking Queensland While healthcare may be of interest to at Westpac. private equity, Stark observes it is often focused on singular modalities “A patient could potentially interact with – such as general practice, dental or the same business on various fronts diagnostics – rather than on the integration throughout one treatment plan, including of value chains, where multiple types of through allied health components and practitioners come together to create diagnostics, so there can be an incentive opportunities for shared infrastructure for specialists to control and own that and for greater scale. value chain,” he says.

10 Healthcare sector: Beyond 2021 The growth of aggregated specialist practices Conclusion

Is aggregation the right way forward? Why now may be the time to explore a new business model. Healthcare has been the defining theme If aggregation is the way ahead, Need to know more? of 2020 globally and the pandemic has practitioners must carefully assess highlighted weaknesses in professional integration risks, invest in sound practice This information is general in nature and has been practice business models. management and bring sufficient prepared without taking your objectives, needs leverage to the structure to avoid and overall financial situation into account. For this Amid the many challenges, these over-gearing. reason, you should consider the appropriateness of extraordinary times have provided the information to your own circumstances and, if opportunities and accelerated processes. “At Westpac, we’re interested in necessary, seek appropriate professional advice. supporting aggregated ventures with a The lessons from a crisis are not to commercial justification and a patient- If you have any questions or would like to be wasted, so now is the time to first approach,” says Stark. “This balance know more about the information contained strategise and make plans towards is vital, because the patient outcome in this report, please contact the author: successful business operations in is what gives a business longevity, 2021, and beyond. sustainability and, ultimately, demand.” Louise McCann National Head of Healthcare “At Westpac, we’re interested M: +61 466 945 685 in supporting aggregated E: [email protected] ventures with a commercial We’re here to help. justification and a patient- www.westpac.com.au/healthcare first approach” Things you should know: This information does not take your personal Mac Stark, Relationship Director, objectives, circumstances or needs into account. Consider its appropriateness Health and Social Services, Westpac to these factors before acting on it. Read the disclosure documents for your selected product or service, including the Terms and Conditions or Product Commercial Banking Queensland Disclosure Statement, before deciding. Unless otherwise specified, the products and services are available only in Australia from Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. © Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. The Westpac Group, 275 Kent Street, Sydney, NSW 2000, AUSTRALIA.

11 Healthcare sector: Beyond 2021