The growing influence of corporate ownership in general practices is an increasing concern among many general practitioners.
I discussed this in some detail, including its background, in my last post (26 September): Growing corporate ownership power in general practice. Reading it would help better understand this post.
The issue took a significant and concerning new direction with the publication on 29 May of a paywalled article by Martin Johnston in NZ Doctor reporting what he called a “jolt” to the health system: Tend Health jolts health system.
The intrepid Johnston was able to dig deeper into the background to this “jolt” in another NZ Doctor paywalled article (17 September) covering material obtained under the Official Information Act (OIA): Revealing background information. This is discussed further below.
What are Primary Health Organisations
Martin Johnston’s reported “jolt” was the surprising decision by the newest corporate owner (formed in 2020), Tend Health Ltd, to apply to Health New Zealand (Te Whatu Ora) for recognition of a new Primary Health Organisation (PHO) it wanted to establish.
The surprise was that this was something Tend Health never wanted. Instead it wanted to contract to Health New Zealand directly rather than with a PHO.
Further, it would be unprecedented. It would be the first corporate to establish its own PHO. Tend Health argue that they were modelling themselves on another corporate, Tamaki Health Ltd. However, this is incorrect (discussed further below).
PHOs were established under Annette King’s watch as health minister
PHOs were formed as a result of the Public Health and Disability Act 2000 under then Labour health minister Annette King.
The Act established a framework for public health and disability services in Aotearoa New Zealand. This included the creation of statutory district health boards (DHBs) responsible for geographically defined populations
PHOs came into being in the early 2000s, following the establishment of DHBs in 2001, and were linked to the introduction of capitation funding for general practice. They are required to be registered as not-for profit charitable bodies.
However, unlike DHBs, PHOs are not statutory bodies. Instead they are created by government policy. Getting rid of PHOs doesn’t require legislative amendment or repeal.
Former Health Minister Tony Ryall greatly reduced the number of PHOs
When Tony Ryall became health minister following the 2008 general election there were 80 PHOs of variable sizes. He embarked on a rationalisation process, consolidating them into just 30.
The 2000 Act was repealed by the Pae Ora (Health Futures) Act 2022 which included the disestablishment of the DHBs. However, because PHOs were created by policy, not statute, they continued albeit at the discretion of the health minister.
PHOs are critical to the provision of primary health services. Their greatest visibility is over managing funding contracts with general practices to ensure subsidised healthcare for enrolled, usually geographically defined, populations.
But their functions are much more than this. Less visible but not less important are population health, health provider support, primary-secondary integration, and innovation (including data and digital transformation).
For good reason, and particularly since the abolition of DHBs, they have been the glue that helps hold the primary health system together.
Part of this is that their functions have become more obvious and part is their responsibility for defined populations, overwhelmingly geographic.
While PHOs are quite varied in their approaches, often defined by the communities they serve, they are characterised by having boards of directors with wide-ranging health system experiences. This includes health professionals such as general practitioners and pharmacists.
Prelude: Hatchet job on PHOs?
On 11 March, a questionable report ‘PHO Benchmark Comparisons’ by retired accountant Murray Lilley was forwarded to Health New Zealand.
It covered the period from 1 July 2016 to 30 June 2024. Its methodology was limited to financial statements including audited accounts.
Significantly it did not involve the author talking to the affected PHOs themselves or General Practice New Zealand (GPNZ) which represents PHOs.
Given the narrowness of its methodology, it is unsurprising that the report was harshly critical of the management and performance of PHOs.
This included implying that they provided no benefit to general practices and incorrectly asserting that they were competing against these same practices.
Deficiencies in the report included not recognising that:
- all capitation funding is passed on by all PHOs to their general practices contrary to the accusation that it was not;
- PHOs undertake many other services over and above general practice funding such as community funding, diabetes programmes and mental health; and
- PHOs step in to rescue vulnerable practices that would otherwise collapse by providing temporary ownership.
GPNZ Chair Dr Bryan Betty empirically demolishes Lilley report
The report was discussed on 25 March on Radio New Zealand’s Nine to Noonprogramme in a Kathryn Ryan interview. It included incisive comments from Porirua GP and GPNZ Chair Dr Bryan Betty who demolished the report’s credibility: Serious flaws in PHO report exposed.
The report was also severely critiqued for inaccuracies by the Western Bay of Plenty PHO (28 March) which had been singled out for criticism despite not having approached for input: Misleading claims.
What has not been transparent is who commissioned the report. It is highly unlikely that the author did it off his own back.
The obvious beneficiaries are those for-profit corporate interests who believed PHOs were getting in their way. An insight into this question is provided in the above-mentioned material obtained by NZ Doctor under the OIA (discussed further below).
Although it is unfortunately heavily redacted and a reasonable amount of the material involves Tend Health’s expansion into telehealth, nevertheless it is informative on the corporate’s interactions with Health New Zealand and its objectives.
Explaining the “jolt”
On 25 July Newsroom published my opinion piece on Martin Johnston’s “jolt”: Explaining the jolt.
Cecillia Robinson didn’t want Tend Health to be a PHO but running with it
I began by quoting Tend Health co-chief executive Cecillia Robinson’s guarded response to the “jolt” as reported by Martin Johnston:
It’s certainly not what we were asking for and, yes, I think broadly it’s not what we were expecting. I don’t think we have got a desire to be a PHO… We don’t think that that’s necessarily the best way to solve this, but the reality of it is, this is where we are.
Later on I observed that:
The apparent irony of Tend Health becoming a PHO is that it does not believe in them. It would rather that general practices be able to directly contract with Health NZ.
However, this irony dissipates when Tend’s close synergies with government policy comes into play. Operating a PHO then becomes an unanticipated but practical means to an end, because of the associated increased power and leverage.
Other observations in my article included:
- Tend Health’s preceding disruptive behaviour of shifting its general practices in some PHOs to other ones;
- another corporate, Green Cross Health Ltd, subsequent decision to also seek to set up its own PHO; and
- close synergies between corporate general practice owners and the Government.
My concluding comments included:
By becoming PHOs, Tend Health and Green Cross Health can significantly increase their influence in primary healthcare delivery, including over how general practices are funded. This is likely to help expand their practice ownerships.
There was an interesting published comment on my opinion piece stating that:
Just to contribute a personal observation, since Tend Health took over a neighbouring practice our own practice has had an influx of their patients looking for a more traditional model of care and continuity. Given that the people who are less likely to need the doctor will be the ones who are less likely to change, the end result is that they keep the healthier, easier patients and we get more than our share of sicker ones…
Tend Health responds
The response to my above opinion piece was immediately. Within a few hours there was a legal threat claiming defamation and demanding that my piece be immediately withdrawn.
Chair of Board of Directors Lee Mathias defends Tend Health
Eventually, after further discussion between Newsroom and Tend Health, the opinion piece was slightly tweaked and a response from the Chair of the corporate’s board of directors, Dr Lee Mathias, published five days later: Tend Health responds. I was comfortable with these actions. Both opinion pieces are paywalled.
Overall I found the response to be cleverly written by downplaying the profit motive and asserting that the corporate’s activities are for the public good. Private health business are often adept at this.
I also found it to be self-promotional for Tend Health and erroneous in part, including over some things I had said in my opinion piece.
Two matters relevant to this post deserve specific mention. First, Mathias argued that another corporate, Tāmaki Health Ltd, already operated a PHO (Total Healthcare) so there was precedent for what Tend Health is doing.
This is misleading. Tamaki Health didn’t become a corporate until 2017. For many years it was GP and family owned. Total Healthcare was set up as a PHO around 2009.
Although it covered much of the area where Tamaki Health’s practices in Auckland resided, the PHO was not “operated” by Tamaki. At least one of its Auckland practices is in another PHO. Further, Tamaki Health also owns practices outside Auckland (Christchurch and Palmerston North) who are in local PHOs.
Second, Mathias argued that what Tend Health offered was a big advantage of scale arguing that this would help address the so-called ‘postcode lottery’. However, the corporate only has 80,000 enrolled patients which is less than many existing PHOs.
General observations
Before discussing the implications and risks of corporate ownership of primary health organisations, there are two general observations that should be made.
First, regardless of who owns a general practice – GP-owned, not-for-profit non-government organisation, Health New Zealand, or a corporate – there is no defining difference in the GPs providing treatment.
There are no defining differences in clinical competence, professionalism, collegiality, and commitment to quality patient care.
The differences are in settings rather than GP calibre or professionalism. For-profit settings can impose restrictions, and anecdotally have, on the independence of a GP’s medical practice.
For example, if the time for necessary patient consultations is reduced, then more patients can be enrolled, and the consequentially, under the capitation funding system, income (including profits) to the owners increases.
The qualification to this, however, for private GP-owned practices, is that the owners are themselves working as GPs. There is no external managerial, governance or private equity control. There is less pressure on them to compromise their professional judgments.
The second general observation is the critical importance of understanding how these developments unfolded this year. That is, who commissioned the above-mentioned questionable report ‘PHO Benchmark Comparisons’ by Murray Lilley.
The report was forwarded to Health New Zealand on 11 March. A fortnight later it was released publicly, including the above-mentioned Radio New Zealand coverage.
So, who forwarded it to Health New Zealand? An ‘innocent’ might have assumed it was the author. But not so. The material provided under the OIA confirm that it was forwarded by Tend Health. Readers can draw their own conclusions on this. I certainly have!
Quaking ducks come to mind
In my view what is without doubt, however, is that the report was a ‘hatchet job’ on the credibility of PHOs that served the interests of at least two corporates.
This reminds me of the ‘looks like a duck’ saying. In other words, if it looks like a ‘hatchet job’, quakes like a ‘hatchet job’, then it’s a ‘hatchet job’.
Setting the scene for risks for PHOs
Under DHBs, whose strength and purpose was the statutory responsibility for geographically defined populations, PHOs had a lower profile. But, with the abolition of DHBs in July 2022, it has been left as much as possible to PHOs to somewhat fill the void.
Like DHBs, PHOs also have responsibility for geographically defined populations (the Māori led National Hauora Coalition is an exception). This has been critical to their effectiveness.
The implications for and risks of corporate PHO ownership for PHOs are three-fold – for-profit control, disruption leading to destabilisation of existing PHOs, and private equity involvement.
For-profit control of PHOs
The governance of PHOs generally is provided by boards of directors (around 10 give or take) who overwhelmingly are involved, or have been, in healthcare (including health professionals) in various ways within the geographic area of their PHO. Directors include general practitioners.
Tamaki Health’s relationship with the PHO covering most of its practices (Total Healthcare) is relatively ‘arms-length’. Of the PHO’s 11 board directors, four are from the corporate.
Green Cross PHO board of directors substantially different from other PHOs
Contrast this with Green Cross Health Ltd. Like Tend Health, it has now got conditional approval from Health New Zealand to establish its own PHO which is called Community Care. Conditionality requires getting approval charitable organisation status.
Its board of directors is substantially different to existing PHOs, including Total Healthcare. Community Care has only four board directors. Two are from Green Cross (including the chair) with the other two described as independent.
Then look at Tend Health whose conditionally approved PHO is called Arataki. It has six board directors all of whom are staff and/or shareholders in Tend Health.
This includes the latter’s Chair (Lee Mathias) and Cecilia and James Robinson (co-founders and co-chief executives).
Enhanced profiteering opportunities
In other words, both corporate owners have control over their PHOs (most explicitly Tend Health).
To put it another way, influential for-profit companies control their not-for-profit PHOs which then helps their opportunity to further enhance profiteering should they choose to exercise it.
This includes the incentive to decrease patient consultation times in order to increase capitation funding.
Disruption to destabilisation
Corporates that in effect control their PHOs, which are not based on geographically defined populations, will be disruptive on existing PHOs without any net benefit for primary healthcare.
Green Cross, the largest, owns 65 general practices mainly in Auckland but spread throughout the North Island, including as far south as Hutt Valley. Of these 54 will initially join the new PHO with more expected to join later.
Tend Health, the most recent and astute in self-promotion, covers 14 general practices in Auckland, Bay of Plenty, and Canterbury.
Not only will this be disruptive on those PHOs where the corporates’ practices are located but also, as they expand, on those PHOs within where their new acquisitions are based.
Depending on the rate of practice ownership expansion, it would not take long before this disruption transitions to destabilisation.
Private equity risk
Another risk is private equity involvement. Private equity is when investment partnerships buy into and manage companies before selling them. Private equity firms operate these investment funds on behalf of institutional and accredited investors.
Private equity firms expanding into corporate general practice owners
Until recently Tamaki Health Ltd was the only general practice corporate with private equity involvement (since 2017). Today the main shareholder is Australian investment firm, Mercury Capital.
Now there are reported moves of an on-sale to another Australian private equity firm. It is reported that investment firms Genesis Capital and Pacific Equity Partners are targeting Tāmaki Health.
In September Tend Health confirmed that it now had private equity shareholders Pencarrow Private Equity acquiring nearly 25% of the corporate’s shareholding.
The stated intention of this action is to increase Tend Health’s ability to buy more general practices, particularly those currently owned by GPs approaching retirement.
Having within a corporate that has its own PHO heavily influenced by a private equity firm whose purpose is to first invest and then eventually on-sell for a sizable profit generates uncertainty within primary care and PHOs.
Uncertainty in this context can be the precursor to disruption.
Where to next
The emerging development of corporate general practice owners, who are driven by profit maximisation and the need to make a market return on their capital, expanding into PHO ownership creates considerable risk for Aotearoa’s primary care system.
Nothing dialectical in corporate control of PHOs
PHOs have become the glue that is helping hold general practice together. Not being required to make a market return on capital or to pursue profit maximisation. It is the antithesis to a thesis for which there is no synthesis.
Expanding corporate ownership of general practices was occurring in a policy vacuum. In other words, it was enabled by a health system leadership failure. This vacuum or failure has now led to the extension of corporate control into PHO ownership.
General Practice New Zealand Chair Dr Bryan Betty was right to say in a paywalled NZ Doctor article by Martin Johnston (1 October):
The bigger issue is longer term strategically, where the Government, the ministry and Health New Zealand want to go with PHOs, which is unclear at the moment.
If anything, Dr Betty has understated the risk. Unless this health system leadership failure is turned around it won’t just be the PHO system who will be the loser. Nor will it just primary healthcare.
The loser will be the whole health system.
Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Otaihanga Second Opinion
Good article Ian and very informative.
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