Vision Group, Australia’s largest private ophthalmic practice, has announced major changes to its operations, including a new remuneration package for doctors to make Vision Group Holdings (VGH) more competitive with comparable medical roll-ups. However, the changes have created controversy among shareholders.
The Group’s newly appointed CEO, Geoff Thompson, believes the new remuneration model, coupled with strengthened leadership and management initiatives, will act as an incentive for doctors to improve business performance and manage costs.
Mr. Thompson said it will also make the group significantly more attractive to doctors considering joining the company and to those renewing their existing contracts. In the past few months, three clinics have closed in central Queensland following doctor departures and two specialists in Melbourne have resigned.
Vision Group responded to early signs of a doctor exodus by using the only lever at its disposal – a pay rise of up to 100 per cent for the company’s stable of 40 ophthalmologists. The new deal will pay doctors 65 per cent of their ‘personal exertions EBIT (earnings before interest and taxes)’ when they re-sign after current service agreements expire.
Vision Group responded to early signs of a doctor exodus by using the only lever at its disposal – a pay rise of up to 100 per cent
A recent company statement admitted that the “doctor remuneration model is likely to result in a material decline in the company’s profitability in the short to medium term”.
Revenue Declined
In a statement to the Australian Stock Exchange in August on Vision Group’s results for the financial year ending 30 June 2010, Mr. Thompson said: “Vision Group experienced a 5.1 per cent decline in operating revenues during the 2010 financial year, resulting from the departure of doctors and subsequent closure of practices at Rockhampton, Hervey Bay and Bundaberg. Excluding the impact of these closures, revenue was down by 1.2 per cent. Discretionary revenue declined by 5.8 per cent.
VGH’s 2010 Annual Report declares: “EBITDA (earnings before interest, taxes, depreciation and amortisation) for the year was (AUD$40.3m) down from AUD$33.4m in financial year 2009. The main driver of the decline in EBITDA was a $66m goodwill impairment charge along with AUD$6.5m in non-recurring expenses. On a normalised basis EBITDA was AUD$32.3m which was 13.9 per cent lower than normalised EBITDA in the prior year. Loss after tax was AUD$58.4m, down from an AUD$12.6m profit in financial year 2009. Normalised profit after tax decreased by 11.3 per cent to AUD$14.1m.”
Complaints Received
Shareholders are less than satisfied with recent occurrences within the Vision Group, including the salary packages granted to doctor partners and company executives. Some have questioned whether there will be much left over once the doctors are paid and the company’s “AUD$107 million debt is serviced”.
mivision has received complaints from major private shareholders of Vision Group claiming the proposed business plan favours doctor partners at the expense of private shareholders. One email from a shareholder cited figures which they claim would leave “minimal profits for shareholders”.
Shareholders are also disgruntled at the increase in some remuneration packages granted to directors. Michael Lawless, a key partner director from the NSW division on the VGH board received a pay increase of 29 per cent which took his salary (inc. superannuation) from AUD$477,480 in 2009 to AUD$647,000 in the 2010 financial year. Remuneration for the executive director Dr. Joseph Reich rose from AUD$393,744 in 2009 to AUD$634,673 in 2010. In addition to his position as executive director, Dr. Reich was engaged as a contractor to Vision Group on 1 July 2009. This, despite the 2009 Remuneration Report being rejected by more than 40 per cent of shareholders and a cut of dividends paid to shareholders to nil from 13 cents per year in 2008.
Questions Answered
mivision asked Mr. Thompson whether he sees it as a conflict of interest that the doctors on the board (namely Dr. Lawless and Dr. Reich), have received an increase in remuneration of 30 per cent and 60 per cent over the 2010 financial year, and a change of employment status from employee to consultant.
His reply is as follows: “Vision Group follows strict governance protocols when dealing with doctor remuneration matters. The Board Remuneration Committee (which is comprised only of independent directors) considers any doctor remuneration matters and then makes recommendations as appropriate to the full Board. Then when doctor remuneration matters are considered by the full Board, the Doctor Directors are excused and do not attend the Board meeting for that item of business.”
On 3 September, in a statement issued to the ASX by Chairman Shane Tanner, Vision Group announced the first resigning of a Doctor Partner since the introduction of the new EBIT based Doctor Partner remuneration model.
While the future of Vision Group remains unclear, the group’s founder and former CEO, Dr. Harry Unger, has firm ideas about how the company can move forward. Dr. Unger has said he will be happy to work with the Group if they adopt his ideas for change. Click here to read more.
