Privately owned day and short-stay surgeries are increasingly important to the delivery of healthcare in Australia. We have around 360 of them.
By scaling up to offer facilities that can be shared by strategically selected health disciplines, the owners of these hospitals are able to invest in hotel-like premises, state-of-the-art equipment, and highly qualified nursing and support staff. The result is greater operational efficiencies and improved patient outcomes. Scale has also enabled them to manage the rigours of complex compliance rules and health fund negotiations, and to gain the benefits of buying power.
Ophthalmology is thriving in Australia, particularly in the private sector. To provide a snapshot, in 2017–18, private hospitals accounted for around 70% of hospitalisations involving the eye and surrounding tissue, with the two most common diagnoses – cataracts and retinal disorders – accounting for 56% of these hospitalisations.
In 2018–19, there were just over one million Medicare-subsidised claims for surgical operations by an ophthalmologist, excluding those treated in public hospitals. Although the rate of Medicare-subsidised cataract operations had remained steady since 2014–15 (about 3,800 per 100,000 people aged 65 and over), the number of glaucoma-cataract combination treatment surgeries has increased steadily since 2016–17. Nationwide, the rate of intraocular injections per 100,000 people aged 65 and over has also increased steadily since 2015.1
It should come as no surprise then, that every day we see news of ophthalmologists joining forces with others to form hospital groups that can draw on shared resources to manage patient care, invest in the latest technologies, and undertake research. Some are owned, built, and used exclusively by a group of doctor partners. Others are owned, built, and used by a group of doctor partners who also invite independent surgeons to make use of the facilities and staff. The big ones are owned and managed by corporate groups and are available to be used by independent, accredited surgeons who may be offered shares in the venture.
Vision Hospital Group is one such group. Privately owned by Jangho Group, its day surgeries are available for use by doctors who work for Vision Eye Institute and doctors from outside the organisation. Vision Hospital Group caters to the needs of a wide range of specialties – including ophthalmology; pain management; orthopaedics; dental surgery; general surgery; plastic surgery; ear, nose and throat; gastroenterology; and dermatology.
Then there’s Cura Day Hospitals Group (Cura), which was established in 2008 and is owned by a number of doctor shareholders and majority shareholder Fresenius Medical Care Australia. With 29 facilities in all states and territories excluding NT, and more than 2,000 credentialled doctors, CURA is one of the largest day hospital companies in Australia and describes itself as “a natural consolidator in a fragmented market”.
Nexus Hospitals is another of the country’s biggest private short-stay and day hospital groups, with facilities around the country and an active plan for growth via acquisition and greenfields sites. The recently announced acquisition by Nexus of the Montserrat group of hospitals, from listed health player Healius Ltd, will see Nexus with 29 facilities nationally. Queensland Investment Corporation, a state government-owned investment company, holds the major stake in Nexus, however doctors also have the opportunity to become significant shareholders. This, CEO Andrew Petering said, provides doctors with “an ability to be a shareholder and have a say in the operations of their hospital, along with the benefits of a professional and experienced hospital management team and corporate scale in procurement”. Like the other groups, Nexus offers services across a select number of specialties including ophthalmology; orthopaedics; plastic and reconstructive surgery; pain management; general surgery; gastroenterology; oral surgery; ear, nose and throat; and dermatology.
These corporate groups are expanding the traditional remit of day hospitals to provide highly efficient and boutique services for doctors and their patients across a broader range of specialties.
FINDING THE BALANCE
As you’d expect, these hospitals are small compared with public facilities but large enough to offer financial and logistical economies of scale that can’t be achieved by individual surgeons. In fact, having spoken to the CEOs of each group, it’s hard to imagine an individual surgeon would ever dream of going down the path.
It should come as no surprise then, that every day we see news of ophthalmologists joining forces with others to form hospital groups that can draw on shared resources to manage patient care, invest in the latest technologies, and undertake research
For a start, there’s the financial investment in geographically-appropriate land, the construction of the facility and the fit out and equipment – the last component of which Mr Petering estimates to be anywhere from AU$20 million per hospital, depending on the number of theatres, overnight beds, and medical specialties.
Then there’s the ongoing maintenance of the facility and equipment; service agreements with suppliers to pay for; and the need to continuously invest in rapidly evolving technology, from administrative systems and patient communication platforms through to costly operating equipment, like surgical microscopes and 3D visualisation systems, femtosecond laser etc.
“Single theatre hospitals are no longer viable – you need to create economies of scale to be able to justify the expense of construction and fixed costs of operating the facility. You might also want the comfort of knowing you’ve got another theatre mirror-equipped with technology in case something goes down – rare, but a real risk,” Mr Petering noted.
Then there’s the constantly evolving issue of compliance – day hospitals are required to be licensed by the state / territory jurisdiction in which they are located and obliged to meet the same accreditation requirements as higher-acuity hospitals. This is an ever increasing hurdle for hospital operators.
One change in regulation can require unforeseen investment and disruption to facilities. Case in point was a new standard for sterilisation of equipment announced in 2014, which required (in part) hospitals to install reverse osmosis water systems by 2021. Incidentally, when state and territory hospital departments voiced their concerns about meeting these standards, the timing was extended.
Similarly, changes to funding for procedures and devices, as indicated during the Prosthesis List reform, can impact private hospital budgets and restrict surgeon choice, perhaps forcing them to reconsider their options. A much-debated decision by health funds to restrict the volume of intravitreal injections in hospitals would see a massive dent in day surgery business for some groups.
Another massive challenge is staffing – particularly as we come out of COVID. This is dynamic and impacts the health sector as a whole. Surgeons require nurses who are highly skilled in their particular discipline. During a surgery, nurses must be at the ready with equipment, and in the case of cataract surgery, for example, will have the prescribed intraocular lenses ready to go as well as a selection of alternate IOLs, just in case the surgeon changes their approach.
To have this calibre of specially-trained nurses on site requires scale to offer them permanent hours and certainty of income, and an organisational structure to support their ongoing training. Overlying all these challenges is the impact of rising inflation and increasing operating costs. All this in an environment where negotiating with private health insurers for a reasonable schedule of rates for services provided is becoming increasingly difficult.
DIVERSIFICATION AND SCALE ARE KEY
For these reasons and more, Mr Petering said successful short stay hospitals actively minimise risk by diversifying their interests and building enough scale so that if one specialty is impacted by change, it can be supplemented by others in the short-term. It’s all about finding the right balance.
It is a tough exercise, frankly, getting increases from the private health insurers year on year…
“You can have all your eggs in the ophthalmology basket, but you will always carry that risk, so it’s important to diversify your services.
“If you’re too big, if you’re trying to cover too many disciplines, it’s much harder to customise the service you provide to suit the preferences of each surgeon. But if you are too small you won’t have the resources to provide a personalised, expert service. You may not have the ability to stock the devices a surgeon prefers or the buying power to negotiate the best prices with suppliers or funding with private health insurers. So, it’s about finding the sweet spot.
James Thiedeman, CEO of Vision Hospital Group said scaling up is inevitable, and it’s not new.
“If you hark back to pathology services, if you hark back to diagnostic imaging services, and if you hark back to fertility care services, all of those specialties saw the benefit of scale… They started scaling up probably 20 years ago now, so day surgeries are latecomers to the party.
“Vision (Hospital Group) predominantly offers ophthalmic services in our day surgeries, but we also have growing scale in pain management, dermatology, gastroenterology – we’re trying to grow those specialties.
“About 90% of what we do through our day surgeries is ophthalmology. That means a significant amount of our focus is on getting the best equipment and the most up-to-date technology to assist our ophthalmologists with the procedures they undertake. It means our staff are highly attuned, skilled, and competent in the full range of ophthalmic procedures, in supporting the surgeons.
“It means we can invest in research and innovative techniques in what we do in our day surgeries, because we’ve got such scale in ophthalmology. And then on the other side of things, from a commercial perspective, it means we can buy stuff cheaper so we can keep the cost of delivering this care more contained. And that’s important in an environment where it is more and more challenging to secure sustainable rebates from the private health insurers.
About 90% of what we do through our day surgeries is ophthalmology. That means a significant amount of our focus is on getting the best equipment and the most up-to-date technology…
“It is a tough exercise, frankly, getting increases from the private health insurers year on year… And for small, single independent day surgeries, it is a tough environment out there because they don’t have the negotiating power. I’d suggest that’s one of the reasons why you’re seeing more and more of these freestanding, independent day surgeries, selling or getting subsumed into the bigger networks.”
CHANGING MODELS OF CARE
Another reason is a shift in delivery of hospital services. As Cura’s CEO, Andrew Currie explained, while demand for ophthalmology services in the day hospital sector continues to grow, there are also significant opportunities in other specialties.
“For instance, more complex orthopaedic and general surgery procedures are transitioning into the short-stay model of care as patients, doctors, and funding bodies pursue the best possible patient outcomes, and more efficient and cost-effective care. More public waiting lists are also being contracted to the private sector, and Cura has seen growth in this area, especially post-COVID.”
However, he affirmed, “While the case-mix varies year-to-year, ophthalmology remains a fundamental part of Cura’s portfolio.”
THE BUSINESS MODEL
For those unfamiliar with the way day surgeries operate, it’s interesting to understand the financial model. As mentioned, some day hospitals invite doctors to become shareholders, and in doing so encourage their loyalty and word of mouth to bring other surgeons into the space. Others simply offer the operating room, associated staff and equipment, as a workspace, a bit like a highly complex version of a ‘WeWork’ space. Except that unless a surgeon rents consulting rooms within a facility, they have no financial obligation to the owner of the hospital. The cost of the surgery is covered by the patient (self-funded) or a third party, such as the patient’s private health insurer or WorkCover.
CEOs of the day and short-stay hospitals we spoke to highlighted the clinical independence of operating surgeons using their facilities.
“Doctors who operate at Cura facilities have full autonomy over the clinical decisions of their admitted patients…We honour our doctors’ preferences in terms of requests and preferences for equipment, instruments, and consumables, and where possible aim to provide consistency in the theatre team… The facility manager works closely with each individual surgeon to provide all clinical services and equipment that they require,” he added.
Surgeons typically have an allocated weekly ‘slot’ during which they can work through their surgical list. The most attentive hospitals will pair surgeons with nurses they know and trust, assuring efficiency during the procedure and best outcomes.
Working closely with the surgeons is something that Nexus Hospitals prides itself on. With Directors of Nursing on the same floor as the theatres, communication is open and there is a commitment to providing tailored services to help the surgeons build their businesses.
“Younger ophthalmologists often find it difficult to secure an operating room or anaesthetist as they don’t have a big enough patient list. So, we help them get established by adding them to the end of an existing list or by pairing two early career ophthalmologists who can operate backto- back,” explained Mr Petering. “We also introduce soon-to-be-retiring surgeons to early career surgeons who may eventually take on the patient list. Simple strategies like that help them get started and ensure patients aren’t left waiting for surgeries,” he added.
THE FUTURE
There’s no doubt that short-stay and day surgeries will continue to grow in number and expand the services provided, as they make moves to meet the needs of an ageing population and stretched public health service.
At Nexus Group, the team is currently collaborating with the South Australian Government to return surgical services to the Repat Health Precinct. The facility will be a standalone private hospital with a fixed-term arrangement to care for public patients that aims to “help fix ramping, ease pressure on hospital emergency departments and deliver quality health care for South Australians, closer to home”, Nexus will build a new facility and provide high demand surgical and procedural services, such as ophthalmology; orthopaedic; plastics and reconstructive; ear, nose and throat; general surgery; urology; and colonoscopy procedures.2
Nexus will construct a $95 million surgical facility with up to six theatres, 30-bed overnight capacity, a 20-chair renal dialysis unit, a GP clinic, a community pharmacy, space for specialist medical and other allied health services, and a new multi-deck car park.
Cura too has plans to continue to expand, by increasing the range of facilities and services available to its doctors and patients. “Our strategic approach focusses on exploring opportunities for the acquisition of reputable facilities, continuing to invest in our existing facilities, and expanding through the development of new hospital sites,” Mr Currie told mivision. “Cura continues to look for efficiencies in the short-stay model of care to provide benefits for patients and funders and has a keen interest in the development of new hospitals nationally. Our preferred model is to partner with doctors as shareholders to share in success of Cura Day Hospitals Group.”
Meanwhile at Vision Hospital Group, it’s very much a ‘watch this space’ scenario with Mr Thiedeman predicting ongoing consolidation in the coming years.
“If you look at overnight hospitals, there are probably a dozen big players across Australia who hold 80% of the national market share in overnight care. I’d suggest this is the way of the future, and if you look at the corporate ownership or scaled ownership of day surgeries in Australia, the large operators probably hold only 25 to 30% of the market between them. “So, there’s still some way to go… I would suggest over the next several years, we’ll see further consolidation of the day hospital sector and Vision Hospital Group is certain to be involved”.
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