Tend Health chief executive Cecilia Robinson has won the right to contract directly for public funds, but there's a catch. Photos / NZME, supplied
In 2022, one of the country’s largest Primary Health Organisation-related networks, ProCare Group, spent more than $15 million to buy one of the country’s more valuable doctor’s offices: Health New Lynn.
The transaction raised eyebrows in New Zealand healthcare circles, where 32 Primary Health Organisations (PHOs) are the main vehicle by which the Government funnels nearly $1.5 billion into primary health care, much of it supplied by general practices.
At least two corporate buyers were also interested in the New Lynn practice and were outbid.
Cecilia Robinson co-CEO of Tend Health confirmed her company was a bidder.
The Herald understands Green Cross also bid on the business. Wayne Woolrich, general manager medical, declined to comment directly on the matter.
The purchase was not a lifeline thrown by a PHO to a struggling practice, as sometimes happens. It was highly competitive and exposed a sizeable fault line in the landscape of primary care: general practice, or at least large elements within it, now competes fiercely with the very bodies that fund it.
PHOs have been around for decades, but their purchasing of general practices through related entities is newer, and increasing (the entities now own over 40 either wholly or jointly).
In ProCare’s case, it is ProCare Network Ltd, a co-operative company and a related party to ProCare Health, the PHO, which buys and owns practices – both entities are part of the ProCare Group.
PHOs themselves are charitable entities and their main job is to act as a middle layer between the Government’s health funding body, Health NZ, and much primary health care provision, including general practice.
PHOs are regional, and across the country individual general practices must link to them, primarily for what’s called capitation funding, paid out according to a formula tied to enrolled patients.
But hundreds of millions of dollars of a roughly $1.5b envelope of money they distribute is flexible – for the provision of services that range widely from smoking cessation to special diabetes management to vaccination.
Some PHOs flow almost all flexible funding to outside service providers, but many are large service providers themselves. And the voices claiming that large service provider PHOs are conflicted are growing louder.
The contest over Health New Lynn was an early sign of a turf war. There are currently 1077 general practices, according to the Royal New Zealand College of General Practitioners (RNZGP).
Well over half of the practices are owned by the doctors and nurses who work in them, but this traditional model of ownership is in decline, pushed by a range of forces, not least of which is the wave of retirement sweeping across general practice doctors and a changing of the generational guard.
Into the ownership gap are stepping a variety of entities, including iwi and community trusts, but a big block of practices are now owned through a larger-scale corporate model.
The largest of these operators are NZX-traded Green Cross and Third Age Health Services, as well as Tend Health, OmniHealth, and Tāmaki Health (over 87% owned by Sydney-based private equity firm Mercury Capital).
All up, the big private operators either own or co-own over 150 general practices – there is considerable variance in the group, and many retain some measure of co-ownership with local practice doctors and nurses.
Wayne Woolrich, general manager medical, at Green Cross is among those who are unhappy with the PHOs expanding into practice ownership. The company has a network of 65 general practices (owned and co-owned) and the business, which also owns pharmacies, turned a $16m profit in the year to March.
Woolrich wouldn’t confirm whether Green Cross bid on the New Lynn clinic: “We sign non-disclosure agreements, but we were an active buyer of medical clinics in the market at that time.”
However, he was keen to raise a related question: “The question I have is this, are we working in partnership with the PHOs as a funding provider, or are we now competing with them?”
Bindi Norwell, chief executive of the ProCare Group, told the Herald that ProCare Network, which is co-operatively owned, was not the highest bidder for the New Lynn practice, but “could offer support that other bidders were not offering”.
As is the case for a number of large PHOs, she said part of the ProCare strategy is “keeping general practice owned by independent practitioners and keeping profits in New Zealand rather than going to offshore shareholders – something that is important to the shareholders of the co-operative”.
Norwell added that the group also aims, ultimately, to help younger clinicians into ownership.
Angus Chambers, a Christchurch-based GP and chair of the General Practice Owners Association (GenPro), is keen for general practices to negotiate their contracts directly with Health NZ, and to cut PHOs out of the equation.
GenPro membership represents roughly half of all general practices, and has no large corporate members.
Chambers told the Herald that there is very little in the way of primary health care that cannot be delivered directly by practices, and that some PHOs look like an administration-heavy layer that soaks up limited public funding.
His group has even brought a complaint to the Commerce Commission, arguing that the current contracting processes are unfair, though it’s notable that there are several prongs to GenPro’s dissatisfaction with PHOs, and the commission complaint relates to capitation.
Though that money flows through PHOs, the substance of the beef is with the Government, its appetite for imposing contracts and its eroding level of funding, relative to inflation.
Tend Health, a highly digitised and fairly new entrant in general practice, is another disgruntled party. It recently asked for permission to contract directly with Health NZ, and to cut out PHOs; several days ago it confirmed that Health NZ agreed it can achieve this aim by becoming a PHO itself.
It wasn’t quite what the company asked for; co-CEO Robinson is scathing about the PHO system. But the change, which has only one precedent, will start on July 1.
Following the news, Woolrich confirmed that Green Cross too will seek PHO standing. And Third Age CEO Tony Wai said his company is considering whether to follow suit.
The regional system is aimed at ensuring that PHOs have a close understanding of the population they cover, and tailor services accordingly, but it is at odds with chain ownership of general practices. Tend, with 23 practices, currently deals with 11 PHOs, Green Cross with 65 practices deals with 12.
Robinson told the Herald the current structure is “a very convoluted system where each PHO Tend works with has different rules and the result is that services might be offered in one general practice and 15 minutes down the road they can’t be offered by another…it’s not patient-focused and it’s confusing”.
Robinson said she is still working through some of the details that the change will entail, but noted her network already provides the vast majority of the services that Health NZ requires of PHOs, including detailed patient data collection and the provision of after-hours services.
It is also Robinson’s view that the current PHO system is broken: “…many PHOs act as the commissioner of services, as the funder of services and then they also compete to provide those services. It restricts competition…and it needs to be reviewed [by the Government]“.
A spokeswoman for ProCare told the Herald the claims of unfairness, and the inference that PHOs are taking advantage of their position as primary care funders, are baseless. Her entity manages hundreds of public contracts, but she said, “they come with very clear rules that lay out what we can and can’t do”.
ProCare is sensitive to the criticism. When a recent report by retired accountant Murray Lilley took aim at the PHO sector’s head count and bureaucracy, and ProCare’s mixed corporate and charity structure, the group slapped him with a cease-and-desist letter, instructing him to stop discussing it with the media.
Bindi described Lilley’s report as “misleading and factually incorrect”. She said ProCare’s staffing costs have grown in line with the group’s addition of front-line staff, including the health coaches, health improvement practitioners and psychologists it places in general practices, and because of its owned general practices.
Kim Sinclair-Morris, chief executive of the PHO Pegasus Health, said practice ownership is a way that PHOs can relieve “significant pressure” in the primary healthcare system. Pegasus recently bought Lincoln Medical Centre, owned through a joint venture between Pegasus Health and two local Māori-owned entities (rūnanga).
Sinclair-Morris noted that, like most PHOs, Pegasus also delivers a range of frontline services. In Pegasus’ case, those include a walk-in urgent care clinic, an observation unit, “acute demand” nursing, and primary mental health services; it also holds contracts to deliver training, workforce development, immunisation coordination, and other primary care support services.
Many in academic circles echo the beneficial role of PHOs, including the administrative burden they keep from owner-operator general practices, but there is some disquiet over practice ownership.
Tim Tenbensel is a professor of health policy at the University of Auckland’s School of population health.
He said that, outside distress situations, it was not originally intended that PHOs buy and own general practices: “That’s something I do think needs to be worked through more clearly and to clarify their role.”
Lynn McBain, a former GP, professor and the head of department for Primary Health Care and General Practice at the University of Otago, also said the overlap could be concerning: “Where PHOs are both funder and recipient of funding, that’s a tricky problem. PHOs do buy practices and sometimes they do it to keep the corporates out”.
“I’m not aware of instances where they obviously favour their own practices but I can see that they need to be careful to keep governance over funding and operating separate, and to communicate more transparently and clearly with their GP members about how they’ve portioned out funding.”
Both McBain and Tenbensel cautioned that PHOs are responsible for a lot more than the public might be aware of, including big-picture population health.
Tenbensel said their demise might easily see the baby of population-based health care, its view across access to services and its aim of better health for New Zealand’s most disadvantaged, thrown out with the bathwater.
He acknowledged that corporate owners can bring scale and efficiency and deep pockets to general practice. But he’s also concerned that larger entities come with often profit-hungry shareholders and loud voices, and that their lobbying may sideline good ideas and indeed the public interest in policy making.
Though he accepts there’s been precious little of that lately. Health NZ has been hatching a much-delayed report on the future of PHOs for more than a year. It’s now scrapped the release of that report. On Friday, Martin Hefford, director of living well, said the organisation is, “now not proceeding with consultation regarding the functions of PHOs this year, as related policy work is being undertaken.”
Evolution Healthcare chief executive speaks to the Herald.