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Policy Vacuum Enables For-profit Corporate General Practice Ownership By Stealth

Since the 1938 Social Security Act which, among other things, established Aotearoa New Zealand’s universal health system, general practices were overwhelmingly owned by general practitioners themselves.

This continued for decades despite some growth from the mid-1980s of not-for-profit, non-government organisations providing primary care for poorer populations.

However, since the 2000s, practice ownership by GPs has become increasingly challenged.

This is due to a mix of a generational shift among younger GPs wanting a better work-life balance and the costs of buying into a practice (when also having to pay off high student debt),

In a nutshell, while there are still new GPs wanting to become practice owners, they are well outnumbered by older GP owners retiring.

In the absence of a policy vacuum, this has created an opportunity for corporate owners, specifically Green Cross Health and Tāmaki Health, to fill the gap and develop an expanding profit extraction market.

I discussed this issue in an article published by Newsroom (29 February): Corporate expansion into general practice ownership.

New practice ownership trend

In my article I noted that:

Today most GPs working in GP-owned practices are not the owners – they’re either salaried employees or engaged contractors. About 70 percent of all GPs work in about 1,000 GP-owned practices.

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Drawing on Royal New Zealand College of General Practitioners workforce surveys, I reported that GP practice owners were a declining minority.

In 2014 nearly 40% of GP respondents were practice owners. By 2022 it had declined to 31%. The number of GPs working in GP-owned practice has also fallen from 73% in 2015 to 64% in 2022.

Partially filling the practice ownership gap is the for-profit corporates. The number of GPs working in a fully or partially corporate-owned practice has doubled since 2015; 14% by 2022.

In my words:

…the bottom line is that it is about profit-maximisation and expansion. Investor interests determine what they do. Both Green Cross and Tāmaki Health have chopped and changed not on the basis of healthcare needs but profitability. It is not a reliable formula for sustainable general practice.

Whether GP-ownership’s decline accelerates or not, the indications are that the winner will eventually be corporate ownership. Unless something of significance changes, much of general practice will be provided by relatively big, rather than small businesses.. [suggesting] a shift from drift to stealth.

Whether increased corporate control of general practice eventuates by either means, the absence of debate over whether this is a good thing and the presence of a policy vacuum is a bad thing.

Enter Professor Peter Davis

There was an immediate response the same day to my Newsroom article by Emeritus Peter Davis (medical sociologist) on LinkedIn.

In his words:

This analysis is long overdue. Thanks for taking the time and sharing your expertise. The health sector is replete with public-private entanglements. Some of them are pretty clear-cut, like the private hospitals. But others, like the ones you mention, and, say, radiology cross over to the public sector.

On the face of it, not much wrong with that. After all, GPs generally regard themselves as “small business owners” (of a particular type). The problem is where the private actor is driven by financial imperatives. In the case of radiology, you could imagine quite a lucrative business drawing on the public purse and being linked with private clinicians with an interest in the business. But a private radiology provider responding to clinician requests, on the face of it, need not be any different from a public one (and maybe even more efficient).

When I was on the DHB senior staff told us that the corporate-owned practices had a very strict bottom line whereby they quickly referred to hospital any patient that went beyond a certain level of complexity. Well, a good GP might do that as well, but that would be on clinical or professional grounds not financial ones.

The other concern I have is the involvement of private equity. These outfits are not involved in the sector for anything other than financial leverage – Tony Ryall is chair of the Tamaki outfit I think, so he knows about this – and we just cannot have our system held to ransom by financial considerations. Economic considerations, yes (like ensuring a viable and functional service), but financial no (leverage, playing with debt, running down assets etc).

What’s the solution? Basically, the professional bodies have to wake up. Their model of ethical and professional practice is under threat, and they don’t seemed too worried about it! [Emphasis and paragraph breaks added]

Incentivised perverse consequences

I agree with the tenor of Professor Davis’s critique of corporate ownership. He makes his points well although I disagree with his final comment that the professional bodies don’t seemed to be too worried about it.

This is an excessive generalisation. Relative powerlessness is a better partial at least explanation.

His reference to corporate-owned practices that “…quickly referred to hospital any patient that went beyond a certain level of complexity” should ring alarm bells.

There is another incentivised perverse outcome that I’ve been advised of; GPs employed by corporate owners who are overworked, stressed and with short-changed patients.

This is because corporate-owned practices are able to enrol more patients than they have the workforce capacity to cope with. Production-line patient consultations are an outcome; quantity compromises quality.

The profitability driver for this incentivised behaviour is that the more the enrolled patients, the greater the taxpayer income for the corporates from the capitation formula.

Looking ahead

It is difficult to see the trend towards corporate ownership of general practices and profitability rather than healthcare imperatives increasingly driving the delivery of primary care not continuing.

Some Primary Care Organisations are taking the initiative and purchasing practices that might otherwise become unviable or be corporate owned (usually as a temporary holding measure). This is commendable but it is not by itself a solution.

However, not all PHOs are able to do this or not to the extent required. At best it can only be a holding pattern.

There are two things that could counter trend towards increased corporate ownership. First, the policy vacuum should be filled by enabling Te Whatu Ora (Health New Zealand) to provide strategic and tactical leadership.

Second, the capitation formula needs to be revised to ensure that it is fit for purpose in order to ensure that non-corporate practices are sufficiently funded to cope with the increasing health complexity of their patients.

Again this requires Te Whatu Ora leadership. I have discussed this previously (24 March): Don’t decapitate capitation.

It is time the leadership of the health system stepped up. Failure to do so is likely to lead to increasing corporate driven profit extraction dominating general practice. It would mark a transition from healthcare being a public good to a commodity.

Originally published on Otaihanga Second Opinion here.

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