In the past three years a Canberra-based lobby group for Australia’s $2.5 billion a year private pathology industry – together with two of its largest corporate members – have donated over $141,000 to the Tasmanian branch of the Liberal Party. The donations make the private pathology industry among the top donors to the Tasmanian branch of the Liberal Party.
Pathology Australia – the peak lobby group for private pathology operators – along with the medical diagnostics behemoth Sonic Healthcare Group and its smaller competitor Healthscope, remain coy about why they have become major donors to the Tasmanian Liberals. However, at least one company – Sonic Healthcare’s Tasmanian subsidiary Diagnostic Services – has been lobbying the Tasmanian Government for the outsourcing of Tasmania’s public hospital’s pathology services.
Pathology Australia’s CEO, Liesel Wett, stated via email that the lobby group occasionally met with Tasmanian Ministers but provided no details on who it met and whether the outsourcing of public hospital pathology services to the private sector had been discussed. Sonic Healthcare, its Tasmanian subsidiary Diagnostic Services, and Healthscope did not respond to a request for comment.
The Tasmanian Minister for Health, Michael Ferguson, confirmed that he had met with representatives from all Tasmanian pathology service providers including Healthscope and Sonic Healthcare’s Tasmanian subsidiary Diagnostic Services. However, it remains unclear whether he has met with Pathology Australia. It also remains unclear whether Ferguson has met with the pathology companies at Liberal Party fundraising events. Tasmanian Times does not suggest the donations have directly influenced Mr Ferguson’s decision making.
In two of the past three years Pathology Australia has donated $25,000 to the Tasmanian branch of the Liberal Party and $27,200 in the most recent year. (See here, here and here.) Sonic Healthcare and its Tasmanian subsidiary Diagnostic Services contributed a further $36,500 and Healthscope donated $27,500 over the three years to mid-2014. In just a few years the private pathology industry has emerged among the biggest donors to the Tasmanian branch of the Liberal Party.
According to Australian Electoral Commission (AEC) data, Sonic Healthcare has also donated $400,000 to the Liberal Party of Australia’s federal office since August 2010 and Healthscope contributed $34,500 since 2011. According to AEC data the two companies have made no donations to any other political parties. (In the first half of 2012 – midway through the Prime Ministership of Julia Gillard – Pathology Australia made three donations totalling $32,000 to the Australian Labor Party’s national office. Since Labor lost office Pathology Australia has donated only to the Liberal Party.)
Of all of the state and territory branches of the Liberal Party, the Tasmanian branch has been the biggest beneficiary of the private pathology industry’s largesse. Over a three-year period the Tasmanian Liberals raised over five times more than their Victorian counterparts and four times more than the Liberal National Party in Queensland.
Healthscope – a company which turned over $2.4 billion in 2014/15 – gave the Victorian branch of the Liberal Party $23,700 but gave the NSW and ACT branches only $500 and $495 respectively. In 2013-2014 the Liberal National Party in Queensland was given $12,500 by Healthscope and $20,000 by Sonic Healthcare. (See here.) Sonic Healthcare also donated $600 to the ill-fated campaign of former Australian Medical Association President Bill Glasson, who was preselected by the Liberal National Party of Queensland to contest the February 2014 by-election for the Brisbane seat of Griffith after Kevin Rudd resigned from federal parliament.
Under Australian electoral law, both donors and recipients are legally obliged to file a return if in a single financial year their donations are greater than a specified threshold. In the 2013-2014 financial year the donation disclosure threshold was $12,400. However, Pathology Australia only submitted returns to the AEC after Tasmanian Times inquired earlier this year about their failure to lodge the required disclosure forms.
Tasmanian Times asked if the Tasmanian Minister for Health, Michael Ferguson, was aware that Pathology Australia, Sonic Healthcare (including its Tasmanian subsidiary Diagnostic Services) and Healthscope have all been recent major donors to the Tasmanian Liberal Party. A spokeswoman for the Minister neither confirmed nor denied whether the Minister was aware of the companies and the industry association’s support for the party. “Donations are matter [sic] for the Liberal Party,” she stated. (Under the Tasmanian Liberal Party’s Fundraising Code of Conduct all donations must be handled by the state office. However, donations over an annually adjusted threshold are publicly disclosed by the Australian Electoral Commission.)
The Fundraising Code of Conduct also states “it is appropriate for Members [of Parliament] to voice the need for funds or services to support the administrative and campaigning activities of political parties, including signing appeal requests and attending fundraising functions” and that “donors have a right to put their views to the Liberal Party and its Members.”
However, the code also states the Party won’t accept donations “which, even if only by inference, are intended to obtain support for specific government decisions, actions or attitudes.”
Tasmanian Times also asked whether Ferguson has met with representatives of Pathology Australia, Sonic Healthcare (including its Tasmanian subsidiary Diagnostic Services) or Healthscope at fundraising functions for the Tasmanian Liberal Party since becoming Minister for Health. The Minister’s spokeswoman confirmed he had met all “private pathology providers” at “various forums” leaving it unclear whether any meetings had occurred at fundraising events. It is also unclear whether he has met with Pathology Australia – which is a lobby group, not a pathology service provider.
Why has the private pathology industry emerged as such a large donor to the Tasmanian Liberals?
“What we are seeing is the push to move hospital pathology services out to the private sector,” Bruce Baer Arnold, Assistant Professor in the School of Law at the University of Canberra told Tasmanian Times. Arnold, who follows the regulation of the health sector, said that “if we are going to outsource pathology services from hospitals it needs to be done in a way that is transparent.”
Tasmanian Times asked Pathology Australia’s CEO, Liesel Wett, whether the organisation had met with Tasmanian Liberal Government Ministers since the last state election and whether the question of outsourcing Tasmanian hospitals’ pathology services had been raised with Tasmanian Liberal Government Ministers. “Part of our role is to meet with key influencers – such as Ministers and Members of Parliament – which we do from time to time,” Wett wrote in response to emailed questions. Wett did not respond to repeated subsequent attempts to contact her via phone to clarify just which Ministers had been met, when and what had been discussed at the meetings.
Tasmanian Times also sought unsuccessfully on several occasions to contact – via both phone and email – Dr Lawrie Bott, the Chief Executive Officer of Diagnostic Services, the Tasmanian subsidiary of Sonic Healthcare. According to the Tasmanian Liberal Party’s electoral return for the 2013-2014 financial year Diagnostic Services donated $20,000 to the Tasmanian Liberals.
Sonic Healthcare and Healthscope did not respond to a request for comment.
Testing times for private pathology
In the past two decades the private pathology industry in Australia has boomed. In 2001 just $1.2 billion was spent on pathology services; by 2013 the Federal Government’s expenditure had grown to $2.4 billion.
The growth has been driven by a range of factors: an aging population, more chronic disease and a great willingness of general practitioners to prescribe tests with an eye to prevention and early detection of diseases. Advances in medical technology have also allowed for a greater range of tests while federal and state government programs have also promoted increased testing for diseases such as bowel cancer, prostate cancer and breast cancer.
Three private pathology providers – Sonic Healthcare, Healthscope and Primary Healthcare – dominate the industry. Sonic Healthcare and Primary Health Care between them account for just over three-quarters of annual industry revenue in Australia.
Healthscope in comparison was a relative minnow, holding only about a 7 per cent share of the private pathology market. In June 2015 Healthscope announced that it had sold its Australian pathology business – which turned over $281 million in 2014/15 – to the private equity firm Crescent Capital Partners. In announcing that it was bailing out of the domestic pathology industry Healthscope stated that the sale of the low-profit business was due to the “challenging market conditions.” Healthscope doesn’t operate pathology services in Tasmania.
In Tasmania, Sonic Healthcare – through its wholly-owned Tasmanian subsidiary Diagnostic Services (DSPL) – dominates the local scene through its local arms Hobart Pathology, Launceston Pathology and North West Pathology. Diagnostic Services’ three divisions operate 48 collection centres around the state as well as pathology laboratories in Hobart, Launceston, Burnie, Latrobe and Queenstown.
But the boom times for private pathology industry in Australia may well be over.
In its February 2015 submission to the Federal Government on the then looming budget, Pathology Australia lamented that demand for pathology services is “flat.”
Adding to their woes have been moves by the Federal Government to cap pathology expenditure payments through Medicare. With demand for services flat, the companies are under pressure to boost profits by expanding their market share, rationalising unprofitable parts of their business and cutting costs.
Pathology Australia, which was established in 1991, represents many of Australia’s private pathology companies and states in its constitution that part of its primary objective is to “protect and promote the practice of private pathology within Australia.” (Prior to March 2013 the lobby group was known as Australian Association of Pathology Practices.)
For the private pathology industry, the health and funding policies set by the Federal Government largely determine the industry’s profitability.
Not surprisingly, the bulk of Pathology Australia’s public advocacy has been directed at the Federal Government. At the top of the industry’s lobby agenda are objections to Federal Government policies which constrain the industry’s revenue; such as concern that a co-payment be imposed on pathology services.
Despite pressure to increase profitability, the private pathology companies have limited avenues for growth. Aside from the large players taking over the few remaining independent operators, the industry’s biggest companies are looking to expand their domestic market share by persuading health ministers and hospital administrators to outsource public hospital pathology services to private operators.
For its part Pathology Australia is keen to promote outsourcing. In its February 2015 submission to the Federal Government, Pathology Australia cited the South Australian Government’s review of its public pathology services and argued that “governments have benefited substantially from the shift in the provision of pathology services to the private pathology sector and further benefits are available.”
It was a sentiment echoed in Sonic Healthcare’s 2014 annual report stating, of its pathology operations around the world, that:
“Sonic is also well placed to benefit from the increasing trend for governments and others to outsource their diagnostic testing to the private sector in order to address growing healthcare costs.” (p. 26)
The company also stated:
“Sonic expects to continue for the foreseeable future to grow revenue, earnings and returns on investment organically, including through outsourcing contracts, and further enhanced by synergistic business acquisitions.” (p. 27)
Thinking globally, lobbying locally
When the Tasmanian Liberal Government unveiled in September 2014 its Rebuilding Tasmania’s Health System a broad outline on options for reforming the Tasmanian health heath system, the provision of the pathology services got only a passing mention. However, it foreshadowed that a Green Paper – a preliminary public consultation document outlining more detailed options – would be released by the end of the year for public comment.
When the Green Paper emerged, Sonic Healthcare’s Tasmanian subsidiary Diagnostic Services was one of those keen to respond. In its mid-February 2015 submission, the company’s CEO, Dr Lawrie Bott, outlined a range of areas in which the company could expand its involvement in Tasmania’s public health system. Bott suggested the public health system could gain efficiencies from greater use of Diagnostic Services’ courier service and its collection services. He also suggested that the public health system could tap into Sonic Healthcare’s negotiating muscle when purchasing equipment and supplies or even ensure greater collaboration through the use of shared back-office software systems.
Cautiously embedded in Diagnostic Services’ submission was the company’s pitch for where the real money is: pathology testing services. Under the rather innocuous sub-title of “redesign of clinical services/clinical support services” the company noted that its subsidiary – North West Pathology – had been providing pathology support services to the Tasmanian Health Organisation – North West. It went on to cautiously flag:
“Whether there is an opportunity to extend this role across other major hospitals may be worth consideration as it may offer significant cost savings.”
Concluding its pitch, Bott’s submission stated:
“We recognise that there is a clear opportunity for the department and ourselves to develop a service model that is mutually beneficial and meets quality performance indicators. The management of DSPL would be happy to meet to discuss the future of Tasmanian Health and in particular pathology services.” (emphasis added)
For its part, the culmination of the public consultation process was the Hodgman Government’s recently released One State, One Health System, Better Outcomes White Paper. If the private pathology industry was hoping for a green flag for the outsourcing of public pathology services, it would have been disappointed.
However, while the initial focus of health system reforms is on changes to a range of key specialist surgical services, the door was left open to further changes. The White Paper describes the Tasmanian Role Delineation Framework – a planning document which underpins the Government’s health reform strategy – as “a living document” which “will be updated from time to time to reflect significant changes in technology or resource allocation across the network or when new services or new frameworks are developed and endorsed.”
The White Paper went on to state that “where there is resource and statewide service consolidation issues, the Department will discuss these with the THS [Tasmanian Health Service] as part of the implementation strategy.”
At the heart of the private industry’s outsourcing lobbying are the themes common to all privatisation pitches: efficiency and cost. The private pathology industry argues that their larger scale compared to the far smaller hospital pathology services results in lower overhead costs. It also argues that their sheer market dominance gives them far greater ability to negotiate lower prices for pathology supplies.
While the private pathology industry argues it can provide services cheaper than public hospitals, Bruce Baer Arnold from the University of Canberra is not convinced that the evidence in support of outsourcing is all that conclusive. “While the private pathology industry argues they are more efficient, there is a dearth of hard data to support that view. Whenever the issue of supporting evidence is pressed, pretty quickly you come up against the claim that the information sought is ‘commercial-in-confidence’,” he said.
In South Australia it was argued that SA Pathology’s costs were higher than both the Medicare payment for pathology services and the costs private operators could provide the services for. However, unions representing the public pathology service employees challenge the validity of the South Australian figures used by Ernst and Young for benchmarking SA Pathology’s costs against.
However, there is a flip side to the private pathology industry’s argument: public hospital pathology services that operate below the cost of the Medicare service fee generate revenue which is used to underwrite the cost of other hospital services. In this case, outsourcing public pathology services to private companies would shift the ‘profit’ margin from use in the public health system to private companies and could trigger the need for further cuts in public hospital services.
“Pathology is probably the most profitable medical service,” Arnold said. “If it is well organised it should be profitable.”
Robbie Moore, the Assistant State Secretary of the Tasmanian branch of the Health and Community Services Union (HACSU) said that members in the public hospital pathology labs believe they generate more revenue than they cost. “As they generate a lot of income, that would mean that if government didn’t continue to run it that it would affect the health budget significantly,” he said. HACSU represents members in both the private and public pathology sector.
Moore estimates that outsourcing public hospital pathology services in Tasmania could affect over 100 jobs, depending on exactly what was included in any outsourcing deal.
Shortly after first being appointed Minister for Health, Michael Ferguson used a speech to the Tasmanian Health Conference 2014 to argue that a major overhaul of Tasmania’s health system was required. “For make no mistake: the missing ingredient in the reform agenda over the past decade is the political will, the leadership, and the staying power to ensure change is delivered. The Liberal Government has the determination to lead and drive that reform, to the benefit of all Tasmanians who rely on our State’s health and hospital services.”
However, there is another element too: lurking in the shadows of the Hodgman Government’s health reform process are some of the Liberal Party’s largest donors looking to expand their business.
Bob Burton is a Hobart-based Contributing Editor of Tasmanian Times and has previously been a freelance contributor to the British Medical Journal.
Tasmanian Times (TT) is free - always has been, always will be. If you like what TT does, please consider making a donation. If you think this article deserves a wider audience please spread the word via Facebook or Twitter of other social media using the social media share buttons at the head of the page or the use the Tweet below.
Later articles in this series on Tasmanian Times:
• October 28: Who’s a Liberal donor gonna call? Rentbusters!
• Another Anonymous in Comments: Groom just said in Question Time that Coordinator General is considering a proposal for the private sector to provide medical services. That’s code for “Farewell Public Pathology Services at the Launceston General Hospital”. Sonic have had their eye on this for 15 years.