Excuses ring hollow for small players

Private hospital proprietors feeling the pinch from unpaid bills talk to ANDREW LAXON.

Breast surgeon John Harman feels he works in the shadow of Southern Cross in more ways than one.

As a 50 per cent shareholder in the four-bed Northern Surgical Centre in Glenfield, he runs his business next to the health insurer's hospital on the North Shore.

For three months, as Southern Cross has failed to pay its customers' claims for surgical bills on time, he and his fellow surgeons have been dipping into their own pockets to keep the centre running.

So far he estimates they have put in $100,000 and Southern Cross still owes $350,000.

He describes Southern Cross as "a big bully", using its dominance in the market to put the squeeze on private hospitals, which work on narrow profit margins of 3 to 7 per cent.

He believes even the bigger hospitals will be struggling as one of their main sources of income dries up.

Southern Cross - which rejects the claim and notes that the Court of Appeal did not find its 80 per cent market share "dominant" - says doctors such as Mr Harman are exaggerating.

The company says that out of total outstanding claims of $25 million (about double the normal level), it owes private hospitals $4 million to $5 million, against $3 million normally.

Other hospital owners and managers are less willing than Mr Harman to reveal their financial woes.

However, from speaking to four, the Herald concluded that the smaller the hospital, the bigger the concern about the unpaid bills.

All agree that Southern Cross is a vital source of their income. The Private Hospital Association says about 60 per cent of patients are covered by health insurers, 20 per cent by ACC and 20 per cent pay their own bills.

Since Southern Cross covers about 80 per cent of New Zealanders with health insurance, it is paying the bills of more than four out of 10 private hospital patients.

By far the largest private hospital is the newly combined Ascot-Mercy operation in Auckland - Greenlane-based Ascot took over Mercy in Epsom last year.

It has 19 operating theatres and almost 200 beds and about 85 per cent of its patients are insured with Southern Cross or Aetna.

However, integration manager Dr Justin Vaughan says that although Ascot-Mercy was concerned by the delays, it was heartened that Southern Cross was catching up.

The chief executive officer of the 66-bed Mercy Hospital in Dunedin, Michael Woodhouse, will not give dollar figures but says a few months ago Southern Cross members made up only 2 per cent of debts which were more than two months overdue. This month that figure is 37 per cent.

The general manager of Hastings' 24-bed Royston Hospital, Andrew Blair - who is also president of the Private Hospitals Association - says hospitals such as his get at least half their patients from Southern Cross so are owed large amounts of money.

He and association director Lesley Clarke are especially annoyed that as hospitals' debts piled up over the holidays, no one from the association could get a straight answer from the Southern Cross head office on when the problem would be solved.

It was Ms Clarke who raised the alarm two weeks ago by suggesting private hospitals might demand that Southern Cross patients pay their total bill as they were discharged.

She says no hospital has done this yet but denies it was merely a threat designed to get publicity.

"So long as the delays don't get worse and ultimately improve, it should never happen. But if a payment's outstanding for four or five months, what's the hospital to do?"

She says hospitals cannot chase up the debt with Southern Cross because their contract is with the patient, although they could in theory take legal action against patients.

In Dunedin, Mr Woodhouse says some worried patients have been ringing to check whether this will happen. He cannot rule it out but says it is very unlikely.

Despite the scepticism of some colleagues, he accepts assurances from Southern Cross chief Roger Bowie that the delays are caused simply by the computer changeover. "I know Roger and he's a straight-up sort of guy."

Others are less understanding. Like Mr Harman, Ms Clarke accuses the company of using its dominant position to treat its customers with contempt.

"If Southern Cross wasn't so big and dominant, would they be getting away with this level of service and arrogance, dare I say it, not just towards the hospitals but also towards their policyholders?

"There's a real old-school arrogance which just flows right through the executive level and board level."

There is another factor at work. Even before the unpaid claims saga, Southern Cross was at war with some doctors and hospitals over its attempt to beat medical inflation by introducing fixed-price contracts in advance.

Ms Clarke says once a dominant insurer signs up enough "affiliated providers" it can squeeze prices, putting small hospitals out of business.

Mr Bowie replies that the new system, which so far covers 15 to 20 per cent of providers, will benefit everyone by removing uncertainty.

Regardless of this issue, Ms Clarke says her biggest concern is that disgruntled Southern Cross clients will walk away from health insurance - a nightmare prospect for the private health industry.

Full coverage:
nzherald.co.nz/southerncross