Editorial: Sick health insurer needs heart-starter

Southern Cross, the country's principal private medical insurer, is a vital cog in the national health system. It receives 80 per cent of the premiums that about 35 per cent of New Zealanders pay in order to be assured of treatment when they need it. When something goes awry in that company, it deserves the closest scrutiny.

We make no apologies for taking a searching and critical look at the company in the Herald's columns since concern grew over delays in the payment of insurance claims. Southern Cross has explained that the delays have been caused by the teething problems of a new computerised processing system, and all sorts of organisations can sympathise with that. But those glitches seldom occur in a vacuum. The way in which they arise can tell a great deal about the state of the organisation.

Our investigation has found that the problems at Southern Cross started when it took over its largest and smartest competitor, Aetna Health, last March. Southern Cross was particularly attracted to Aetna's American computer system, which could assess and adjudicate claims automatically.

Aetna was not using the system to the extent that Southern Cross has tried to do. As well as transferring its entire membership records into the new system Southern Cross moved its claims processing centre from Auckland to Hamilton and, in doing so, lost experienced staff.

Chief executive Roger Bowie says that in retrospect the company underestimated the training people would need to operate the new claims system and the consequent dip in productivity. Processing of claims began to fall behind in July and by last month the company had to admit to delays of up to six weeks in paying out.

Just a week after that admission, the Court of Appeal issued a ruling that the acquisition of Aetna could go ahead. The takeover had been blocked by the Commerce Commission, concerned at the market dominance Southern Cross would enjoy. The High Court had earlier over-ruled the commission, deciding that health insurance was an easy market for new companies to enter and challenge the established provider if its performance falters.

It is ironic that the performance of Southern Cross should falter just before the Court of Appeal endorsed the High Court's decision. Perhaps the next few weeks or months will tell whether Southern Cross is vulnerable to competition. Last month, Mr Bowie said the waiting time for payments should be back to normal by the end of this month. Now he says it may take all of next month.

Southern Cross has a reservoir of goodwill in the country. It has long provided a reliable service and in recent years it has begun to take a more aggressive attitude to the charges it will accept from surgeons. It has also become a hospital operator as well as an insurer and the processing of claims probably no longer has the prominence it once had in the organisation.

The insurer should be careful, though, to treat all private hospitals equally in its present troubles. It must not protect its own hospitals, or those on preferred contracts, from the cash-flow problems that all must be suffering. Nor should hospitals take the drastic step threatened by their association and try to recover their costs from patients in the meantime.

Private hospitals and the practitioners working in them are better placed than most patients to carry the cost. They are also better placed to press Southern Cross to erase this backlog of claims more quickly. At the moment the organisation is looking lethargic. It could do with a stimulant to increase its heart rate.

nzherald.co.nz/southerncross