The Player

Thursday, November 1, 2012 - 12:10

With 1.3 million retirees set to enter the healthcare system in the next decade, we need to find new ways to cope with the demands and costs. Tom Skotnicki talks to Medibank's George Savvides about the challenges.

Medibank CEO George Savvides, in an exclusive interview with Mt, was obviously energised by the prospect of transforming Australia's largest health insurance fund, Medibank, from "a payer to a player". It is more than a slogan. It is the basis of a strategy that will have a profound effect on Medibank and, if it succeeds, the Australian healthcare system.

Savvides, an MBA from the University of Technology in Sydney and a former industrial engineer, is convinced unless Medibank has a strategy to deal with rising health costs, its business model is unsustainable.

The engineering honours graduate, of the University of New South Wales, says the health system is not designed to cope with the coming influx of retirees with up to another 1.3 million people expected to enter the 65 to 90-year age bracket within a decade. This can only increase the size of the health sector, which has already overtaken retailing as Australia's biggest employer.

"We think we are a good health insurer, but to be a great insurer we need to become more involved in health co-ordination on behalf of our members," Savvides says. "To just be a payer and not understand the way the system operates is to guarantee you will just follow the cost curve and impose premiums on your members that are unsustainable."

Savvides says it is not only Australia, but all advanced economies with comprehensive health schemes and an ageing population who face a funding crisis. "If you just follow the cost curve then quality health care will be unaffordable for Australians," he says. "We are living in the 'good old days' ... we don't want to be Nokia (a reference to the company's failure to anticipate the success of the iPhone) and find ourselves blindsided. We know that unless we add health insight to our health insurance competency then we will not be able to have an impact on the inevitable rise in claims. We have to be a player, not just a payer. That purpose (which we call 'for better health') informs our strategy and our vision."

Savvides says despite being government-owned, Medibank is very much independently governed by its board and management group on behalf of its sole shareholder which is the Department of Finance. As a result, he attends Senate Estimates three times a year along with Finance Minister Penny Wong.

In recent years the main impact of government ownership has been the payment of special dividends representing a return of capital to the government. However, he said any suggestion a drop in earnings last financial year was caused by a smaller than normal increase in premiums to members (at the urging of government) was not the case.

"We had an excellent year the year before and wanted to reward members, However, earnings on investments were reduced by more than $120 million [as a result of equity markets turmoil]."

Savvides said in the last quarter of last year there was also a significant and unanticipated increase in claims which was continuing. As a result, net profits in 2011-12 more than halved to just under $200 million.

He maintains if the company was privatised the only major change might be a more concerted push into health markets in Asia.

Savvides is a strong advocate of healthcare reform and is obviously energised by the challenge, despite a decade at the helm of Medibank.

Now 56, he says something has to be done about the one-in-three health dollars that is wasted as a result of a lack of co-ordination in the delivery of healthcare. The figure is based on two US studies (by the Rand Corporation and the Commonwealth Fund).

The extent to which the figure is applicable to Australia is unknown given the universal nature of our healthcare and the significantly lower expenditure per head of population in Australia. However, there is no doubt many of the systemic problems are similar.

Medibank is determined to offer to help co-ordinate medical care on behalf of its members.

The commercial pay-off for Medibank will arise from improved health outcomes and therefore lower costs as well as a reduction in unnecessary duplication of services.

It maintains the problem stems from the fact that often doctors are unaware of measures and tests undertaken by other practitioners and therefore there is unnecessary repetition in diagnostic tests and treatment. There is also insufficient information available about previous healthcare experience and medication and allergies, and finally, too often practitioners lack the right prompt to provide the most effective care at the right time.

The health insurer earlier this year launched "Mi Health" to fill some of the gaps. This includes a 24-hour, seven-day-a-week health advice line staffed by nurses (which unlike the government-funded service offers far more than triage) with access to detailed information on members through their claims profile. It can be used to book appointments as well as provide advice and arrange assistance if required.

There is also a health hub for patients to access health information and their own records. "Mi Health" also provides staff located in hospitals to support patients with queries or concerns over treatment or care.

Medibank has also, in conjunction with the National E-Health Transition Authority, developed a client health record, which is being trialled and will eventually be available to all members.

The new services will apply to all Medibank members, but Savvides reveals 45 per cent of claims are made by fewer than 2 per cent of the membership. These are known in health circles as the "frequent flyers" – those with chronic and complex conditions. These are also the groups that will most benefit from the increased co-ordination of care Medibank is proposing.

Savvides' long-term aim is to influence policy makers to examine even more fundamental change. He says Medibank members spend about $4 billion a year through the health fund and also access about another $10 billion from Medicare.

"We advocate putting both amounts of money together and allowing consumers to use a health insurer of their choice to purchase private and public health care on their behalf," Savvides said.

"This will ensure greater efficiency within the system and lower costs."

The implication is the private and public system should separate the purchaser of health care from the provider in order to make healthcare more accountable.

The reform proposal is based on the Dutch model where health insurers negotiate on behalf of members to secure healthcare services. Some longer- term healthcare, including mental health, remains directly government funded. The insurance funding is provided by a combination of private contributions (about 45 per cent) from individuals and pensioners; a tax on employers (similar to superannuation); and a relatively small amount of direct government support. Acute care is guaranteed for citizens regardless of insurance status. The Dutch system, which was reformed in 2006, is generally regarded as one of the world's best with extensive controls to guarantee the quality and availability of services.

However, Australia is a different proposition, with a massive land mass, a highly evolved public hospital system and a fiercely independent cadre of general practitioners and specialists.

The division of Medibank into two key operations reflects its ambitions.

The group is made up of its traditional health insurance operations and Medibank Health Solutions, which provides services such as "Mi Health" as well as the national triage call service on behalf of the Commonwealth and state governments and the new GP phone service. It is also responsible for the provision of health services on behalf of a range of corporate and government clients.

The award earlier this year to Medibank of a contract for the provision of health services to the Australian Defence Force is effectively an opportunity to trial many of the systems it plans to extend to all members.

Savvides says last year, when the tender was first examined, the two Medibank divisions decided it was not feasible for a single enterprise to take over the work of the existing 300 providers. However, the company's head of strategy and innovation, Dr Andrew Wilson, was convinced it could be done provided all sections of Medibank worked together.

"As a result, 50 people were assigned to work on the tender for six months producing 5000 pages of documentation," Savvides said. "We won the $1.3 billion contract over four years which doubles the size of our health solutions business when it comes on stream."

He says the new role effectively creates a mini-health system for 80,000 people. The result has been an expertise that is opening doors for Medibank, which recently won a contract to provide a range of services for 22,000 Rio Tinto employees, many of whom work in remote locations.

There is no doubt Medibank believes the experience it gains by providing co-ordinated health services for the Defence Force and other organisations will eventually help it to prosecute the case for an increased role for health insurers in the health system. The company now employs 1500 healthcare professionals in its staff of 4500.

The extent of Medibank's intrusion into the provision of health services has raised concerns among peak medical lobbies, including the Australian Medical Association (AMA). The concern is Medibank could buy into private hospitals and put the squeeze on medical staff payments and exercise influence over care decisions.

Savvides says Medibank has no intention of acquiring private hospitals. As for primary care at the GP level, these services are funded by Medicare and therefore it seems unlikely Medibank will become directly involved.

However, general practitioners are the gateway to the health system and the type of change Medibank is proposing is best implemented in a capitation system where, for example, patients are assigned or opt for particular GPs whose payments are tied to their capacity to limit use of resources as well as outcomes and services provided. However, Medibank says its solution would be to increase GP payments for complex cases.

Savvides says the change in company focus from "health insurance to health assurance" is providing Medibank with a huge challenge. He describes it as a heroic purpose to provide support to members at the time of healthcare delivery rather than after the fact.

Savvides, a committed Christian, says it is about more than altruism.

"We see a customer that is frightened and we need to reassure them and help," he said. However, he says if the insurer fails to become involved then it will be unable to exercise any influence over the healthcare process. "Healthcare operates on the playing field and the health influencers [like ourselves] have to come out of the grandstand."

One of the key aspects of the change in approach is the need for transformative leadership. Savvides says during a high-level leadership course with 30 other CEOs at Oxford last year he received a memorable lesson in the role of a leader.

"They flew over a Danish conductor to address the CEOs and provide a practical demonstration using an Oxford choir," he recalls. Savvides admits to being anxious when he was awaiting his turn to conduct the choir. Asked by the conductor what was wrong, he said he was concerned he would begin flapping his hands and nothing would happen. "I then started to move my hands and this beautiful sound came out and then I moved quickly and they sang quickly, I took a step forward, pointed to the group on my left and lifted my hands high and they went high ... it almost blew me off my feet," Savvides says.

He says the lesson was trust your team has the talent and your job is to unlock that talent. He says as someone who cannot sing, it was a lesson in the importance of a leader being a coach (providing the opportunity for the team to perform and unlocking its potential) rather than being a captain.

Savvides is a strong advocate of the leadership philosophies of Jim Collins, author of Good to Great. Savvides says an effective leader does not use power, but uses trust and serves the team rather than dominates it.

"If you trust the team then they will give you their commitment, if you force the team then they will only perform while you are watching them ... you don't get the high level input and discretionary effort," Savvides says.

Savvides has been influenced in his thinking not just by Collins but also Nikos Mourkogiannis, author of Purpose: The Starting Point of Great Companies; Leadership and Self-Deception by the Arbinger Institute; The Four Obsessions of an Extraordinary Executive by Patrick Lencioni; Leading at the Edge by Dennis Perkins and Margaret Holtman; and Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organisation by Dave Logan, John King and Halee Fischer-Wright.

He says given the challenges facing Medibank and the health system, the answer must be based on transformational leadership. For Medibank this means having to be sustainable. It has to become "an integrated health insurance and health services company".