Business Environment Analysis Of Ramsay Healthcare Hospital Provider
Introduction and background
Ramsay Healthcare (RHC) is Australia’s largest private hospital provider, with over 70 hospitals in Australia alone. Ramsay Healthcare has undergone significant changes since establishment in 1964, including significant periods of growth through new builds and acquisition, public listing on the Australian Stock Exchange (ASX), and expansion of services into the United Kingdom, France, Malaysia, Indonesia, and the Maldives. The focus of the business environment discussion of RHC will be in the Australian environment. Whilst RHC initially focused on providing mental health care, the business quickly diversified into medical and surgical services, as well as diagnostic and imaging services and other supportive services such as allied health. By expanding the business in this way, RHC was able to set itself up as the premier private hospital provider in Australia. As the largest private hospital provider in Australia, naturally there were several environmental factors that had a significant impact on the growth of RHC; these factors included but are not limited to, competition, regulatory environment and Australia Competition and Consumer Commission (ACCC), consumer experience and preference and economic landscapes.
Market Competition
As RHC grew, remaining competitive in the health market and environment became paramount and as such the process of acquisition of other competitors in the market became a strong focus for RHC through the 1980’s and 1990’s. By 2005, RHC owned 65 private healthcare facilities in Australia and had been subject to ACCC investigations and determinations requiring them to shed a few facilities and allow competitors to purchase them. Market competition within the health care setting in Australia has been a widely discussed topic, specifically comments on Managed Competition. Managed competition as discussed in Productivity Commission (2002), explains that by separating the financial aspects of healthcare from the provision of service, the market-oriented structure would allow for greater efficiency across the entire structure of the health system. For RHC, this would pose several challenges as managed competition would mean a cross-over or combination of services between public and private and government involvement in regulating profit potential would be heavier; this could in-turn result in share price drops for the publicly floated company and cause investors to re-considered holding shares. Largely, the Productivity Commission (2002) report has been dispelled by health care professionals as it focuses on budget holders as opposed to the relationships that patients and doctors have with the healthcare system.
Regulatory
Another factor to be considered in the context of RHC in the business environment is how critical the regulatory setting is for private health care in Australia. There are generally two regulatory bodies that play a large role in the private hospital environment; these are the ACCC and state-based health departments. The ACCC is an independent Commonwealth run body responsible for enforcing and promoting competition and fair trading for the benefit of the Australian public. For New South Wales, it would the NSW Department of Health which manages the licencing requirements for all private facilities in the state. RHC has been investigated by the ACCC on several occasions, for issues relating to acquisitions, mergers and anti-competitive conduct. The two most recent investigations involved the acquisition of Wollongong Day Surgery in NSW and anti-competitive conduct at Baringa Private Hospital and the Coffs Harbour Day Surgery. In 2015, RHC sought to acquire Wollongong Day Surgery which would have given the RHC group a distinct advantage in the Illawarra region, with the nearest other private hospital being 20 kilometres away. The main issues identified were the potential ability for RHC to charge health insurers higher rates for services and the lessening of competition in the region. Subsequently, Wollongong Day Surgery was acquired by health e. care in 2017.
Most recently, in 2017, the ACCC took legal proceedings against RHC for their anti-competitive conduct in the Coffs Harbour region. The premise for proceedings was that RHC executives became aware that a group of surgeons was looking to establish a competing facility in the region. Executives informed the group of surgeons that their operating time at both Baringa Private and Coffs Harbour Day Surgery would be reduced if they proceeded to open a competing facility. The Federal Court case was heard last month in September 2018 and is still awaiting judgement.
Economic Environment
In the context of the impact ACCC legal proceedings have on the economic viability and landscape for RHC and its share prices in the ASX, these implications can often be severe. RHC has over 202 million ordinary fully paid shares listed on the ASX, and whilst the dividends for investors have been steadily increasing over the last 4 years, the share value has been steadily decreasing. The Australian Financial Review has published multiple articles in 2018 speculating whether the share price of RHC stock is overvalued and that Australian’s are beginning to shun private health due to increases in health fund premiums. Within these articles are multiple variables that have an impact of the economic environment in which RHC finds itself. These include private health insurance, shareholders, share price value, dividend payment values, overseas investments and acquisitions; all of these have a major impact on the Australian economic health environment and the viability of RHC within the health care sector. Of note, private health insurance has had a major economic impact on the private health care sector in Australia over the last two years, with fewer and fewer people initiating health insurance policies and others opting to stop them. Given that RHC is in healthcare, the feeling of pain would be a factor that would motivate and engage someone to make a choice towards one provider or another.
Consumer Experience and Engagement
With public opinion, consumer experience and consumer engagement playing an increasingly larger role in defining the economic environment in health care, it is crucial for RHC to ensure that they are placing importance on this area. With consumers or customers, or in this case patients, there is an underlying essence of psychology that influences the buying habits and patterns, that are sometimes cross-generational. As identified by Moschis, Prahasto and Mitchell (1986), behaviour-related consumption can be influenced by those around the individual, but, close family members as these behaviours are developed during adolescent years. This behavioural component to purchasing and consumption behaviour is further supported by Childers and Rao (1992) to an extent, whereby the concept of inter-generational influence as described by Moschis (1985) is indicated on purchasing and consumer behaviour. Further to consumer related behaviours, there is the ever-pervasive concept of word of mouth and how these informal conversation types have an impact on an individual view of products and services.
In Lau and Ng (2009), negative word of mouth is investigated fully to review how consumers or customers voice or provide feedback on their dissatisfaction. With regards to RHC, of value is the section on Managerial Implications, where there is some note given to consumers providing feedback at the point of sale or purchase; in a hospital environment, particularly within RHC, feedback is obtained following admission. This process could however be modified to ask for feedback on patient admission to the hospital, and on patient discharge from the hospital.
Conclusion and summary
From the discussion, there are four major theories or factors that have an impact on RHC in the current operating environment; these include market competition and the competitive environment, regulatory bodies and regulatory requirements on RHC, the current economic environment and consumer experience and engagement. There are likely to be other frameworks that impact on RHC, but these four are the areas that are most likely to have financial impacts on the day to day running of the business. RHC has been very fortunate to ensure that the business has continued to grow and flourish over the last 54 years of operation; this has been largely due to the lack of competition for the provision of service that RHC are able to offer. Their acquisition ability is astonishing and commendable, but with vast expansion at such an exponential rate, and during periods of slowness, there are likely to be challenges with regards to employment stability and quality management across the group of services that are provided.
