Asia Pacific Healthcare Group: The lab testing company that rules them all

For a corporation which holds such a big stake within the extraordinarily essential market of medical laboratory testing, the Asia Pacific Healthcare Group isn’t significantly well-known.

When politicians attempt to deliver up APHG throughout interviews they usually have hassle remembering which method across the letters go, not to mention what these letters stand for.

But, over the previous yr, APHG has been talked about like by no means earlier than: their lab scientists have anonymously complained about their pay and conditions, the corporate efficiently won a high-profile saliva testing contract from the Ministry of Health, which later came in for heavy criticism from the auditor-general,

It was additionally embroiled in delays rolling out saliva testing to border workers, its lab processes behind validation data used for its saliva test have been questioned, and it has been a magnet for criticism over testing delays.

Then there was APHG’s chief government Anoop Singh, who launched a verbal broadside questioning Yale public health research scientist Anne Wyllie’s credentials, and in doing so ended up motivating members of the public to create a Wikipedia page in her honour.

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By its personal calculations APHG controls laboratory testing providers that have an effect on 75 per cent of the inhabitants. Its lab community contains service suppliers like Labtests, Northland Pathology, Taranaki Pathology Providers, Canterbury SCL, Southern Group Laboratories, Medlab South, and Wellington SCL.

Whereas on paper this may sound like a market-dominant place, Singh insists his firm isn’t a monopoly.

“The factor about that is that, on the finish of the day, this laboratory sector, for those who like, is comprised of many alternative suppliers for group and hospital providers. Within the hospital providers we solely have a 20 per cent share of that market,

“So whenever you add the group and the hospital collectively, we’re not as dominant.”

Group testing and hospital testing are the 2 foremost types of pathology testing in New Zealand.

Group testing is the testing that comes through referral from group sources, like when your GP refers you for a take a look at, and hospital testing happens on the request of a hospital (like an inpatient or outpatient clinic).

Hospital testing wants fast-turnaround instances, which requires a laboratory that could be very near a hospital, or immediately on-site.

The group testing market is the place APHG controls near 80 per cent of the market.

Nevertheless, management of the group testing market spills over to the hospital testing market too as a result of there are some regional lab testing markets, like Wellington and Christchurch, the place hospital and group supplier contracts are given to the identical supplier.

“Nicely, it’s a robust place, sure,” Singh says.

“That’s been the case for fairly a number of years, ever since we gained the Wellington area contract. That’s been the place since 2016, thereabouts.”

There was a time when Arthur Morris, former chief government of Diagnostic Medlab, was drowning in these debates over lab testing contracts. His former employer misplaced its 30-year contract with Auckland distict health boards (DHB) to Labtests during a very public dispute that went all the way to the Supreme Court in 2009.

“Bit by bit, and [through] independent [DHB] decisions up and down the country … you end up with one provider, or one owner, owning most of the individual [lab] businesses up and down the country, so that’s how it’s evolved, that’s how it has ended up in this end state.”

A Commerce Commission decision considering a merger between New Zealand Diagnostic Group and Sonic Healthcare, outlines the kind of long-term trends in contracting that led to laboratory services consolidating.

Previously DHBs set prices for tests, and providers were allowed perform these tests at an agreed-upon price. This effectively allowed for several lab service providers to operate within a single area.

In 2000, the New Zealand Health Strategy came along, which put an emphasis on co-ordination over competition, along with a requirement from the Ministry of Health that DHBs seek out more cost-effective services.

“Competition between providers or professional groups has inhibited the development of services oriented to the needs of individuals and communities,” the strategy says.

These directives led DHBs to try and reduce their laboratory costs by putting longer-term “winner take all” style lab contracts out to tender.

Such tenders would give a chosen lab testing provider a monopoly over tests for a long period of time, but competitors would have to come up with a good price.

Commerce Commission chairwoman at the time, Paula Rebstock, wrote that while these DHBs could bring prices down through the tender process, they could also lose a lot of negotiating power if the potential labs competing for those contracts ended up merging.

Rebstock was concerned at the dominant position a merger between New Zealand Diagnostic Group and Sonic Healthcare might leave the combined company in when it competed for these longer-term DHB contracts.

“The DHBs would have the ability to influence this price by playing various competitors off against one another. However … with limited choice between providers, the countervailing power of DHBs, and therefore the ability to influence prices, would be dampened significantly.”

Rebstock said a merger between New Zealand Diagnostic Group and Sonic Healthcare would lead to only one company competing for these DHB contracts in some regions.

However, while the Commerce Commission, headed by Rebstock, rejected this attempt to merge New Zealand Diagnostic and Sonic Healthcare in 2005, more than 15 years later the market has ended up in much the same position she once feared it would.

And Rebstock has moved into a new role, chairwoman of APHG.

The chief executive she oversees, Singh, is a bit of a symbol of the type of changes that have happened in the pathology industry over the past few decades. Singh has more than 30 years experience in the industry, but on the management side, rather than the scientific one.

“I’ve been in laboratory or pathology management since 1990, when this industry was turning from a pathologist-owned cottage industry to a corporatised one,

“So it’s been a journey of dealing with the changes in the industry from a business point of view for me.”

Singh was previously employed by the second-largest operator of private hospitals in Australia, Healthscope.

A lot of Singh’s family live in Melbourne, and right now he is stuck over there too, but he hopes to make it back to New Zealand when the border opens, or when he succeeds at securing a slot in managed isolation.

Over the years, Healthscope has competed vigorously for DHB contracts, often against entities associated with another Australian company, Sonic Healthcare.

The most public spat came in Auckland where Sonic-owned Diagnostic Medlab lost its long-term contract to Healthscope-owned Labtest.

Labtests reportedly had to stand up entirely new facilities at short notice after winning the contract, leading to an endless stream of news stories filled with complaints from irate doctors and patients furious at the long waits, and late tests.

In the years that followed Sonic-owned entities lost DHB contracts in Hawke’s Bay, Canterbury and the southern South Island, and by 2015 Healthscope had set its sights on the largest contract Sonic Healthcare had left, Wellington.

A column in The Dominion Post on the time made word of the progress Healthscope had made snagging DHB contracts over time, and cited fears Healthscope would make a “low-ball” bid to knock Sonic out of the water.

“There could be actual financial savings available, maybe for a number of years, by accepting a low bid. However there would even be an unquantifiable threat – would a dominant Healthscope be capable to cost monopoly costs down the monitor?”

A report ready for Wellington DHBs in 2013 had reportedly warned what may occur if Sonic Healthcare exited the market: “Additional focus of the market would cut back efficient competitors and may, in the long run, result in collusion.”

In the long run, Sonic-owned Aotea Pathology would withdraw its tender for the Wellington contract, leaving the sector huge open for Healthscope.

However quickly it was Healthscope’s flip to withdraw from New Zealand altogether. In 2019, Healthscope was purchased out by Canada-based asset administration fund Brookfield for A$4.4 billion (NZ$4.7b), and the New Zealand pathology aspect of the enterprise began to look ripe for a sell-off.

The cluster of laboratories Healthscope had constructed up in New Zealand out of the blue didn’t appear like an excellent match subsequent to their multibillion greenback portfolio of personal Australian hospitals, particularly since Healthscope had already sold-off its Australian pathology enterprise to Crescent Capital companions in 2015.

So, by the top of 2020, Healthscope had bought off its New Zealand pathology enterprise to the NZ Superannuation Fund and Ontario Lecturers’ Pension Plan Board (a Canadian pension fund) for $550m, and Singh was appointed chief government.

Morris notes that whereas there are some disadvantages to those “winner takes all” DHB contracts, there are benefits too, particularly in smaller areas. Selecting one firm permits for economies of scale to develop, and there’s much less duplication.

Nevertheless, so far as competitors for DHB contracts goes, Morris doubts a DHB would ever give a lab testing contract to a very new participant any extra, like they did with Labtests throughout his time at Diagnostic Medlab.

“I simply don’t suppose that’s doable anymore,

“There’s some business rigidity there [with the tender], however when you’re in, the DHBs don’t need any noise, they usually wish to see it move correctly.”