Insurer’s chief on why the private health sector makes everyone better

SECOND-year Medibank chief Craig Drummond says he’s full of fight and ready to battle to keep his health fund ahead of the competition.

MEDIBANK Private chief Craig Drummond has a number of fights on his hands.

He faces online competitors looking to cut into his margins.

He faces consumers who haven’t had a pay rise in a long time and are trying to justify keeping health insurance.

And he faces forces in Canberra who want to shackle the sector with more regulations.

So why is he spending valuable time in the suburb of Frankston?

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Mr Drummond says the health insurer’s Bayside Plaza Frankston storefront — in a plum position near the entrance to the shopping centre and a Cup Cake Queen cafe — hits the sweet spot to capture foot traffic.

Medibank has 84 stores, and about one in three should be in different locations to get more traffic, he believes.

The insurer snapped up the Frankston site when the former tenant, a Sanity CD and DVD store, vacated it — a fitting reminder the digital age is exacting a heavy toll on established companies across many sectors.

Mr Drummond believes it is here, in suburbs such as Frankston, that his battles will be won or lost.

Medibank Private chief executive Craig Drummond. Picture: Stuart McEvoy

It was two years ago this month he joined Medibank from National Australia Bank, where he was highly regarded as group executive for finance and strategy.

There, he was instrumental in helping chief executive Andrew Thorburn offload the troublesome British business that had been a millstone for years.

Since taking the helm at the health insurer, he has slowed the flow of customers dropping their policies, the IT and phone systems are working, and complaints to the industry ombudsman have been reduced.

Medibank, he says, is now pivoting, with staff focusing on how they can “take the business to the next level”.

“I think we are at a point where … in some respects it is now business as usual, but one in which the marketplace is rapidly evolving,” Mr Drummond tells Business Daily. “I’d say if you walked into our business today, you would say it is orderly.

“Its systems, operations — all of the basic functions of the business — are working as they should be working.

“Orderly is the best way I would describe it. And then you look at the macro and the macro is chaotic in terms of the health system. It is incredibly changeable.”

Setting aside the risk of lean digital players coming in to cut Medibank’s cake, there are growing regulatory threats out of Canberra and the widely-debated problem of rising health costs.

Mr Drummond points out that in the past 25 years, total healthcare costs have outpaced inflation by about 4.5 per cent a year.

Macca’s view.

In an attempt to cap spiralling costs to the consumer, the federal Opposition has promised a 2 per cent cap on annual health insurance premium rises for two years.

Labor leader Bill Shorten has said smaller funds “are not the target” of the cap, and his party would work with such funds — as distinct from bigger, listed insurers Medibank and NIB and British-owned titan Bupa — to ensure there are “no unintended consequences”.

Mr Drummond says insurers would have no choice but to pass some of the cost to others in the private health sector, including hospitals, medical practitioners and other providers.

“Private health insurers want lower premiums for their customers, but to do this, we need to reform the system and lower the cost of healthcare in Australia,” he says.

“To deliver sustainable change, Labor needs to do the hard work and drive the changes that will make healthcare in Australia more affordable.”

The private system, he says, is pivotal to the broader Australian healthcare market, particularly in the context of the strain on the public system.

Mr Drummond is well placed to judge: his son is a doctor at a public hospital.

“I’ve been out visiting public hospitals and I understand the pressures they are under,” he says.

“Public hospitals do a great job in this country but they are under enormous pressure.”

“Former AMA president Dr Michael Gannon has made the salient point — and I would concur with him — that without private health insurance the public system would collapse.”

In the relentless pursuit for efficiency, innovation is critical.

And innovation, Mr Drummond says, generally starts in the private sector and finds its way into the public system.

“This is an essential part of the for-profit parts of the industry,” he says.

“When I think about some of the innovations we’ve invested in — $25 million per annum in chronic care and chronic-disease management programs — no one else is doing these in the country.

“We are getting genuine results saving lives.”

Craig Drummond says most of Medibank’s 3.7 million members aren’t outlandishly wealthy and have on average disposable incomes of $50,000 a year or less. Picture: Aaron Francis

He points to Medibank’s home-care program, which has grown beyond rehabilitation in the home and is saving customers an average of $1230 in out-of-pocket costs.

Mr Drummond is also enthusiastic about work carried out around payment integrity and provider contracts; that is, where customers are not required to foot the bill for hospital-acquired complications or readmissions into hospital soon after a procedure.

Medibank, he says, has worked hard on innovations that improve transparency, such as its “procedure cost estimator which is publicly available on our website, which says exactly what procedures cost (and) what you should ask your medical practitioners before you speak to them”.

“We are putting in the hands of consumers a lot more information in the next one or two years,” he says.

He also says the health insurer is looking at several acquisitions that give it new capabilities, such as enabling it to provide chemotherapy and dialysis in the home.

The company is also working hard to ensure frontline staff are engaged as part of a broader cultural change.

A board member at Geelong Football Club — which itself has gone through a sweeping period of change since the turn of the century — Mr Drummond says it’s pivotal that all “players” buy in.

Medibank has staff that have been with our company for decades “and they’ve always been very passionate about customers”, he says.

“But I think at times the perception I had is the frontline didn’t feel … as supported as they could have been by the executive and those in corporate head office.”

As for the debate about costs, Mr Drummond says much of the political noise is borne out of genuine pain in middle Australian.

He says most of Medibank’s 3.7 million members aren’t outlandishly wealthy and have on average disposable incomes of $50,000 a year or less.

Medibank staff training with Steve Moneghetti for the Medibank Melbourne Marathon Festival. Picture: Lawrence Pinder

The benefits from 25 years of sustained economic growth in Australia have not been distributed equally, he says.

“I think it does come down to the distribution of wealth,” he says.

“A lot of Australia’s growth in the past 10 years was driven by investment aimed at the export sector. So if you look at mum and dad in the Australian economy, they’ve benefited a little less.

“If you look at the way income has been distributed ... they have not necessarily benefited substantially from economic growth.”

The spiralling cost of healthcare in both the public and private systems are adding to the strain, he says.

Private health insurers have already pointed the finger at some hospitals and specialists inflating prices that are then passed on to customers.

But other factors are at play as well.

Mr Drummond points out that as the community ages — particularly with Baby Boomers hitting retirement age — more and more people are moving into the “60 plus” bracket, where the use of healthcare spikes dramatically.

“In the past 10 years, Medibank members have used hospitals per capita 27 per cent more than they did 10 years ago,” he says.

“And then you think about increases in chronic disease, mental health and rehabilitation plus the ageing demographic.”

Ultimately, Mr Drummond argues that costs will only be kept down by providers, government and insurers working together.

“Every time a private patient is treated in a private setting, it takes pressure off the public system,” he says.

“Our industry needs to come together to do more to address the issue of affordability and rising out-of-pocket costs.

“We all have a role to play — insurers, hospitals, medical practitioners and the federal and state governments — in keeping our health system a world leader.”

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