Trifecta of changes lead to Medibank CEO Craig Drummond’s departure

In the lead up to Craig Drummond’s 60th birthday at the weekend he was having a “long hard think” about life.

Medibank CEO Craig Drummond will step down from the top role next year. Picture: John Feder

Three things triggered Craig Drummond’s retirement from Medibank after helming the health insurer for the past five years — and they all happened within months.

The first was the birth of his first grandchild late last year, then came his ascendancy to president of AFL club Geelong in December, before celebrating his 60th birthday at the weekend.

As a bonus, Medibank has returned to growth, signing on 49,000 new policyholders in the half year to December 31.

“I am 60. I’ve got five years down, and I must admit at 60, I thought long and hard,” Mr Drummond told The Australian.

“First of all I had my first grandchild, and with the business in pretty good shape and good internal succession it’s a good time for me not to outstay my welcome

“I’ve got other things that I ­really want to get onto and the [Geelong] Cats are one of those.”

Mr Drummond will step down on June 30 and seal off an illustrious resume, including the local boss of Goldman Sachs and Bank of America Merrill Lynch, as well as chief financial officer of NAB.

Mr Drummond was even touted as one of the favourites to replace former NAB chief executive Andrew Thorburn in 2019, before he ruled himself out and opting to stay the course at Medibank.

And his stable leadership has steered Australia’s biggest health insurer to record its first six-monthly policyholder growth since 2013.

On Wednesday, Medibank announced its net profit in the six months to December 31 surged 27.3 per cent to $223.4m. Revenue was steady, firming 0.5 per cent to $3.44bn.

The results came as Medibank signed up 49,000 new policyholders during the period, including 17,600 to the Medibank brand, bucking the trend of people — particularly the young and healthy — withdrawing from health insurance in recent years.

Mr Drummond said the company had “seen a real shift in Australians prioritising their health and wellbeing given COVID and heightened pressure on the public system. This has resulted in the private health insurance proposition becoming more compelling for many Australians, including those who were previously uninsured.”

But Mr Drummond said that, although the private health sector had proved resilient during the pandemic (which led to elective surgery delays and Medibank setting aside $310m to fund the backlog, in line with Australian Prudential Regulatory Authority guidelines), he said it was too early to say that the number of people withdrawing from private health insurance had hit its nadir.

“With Medibank returning to growth, we are going to be bolder with our growth ambitions, with a new policyholder growth target in excess of 3 per cent during FY21,” Mr Drummond said

Benefits paid fell $24.1m, or 0.8 per cent, to $2.82bn. Mr Drummond said this reflected a 1.8 per cent decrease in gross claims expense, which included a $99m COVID-related reduction in claims and risk equalisation payable for the period.

He said the company’s short hospital stay model, which it introduced last year in an effort to reduce out-of-pocket costs, was “gaining traction, with our no gap joint replacement pilot expanding to six regions”.

In August, Medibank made its first foray into hospital ownership, securing a 49 per cent stake in East Sydney Private Hospital in Woolloomooloo — which was established in 2014 and specialises in orthopaedic surgery — in an $8.8m deal.

The insurer said the model was doctor-led and focused on shortening the hospital stays for patients, allowing them to recuperate in their own home, where they would receive follow-up care from a multidisciplinary team, including nurses and allied health professionals such as physiotherapists.

Mr Drummond said Medibank was keen on striking more deals like the East Sydney investment, but stressed that “whatever we do will be led and driven by doctors”.

Medibank’s move into hospital ownership attracted criticism that Australian health insurers were moving to adopt US-style managed care, where health insurers have a great say in where their policyholders are treated and the care they receive.

“Doctors will have majority ownership in whatever we do moving forward because we are very clear that docs will need to continue to have clinical autonomy and continue to manage those facilities — that’s a really important issue for us,” Mr Drummond said.

“We are being approached by doctor-led groups who facilitate some of these new approaches, so you would expect us to do a few more partnerships with doc.

“But you could also expect us to announce some partnerships that may not involve equity with other more traditional hospital owners.”

Medibank shares fell 3.1 per cent to $2.80 on Wednesday, compared with a 1 per cent drop across the broader sharemarket.

Citi analysts Nigel Pittaway and Virad Mathur described Medibank’s results as a “solid beat” and “should be positive for the stock price, although news of the CEO departure in June may offset this to an extent”.

Goldman Sachs analysts Ashley Dalziell and Gerardo Covarrubias also said the result was solid, but agreed that Mr Drummond’s departure could limit share price gains.

“Collectively, we think the result is solid, with improved revenue trends the key highlight, plus less reliance on COVID benefits than was seen in NIB earlier in the week and generally a more conservative approach to deferrals,” they said.

“The retirement of CEO Craig Drummond … is, however, a surprise, and may limit share price reaction to improving business trends.”

Medibank will pay a dividend of 5.8c a share, fully franked, on March 25.