Honeysuckle Health signs first hospital deal that rewards doctors if a surgery patient feels better

Healthscope has become the first Australian hospital group to sign a deal with Honeysuckle Health, a joint venture between NIB and US health giant Cigna.

Honeysuckle Health has signed a deal with Healthscope, which operates 39 hospitals, including Northern Beaches Hospital in Frenchs Forest.

Honeysuckle Health – a joint venture between NIB and US health giant Cigna – has signed its first agreement with an Australian hospital group that provides an incentive to doctors to deliver better patient outcomes.

Current funding models between hospitals and health insurers are volume based, meaning a fee is paid per surgery regardless of whether the patient feels better or worse afterwards.

Honeysuckle Health has been moving to change this model and has struck a partnership with Australia’s second biggest private hospital operator, Healthscope, after three months of negotiations.

It comes amid increasing hostilities between health funds and hospital groups, such as the high-profile spats between Bupa and Ramsay, and Healthscope and HCF last year.

But Healthscope chief commercial officer Jenny Patton said the agreement with Honeysuckle – designed to build a buying group representing several health insurers – recognised healthcare inflation.

The Honeysuckle deal, which will last five years, has simplified previous funding contracts via several measures, including removing the number of audits a health fund can perform on Healthscope’s 39 hospitals.

“In reaching this agreement, we have appreciated Honeysuckle’s understanding of the cost pressures facing private hospitals, including rising interest rates, food, energy and power charges, and a nursing workforce shortage,” Ms Patton said.

“I’m delighted that we have also been able to agree to simpler and more flexible funding terms that removes administrative and compliance burden from hospitals.

“Through this long-term partnership we have created a care model that will foster innovation, best possible patient care and deliver fair funding.”

Honeysuckle Health is named after the urban redevelopment in Newcastle where NIB’s head office is located.

Crucially for Honeysuckle it has gained a key ally in Healthscope, which Canadian investment manager Brookfield acquired for $4.4bn in 2019.

“As part of the partnership, Healthscope has committed to supporting the expansion of the

Honeysuckle Buying Group, and will allow all new insurer participants immediate access to the benefits embedded in the new agreement,” Ms Patton said.

The Australian Competition and Consumer Commission approved the buying group led by Honeysuckle – which already includes NIB and QBE – last September subject to several conditions.

These conditions include banning Medibank, Australia’s biggest health insurer, Bupa, HCF and Perth-headquartered HBF from joining the group and halving the authorisation period from 10 to five years.

ACCC commissioner Stephen Ridgeway said he was satisfied that the buying group would not slide Australia into US-style managed care – a system in which health insurers have a greater say over the care of a patient, including dictating which doctor and hospital treats them.

But healthcare providers have expressed concern that the buying group’s model of incentivising outcomes will lead to doctors prioritising less complex conditions over more difficult procedures.

Honeysuckle Health chief executive Rhod McKensey.

Honeysuckle chief executive Rhod McKensey is well aware of such criticism and said it needed to “move slowly and carefully” to ensure the end result was not a more “unfair system”.

“The traditional kind of adversarial relationships between payers and providers, there’s been the slow movement to value-based healthcare as being the first step is to put in penalties for not achieving certain targets,” Mr McKensey said.

“We’ve removed all those with the Healthscope agreement.

“What we’ve agreed is, to begin with we won’t pay for providers for achieving better outcomes. We will reward providers for participating in practices that are causally related to achieving good outcomes.

“Examples of that would be the participation in the collection and consideration of patient outcome data. And then using that patient outcome data to inform their practice and understand their performance compared to their peers.

“So we at the first step will be encouraging providers to participate in doing that.”

NIB chief executive Mark Fitzgibbon has long argued that doctors and hospitals should be paid on clinical outcomes rather than purely on volume.

Similar to executive remuneration – which involves a fixed salary and variable payments based on meeting certain performance targets – Mr Fitzgibbon believes the model will help strengthen Australia’s health system by curbing unnecessary procedures and costly revision surgeries.

“Whenever you pay based upon volume – just the theory of it, and I’m not talking about Australian hospitals, Australian doctors – you’ll get more volume,” Mr Fitzgibbon said last year.

Mr McKensey said the Healthscope agreement included a “commitment to co-develop innovative funding models that address the rising cost of providing quality private healthcare and ensure ongoing access for health fund members to high quality care”.

“We have been able to collaborate with Healthscope to deliver for our insurer partners innovation opportunities and efficiencies, along with rewards and incentives for improved patient outcomes,” he said.

“Importantly, all of this has been delivered without placing additional pressure on health fund premiums, with nib members the first to benefit from this focus on value.”