This is the second in an RNZ series about the growing pressures, profits and waiting lists in the fraught field of radiology, and the jammed bottleneck that most patients must pass through.
Colin Hutchison used to work in public hospitals. Now he is opening private hospitals - one already open, one to go. Both will have full radiology suites - Dr Hutchison read the signs.
Where patients at public hospitals see long queues, a new breed of healthcare investors with deep pockets see an opportunity. Photo: 123RF
"The number of scans and the dependency of healthcare on scanning has exploded," he said.
"As a consequence, we see within New Zealand a lot of the radiology companies expanding, investing millions of dollars into communities every time they put a new CT scan or MRI scanner in."
He must be across the prospects for patient demand in the role he took on two years ago - fresh from a top job at Hawke's Bay public hospital - raising money for, and now managing the private Kaweka Hospital in Hastings.
The second private hospital he is setting up is in Palmerston North.
"This is going to continue for another 10 to 15 years," Dr Hutchison said.
Unprecedented investment in private radiology
Rapid, dramatic developments in radiology in recent months shed light on why healthcare investors are so bullish - though what the changes mean for getting a vital MRI, CT, ultrasound or PET-CT that can detect early signs of cancer, heart disease and brain disorders, is less clear.
Where patients at public hospitals see long queues and growing waiting lists for scans, a new breed of healthcare investors with deep pockets see an opportunity.
Terry McLaughlin heads the largest new group that combines Pacific, Auckland and Bay Radiology, brought together by listed company Infratil which used to invest in airports.
"When Pacific Radiology sold, it essentially precipitated the sale of the rest of the privately owned practices in New Zealand," McLaughlin, a former assistant auditor-general in the public service, said.
"So arguably it was a set of dominoes waiting to tumble because, in Australia, this stuff's been happening for a long time - 25 years.
"So what's happened in New Zealand, it's unprecedented, I'd say."
More than a billion dollars has been poured into private radiology from local and foreign investors since the government announced the health reforms in April 2021 - and more is to come.
At McLaughlin's RHCNZ Group, $90 million has already been injected and more scanning for Northland, Tauranga, Otago and Southland and for iwi in Waikato has been promised. The group also planned to help HealthNZ train 15 new radiologists for the first time.
Infratil has told shareholders the prospects were solid in part because of the "capacity constraints in public hospitals".
"The government's restructuring of the health system is expected to deliver benefits across the sector," its annual report said.
In 2020 it bought the substantial Australian business Qscan with 130 radiologists.
The resulting trans-Tasman radiology business is worth more than a billion dollars and revenues hit $440m last year.
The wide range of income from insurance, patient fees, and public money through ACC and public hospital outsourcing, made New Zealand "an attractive market" compared to other countries, Infratil said.
Jostling for a slice of the pie
In a hot market, jostling among players is inevitable.
Infratil's group has joined with other established practices in a legal fight to try to stop other newer businesses from bringing in surgeons as shareholders claiming that, because they were often in charge of referring patients for scans, they could send them to the practices they co-own and clip the ticket.
One of those setting up the new businesses is Dr Lloyd McCann who leads Mercy Radiology in Auckland, an initiator of four new surgeon-radiologist joint ventures in the main centres.
"We need to utilise every ounce of capacity we have in New Zealand, whether that's public or private, to get New Zealanders the diagnostic care that they need," he said.
The new businesses would boost competition - Wellington loomed large on that score for McCann - and shortly would deliver a mobile scanner for the regions and a newfangled SPECT-CT that analyses body organs, he said.
Such machines cost several million each and the giant European private equity and investment firms ICG and Permira have the deep pockets to fund them.
Earlier this year they came shopping.
ICG, one of the largest private corporate debt and equity investors in the world, bought the $100m-plus Canopy Healthcare Group off the New Zealand-owned Waterman fund, as well as the doctor-owned TRG.
Permira joined in with a rumoured $150m-plus deal for Hamilton Radiology and Midland MRI through its subsidiary I-MED, Australia's largest imaging network.
I-MED earlier won public hospital work put out to tender in Southland.
Early detection reduces overall healthcare costs
The big deals have been fuelled by big demand.
Covid-19 cooled scanning volumes for a bit, but it has come back to running at seven percent growth globally, and 16 percent locally, according to ACC figures.
The market has a tailwind, investment analyst Michael Luke at Milford Asset said, adding there was an upside to more scanning, even though it was blowing budgets at ACC and public hospitals.
Early detection of diseases through diagnostic imaging reduces overall healthcare costs, Luke said.
Big businesses had scale to merge services or create new ones, he added.
New money was going into teleradiology reporting hubs, where the actual scans were done by medical imaging technicians in places like Dannevirke or Whakatāne but studied by radiologists with the right specialty in Auckland or Christchurch.
All the big players said there will be more of this.
In Hastings, local families have invested to help Dr Hutchison open Kaweka.
He said they saw it was worth the risks, even though these were exacerbated by relying, in part, on short-term contracts to handle the spillover from Hastings Hospital across the road.
This might well change to improved longer contracts and not just in radiology - the government had an appetite for partnership, Hutchison told RNZ.
"It's something that the Minister of Health has talked about a lot over the last six months is, as a country, we need to be fully utilising all the healthcare resources and facilities we have.
"A large healthcare facility staffed, it's very expensive to run. So it needs to be busy. Bringing in work across private insurance, ACC and DHB [Health NZ], the easier it is to pay all the bills.
"We are then allowing people who have got health insurance or ACC to not have to go through a public healthcare system that is overwhelmed."
There was no sense of "profiteering" - they not only could deliver the care but do it for less than the public system, Hutchison said.
That claim is hard to test as there is a dearth of hard data on what the various scans each cost a public hospital. We will explore this later in the series.
'Synergy' between public and private sector
McLaughlin, like Hutchison, maintained there was value-for-money for each patient the privateers took out of the public queue.
He said the wait times have dropped.
Pacific Radiology dominates the country south of Auckland and does a lot of what it calls "low-margin" public work such as breast screening.
It was previously owned by radiologists; about 90 still own shares, and they were paid handsomely to cede control to Infratil in a deal worth about $350m last June.
Thirty more doctors have since joined as new shareholders, providing further capital, McLaughlin said.
"There just needs to be a maturing of the perceptions and relationship between public and private," he said, working together to solve bigger problems.
Dr Gabe Lau is a Pacific radiologist-shareholder who, until recently, worked at Dunedin Hospital.
Pacific often took routine scanning cases, such as pregnancy ultrasounds, from the hospital when emergency scans threw its public schedules into disarray, he said.
"So there's a synergy there. That's been there for a while now."
When they set up the capacity to report on scans for Balclutha Hospital, they did it much faster than Dunedin Public Hospital could and Balclutha expressed how they appreciated that, Lau said.
Now that Infratil was in control "it hasn't changed how we work".
'Profit over patient care'
The corporatisaton of radiology is not without its detractors.
A 2009 journal article about Australia's experience of corporates buying up radiologist-owned practices was titled: 'Bad Money Drives Out Good: Forebodings of a Corporatised American Radiology.'
A 2020 survey found 70 percent of 600 or so junior radiologists across the Tasman feared they might earn less and get less leadership and reported a lack of transparency.
They also "fear profit may be prioritised over patient care".
A similar-sized study in the US returned similar results. In the US, corporatisation has gathered pace - in 2015, 30 investors made almost 40 deals.
Pool of staff stretched across New Zealand
The scale and nature of the investment in this country varies, but the cheerleading messages around it sound similar: "Wellington radiology superstars," is how a new practice, Affinity, introduces itself on its website.
Several orthopaedic surgeons have shareholdings, putting Affinity very much offside with established players like Pacific and Ascot Radiology.
It, like the others intent on expansion, is recruiting out of the small, overstretched pool of fewer than 500 radiologists across the country, as well as tapping the recently loosened-up migrant market.
Affinity has a line that runs: "We would love to hear from passionate and empathetic MITs, radiologists, sonographers, administration and reception staff."
Lloyd McCann's alumni profile at Auckland University describes him as advocating for healthcare equity and that "he now has his eye on fixing our health system".
Speaking on behalf of Affinity shareholders, he told RNZ they expected the competition they brought to lower scanning charges for ACC and the public.
And they expected to get the specialists they needed, even when public hospital imaging departments were down 33 percent on staff on average, according to the Association of Salaried Medical Specialists.
Affinity had six radiologists good to go in Wellington, and others at the two Auckland and Christchurch start-ups, McCann told RNZ.
He said Affinity encouraged joint appointments across public and private so their people could work in both, simultaneously boosting flexibility for the doctors and the public good.
Global shortages of radiologists notwithstanding, he was upbeat about hiring as were other companies RNZ spoke to.
Mercy already used a robot that processed more than 1100 bookings a month, and many practices routinely used artificial intelligence to help radiologists interpret scans.
Dr Hutchison in Hastings does not have to deal with the hiring problem directly.
That will fall to Canopy when it comes in next year; it did not respond to RNZ's request for input.
But Dr Hutchison understood hiring will be a barrier that money alone won't fix.
Hiring will be a barrier that money alone won't fix, one doctor in the field says. Photo: 123RF
He maintained, however, that if you had more facilities, it would be easier to attract specialists into regional New Zealand.
He was putting in tenders for public hospital outsourcing work. The "stressful part" of not knowing who would pay the bills had receded a bit, as Kaweka's partnership with Te Whatu Ora Health NZ, Southern Cross and ACC had developed.
He has to make it work, in this new healthcare landscape, for his investors.
"Hawke's Bay families have put their money where their mouth is because they want to see more facilities in the region."
