With rising healthcare costs eating away at its profitability, insurer nib wants to work with doctors to reduce unnecessary hospitalisations among its policyholders.
The insurer managed to eke out only a slight increase in its full year profit for 2013/14 after higher hospital and prosthetic costs dramatically increased the amount nib had to pay out in claims.
To improve its performance next year and beyond, nib has basically two options: find a way to rein in costs or charge customers more in the way of premiums.
And after lifting premiums by almost eight per cent at the start of 2014, cost cutting is by far the more attractive option for chief executive Mark Fitzgibbon.
“We don’t accept that we can any longer just be a passive payer of whatever claims doctors and dentists send us,” he told AAP on Monday.
“Increasingly, if we are going to keep private health insurance affordable we are going to need to be more assertive and disciplined in ensuring that the claims we pay do represent good value for our policyholders.”
Mr Fitzgibbon said there were up to 800,000 unnecessary hospitalisations in Australia every year, and NIB wanted to work with local GP’s to bring that number down.
He said the insurer wanted to provide more support to GPs to enable them to treat patients, including the chronically ill and elderly, in the community rather than in hospital.
“We know from the data that if you live in north-west metropolitan Melbourne, you’re chance of having a knee replacement are about 140 in 100,000. In country South Australia that figure is 340,” he said.
“Now what the hell? Why do we have such massive variations…It’s not to do with demand and need, it’s to do with how many doctors there are and their economic incentives.”
The insurer lifted its full year operating profit 4.3 per cent to $72.3 million after the increase in claims offset a near 16 per cent increase in revenue from premiums to $1.5 billion.
It is targeting an operating profit of between $75 and $82 million for 2014/15.
Along with the increase in hospital costs, the claims figure was inflated by an own goal by nib in the form of its “overly generous” Top Extras 85 policy, which lost the insurer $9 million.
The policy, which paid out 85 per cent of the cost of so-called “extras” like dental work or glasses has since been ditched.
“It was a big loss maker so we’ve taken corrective action, we’ve stopped selling the product,” Mr Fitzgibbon said.
Shares in nib shares closed steady at $3.30.
HIGHER CLAIMS DRAG ON NIB PROFIT
* Net profit of $69.9m, up 4pct from $67.15m in 2012/13
* Premium revenue of $1.53b, up 15pct from $1.32b
* Final fully-franked dividend of 5.75 cents, plus a special dividend of nine cents per share
AAP ews/bt