Southern Cross Healthcare faces cash crisis

By Deborah Hill Cone

Friday 14th December 2001

The country's biggest health insurer, Southern Cross Healthcare, yesterday admitted it is up to three months behind in paying out claims, leaving the private health industry whistling for up to $90 million.

The non-payment comes at the worst time as private hospitals and clinics, which operate on fragile margins, have to shell out staff holiday pay while cashflow dries up as few people choose to have elective surgery at Christmas.

And a resolution is not expected soon, with dominant player Southern Cross telling its members they cannot expect to get paid for at least another month.

Angry private hospitals have put their concerns to the insurer - that is if they can get through on its overloaded phone system clogged with 6000 calls per day from out-of-pocket members.

"Frankly it's just not satisfactory," Private Hospitals' Association president Andrew Blair said.

The tax-exempt friendly society insists the fact it is not paying its bills has nothing to do with its financial position.

It argues it has simply got behind as a result of installing a new computer system.

Southern Cross managing director Roger Bowie said it was an operational "glitch" with implementing the new computer system and most claims were being paid out in four to six weeks.

"Unfortunately it compounds because the longer it takes the more people call," Mr Bowie said.

But the cash-strapped private health industry is not satisfied with the answer, questioning why Southern Cross did not put measures in place to make sure the migration did not cause major disruption.

Doctors also question Southern Cross' financial position - for three years in a row the insurer has paid out more in claims than it collected in premiums.

It relies on the income it receives from a conservatively invested $220 million in reserves to make up the balance, but with the downturn in investment returns that level may not be sustained.

And Southern Cross is cagey about where the estimated $40 million to buy competitor Aetna came from - it refused to answer members' questions on the deal at its annual meeting, saying it was sub judice as the acquisition is being challenged by the Commerce Commission in court.

It is the former Aetna computer system which is being introduced at Southern Cross and has caused the claim delays.

Within the last year Southern Cross also closed two of its own hospitals, in Napier and Wanganui, which it said were non-viable and also sold off part of an Auckland hospital to a group of specialists.

One private health player, breast surgeon John Harman of the St Mark's Breast Centre, said in one case he rang an elderly cancer patient to ask why she had not returned for a follow-up appointment - she said she felt embarrassed to do so when she had not paid her earlier bill because Southern Cross had not yet reimbursed her.

"That makes me crazy," Dr Harman said.

He questioned whether Southern Cross was using the non-payment to encourage doctors to sign up to its affiliated provider programme - which he would not do.

"I want patients to come to me for my reputation, not because I'm cheaper," Dr Harman, who was named an Ernst & Young entrepreneur of the year in 1999, said.

Southern Cross chief operations officer George Jepson said the company was apologising to members and working incredibly hard to fix the computer problem - but it took time because often claims were complex and had to be checked before they were paid out.

When the system was up and running properly the paying out of claims would be much faster, particularly in primary care, with electronic claiming, Mr Jepson said.

He could not put a figure on the amount which was outstanding in claims.

But by The National Business Review's own calculations, with $361 million being paid out in claims last year, the insurer would pay out about $90 million every three months.

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