Our largest pathology provider is quietly marching towards control of the desktop and the data of general practice. Why?
In case you didn’t know, Sonic Healthcare acquired a 51% shareholding in the GP and practice management software company Cubiko just over a year ago.
We didn’t know, but apparently not many other people did either.
Cubiko software sits over a core practice management system (PMS), extracts the data, and feeds it back to doctors and/or practice owners and managers as reports and insights into how to run things better. Via Best Practice, MedicalDirector and ZedMed it has access to a lot of GPs and GP owners across the country – maybe greater than 90% coverage of all GP transactions via their PMS.
No one seems to have picked up on the deal until the RACGP practice owners and managers conference a few weeks ago, where, having learned for the first time of the transaction, the Australian GP Alliance sent a letter of concern to all its members (you can read the full letter here).
AGPA’s key concern was GP data and who controls it.
“AGPA is concerned that as far as we can determine practices generally were given no notice of the takeover or given any guarantees about data security or advised of any measures to ensure that practices’ data cannot and will not be accessed by Sonic Healthcare or given to Sonic Healthcare by Cubiko,” the letter read.
The letter may have some good points, at least in terms of Cubiko giving its practices’ notice of the transaction.
Although today you can clearly read on Cubiko’s website that Sonic is a shareholder – it’s in the About Us section right down at the bottom – there does not appear to have been any formal notice to any of the company’s client practices about the change of control. Notably there is no indication on the site that Sonic is now the effective owner of the business.
There’s quite a bit of difference between a shareholder being just a shareholder and one owning 51% of a business, because at 51% you effectively control that business.
If you go searching on ASIC to understand what happened, it’s a deep and twisting rabbithole which we haven’t got to the bottom of yet.
You can’t actually see that Sonic is an owner on the share register of either Cubiko or Cubiko Holdings (extract HERE for Cubiko Holdings if you are interested in who is on the share register), and when you start looking at the major shareholders to try and find Sonic somewhere, it’s very hard to see where.
We are up to 10 documents and we can’t find it yet, which at first made us think the transaction never actually happened.
We still can’t establish via ASIC if Sonic does own 51% of Cubiko but we called Cubiko and they confirmed it for us.
Why does Sonic, a global $12.5 billion healthcare group want to own a relatively small data extraction and analysis company, primarily in the GP space in Australia?
Sonic makes most of its money from pathology and imaging. It owns the biggest GP corporate in IPN and that business informally channels (refers) its patients to Sonic labs.
But informal channelling of upstream business doesn’t stop simply at Sonic getting its own groups to refer upstream.
The second biggest income earner for a very large proportion of mid to large GP practices is rent from co-located pathology labs. If you are a patient, you aren’t going to walk out and go a few blocks to get your path test done when you can get it done on the way out.
Pathology rents are controversial. Under the Health Insurance Regulations 1975, it is illegal for pathology providers to pay a rent that is more than 20% above market value. But what is market value when every one of the three major pathology labs all want in with a view to hard-wired business from downstream GPs?
The government recently won a case against Healius in the Federal Court which established that Healius was paying way over the odds in rent, ostensibly to secure upstream business. So the government is putting some pressure on this channel already.
But perhaps the biggest issue facing big pathology companies like Sonic is a determination from the federal government to make the system of choosing a provider and determining whether a test is necessary significantly more efficient by radically improving our digital infrastructure.
A key policy paper released earlier this year by the Department of Health and Aged Care outlining a plan to get up a much better e-requesting environment for patients, doctors and pathology had this to say about how efficient things were and how much more efficient they wanted the system to be:
“Studies from the UK’s NHS indicate that up to a quarter of all pathology requests may be duplicates or unnecessary. eRequesting has the potential to dramatically reduce over-requesting and improve the selection of appropriate services. This will drive down MBS spend, reduce consumer burden and free up time for clinicians.”
The efficiency gain the government is looking for is 10-15%, which for some of the big pathology groups is more than their current profit.
The plan is to take back a lot of control of the specifying process by implementing seamless digital technology that can share data much better between doctors, pathology providers and their patients.
The pathology companies are well and truly in the crosshairs here.
They are desperately looking for ways to retain some control on their historical vice-like grip on referrals and channelling from GPs downstream.
In this increasingly difficult environment pathology companies are looking for a new edge over their competitors.
To wit, if things are rapidly going digital, would owning and controlling the largest patient management system for GPs and the largest data aggregator in the country give a pathology company some leverage in this rapidly changing playing field?
We asked Sonic why they want to own Cubiko and if they wanted to fully own Best Practice but they did not get back to us.
Since April 2023, when Sonic gained a controlling shareholder in Cubiko, the CFO of Sonic Healthcare, Christopher Wilks, sits on the board of the company. Wilks is also one of only two directors of Best Practice.
Sonic now owns 49% of Best Practice, the market dominant GP patient management system, which is understood to have a market share of 65% of all GP practices and 70% of all GPs.
If you put Cubiko and Best Practice together, and you could access the data and transactions inside, you would have the best view of what is going on in GP practices of anyone in the country. Better than the government does because you’d be seeing patterns and data on how GPs behave way beyond what the government can see through Medicare billing.
And if this view of data and behaviour didn’t somehow give you some clever new ideas on how to channel GP referrals to your profit-making engine of pathology and imaging a lot better over time, then conceivably, if you owned most of the patient management system landscape, you might just be able to directly do some channelling within the software itself.
Best Practice has steadfastly maintained over the years that its software is not configured in any way to channel somehow to any particular pathology group, and if you run the software it very much seems like that is the case.
But what could happen if Sonic had a controlling share of Best Practice like it does now have of Cubiko?
History is littered with major examples of big software platforms getting to such a strong position of control of market distribution (remember Best Practice has about 70% of market share) that they start acting badly in terms of channelling access of their clients to their own products.
Every major global software platform has gotten into trouble for it – Amazon, Microsoft, Apple, Meta, to name a few. In the late 1990s the US government had to take Microsoft to court and split it up because it was behaving so badly in how it channelled its other products and restricted new market offerings through its Windows and Office dominance.
It’s no secret that Sonic would love a controlling shareholding of Best Practice. Who wouldn’t? It’s a market leader, it’s got a pretty good reputation as a brand and it would give anyone who was after it significant leverage in a market – general practice – as the key transactional and data centre for the future reform of our healthcare system.
But getting a controlling shareholding of Best Practice was always going to be a long game for Sonic while Dr Frank Pyefinch and Lorraine Pyefinch control it, which they currently do by 2%.
Interestingly, if you look at the shareholding of Best Practice, Sonic owns 49% and Lorraine Pyefinch owns the rest – no Frank Pyefinch?
Dr Pyefinch started MedicalDirector as our first major computer-based patient management offering, built it, sold it, got upset with who had bought it (Health Communications Network who then sold it to Primary Care) and left, after which he started Best Practice. So in a way, Frank has a part in 90% of our current GP PMS market.
At one point in MedicalDirector’s life during the early 2000s it controlled about 95% of the computer desktops of GPs. MIMs once had a product which folded and was picked up by MedicalDirector which gave them that share.
But Best Practice and others have eaten away that share to the point where Best Practice is now the dominant market player. Best Practice and MedicalDirector (Telstra Health) together make up about 90% of the GP desktop market.
You get a very strong sense that Dr Pyefinch cares a lot more about GPs than he does about money and the big corporate world. You’d love to be a fly on the wall of any meetings between Sonic and the Pyefinches.
After his experience selling MedicalDirector to HCN, and a later experience with a very big corporate who will remain unnamed making a big dollar play a few years back for Best Practice, Frank became particularly cynical.
The offer apparently was mind-bogglingly high (MedicalDirector sold to Telstra Health for $340 million when it had a share at the time equivalent to Best Practice), but Frank thought that the group making the offer would clearly wreck the product and that wouldn’t be good for GPs.
Dr and Mrs Pyfinch likely will only sell when they are sure that the controlling owner won’t wreck the company and adversely impact their long-term clients, GPs.
Whether Sonic can do that is a pretty interesting question.
The Pyefinches recently stepped back from their direct management roles appointing a long-term manager from within the group, Craig Hodges, as the new CEO.
But it’s the Pyefinchrs who will call the shots on whether Sonic gets to control it or not.
For now, Sonic doesn’t control it.
Sonic controlling Best Practice is not without precedent of course. Once, when MedicalDirector had the leading market share, Primary Healthcare, which had a very big stake in pathology and a major GP corporate (much like Sonic does today), owned it.
If Sonic does ever control both Best Practice and Cubiko, you’d have to think that this could be a big headache for a government that is desperately trying to open up information-sharing within the system via digital transformation of the sector, and especially make GP information much more shareable in real time with other providers and their patients.
If Sonic gets there it would own GP transactions and data going forward.
Would the government allow that to happen? It’s feasible they can’t stop it.
When contacted for comment on the 51% transaction Cubiko were their amiable, charming and positive selves.
A spokeperson said that if you read both the privacy policy and their data governance framework, both on their website, it’s very clearly stated that the data of customers can’t be accessed by anyone but the practices and only for the purposes of the practices using it to improve the productivity and management of their practices.
The spokesperson we talked to said that Sonic does not and will never have access to the data to use for any other purpose.
Here is Cubiko’s statement in full on the matter:
“The last five years have been an exciting time for Cubiko, we have grown to support more than 2000 practices across Australia. As part of our growth and evolution, Sonic Healthcare joined the share register, as an over 50% shareholder. Sonic is completely hands off on the day-to-day running of the business.
“Since our establishment, Cubiko has had, and will continue to have, robust legal frameworks and policies in place to protect customer data.
“The change in the shareholder register does not affect our Privacy Policy, Terms and Conditions and Data Governance Framework – which means Sonic Healthcare, or any other entity, does not have access to any customer data held by Cubiko. You can read more on data privacy on our website here.
“Our Terms and Conditions form the foundation of our partnerships with our customers. It is explicit each customer has ownership and control of their data. Data uploaded to Cubiko remains under the control of the providing practice, and its use is strictly limited to being an input into the analysis services we supply back to you.
“Cubiko does not share customer data with any other entities. A practice’s data remains their own property and private”.
A possible problem with this statement is that Cubiko can clearly access all this data and does from time to time, as we’ve seen from their recent Touchstone Report, which drew data from practices across the board.
If Cubiko can access it for research purposes, why can’t its ultimate owner Sonic?
Feels a little like the TikTok situation. Yes, we have the data but our ultimate owners can never have it, don’t worry. Or at least that’s our promise.
Like Best Practice, Cubiko is a company established and run with good intent to serve the GP market. It’s founder, Chris Smeed, was a practice manager for years, and similar to Dr Pyefinch, he thought things could be improved significantly for practices with technology so he built software to do that.
Smeed has stuck with that intent through the years of Cubiko’s development, albeit there has been the odd hiccup recently with things like payroll tax, which disturbs the idea that a practice can do any centralised management of its doctors using data from across the practice in what is effectively a business management system. I’m told if you get your service contracts right, this sort of thing can still happen and be within payroll tax laws.
That Cubiko retains 49% is a good indication that Cubiko’s remaining shareholders and staff feel they have a lot more value to create for GPs (and probably for themselves if any are shareholders) going forward.
But at the end of the day, control is control.
A few years back there were egregious breaches by one of the software data extractors working for PHNs which took every bit of data out of unsuspecting GP practices patient management systems under the guise of taking just a few fields in order for a practice to qualify for PIP QI payments.
Cubiko, or Sonic for that matter, would never be so stupid as to do something like that. But the incident has freaked out a lot of GP leaders.
Unless there is a very specific clause in the document where Sonic bought its 51% saying that they can’t change the current policy ever on looking at and somehow using the data, then government and the GP community can rightly remain just a little paranoid about Sonic’s ultimate intentions here.