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Foundation rebuilds

ALTHOUGH not quite a clean bill of health, Foundation Healthcare’s February results are showing significant signs of recovery.

In February the healthcare group achieved a positive cash flow from its core operations for the first time since July 2001, when it began making monthly reports to the market. The group is still facing some serious challenges in relation to its purchasing arrangements for the medical centres and the contract arrangements for the general practitioners, however.

Euroz Securities industrial research analyst Steve Suleski said the group had basically undertaken a process of reducing costs and getting the company back on track.

“In the past six months there’s been evidence of debt reduction and they have sold some pathology businesses and some surplus property,” he said.

In the six-month period from December 31, Foundation Healthcare claims to have reduced its net bank debt from $75 million to $38 million.

And market analysts suggest Foundation will continue to work to reduce debt through the further sale of assets.

“The second aspect is profitability, and Foundation has streamlined the operation and acted to improve profits,” Mr Suleski said.

“From now on it will get on with the job, which is consolidating the general practice market and getting efficiencies in place.”

Despite the positive results, analysts suggest Foundation Healthcare has quite some distance to cover.

“Foundation need to get back to where they were. This has demonstrated that its fixed the majority of the problems but it still needs to demonstrate it can make money and efficiency gains out of GPs,” Mr Suleski said.

There are still some serious concerns regarding how doctors are contracted to the healthcare centres.

Foundation claims the restructuring process has delivered an annualised cost reduction of more than $12 million and that the management expense ratio has been reduced from 21 per cent to 11 per cent.

Market players Mayne and Primary both follow a more vertically integrated model, where revenue is earned at each stage of a patient’s treatment.

“Primary’s model is a bit more vertically integrated. They do their own pathology, radiology and earn revenue through the whole process,” Mr Suleski said.

Foundation Healthcare managing director Ralph Shreeve was unavailable for comment.

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