The highly rated ‘not-for-profit' hospital performance and data group is essentially controlled by a publicly listed company that makes a tidy profit from the arrangement.
Just two years on from the acquisition of Potential(x) by publicly listed health data analytics group Beamtree, Health Roundtable, whose contract to Potential(x) made up the major component of the value of that sale, exists only in name and as a board.
It is also the most significant revenue and profit component of Beamtree.
Health Roundtable was started 23 years ago as a not-for-profit group that collected and analysed performance data from hospitals all over Australia and provided those hospitals with vital performance benchmarking information.
When it started it was a real company with real employees, a founder, leadership, a mission and objectives – mostly all good.
Today, the benchmarking data generated by the group, and the associated services linked to that data, that are nominally supplied by Health Roundtable, are as vital as they have ever been to Australian hospitals.
But who really calls the shots at Health Roundtable these days?
Some questions for members of the Health Roundtable today should be:
- who really sets its strategy and objectives of the group?
- Is the group actually run by a publicly listed for-profit company with big growth plans, of which Health Roundtable’s assets form a key part?
- If it is run and controlled by a for-profit company does that really matter if the services provided over the years are as good as ever, or even better?
In other words, is Health Roundtable effectively now a ghost organisation controlled in the main by publicly listed Beamtree?
Even a few years ago, when Health Roundtable had contracted Potential(x) to provide most of the operational services of the group, it had some employees including a COO and CEO and other key management personnel.
Today, Health Roundtable has no employees at all, including no key management personnel.
It resides at the exact same address as Beamtree and 100% of its employees or contractors are provided by Beamtree, including very important governance and financial roles – all the financial returns and reporting that Health Roundtable has to do to retain its status as a not-for-profit with the Australian Charities and Not for Profit Commission are prepared by employees of or contractors of Beamtree.
The only thing left of Health Roundtable is an unpaid board, many of whom also act as directors of the company.
But every person on the board has a fulltime job, usually in the sector, which was always a key part of Health Roundtable’s membership model.
It’s not that unusual that a not-for-profit has no paid employees. Up to 60% of not-for-profits are run by volunteers, but it is unusual for what is classified as a “large charity” which at more than $9 million in annual revenue, Health Roundtable is.
In 2022 Health Roundtable generated revenues of more than $9.3 million so it’s neither a small charity nor a small business.
Is it likely that the board, all of whom are unpaid, and who meet only on occasion for short periods – we don’t know how often because that isn’t a reporting requirement – is really in control of Health Roundtable anymore?
What actually constitutes “control” in this set-up is a pretty important question.
Beamtree can technically wipe their hands of this problem and say the board controls everything – that is how the paperwork is set up.
In fact there’s an admission of the whole set-up buried in the Health Roundtable website as follows:
The Health Roundtable is a virtual organisation without bricks and mortar or staff. Instead, the Board of Directors has negotiated a contract with an external management firm - Beamtree - to handle the day-to-day management and support of this collaborative program of activities. The contract is reviewed every year, and the Board has the option to change or add suppliers as the need arises.
Beamtree, in turn, supplies a network of talented people to support The Health Roundtable. Some are direct employees, while others work as independent contractors who devote a portion of their professional time to supporting our work. All are part of a dedicated team who strive to help you improve the effectiveness and efficiency of patient care.
Some of this appears to be spin, in our opinion.
Beamtree bought Potential(x) almost solely for its five-year contract with Health Roundtable to supply most of its operational needs. This year, after absorbing every Potential(x) employee into its business, Beamtree renegotiated that contract for another five years. In total, the contract is now in place until 2031.
Beamtree and Beamtree investors would understand that this contract is vital to the stability of the company’s revenues and profits.
That makes it very unlikely that what is said in the website statement quoted above is accurate – that the Health Roundtable board has the power to review and change the contract with Beamtree every year, and, if they want, change suppliers.
We don’t have access to that contract but if it was the case that the board could scrap it each year then Beamtree would be a very unstable stock, because that would mean that from year to year, eight unpaid board members would have the power to wreck the company by denying it nearly half of its revenue base and a significant amount of its profitability. Beamtree isn’t always profitable, but the contract with Health Roundtable is hugely profitable.
Beamtree’s stock price is interesting. It’s stable and growing a little but nowhere near the amount you would expect for the growth the company has actually experienced. Its price-to-earnings ratio for a company growing so well and predicting bigger future growth is well below the average for the sector.
Why?
Someone in the investor community might understand something about its contract with Health Roundtable and how pivotal it is to the company.
Without any operational executives and therefore any oversight or operational continuity within a $9.3 million organisation – which if it weren’t contracting all its business out would employ at least over 20 people – how is the “volunteer” HR board really supposed to understand everything that is going on, and set strategy, vision, objectives and so on?
There is no information available on governance of the board for important elements like the terms of board members, or how the board is run, either.
Based on the available reporting we are given no idea as to what roles any of the board members actually fill, other than the chairperson, who, presumably, chairs the board.
But to do what, exactly?
The same reporting indicates that every single operational aspect of Health Roundtable is serviced by Beamtree as a part of their “contract” with HR – that includes all the accounting and financial reporting, and preparation of reporting, as required by the ACNC.
In the annual information statement for the ACNC both the chair of the HR board, and the CEO of Beamtree provide the introductory message to the annual financial and information statement for Health Roundtable.
Such a tight relationship could be viewed as a tight partnership all the way to significant conflict if, as seems likely, Health Roundtable’s strategy is influenced significantly by Beamtree’s strategy.
Would Beamtree really buy the Health Roundtable contract for a cool $20 million if they had no intention of aligning the strategies of both groups somehow?
In both the statement from Health Roundtable and a similar one provided in the Beamtree annual report for the half year ending December 2022, it is impossible to decipher who is actually calling the shots at Health Roundtable, the two organisations are now so dependent on each other.
Health Roundtable’s statement is as follows:
The Health Roundtable Board, together with Beamtree, have also used this period to undertake significant strategic planning activities that reviewed our services through listening to our members to enable us to plan appropriate and contemporised services for the future. We heard messages about the need to improve the data submission process, provide advanced insights and analytics on our data, place-based reporting and an improved digital experience. To support improvements to current Health Roundtable services, the Board agreed an investment of $1 million into a contemporary data platform that will enable these service enhancements for Health Roundtable members. This investment will be realised over the next 12-18 months.
The board, if indeed the board wrote this, forgot to mention that in the period of this statement, they decided to extend their contract with Beamtree from ending in 2026, to ending in 2031.
That’s a pretty material event to leave out of your annual information update.
The extension is a big deal for both groups, but vastly more of a big deal for Beamtree because it’s a public company that maintains it has a service contract with Health Roundtable, not that it actually controls it, so it needs to demonstrate to investors longer-term stability for this vital contract.
The contract is worth in the vicinity of $9 million to $10 million per annum and makes up around about half of Beamtree’s entire revenue.
If you look at the costs reporting of Health Roundtable in their annual financial statement, what you see is a nominal loss of $89,000 in 2022. That means that Health Roundtable paid Beamtree about $9.5m to run its “virtual” company.
Extending the contract to 2031 would have a material impact on value and share price of Beamtree as it would provide investors with a lot of confidence of ongoing stability of revenues.
Beamtree does admit to the contract extension in its last half year annual report update, but you would, wouldn’t you, because you want your investors to know that.
Like the Health Roundtable statement, Beamtree’s statement about working with Health Roundtable doesn’t really provide much of a clue as to who is really running things, but there’s a lot of language about “shared approaches”:
The first half of FY23 saw a renewed focus on Health Roundtable’s long-term strategy and enhancing the partnership between Beamtree and Health Roundtable. Together with the Beamtree Leadership team, the Health Roundtable Board held a strategy workshop, where there was a shared approach to enhance the service offering to members plus the agreement to modernise the technology platform that delivers the data analytics offering to members.
If you run every operational aspect of a business and the board of that business – which is the only semblance of that company left – is unpaid, part-time and busy in their fulltime jobs running hospitals across Australia, what you really have is a nominal takeover of Health Roundtable by Beamtree.
All the paperwork is there for Beamtree to say this isn’t the case.
And as odd as this set-up seems – a for-profit running every aspect of a not-for-profit and taking a lot of profit out of the deal – that’s not illegal either.
After all, Beamtree still has to pay tax on profit, albeit they can invest that profit in development and not pay tax, which seems to be what they are doing at the moment.
In this instance, the HR board is still important, but more as a sounding board for strategy, customer satisfaction and retention and so forth, as the board is more or less made up of key customers. And of course, it acts as some form of governance front for the ACNC, to prove to everyone that Health Roundtable is still really a charity thing.
The governance aspect of the current set-up might be a little close to the line for the ACNC, but they’d have to be looking at it carefully. The ACNC does have a lot of governance rules to adhere to if you really want to maintain you are a charity.
But in essence, Health Roundtable is still fulfilling its promise of delivering a service that can attract charity status – helping the healthcare system (which is almost certainly does).
There might have been something legally awry in the past history of Health Roundtable when someone decided to set up a for-profit company to service the not-for-profit with the intention of making a profit. Potential(x) did this before it was bought by Beamtree.
It’s murky and in the past now. Ironically, the sale of Potential(x) to Beamtree probably put a stop to any line of inquiry from ASIC or the ACNC on the purpose of the original for-profit set-up.
That makes the acquisition of Potential(x) by Beamtree a pretty clever move on the part of Beamtree management.
Lots of not-for-profits pay for-profits for services and those profits are part of a normal and reasonable commercial deal to keep the not-for-profit going. But in the case of Health Roundtable, every dollar it generates is now passed through to a profit-making company that provides every aspect of the running of the company, other than the board.
When Beamtree bought Potential(x) two years ago, well over 90% of the revenue of Potential(x) was coming from the Health Roundtable contract and at that point Potential(x) was making about $2 million in profit annually.
From that we might deduce that Beamtree is making $2 million or more from the slightly more than $9 million in revenue that Health Roundtable makes out of its member hospitals.
If it’s legal is there really a problem here?
There are a couple of things to think about when trying to answer this question.
First, do the 177 Australian member hospitals, who pay between $20,000 to $60,000 per year for data and services to Health Roundtable, care that Beamtree is making money off them like this?
By all reports and by the fact that subscriptions seem to be growing not declining, either the hospitals don’t know or they don’t really care.
Many hospital managers you ask about Healthcare Roundtable rate the business and the service highly.
If Beamtree really controls Health Roundtable, those hospital managers are, by default, rating the service that Beamtree is providing.
It might just be a matter of transparency for the membership.
Are all the members really clear with what is going on and okay with the set-up?
Are they informed?
If Health Roundtable had never embarked on getting all its services provided by a for-profit provider technically the average price a hospital would be paying for Health Roundtable membership would reduce by about 23% or $10,000 per annum.
Has the board of Health Roundtable made it perfectly clear to its members the premium they are paying for having the whole thing run by Beamtree?
That might be the transparent thing to do, as some members might feel that the premium, which is the profit margin that Beamtree is taking, is too high.
Strictly though, members are just subscribers, so it’s not incumbent on the board to do this. It’s not like they’re shareholders, right?
If you go back to the original concept of Health Roundtable and how it was set up, it feels a lot like the hospital members were meant to be part of a co-op, or, in a manner of speaking, phantom shareholders of the venture, at least.
Members, given the right information, might even think that the board should consider building back out its own capability in order to assert more formal control from the member side (the hospitals) and reduce the relatively high margin that the contractor (Beamtree) is taking off the group.
Notwithstanding, with the board having already agreed to a contract extension to 2031, that opportunity seems to have passed for now.
That would make the question of whether mostly public money – 90% of Health Roundtable’s customers are publicly funded health institutions – should be spent this way, also moot now for a few years too.
But there is probably a far more important question in this service contract set-up between Beamtree and Health Roundtable.
If Beamtree runs every operational aspect of this group now, who ultimately decides what happens to the treasure trove of public hospital data that this group now controls?
Beamtree’s business is very focused on data and analytics and it entirely runs Health Roundtable so has full access to all its data and all the data it generates around all its hospitals from a customer behaviour perspective.
Among other things such a set-up should give Beamtree some extended sales channels and leverage for its complementary products and services.
To get a little more specific on this question, if members of Health Roundtable buy the idea that the group is, for all intents and purposes, entirely controlled by Beamtree now, are they comfortable that all this data, and lots more new and interesting data moving forward, are in the hands of and controlled by a private company?
Another question: given that most of the data is public hospital data, is the government happy that all this data is going into a black box in a private company?
Health Roundtable has very specific governance around who can access and use its data.
It is outlined in their honour code as follows:
No external distribution of data or conclusions based on Health Roundtable data is made without the unanimous consent of all contributors, unless required by law.
The data that has been built up by Health Roundtable is invaluable to hospital managers who subscribe to the service, and the health system as a whole, and it will continue to be into the future.
If Health Roundtable really has been reduced to eight part-time unpaid board members with no external oversight by anyone, including government, who will gate-keep decisions around this data in terms of it being used strictly as this “honour code” requires and for the greater public good?
Jeremy Knibbs is the publisher of Health Services Daily.