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Medibank struggles to make a buck out of Defence deal

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Medibank Private has barely turned a profit out of its controversial $1.3 billion contract to provide health services for Australian Defence Force personnel.

As preparations advance for the sale of the Government-owner insurer, it has been revealed that the fund’s Complementary Services arm (which includes the former Medibank Health Solutions) suffered a $3.6 million loss in the first year of the Defence Force contract, and a bare $1.6 million profit the following year.

The lacklustre result has been detailed in the Medibank Private Share Offer prospectus sent out to potential investors last week, ahead of the company’s planned float.

So far, it is a meagre return for a contract that Medibank boasted “leveraged its core capabilities”.

In fulfilling the terms of the ADF Health Services contract, Medibank said it managed and coordinated more than 1100 on-base health workers (a task subcontracted to Aspen Medical  Services), as well as a network of 4300 specialists, 254 hospitals and more than 8300 allied health practitioners to serve 60,000 permanent and 20,000 reservist uniformed personnel.

The contract has been dogged by controversy. Many specialists who had provided long-standing care to Defence Force personnel refused to agree to service provision requirements set in place by Medibank, and late last year there were widespread complaints of late payment for services provided.

In its prospectus, Medibank admitted it incurred more than $13 million in management expenses to implement the contract, but claimed a major improvement last financial year with a $5.2 million turnaround in financial performance to deliver the $1.6 million profit.

Time is running thin for the insurer to realise a significant profit out of the four-year contract, which expires in October 2016, unless the Commonwealth invokes a clause allowing for up to two one-year extensions of the deal.

Adrian Rollins