ISEC Healthcare: Clinics' profit guarantee clause does not affect doctors' professional judgement

THE profit guarantee clause in ISEC Healthcare's acquisition of four JL Medical clinics does not affect the way their doctors practise medicine and treat patients, the company said on Friday.

ISEC's board was responding to recent questions posed by the Singapore Exchange on its 2019 results in relation to the profit guarantee, including a query on whether its acquisition of the clinics could influence, or be seen to influence, doctors' professional judgement in light of the gurarantee.

Earlier in April, ISEC reported the results of the JL Medical group of companies, which included a S$63,431 shortfall in the annual profit after tax for one clinic, JL Medical (Sembawang).

ISEC acquired the clinics - in Bukit Batok, Sembawang, Woodlands and Yew Tee - in 2016 from sellers Lee Yeng Fen, Koo Xian Yeang and Ng Chiew Fang, who provided profit guarantees for five years from 2017 to 2021.

All three sellers are doctors. Dr Lee is the wife of ISEC's executive vice-chairman Lee Hung Ming, who is also a controlling shareholder of the firm.

In its response on Friday, the Catalist-listed healthcare company said it does not have financial key performance indicators for its doctors.

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"There is no inducement or pressure to interfere with the doctors' management of patients," it said.

Doctors have "complete independence" from management and controlling shareholders within the JLM medical group of companies on decisions around patient care and the handling and management of patients.

ISEC said its management had always emphasised to doctors that patients' interests should take priority, and clinical judgement and treatment should "never be clouded by any financial or monetary considerations".

It also clarified that the resident doctor of the JLM group of companies may not be the same as the seller-doctor.

In such cases, the profit guarantee "should not affect the professional judgement of the resident doctor", it said.

Meanwhile, sellers who were also resident doctors "are mindful to act ethically", ISEC said.

It said the three sellers each had more than 20 years of clinical experience and maintained a "very high standard of medical ethics in their practice". None had been involved in medico-legal cases, it added.

"When they entered into the sales and purchase agreement with the company, (the doctors) also reiterated to the management that patients' interests will always take precedence over any financial or monetary consideration, and that the profit guarantee was just a business transaction and it should not and will not affect the way they practise medicine and treat their patients," ISEC said.

The company added that revenue, consultation fees and margins from the sale of medications by the JLM group of companies from 2017 to 2019 had been relatively consistent.

The sellers had also made a "profit top-up" during that time, as some of the acquired clinics did not meet the profit guarantee.

"This provides some indication that our doctors and staff are not under any pressure to meet the threshold for the profit guarantee, as the 'annual profit after tax' would have been achieved had the doctors and staff been influenced by the profit guarantee," ISEC said.

"The intention of the profit guarantee contemplated under the terms of the sale and purchase agreement was to ensure that the annual profit after tax as represented by the vendors of JLM medical group of companies is a fair and feasible representation."

Should there be any material discrepancy on the actual achievement, the sellers of the JLM group of companies would make good the shortfall, it added.

Ethical guidelines for the medical profession published by the Singapore Medical Association prohibit profit guarantees involving healthcare services, as the financial imperative they impose is incompatible with the guidelines.

Doctors are to avoid situations where their professional judgement is, or is seen to be, influenced by financial considerations.

ISEC Healthcare shares were trading flat at 30.5 Singapore cents as at 9.34am on Friday after the announcement.