Drawing upon a loan from the Victorian Hospitals’ Industrial Association (VHIA), a large portion of Phillips Fox’s Melbourne-based health practice last week defected to start up the new venture, Health Legal.

VHIA chief executive Alec Djoneff immediately sent an ominous warning to law firms, promising Health Legal would undercut hourly fees currently on offer by “25 to 33 per cent”.

“Co-location with VHIA will generate efficiencies and savings, which are also reflected in the fee structure of Health Legal,” he added. “In short, VHIA members and Health Legal clients will measurably benefit from this initiative now and into the future.”

Leading the charge from Phillips Fox is former head partner of the group, Natalie Franks, now principal of Health Legal and 50 per cent shareholder in the firm. She is joined by senior consultant Suzie Linden, solicitors Simon Cooke and David Ruschena, and support staff Monique Ralston and Ann Doyle.

Speaking to Lawyers Weekly shortly before ceasing duties with her former employer, Franks said early signs showed that Victorian hospitals and community care facilities would transfer their work to Health Legal en masse because of the savings on offer.

Agreeing that the new operator heralded a “major shake up” of health orientated legal services, Franks revealed that many of VHIA’s members had already confirmed their intentions to make the switch.

“We see this initiative as a service to the sector, which is under huge financial pressure,” she said. “Health Legal does not have the profit guidelines and overheads of large national law firms and therefore will be able to pass on the savings to clients.”

Asked why she opted to leave Phillips Fox, Franks said the sector had indicated it would not be able to support private practice fees in the long term.

“The trend for large firms is that charge out rates are on the increase. The health sector is saying it can’t afford it,” said Franks, who pointed to a greater propensity amongst hospitals of late to hire lawyers in-house as evidence of imminent rationalisation.

As Victorian law prohibits legally aligned multi-disciplinary practices (MDPs) being established, Health Legal will technically be run independently from VHIA.

The body has, however, granted the firm a “substantial” loan — the exact amount of which Franks declined to reveal — to assist with implementation. But Franks was confident the firm would be self-sufficient in the “short to medium term” because of enormous interest generated thus far.

“A loan has been set up and there is a commercial arrangement in place for Health Legal to offer VHIA members a discount on legal services,” she added. “But it’s an arm’s length arrangement. This is a serious, fully fledged law firm.”

A six-person board has also been formed to oversee operations. Sitting with Franks on the panel are five senior VHIA officials, including Djoneff.

“Needless to say, VHIA encourages all members and clients to utilise the services of Health Legal as it is, in effect, owned by the membership through VHIA,” he said.

Although operations only commenced last week, plans to create a closely aligned legal services provider in Victoria’s health sector have been in existence for the past 18 months.

Franks said she was approached by VHIA in August on an individual basis, but only asked the team if they wanted to join her after finalising her decision to leave.

According to Franks, Phillips Fox maintained the largest health group in Melbourne and the “lion’s share” of industry work.