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The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.

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Introductory page
This corporate web site addresses the issues of corporate health care within a broad framework. A web page describing this broad context should be considered as an introduction to each page on the web site. If you have not yet read it then
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Content of this page
This page explores the changes to welfare funding and institutions as the welfare sector changed from a cooperative humanitarian service to a competitive corporate marketplace. It examines the impact of this change on the professions and the community oganisations that already provided services in this sector. It expresses personal opinions and a point of view.

 Australian section   

From Humanitarian Service to Corporate Profitability
The story of the corporatisation of health and aged care in Australia

  

CONTENTS


Political background

The Australian political system has swung from an extreme socialism, which sought to create a nanny state and a national health system in the 1970s, to an extreme form of pro-corporate economic rationalism since the late 1990s. Government have sought to sell off public infrastructure services to the market and have turned every sector including health and aged care into a competitive marketplace regardless of their suitability. What has happened in these sectors is part of a broad change in political and community thinking across the western world.

This move away from extreme socialism was initiated by labour in the early 1990s but it has benefited the political right which moved much further. The policies have been very successful in increasing the wealth of the nation and of citizens although this has been uneven. Wealthier citizens have been less in need of welfare and busier with the hectic pace of their own lives - so less concerned about social issues and the changes in society.

The problem for us in the provision of welfare services today, as I see it, is that the market system leads to excessive exploitation of the vulnerable. As Australian author David Malouf put it when praising entrepreneurialism "an eye for the main chance and the weakness of others". The market works when customers are knowledgeable, physically and mentally capable, and have the time to protect their interests in a "customer beware" environment. A healthy market where customers are king serves us well economically.

The truth of Malouf's statement"the weakness of others" is only too apparent. This system falls down as soon as the customers lose power, interest, knowledge, or physical and mental capacity. With increasing technology, more complex "products" and a stretched lifestyle it is likely that citizens will be less and less able to act effectively as customers. We would be wise to search for alternative patterns of meaning within which to provide those services which are ill suited to market mechanisms or become so as complexity increases.

There are already numerous examples of the exploitation of vulnerable citizens unable to exert market power because of complexity, lack of knowledge or incapacity. There have for example been extensive failures in health and aged care in the USA; in nursing home care in Australia; in the operations of Wall Street in the USA and in the behavior of financial advisers in Australia.

The 20th century has been a century of unparalleled technological advance, but cognitively marred by such strong quests for meaning systems that we have latched on to dysfunctional ideologies. These have resulted in extensive destruction and death. It is this propensity to latch on to narrow single systems of thinking and assume that they have universal applicability that I have described as "the debris of the 20th century littering the 21st". I borrowed it from someone else but it aptly describes the problems we are facing in the world today.


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Position

The argument I am making and illustrating on these web pages is not against markets but against their universal applicability. This results in socially dysfunctional behavior in a number of important sectors. Regulation is largely ineffective. Few of us want to live in a society governed by draconian laws, ongoing litigation and endless time consuming documentation and compliance processes.

Professionalism has been devalued or undermined and this is a problem in many professional activities. Professionalism loses credibility when confronted by a dominant marketplace culture. Professional sectors are consequently particularly at risk.

I am arguing that we need to turn away from societies driven by single one model fits all systems and move towards a more plural society which allows multiple domains of activity, each structured within different meaning systems, and each with its own legitimacy and interrelationships with others.

Health and aged care are two domains where the pure marketplace model is clearly inappropriate and not functional. These are good areas where we can start exploring alternatives. The pages in the early part of this section on the marketisation of the aging (wrinkle ranching) examine the way this one size fits all model has been applied across the entire range of services to the elderly regardless of its applicability or consequences.


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From the Welfare State to the Corporate State

A National Health System: Post-war socialism led to strong pressure for a nationalised health system in Australia similar to that set up in the United Kingdom. A bitter dispute between the labour Whitlam government and the medical profession in the 1970s ended in a compromise and the creation of a universal medical insurance system (Medicare) covering the direct medical expenses of all Australian citizens with some co-payments.

All citizens had the right to attend public, government run or funded hospitals without charge but they did not have choice of doctor in these hospitals. Citizens could elect to be treated in private hospitals by their chosen doctor but they or their insurance companies would pay the hospital accommodation charges.

Doctors fees:- Doctors retained the right to set their own fees above the government Medicare rate. When the government tried to contain costs by refusing to increase the Medicare payments in line with the cost of living, doctor's incomes were eroded. Doctors exerted their right to increase their charges and the patients had to pay this additional cost. This was not popular. This copayment became a bone of contention over the years and the medical profession was a frequent political target.

Medicare:- The conservative coalition parties were opposed to Medicare. When labour was defeated at the end of the 1970s they privatised Medicare and it became Medibank Private - a private insurer. When reelected at a subsequent election in the 1980s labour reestablished Medicare but Medibank Private remained.

When the coalition accepted the electorate's insistence that Medicare be supported it was reelected in 1996. While they claim to support Medicare and the public system there seems to be little enthusiasm in this.

Private Insurance:- During the 1980s the public health system was providing a good service and the more costly private health system was in decline. Insurers were not allowed to differentiate their premiums on the basis of age or infirmity. As a consequence the young and healthy balked at the costs of insurance and elected to pay out of pocket when they elected to have private hospital care. As a consequence the insurers were left with the older, sicker and more expensive sector of the population and this caused premiums to go up. Many more turned to the public hospital system and the numbers who were insured dropped to unsustainable levels.

The coalition parties had promised to reverse the rapidly falling number of insured citizens and save the private system when elected. Their initial attempts were not successful but in 1998 they increased the premiums for citizens who delayed insuring until they were older. They also supported those who took out private insurance with large tax payer funded subsidies. There was a rapid reversal in the numbers of insured citizens and as a consequence the fortunes of the for profit health care companies.

Privatising public health services:- In 1996 the new coalition government set out to restructure all welfare services as market places driven by competition. In spite of many promises governments have under-funded the public health system, driving citizens away from it. They have used the money to heavily subsidised the private health system, which until 2000 was rapidly losing popularity and numbers. A number of analysis suggest that this change was ideologically driven and a more expensive way of providing care.

During the 1990s conservative state and federal coalition governments strongly supported the outsourcing of the public hospital system to market listed corporations.

In the private sector the move from not for profit private medical services to corporate run services has been encouraged and supported. The privatisation of public hospitals was not successful and has been abandoned. While a majority of private hospitals are still operated by not for profit organisations, market focussed company's dominate and drive policies

Privatising other sectors:- Under federal and state governments committed to economic rationalism every sector of the health and welfare systems has been progressively corporatised and listed usually on the share market. Government also attempted to introduce managed care, a system which has caused major problems in the USA. The government is threatened by the ageing of the populastion and is using the marketplace to address the problems they see. The up coming baby boomer bulge into retirement, decay and death is viewed with great enthusiasm by the market. This potential profit bonanza is seen as a river of gold waiting to be exploited.

There has been and is now increasing evidence and authoritative opinion that all of these market directed policies do not reduce costs in health care, nor do they improve care. The changes are ideologically driven. There are powerful groups that have invested their lives in implementing this ideology. We should not expect them to change in a hurry.

Feb 2006 The US market system compared with others - costs

The United States spends more money per person on health care than any other country in the world, about $5,300 annually. In comparison, Switzerland spends about 35-hundred dollars per person per year, Japan about $2,000 and Turkey as little as $446 per person each year.
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Colleen Grogan, Professor of Health Policy and Politics at the University of Chicago, says the primary reason for the high cost of American health care is that most medical services, materials, technologies and drugs are more expensive than in other industrialized countries.

"For example, Canada," says Professor Grogan. "You would think we would be perhaps closest to the prices in Canada. We are three times higher. The fees that are paid, the actual prices for procedures and what we pay to providers, are three times as high as in Canada."
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The idea has been that privatizing insurance would spur market competition and decrease the prices, but analysts say the opposite has happened.
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They (Some analysts) say data for 30 countries of the Organization for Economic Cooperation and Development show that the U.S. has fewer hospital beds and physicians per person than, for example, France, Australia, Italy and Austria. The University of Chicago's Colleen Grogan says many countries also outrank the U.S. in access to advanced medical technology.
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Economist Jonathan Skinner says the powerful health-care lobbies and Americans' suspicion of what many see as socialized medicine make a radical overhaul of the system difficult. But he says the increasing financial strain of health care spending on American businesses, government and families will make some change inevitable.
Is America's Health Care System the best or just the most expensive in the world? Zlatica Hoke Washington, D.C February 28, 2006 (This story was first broadcast on the English news program, VOA News Now.-Voice of America)

It is clear that, as in Canada and the UK, the majority of Australian citizens see health and aged care as a universal good to which all are entitled. They support Medicare and want the right to attend public hospitals. By changing their policy and claiming to support Medicare, the coalition has kept their conflicting ideological prescriptions for health care from becoming an election issue. This has not stopped them from implementing their ideology and underpinning the corporatised private system with massive tax funded subsidies. Elections have been fought on other issues. This bundling of issues into "political policies" is one of the downsides of our current system of democracy.


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Political Developments

As the more socialist era gave way to a market focussed society business paradigms of understanding came to dominate political thinking and community attitudes. During the last 20 years of the last century consumerism replaced socialism. Even labour governments became far more market oriented. Economic rationalism and "small government" became political philosophies.

As indicated these policies have been very successful in increasing overall personal wealth and boosting the countries economy but they have widened the gap between the poor who have benefited less and the rich who have become much richer. They have resulted in the neglect of infrastructure and problems for humanitarian services that fit the market model poorly.

As in the USA politics itself has become a competitive market where serving the public has taken second place to the need to sell policies and retain power. Marketing skills rather than integrity and honesty are now essential for political success. Large sums are spent on marketing so that wealthier parties able to market more prosper. Political donations became ever more important for the parties. They provide a means through which wealthy corporations can leverage their interests.

In this competitive climate self interest and personal advancement has come to dominate social consciousness. Social responsibility has been prominent in rhetoric but not in substance. In local politics those promising the lowest taxes to a self focussed electorate are at an advantage. No political party can go to the poles offering more taxes.

Health costs have been rising rapidly. Politicians have promised to maintain and improve the public health care system when they were well aware that the tax cuts they promised would not allow this. Problems were compounded by the introduction of inappropriate management structures derived from the marketplace into the public system. These focused on costs and numerical productivity rather than care. That serious problems in care would emerge was predictable.

Health and aging portfolios have become poisoned chalices for ministers. Repeated warnings from those working in the public hospital system were ignored. Recurrent scandals culminated in the Bundaberg Dr. Patel fiasco.

Predictions in the nursing home sector were also ignored and a series of confronting scandals has not resulted in a rethink of policy.

For politicians in the early 1990s our aging population was a tsunami looming on the horizon and sweeping towards them. Large taxes would be needed to build infrastructure and to provide the increasingly expensive services needed. This would have an adverse impact on the economy and on their election prospects.

May 2004 The looming aging crisis

"The latest statistics show we're living longer, we all want a more enjoyable lifestyle and that in 30 years one in five people in Australia will be retired.
Grey wave matters Advertiser, The (Adelaide) May 17, 2004

Turning these sectors into a multibillion dollar industry would boost the economy and get rid of the problem. Economic thinking suggested huge benefits and large profits for the corporate sector that supported the coalition with donations.

By the 1990s market ideology was well established. Australia became the target of US multinational businessmen. They were advised by "international health care consultants" who asserted that there were "silos of opportunity" in playing on "politicians pain" and then offering their corporate solutions. They were welcomed with open arms by a political system that shared their beliefs.

Citizens and the medical profession became aware of the odious conduct of these companies and of the way in which citizens and their illnesses were misused for profit. At the present time there are no longer any hospitals owned by US mutinationals. Aged care and home care are now the prinmary targets of US megacorps.

Although the abhorrent practices of these companies were such that they failed to dominate our market, the policy of privatising and outsourcing health and aged care had taken hold. It fitted the ideology and was pursued aggressively. Evidence, contrary views, setbacks, and experience in the USA failed to temper the drive to consolidate, privatise, and corporatise. By now these had become self-evident "goods". The full weight of government was put behind the corporate effort.

Jun 2005 Government's role

Backing this growth are federal government policies that encourage people to take out private insurance. The Private Health Insurance Administration Council's data for the March quarter showed that 42.9 per cent of the population had health insurance.

The trend continues towards treatment of patients with more acute conditions, which attract higher payments from insurers. Average revenue per hospital day grew 4 per cent to $693.
Taking the pulse of health care Australian Financial Review June 8, 2005

Oct 2005 Government funds industry to provide care

Growth in the aged-care division will be underpinned by Federal Government subsidies and payments, high aged-care occupancy levels, continued ageing of the population and growth in add-on services. Industry consolidation and higher profitability are expected.
Healthy prospects in aged care Personal Investor October 1, 2005

What the US conmen failed to say in the 1990s was that the aging population was far healthier than previous generations. The bulk of the major costs occur in the last 2 years of life and are not directly related to age.

Jun 2005 Health not age itself determines costs

The highest cost of healthcare is incurred in the last two years of life. The improvement in medication has delayed the eventual need for costly high care.
AGED CARE SECTOR : The Ageing Time Bomb, Tick, Tick, Tick........Boom! Your Money Weekly June 9, 2005

Older citizens certainly do use more medical resources and surgical procedures to maintain their health. The problem was a real one but not nearly as catastrophic as suggested. The 2002 Romanow Royal Commission (pdf file) in Canada found that the publicly funded health system in Canada was sustainable. Although challenged to do so market advocates were unable to produce the evidence needed to confront evidence that market health care systems were not only more expensive but provided inferior care.

Australian governments have under-funded the public system so increasing waiting lists and driving patients into private care. Government has richly subsidised private health insurance and penalised those who failed to insure privately. It has tried to shift a greater burden of payment on to individual citizens and the community has resisted this. Companies see this shift towards personal payments in terms of dollars and share value. They can charge the aged more.

Jun 2002 Targeting by the market

Students of demographic trends have long observed the steadily rising ratio of older people to younger people in the ageing population but the matter shot to national prominence in this year's Federal Budget, when Federal Treasury's Intergenerational Report culminated in unpopular measures to reduce the cost of the Pharmaceutical Benefits Scheme. No one should be in any doubt that the ageing of the population is upon us. It follows that the phenomenon deserves consideration as a potential investment scheme.
DCA GROUP LTD (DVC) $1.93. Your Money Weekly June 27, 2002

Nov 2003 Encouraging private money

Two years from now the Federal Government plans to have 200,000 age-care places available to house Australia's maturing baby boomers. At present there are about 145,000 beds - provided mostly by churches and charities - meaning things clearly have to change. For patient investors, this signals potential new opportunities.
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At the government end, work is in place to find new ways of encouraging private money to the industry.
Old Rockers Spark A Boom The Age November 1, 2003

Mar 2004 Seeing increased profits

Over at Macquarie Equities, analyst John O'Connell has taken a closer look at the aged care sector, which is ripe for consolidation and a massive overhaul.

Stirring things up is the imminent release of the Hogan report into the aged care industry, which O'Connell thinks should increase the capacity for operators to take more funding directly from the residents.

The Macquarie analyst believes that such changes could see DCA Group charge 50 per cent of its standard care residents an additional $10 to $15 which could mean a "potential valuation uplift" of 19c to 35c per share.
Dosh in old folks The Sydney Morning Herald March 30, 2004

Government has formed close associations with large corporations and appointed their executives to senior government positions so reinforcing the marketplace cultural paradigms. They now have no doubts and are blind to adverse consequences. Government and the market share common objectives. 

Sep 2005 Baby boomers

Not only will there be many more older people, but their expectations will be higher. If baby boomers go to a nursing home or hostel, they will expect spacious private rooms with attached bathrooms and well-equipped recreation areas rather than the cramped shared rooms with bathrooms down the hall which are still the norm in many of today's homes for the aged.
Home care the way to go for ageing boomers The West Australian September 30, 2005


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Professionalism and the Marketplace

A majority of community structures are affected in one way or another by the dominance of markets and economic thinking. Professionalism is one of these.

Over the centuries the conflict between financial self interest and care has been dealt with by professional and community structures. In these integrity, ethics and humanitarian values formed the basis for the system. Professional services made the interests of the recipient of care the prime objective and a duty. Integrity, trust and trustworthiness were key values protecting the vulnerable.

This contrasts with the modern corporate market which placed the businessman’s interests first. There is a fiduciary duty to give investors financial interests priority. The system is driven by personal incentives rather than humanitarian and social values.

Health care services have traditionally been allowed to operate outside the competitive market. They were protected from the pressures there and advertising was forbidden in order to protect the gullible. Incentivisation would have been a dirty word. Private businesses generally respected this and relationships between market and professions were designed to shield professionalism. Clearly there were tensions between the spheres and both sides sometimes stepped over the social constraints.

Economic rationalists have never accepted this distinction between profession and market. They considered it obsolete and self serving. When they gained power, influence, and credibility they abolished professionalism and altruism as driving forces and turned medicine and aged care into a market.

This occurred first in the USA where logical arguments from critics like Professor Arnold Relman during the 1980s were drowned out by the enthusiasm as hospital companies exploited the weaknesses in the system built on trustworthiness to generate vast profits for shareholders. While the USA is now struggling with the consequences for cost and care, ideological blindness has prevailed. Most of the global public does not understand the significance of the change from profession/community services to market place profitability.

The share market makes the financial interests of distant shareholders the prime responsibility in health care. These shareholders have no knowledge or interest in the activity of the company - only its profitability. Usually the controlling investors are themselves impersonal market listed financial institutions.

When market listed entities enter care, as they did in the late 20th century, it is in their financial interest to control and direct the care provided by doctors and nurses to make it more profitable for them. This is usually done using economic pressures. Professionals pursuing a successful career must operate within this environment and conform if they are to succeed. To be successful they must identify with the system.

1861 Understanding it 145 years ago

"The truth is that medicine, professedly founded on observation is as sensitive to outside influences, political, religious, philosophical, imaginative, as is the barometer to the changes of atmospheric density.
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[Actually there is] a closer relationship between the medical sciences and the conditions of society and the general thought of the time, than would at first be suspected"
Oliver Wendell Holmes - US doctor - (1861)

Medical professionals are normal people, who are part of the community. They cannot be expected to respond differently to the meaning systems which support society's activities or to the pressures they generate. They have always been susceptible to the community’s belief systems, and particularly vulnerable when their own are not valued by the community.

In the market system doctors are rewarded for their compliance. Very often, but not always the nurses are disadvantaged or get little benefit from the change. They are more likely to speak out. They frequently develop a very negative take on the corporatisation of health and aged services and are more likely to be whistle blowers.

Because vulnerable and poor people are dis-empowered and not good customers, because much of care cannot be effectively measured, because payment is made by third parties with a commercial interest, and because regulation does not work, market systems in health and welfare do not operate effectively. It lends itself to the exploitation of vulnerable trusting people.

A number of other pages address the problems created by economic rationalism for the health care professions.

Click Here to access some pages about professionalism

 


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Community Services and Government

A second set of community structures is equally severely affected by the change to a health and welfare market. These originated within the churches and the community as charitable endeavours for the poor. They worked closely with the caring professions whose values they shared. Churches provided services to the wealthy and redirected profits back to the community - a system in which the rich subsidised the care of the poor.

Humanitarian services of all sorts have traditionally been provided by, and funded by religious and community humanitarian organizations helping those in need. As the costs rose government was forced to intrude to subsidise the care of citizens. They helped to fund and provide many of these services. Government took over the provision of some services and assumed increasing financial responsibility for care of the poor. The not for profits continued to administer many government funded welfare services.

In health care government assumed responsibility for the poor. Not for profit groups were left as the providers of private care for the wealthy and for the increasing number of insured citizens. Any profits were ploughed back into community services. Not for profits continued to run a number of government funded public hospitals

Not for profit organisations have come to depend more and more on government grants. This has made them beholden to government , unable to resist ideological prescriptions and reluctant to speak out in the interests of the community lest their funding be cut. Some already believe that this is why they have lost funding.

Because these not for profit groups dominated the private hospital and nursing home sector their ethos and motivation prevailed during the 1970s and 1980s. Social pressures ensured that the early commercial providers were also motivated to conform. Probity was a real entity, not merely a word.

The mood of the community in the 1970s led to health and other social services being considered a universal good to which all were entitled. In Australia a labour government created the single tax funded universal health insurance system, Medicare.

One of the consequences of this was that the community handed its responsibility for the welfare of its members to government and then to some degree lost interest and involvement. Their lives took other directions. I argue that humanitarian community values and networks (social capital) were impoverished by reduced opportunity to exercise them. As the community lost focus on humanitarian services these became a political weight. Government was able to betray the trust put in them by handing these services over to the marketplace where profit rather than care has become the primary concern and where professional values have increasingly been replaced by those of the market.

Feb 2000 Churches concern about the new managers

Catholic Health Care Services general manager Chris Gardiner told a conference in Mildura today that the industry urgently needed a code of ethics and a licensing system and disciplinary body for managers.

It was time "aged care managers began to develop themselves into a profession and profesional body, with all that implies", Mr Gardiner said.

Also necessary was "control and certification of individuals who seek to enter the profession, and structures to hold them accountable".

Mr Gardiner proposed minimum qualifications for managers, three-yearly licensing and the establishment of a body with the power to hear complaints against managers and deregister them if necessary.

He said a study last year in New South Wales and the ACT had found that two-thirds of aged care chief executive officers had no education in ethics.
Fed - Aged care managers criticised by one of their own. Australian Associated Press February 27, 2000


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From Not-For-Profit to For-Profit

When political ideology turned from socialism to economic rationalism in the 1990s welfare services were turned into a marketplace where entrepreneurs could make vast fortunes. Not for profit groups had to reinvent themselves as commercial entities and compete with ruthless entrepreneurs on a commercial rather than a humanitarian playing field. This was called reform.

This involved a dramatic change to the frameworks within which not for profit groups operate. This has occurred across welfare, health and aged care services. This threatens the culture of care which has underpinned the sector.

An excellent article "Agenda - Church Inc." by Karen Kissane was published in The Age in 2003. This is so revealing of what has happened and the dilemma faced by not-for-profit entities that I have devoted a separate web page to examining it.

Click Here to explore the insights from "Agenda - Church Inc."

I argue that the humanitarian ethic of care and the market ethic are incompatible because profits come from the money allocated for care. Those unable to bring themselves to take profits from care do not prosper. Not for profits are by their very nature and their mission seriously disadvantaged in the marketplace. To prosper they must do what they must, and find ways of living with this.

Press extracts illustrate the threat to the welfare system and the problems. This is global as well as national. Multinational conglomerates are targeting Australia's welfare sector.

Dec 1999 The issue of religious provision of government services - some concern

THE bigger question raised by the awarding of about $700 million in public funds to four church-based charities for the purpose of finding jobs for the unemployed is what this means in terms of the churches' drift away from their core functions into what are essentially big business service provision operations. Of course, the churches have traditionally cared for the needy and everyone agrees that unemployment, particularly long-term unemployment, is a major cause of poverty, family breakdown and despair. But a caring attitude is not a sufficient requirement for this new role the churches are about to undertake. If they are to be successful, and if they hope to retain community support behind this initiative, they must be able to demonstrate professionalism in the job service industry. It is in this context that the lesser concerns raised by the deal the churches have entered into with the Government need to be examined.

One of those concerns is whether unemployed people who avail themselves of these church-based services will be treated equally, irrespective of their religious convictions or lack of them.
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Another concern is whether people applying for jobs with the church-based agencies themselves will receive equal treatment.
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But the job service industry is something quite different. The churches are filling a vacuum left by government: their clients are looking for jobs, not an encounter with the faith.
The Churches And Jobs Sydney Morning Herald December 30, 1999

Sep 2002 Welfare Multinational corporations enter Australia

In the United States it runs child-care centres, disability programs and welfare-to-work schemes.
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Its mission is "Helping Government Help the People", and its lifeblood is government welfare and IT contracts.

And now Maximus Inc America's biggest for-profit social services corporation, with annual revenue of $1 billion has landed in Australia.

In May it quietly bought out Leonie Green and Associates, one of Australia's biggest Job Network companies. It has 70 employment offices across Australia and government contracts worth millions.
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"There will be concern about an international company draining profits offshore at the expense of disadvantaged Australians," he (chief executive of Mission Australia) said. "But it could also introduce more competition into the Job Network."
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But a source said Maximus's capacity to "do everything Centrelink does" from assessing and managing client cases to administering huge welfare payment systems was causing disquiet.

Ms Green said: "Long-term, [Maximus's future] is very much driven by the government direction in outsourcing. Ultimately, if Centrelink is privatised, Maximus would be very well-suited to help."

The big non-profit agencies in Australia, such as the Salvation Army, Mission Australia and Centacare, have government contracts to provide a wide range of welfare, health and employment services.
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Some non-profit organisations have been criticised for "getting into bed with government", especially since the Commonwealth Employment Service's functions were outsourced.
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"But, in this privatised marketplace, if we are not there with the ethos we bring it will be left to the for-profit providers, including global players like Maximus."

Along with the giant aircraft manufacturer Lockheed Martin and other corporations, Maximus, which is based in Virginia, took advantage of former president Bill Clinton's radical overhaul of welfare to win lucrative government contracts in every state. It was the first company to privatise a welfare system, in Los Angeles County.
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Although the bottom line has been soaring, Maximus has attracted some negative headlines, according to the California-based Applied Research Centre, over inadequate provision of services, cronyism and financial irregularities.

Two years ago 50 church groups in the Wisconsin area called for the termination of a $92 million contract to provide job training and other services to welfare recipients. Instead, Maximus repaid the state $2 million.

Leonie Green and Associates was forced to repay $70,000 to the Federal Government last year after an inquiry found it had received government payments for having placed unemployed people with an associated labour hire firm, where they were put to work canvassing for their own jobs.
Welfare agencies wary of challenge from heavyweight. The Sydney Morning Herald September 7, 2002


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Not for Profits and Capital

A major problem for not-for-profit groups is capital. In 1997 government regulations specified new physical standards for aged care facilities. Renovations were costly. Many older buildings were not worth upgrading so were closed. The system had been underfunded and there was no capital available to build new facilities to meet the looming aged care bulge.

To raise loans you need a strong profit stream and lots of marketplace credibility. Charities spend their extra cash serving the community and are not profit focussed. In the business world they are not credible and are seen as a relic from the past. To expand in the currently under-funded system they depend on government assistance. They cannot build up reserves.

Corporations are profit focussed and consequently can raise money from the share market as well as loans from the banks. Both are primarily interested in profit and not care. Their financial stake in market listed companies enables the investors and banks to effectively, if indirectly, dictate the way services are provided, particularly when their investment is threatened.

The government clearly intends to fund aged care without raising taxes. Inevitably market listed companies will expand their share of this new marketplace and become more credible in the eyes of the political and bureaucratic establishment.

The constraints on not-for-profit capital expansion extend to retirement services, health care services and nursing homes. Even the USA has made an effort to redress this imbalance.

Nov 2003 The market can raise capital

Managing director David Vaux intends to double DCA's size over the next year. He maintains financial support is already out there as long as the formula is robust.

"We finance our trust with debt and we gear that highly," Vaux says. "We've received terrific support from our bankers who provide us with the debt.

"They understand the business very well and understand the positive cash flows that can be generated. Again, for operators who don't generate the type of returns that we can generate, the institutions are more careful and reticent."
Old Rockers Spark A Boom The Age November 1, 2003

Nov 2003 System favours publicly listed companies so not a level playing field

In general, the barriers of entry into the health care market are high with the cost of supplying services being capital intensive. So few new players are emerging except companies raising public capital to consolidate smaller businesses.
SPECIAL SECTOR REVIEW - THE HEALTHCARE SECTOR Your Money Weekly November 20, 2003

Feb 2004 The US helps not for profits but not in Australia

But he believed time was taking care of both issues, noting that in the US the majority of retirement communities were developed by not-for-profit sponsors using long-term bond issues to investors. Regulation in the US has allowed such sponsors access to a special tax-exempt bond market for financing, making the industry especially attractive to some retail and institutional bond funds.
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Once regarded as a cottage industry in which many villages were owned by not-for-profit organisations which already control the bulk of nursing homes, the Retirement Villages Association's national CEO Kate Hartwig said there's a shift towards private ownership. She said that even if the Stimson report was only half-right, there's still likely to be a development boom.
Age of the village people looms The Australian February 5, 2004

Mar 2004 Unable to compete

FINANCIAL necessity had forced the Victorian Deaf Society to sell its Melbourne nursing home, Vicdeaf said.
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Vicdeaf chief executive John Paton said the sale of Lake Park Nursing Home was a matter of economic necessity.

" We came to the realisation that running an aged care facility is simply beyond our resources," he said.

"The management of nursing homes is an increasingly specialist activity and we had experienced significant operating losses at Lake Park in recent years.

"In order to achieve business viability and meet the Federal Government's new certification standards we would have to apply for additional bed licences and have to find an additional $5 million to $10 million to expand and upgrade the facility."
Deaf Society forced to sell home The Weekend Australian: AAP March 20, 2004

Click Here to explore the insights from "Agenda - Church Inc." if you have not already done so.

Click Here for a page about not for profit nursing homes


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Priorities change

Licenses:- Licenses for nursing homes were once a method of screening which ensured that only the most suitable people were selected to care for the vulnerable. Those who would exploit their misfortune for commercial or other personal motives were kept out. Probity rather than commercial success was a key issue.

Under the new system licenses have become valuable commercial entities which are bought and sold. Governments allocate them to their corporate supporters, people whose primary commercial focus and fiduciary responsibilities to disinterested parties would once have counted against them.

WHILE nursing home owners are crying poor, bed licence values have soared as big companies move for a cut of the lucrative industry.
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Highly valued and hotly sought-after, the bed licenses are needed by operators to get a share of the almost $3.5 billion a year in government subsidies provided for resident care and building maintenance.
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Major operators say the value of a general licence to operate a nursing home bed has nearly doubled in the past five years from $18,000 to $33,000.

"The Aged Care Act of 1997 is the best thing that's ever happened to this industry," Rob Lister, a nursing home valuer, said yesterday.
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Under the act, private operators can make a profit of $7000 to $9000 a year from each bed, prompting a bidding war as major institutions move to take over the industry.
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"Within a few years this industry will be dominated by major institutions like it is in the US and UK," says David Vaux, managing director of
Development Capital Australia (DCA), a new entrant to the business.
Nursing home beds a licence for profit. The Australian March 27, 2000

Approved Provider status:- (Added Oct 2007) The government has claimed that providers of aged care must be assessed to see that they are suitable before they are granted "approved provider" status. It has recently become clear that this is not so. Once a group attains approved provider status that status can be transferred to any criminal or otherwise deviant individual or company that buys the holder of approved provider status. No assessment is required. This status becomes a commodity which was clearly of considerable commercial value to a company whose suitability was questionable. Probably very few of the private equity groups, banks and wealthy individuals who have taken control of our for profit nursing homes by acquisitions have had to gain approved status in their own right.

Click Here for the story of how all this emerged.


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The future : Embracing the marketplace

My argument is that a particular context selects for the sort of people and the sort of organizations that are successful within that context, as measured by the measures of success used there. In other words nor for profit groups who maintain their humanitarian orientation are unlikely to survive. As is revealed in the link above to "Agenda - Church Inc" there is a fair amount of dithering and debate but ultimately the market imposes the rigour of its practices and its processes. Those who are unable to identify with this are marginalised.

Those not for profits that adopt market thinking, follow the market path and adopt an impersonal commercialism, succeed in growing and making money. They succeed, often regardless of the sort of care they provide.

Those who are unwilling to do so will walk away and leave the sector to commercial predators. Examples include the Salvation army’s abandonment of nursing home care in Australia and New Zealand, and the withdrawal of the major churches from their role in the unemployment system. The not for profit ethic is eroded and destroyed.

Feb 2004 Not for profit abandoning the sector.

The Sallies, who have hired the services of Burns Bridge and KPMG to manage the sale, were reluctant to put a value on the centres. However, initial estimates based on the number and quality of places available suggests a price target well in excess of $250 million.
Sallies Selling Old Peoples Homes, $250m-plus Tipped The Sydney Morning Herald February 12, 2004

Feb 2004 Another one abandoning the elderly

TENS of thousands of elderly Australians face turmoil with the aged care industry warning it is on the brink of collapse and in dire need of an injection of up to $500 million.
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The stark warning from the industry's peak body comes as the Uniting Church reveals it could follow the Salvation Army -- which plans to sell 15 aged care homes -- in abandoning the elderly.

And the 3000 non-profit groups and private aged care operators in the industry are facing a similar dilemma.
Grim warning on aged care Herald-Sun February 13, 2004

The new commercial focus is obvious to anyone walking up to the desk of a not for profit hospital in Australia. Large notices about payment are the norm. It is early days in Australia but in the USA this commercialisation is even further advanced. Not for profits, some of them church groups feature prominently among the fraud listings.

A good example in the USA is the New Jersey based St. Barnabas Hospital System which a recent account published in the New York Times suggests has built a large empire by defrauding the system. This report gives a graphic illustration of what the article suggests is a widespread market practice. Remember that a market system favours individuals and businesses who will do whatever it takes to succeed. Not for profits and not for profit managers who are able to succeed prosper. The ethos and behavior of the not for sector shifts dramatically. Explanatory patterns of thought are developed to make this legitimate.

Because it is such an important pointer to our future, I include several extracts from this legally sterilised article. It gives an indication of the way the pressures of the market drive not for profit groups into adopting inappropriate and even illegal market practices. They gain credibility and standing because of their marketplace success. In spite of the fraud settlement the company and its staff all denied any wrongdoing. A large fraud settlement does not dent their political standing and influence, nor their right to make money from the care of vulnerable citizens. This is the norm in the marketplace.

Aug 2006 Is this the future for Australian not for profit operators?

The St. Barnabas hospital system spent much of the last decade in a sprint to expand through aggressive mergers, political connections and celebrity patrons like the actor Joe Pesci, growing into New Jersey‚s largest health care provider and the state‚s second biggest private employer.

But the rapid rise in the prominence of St. Barnabas ˜ which at one time had 3,200 beds in nine hospitals throughout the state ˜ was also fueled by what federal prosecutors called one of the most lucrative Medicare fraud schemes in the nation‚s history.

By systematically inflating the bills for their sickest elderly patients, the prosecutors said, the executives of the St. Barnabas Health Care System bilked the federal government of at least $630 million from 1995 to 2003. The hospital system, which is a nonprofit institution, eventually stopped the overcharging when it was publicly questioned, and in June the hospital system and its executives, who had been threatened with criminal prosecution, agreed to repay the federal government $265 million.

St. Barnabas has rejected allegations that it defrauded Medicare. - - - - -
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What happened at this health care system, based largely in suburbs throughout New Jersey, is representative of how hundreds of hospitals around the country, facing pressures from cuts in reimbursements by private insurers, improperly charged the taxpayer-financed Medicare program billions of dollars.

The episode at St. Barnabas, whose legal problems are not over, is part of a wave of Medicare fraud investigations that, according to a federal report, have reached more than 450 hospitals nationwide. Experts said the money involved could exceed $6 billion.
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St. Barnabas received more federal Medicare money from the pool of outlier money than some national chains 10 times its size. - - - - - - - - according to depositions from former employees, the hospital system‚s bookkeepers were ordered to hide the money elsewhere in the budget to avoid arousing the suspicions of auditors.
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St. Barnabas finds itself in a far stronger financial position than many hospitals that were not suspected of skirting the law.

As recently as the early 1990‚s, St. Barnabas ˜ - - - - - - operated with a low-key business approach usually found at institutions that are licensed as nonprofit.

Faced with pressure from managed care insurance plans and the prospect of federal health care reform, the system’s chief executive, Ronald J. Del Mauro, voiced determination to firm up St. Barnabas‚s financial stability. He preached a strict devotion to the bottom line and engineered a bold set of mergers and acquisitions.

By 1996, St. Barnabas ran seven hospitals in northern and central New Jersey, with 4,000 affiliated doctors, more than 20,000 employees and a million patients. According to depositions by a St. Barnabas consultant and two former employees, which were filed in the settlement, the drive for profits soon affected the Medicare billing, and hospital administrators found a way to capitalize on a loophole in the formula Medicare used to determine reimbursements in outlier cases.

A consultant hired to work with St. Barnabas said in a sworn deposition that the hospital‚s top executives held meetings to plan a corporate directive to increase federal aid by raising the prices charged to Medicare patients. The consultant, James T. Monahan, said that St. Barnabas had routinely added hidden charges to the room-and-board fees of Medicare patients and tried to conceal the windfall profits it was receiving from Medicare, in part by overstating its debt.
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As the state begins deciding how many, and which, hospitals to close, St. Barnabas is in an enviable position by virtue of its size, its reputation for providing quality health care and its political contacts in Trenton.
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Hundreds of nonprofit hospitals across the country are being scrutinized by the Internal Revenue Service and examined by Congress to determine whether they are following guidelines that forbid tax-exempt entities to give executives excessive compensation.
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Mr. Del Mauro (chief executive) gets no compensation from St. Barnabas Hospital Center, according to its public filings, but he and two other senior administrators are paid officers of SBC Management, a profit-making company that does business with the hospital center. That sort of arrangement is common in the hospital industry.

In 1998, Mr. Del Mauro received $613,000 from SBC, according to documents on file with the I.R.S. His compensation was $4.7 million in 2003, the last year St. Barnabas received the huge Medicare overpayments. In 2004, it was $4.2 million.
Hospitals Grew With Medicare Paying the Way The New York Times August 20, 2006


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Not for profit BUPA and Nursing Homes (Added October 2007)

Much is written about the way in which operating in a marketplace alters the behaviour of not for profit providers adversely in the USA. The culture of the organisations change and they develop patterns of thinking which make the things which they must do to survive in this marketplace seem legitimate for them - even desirable. Those who display the "closed mindedness" needed to do this become successful and gain credibility in the marketplace. Because none of these less savoury US not for profit companies have entered Australia I have not written about them in detail.

The large and very successful not for profit UK insurer and operator of multiple services, BUPA not only provides health insurance in Australia but in ctober 2007 purchased the DCA nursing home empire from Citigroup's Asian private equity division. It has become the largest non-church nursing home operator in Australia and New Zealand, larger than any of the for profit operators. I have now done some research on it and written a web page.

My assessment points to the typical response of a not for profit to the survival pressures of operating successfully in a healthcare marketplace. To maintain the illusion of the not for profit mission, this is energetically proclaimed. Management and staff come to identify with it. At the same time the not for profit must behave very differently if it is to be successful in the marketplace.

Not for profits that can accomplish the mental gymnastics prosper. This incongruity between belief and action has a profound impact on the culture of the organisation. Reflective behaviour is replaced by closed mindedness. The least suitable people prosper and those reflective individuals most suited to the not for profit mission are fraught with self doubt. They become apathetic or alienated. Cultural patterns of thinking and behaving are distorted by rationalisations and other psychological avoidance strategies. The processes are not dissimilar to those in for profit services across the nursing home sector in Australia. BUPA is an interesting case study of a very successful not for profit company operating in Australia.

Click Here for a study of BUPA's operations


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From Private Companies
to
Market Listed Public Companies

In the past in Australia commercial entities in hospitals, nursing homes, and retirement villages, have been largely private companies owned by individuals or small groups. These ranged from single hospital or nursing home operators to large companies like Moran Health. Some were and still are motivated with a service rather than a market ethic. Many have provided good care.

Larger groups usually target the wealthy whose additional payment allows profitability without the need to compromise services. This private company sector also includes others who own facilities with the sole intention of making money. They squeeze care for profits.

As a consequence private companies can be among the best but also own some of the worst homes where care is most compromised and the aged are most misused. This is particularly so in the state of Victoria where the Kennett coalition government privatised the nursing home industry during the early 1990s and where the majority of problem homes are located.

The dominance of market listed companies over private operators in the private hospital sector accelerated during the 1990’s. This sector has steadily consolidated and is now dominated by two market listed giants, Ramsay Healthcare and Healthscope.

The takeover by the private sector in retirement villages and nursing homes is now well advanced. Market listed banks and institutional investors are now the owners of facilities. They contract with business focussed groups, many of them market listed, to provide the services.

Trusts founded by banks and investors are rapidly buying up individual private nursing homes as well as medium and large private companies to "consolidate" the industry and make it more "efficient".

DCA and Ramsay Health Care are the only large market listed companies to enter aged care and Ramsay has sold its homes. DCA’s size and its rapid growth put it into a commanding position.

When banks, lend money they favour large publicly listed companies over privately owned companies. These publicly listed companies have credible highly paid and experienced business managers. Consolidation moves management further from the coal face and insulates them from what is happening there. Consolidation has become the buzzword in the corporate health and aged care sector.

Mar 2005 Publicly listed companies flourishing

The takeover activity has pumped new life into health-care stocks after a couple of rocky years in 2001 and 2002. More than $2.1 billion worth of acquisitions went "ker-ching" last year alone. And $540 million was raised through health, medical and pharmaceutical-related IPOs, with another $185 million in share placements and rights issues, according to Ernst & Young.
RICH PICKINGS THE PEOPLE WHO GET RICH AS YOU GROW OLD Australian Financial Review March 19, 2005

Apr 2005 Publicly listed companies in retirement villages

ABN Amro expects this to grow in the future with the biggest opportunity (retirement villages) in the number of smaller private companies that will be snapped up by the larger listed companies.

"This will be driven by the inability of the smaller operators to cope with the many industry challenges including insurance, taxation and reinvestment costs," ABN Amro client adviser Simon Bond says.
Greater life expectancy likely to bring solid returns Sun Herald April 17, 2005

Sep 2005 Consolidation

Rising accreditation standards for hospitals have swept out some of the smaller operators as have the economies of scale that the bigger players are gaining from expansion. Further sector consolidation will make it difficult for a new player to enter the market and get size, Goodsall says.
Money is not a cure-all for health issues Australian Financial Review September 1, 2005

Because the publicly listed companies come with new capital and enthusiasm they may well result in some initial improvements. Ultimately they must be profitable and give a satisfactory return on the investment. The institutional shareholders to whom they owe a fiduciary duty are very demanding and will dictate the management changes needed to increase profitability. Financial performance must be continuous without letup so that short term profit goals come to drive the services. This makes it difficult to maintain high standards of care in the lone term.

Experience indicates that public companies respond to competition and financial difficulties by reducing costs, particularly staffing levels, food and equipment. In an employee dependent service where time and care are inseparable corporate ideas of efficiency come at the expense of care.

As a consequence in the USA nursing homes run by established market listed public companies have consistently ranked among the poorer providers of care, some as poorly as the worst privately operated companies. This is not yet apparent in Australia although there are major problems in nursing homes.

Mar 2004 Privately owned companies selling to publicly listed ones - currently DCA the favourite

On the consolidation side of things a 10 year process according to Professor Hogan likely sellers in the unlisted "for profit" side of the business could be Moran Healthcare, Hardi Nursing Homes, Summit Health Care and Columbia Nursing Homes.

DCA has made it clear for quite a while now that it's keen to grow through fairly priced acquisitions. So too has private hospital group Ramsay Healthcare, a new entrant to the sector.
Dosh in old folks The Sydney Morning Herald March 30, 2004

For Updates:- A good way to check for recent developments in aged care is to go to the aged care crisis group's search page and enter the name of the company, nursing home or key words relating to any other matter in the search box. Most significant press reports are flagged there. The aged care crisis web site has recently been restructured and some of the older links used from this site may not work.

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Web Page History
This page created Sept 2006 by
Michael Wynne
Last entry October 2007