29 April 2000
Mr A Hinton
Foreign Investment and Review Board (FIRB)
The Treasury Building
Dear Mr Hinton,
Sun Healthcare Bankruptcy -- VERY CONFIDENTIAL INFORMATION
Background:- You will be aware that Sun Healthcare is in chapter 11 bankruptcy and there are ongoing negotiations with creditors. It is the subject of hundreds of lawsuits relating to the neglect of patients in its facilities. It is the subject of claims by government that it defrauded medicare of hundreds of millions of dollars, but it is likely that the government will settle for much less because they do not want to force the company out of business. Sun's survival may well depend on their doing so. It has powerful political support.
Government is faced by the prospect of having to assume responsibility for thousands if not millions of patients in nursing homes as 5 of the largest chains in the country are in chapter 11 and others who have adopted the same irresponsible strategies are not far behind.
Vencor another company which did the same things owes US $1.4 billion for money obtained illegally, a little more than three times that which Sun is alleged to have defrauded. To keep them solvent and protect the patients government are negotiating a much lower payment over a prolonged period of time. Beverly was recently fined US $ 175 million for a similar fraud, but with a lenient payment arrangement.
Sun's problems as you should by now be aware are due to financial mismanagement and irresponsibility. Several companies including Sun Healthcare generated a massive profit stream by not providing the care they had contracted to provide and by misusing and defrauding medicare. They used this profit stream to raise large loans to fund their expansion. The combination of a changed funding system, a massive outcry about standards and vast numbers of lawsuits have effectively reduced the profits and Sun has been unable to service its loans.
Not for profit nursing homes have on all studies conducted over the last few years provided superior care for patients. Because they have been more financially responsible they are not in the same difficulties and are performing reasonably well.
US citizens who have closely followed events are concerned at the close relationship between government and corporate executives. They are furious about government leniency and their assistance in helping to keep these groups solvent. Instead they want not for profit organisations to pick up the homes at low prices and run them. It is clear that this would be in the best interests of the community.
Confidential Information:- I am in possession of some information given in confidence which I am not in a position to release to you at this time but feel that I should warn you that Sun Healthcare may sell its international facilities in the very near future - although the planned sale may not go through.
The new intrepid healthcare company which may be involved in buying Sun's collapsing international empire may not be all that it appears. I am writing to ask you to very carefully check who the backers are and who the people involved are - particularly to ensure that this is not a move by Sun's current discredited hierarchy to move their resources into the international arena. You have a responsibility to protect Australia from people like Warren Schelling, Andrew Turner, and Zev Karkomi. They are among the architects of Sun's practices.
The reason I have this information is because someone in the knnow felt "This Stinks." I think we need to give our international friends a heads-up about this one.
I will be away from the middle of May and may not be in a position to keep you informed. What happens with Sun will depend very much on its negotiations with government and announcements may be made towards the end of May.
Please regard this information as very confidential. I do not want to compromise my sources.