OVERVIEW OF DOCUMENTS SUPPLIED
AS AN AID TO EVALUATING SUN HEALTHCARE'S
ENTRY INTO AUSTRALIA
I gained access to documents obtained from the Australian Foreign Investment and Review Board (FIRB) under freedom of information. I saw a need to make those responsible for health care in Australia and at risk of any imported US business practices aware of what had happened and of the issues surrounding Sun and its entry into Australia. To do so I needed a brief overview but I also needed to back my views with documents, set out the issues and give the background needed to properly evaluate these documents. The "Summary" and "Overview of the contents of this package" were used to meet the first objective. A detailed argument outlining the situation created the context. The documents themselves were bulky and I wrote the following overview pointing to the main points in each and commenting.
1. Sun's press releases disclose their purchases in Australia.
2. Wooldridge reforms Health Care using Sun's "expertise"
3. Contracts between doctors and Mayne Nickless
4. Political and Financial Pressures - predicting outcomes
5. Articles describing US "incentive" practices in Australia
6. The vulnerable aged care system in Australia
7. Staffing and standards in aged care nursing homes in Australia
8. Fraud in aged care nursing homes in Australia
9. The duties of the medical profession
10. Australian Newspaper reports describing Sun's purchases in Australia
11. Information from the United Kingdom
12. Why we should be very suspicious of the decision to allow Sun Healthcare into Australia
13. Federal Correspondence and FIRB documents
14. Past Efforts to address the loophole in FIRB regulations
15. Fraud in aged care in the USA
16. Sun's own account of events in the USA
17. Nursing care in US hospitals and aged care nursing homes
18. Court Documents
19. The public face of Sun - What the newspapers say
20. Information from Sun's Web site
21. Alpha -- Moran and Sun Australia
1. Sun's press releases disclose their purchases in Australia. (to contents)
Sun Healthcare Group to Acquire Interest in Australian Company - Sun Healthcare press release 4/6/97
Press releases from Sun in regard to the purchase of a 38% holding in Alpha Healthcare and a 51% controlling holding in Moran Health Care Group hospitals. The first press release was made when Sun negotiated the purchase and before it received FIRB's stamp of approval. Articles appeared in the press and as a consequence FIRB was supplied with information from the UK and the USA by citizens who had been monitoring corporate conduct. These caused the NSW government to object to Sun's entry into Australia and FIRB to ask for explanations. The deputy treasurer overruled NSW's objection and granted approval on 15 August 1997. The documents referred to on this web page encompass these events.
Sun Healthcare Group Acquires Majority Interest in Six Australian Hospitals - Sun Healthcare press release 6/11/97
This documents Sun's purchase of control of six of Moran's hospitals. Moran like Sun specialises in aged care facilities and this partnership will open up this market to Sun. The dates reveal the secrecy with which this deal was made. Sun submitted this application to FIRB on 27 August 1997, 12 days after FIRB's approval of Alpha's entry and FIRB gave its approval on 4 September 1997. The US press release was only made on 6/11/97. I have carefully searched the major Australian newspapers and have not found a single press report. Sun would have realised that had the purchase of Moran hospitals been made public then concerned citizens would have drawn the attention of FIRB to reports rating the quality of care in Sun's aged care facilities and the US senate investigation into the misuse of the age and fraud in aged care. This was chaired by Senator Cohen. FIRB's board is comprised of businessmen. It is unlikely that they would have examined these non-commercial issues unless they were specifically challenged with them. This sequence exposes a major deficiency in the process for vetting foreign businesses. The public are not advised and are consequently not in a position to supply information or exert their democratic right to express dissent. Corporations in the USA are rushing to cushion the pressures of fraud investigations and legislative control in the USA. They are spreading internationally and Australia is a prime target. International health care consultants, such as Vista Healthcare will advise future corporate health care applicants to use this secret way into Australia. We have no reason for doubting that our economic rationalist politicians will encourage them to do so. Efficiency is the economic rationalist's most cherished value, not integrity.
2. Wooldridge reforms healthcare using Sun's "expertise".(to contents)
Wooldridge injects $500m for reform Courier Mail 18/12/97
Now that Sun has been allowed into Australia by his colleague the deputy treasurer, the minister unveils his radical new plans to "trigger a health revolution" by offering Australian states cash to move away from "traditional hospital based care" and "towards innovative models of health care". As a corporatist he is using the same policy of incentives to gain health care objectives used by Columbia/HCA and Tenet/NME. He is offering Australian states cash in return for following his policies. The successful US businessman, Joseph A. Califano Jr recommends this method of revolutionising health care in his book.
The great plan is to construct "health half-way houses" or "step down facilities". What a strange coincidence that this is an area in which Sun makes its profits in the USA. Australia is now moving to copy the US by rapidly privatising health care. We should ask ourselves whether Sun saw "silos of opportunity", understood our ministers "pain" and set out to play on it. Did they follow the advice given in the US business journal Modern Healthcare that "--- business can help governments learn new ways of delivering health care efficiently." (see MHI: THE NEW WORLD OF MANAGED CARE Modern Healthcare Nov. 3, 1997) I believe that we can legitimately ask whether the minister's new plans were based on Sun's ability to "reform" our health system in this way and whether these plans by the government played any part in the controversial decision to overrule the objection of NSW where Sun/Alpha/Moran will own most facilities.
We must ask who is making health care policy in Australia? The government or corporate America in the form of Sun Healthcare. No doubt our minister will claim that there is no evidence for this and that I lack objectivity. My question should be seen in the light of Ron Williams prediction in 1992 that US megacorps would dictate the way health care was provided in Australia and that they would insist on doing it their way. He called his book "Remission Impossible". The comments should also be seen in the light of the ministers desperation (his pain) and the way our politicians have behaved over the last few years.
3. Contracts between doctors and Mayne Nickless (to contents)
No-cost hospital cover for trial Courier Mail 2/12/97
This article described Mayne Nickless attempt to tempt doctors into contracts in Brisbane. It was included to remind you that the minister is urging corporations to enter into confidential contracts with doctors. His desperation is reflected in his willingness to support confidential arrangements with Mayne Nickless a company whose past confidential arrangements defrauded its customers and resulted in a $7.7 million fine. The minister is introducing special legislation to make these contracts with Mayne Nickless legal. Sun operates in the managed care market through its "Sun Solutions" package. I have no information about Sun's contracts with doctors. Will the minister support contracts with them?
4. Political and Financial Pressures - predicting outcomes (to contents)
"What will happen" section from "The Rewards of Deviance" (note this is now on the www) - submission to NSW health in 1993
I supplied NSW Health with large numbers of documents relating to Tenet/NME in 1992 and 1993. I objected to licences. In a document called "Rewards of Deviance" I performed a detailed analysis of all the documents supplied and indicated their significance. In my view the documentation was totally damning and by no stretch of the imagination could Tenet/NME be considered "fit and proper" under the terms of the regulations. Tenet/NME's subsequent guilty plea and massive fraud related settlements indicate how right I was at the time. I stressed this and then like Ron Williams I analysed the powerful social forces involved and predicted that these were so powerful that, despite the moral implications the licence application would be approved.
I attempted to counter the "Remission Impossible" situation I had described by setting out all the possible rationalisations which I predicted would be used to grant the licence. I showed that each was untenable. I indicated that there was no possible basis for granting the licence to Tenet/NME/AME. I predicted that politicians and NSW Health would nevertheless find some way around the regulations in order to give Tenet/NME/AME its licence. I did not foresee the Yeldham solution but had I known that there was a judge in NSW who was at risk of improper influence I may well have done so! Dr Amos and NSW Health to their credit stood firm, as did WA Health, Victoria and the doctors in Greenslopes Hospital in Brisbane. Tenet/NME sold up and returned to the USA in 1995.
I believe that my analysis of events at that time is equally applicable today and enclose the section. The power of the urgent commercial forces operating and the economic rationalist ideological commitment of politicians is illustrated by their behaviour in welcoming GSI in 1995, Columbia/HCA in 1997 and finally allowing Sun Healthcare into Australia despite the objection of the state where they will operate. This is a company which is under investigation by the FBI and which has already settled civil lawsuits related to its conduct for US $24 million.
I believe that what has happened is the federal equivalent of the appointment of Yeldham in NSW in 1993. The federal government are well aware of the deficiencies in FIRB. Like NSW they are exploiting a weakness in the system to attain their ends. The interests of businessmen and the political ambitions of politicians who have nailed their careers to the use of market forces to solve our health care problems are being placed ahead of the interests of Australia and its citizens.
5. Articles describing US "incentive" practices in Australia. (to contents)
Illegal kickbacks: GPs accused -- Unknown newspaper ?1996
Row over pathology and computers -- Courier Mail Sept/Oct 1996
Doctors warn -- Sydney Morning Herald 30/12/96
These articles describe the use of financial incentives for doctors in Australia. They show how vulnerable we are to the US corporate practice of offering direct kickbacks or indirect inducements in return for referrals or for participating in corporate practices. Mr Califano, an early advocate of the use of commercial forces to create a "health care revolution" indicated that financial incentives and disincentives would be successful in getting doctors to provide the sort of medical services corporations wanted. The situation in the USA is a reflection of our vulnerability to financial leverage. It is interesting that the Courier Mail describes the ministers new plans for step down facilities as "a health care revolution". Could the minister have used these words? The final small clipping documents the AMA's concerns that the federal government itself is planning to offer doctors incentives in order to influence the sort of care they provide for patients.
6. The vulnerable aged care system in Australia. (to contents)
Aged to be charged $26,000 for bed in nursing home --- Sydney Morning Herald 1/2/97
Aged "must pay for care" --- ? Courier Mail 28/9/96
Nursing home reforms are flawed -- The Australian 7/12/96
These clippings are to remind you of the recent debacle in funding aged care and nursing homes and the governments ignominious back down in the face of community outrage. Government thinking is governed by economic rationalist paradigms. Its policy is to disengage government from humanitarian social services and transfer them to a competitive marketplace where costs will be kept down by using commercial forces to ration care. The first priority is to turn aged care into a marketplace.
This cannot be done effectively while the government is paying. Government must first create a set of customers to use the market. Aged care users must be forced to pay and we need have little doubt that the contribution of users will be steadily increased. (Please understand I am not opposed to those who can afford to pay being required to do so, but to the policy implications it reveals) The government's own contribution will undoubtedly be mediated through the agency of corporate managed care companies like National Mutual and the care will be provided under contracts. This is what happens in the USA.
Church and community groups are primarily concerned with patient care and are unlikely to compete aggressively. Local companies play only a small part in aged care and do not have the resources to dominate. To create an aggressive market which will fulfil the economic rationalist's competition requirement an experienced international competitor is required. Sun Healthcare, the giant which dominates aged care in the USA and the UK is the obvious choice. Imagine our ministers concern when FIRB was told of the raids on hospitals by the FBI and of the US Department of Justice investigation.
7. Staffing and standards in aged care nursing homes in Australia. (to contents)
Aged care need is without restraint -- The Australian 26/8/97
Our aged citizens are vulnerable:- This article is a reminder of just how vulnerable standards in our aged care system (in fact our whole health care system) are to the sort of practices which have characterised health and aged care in the USA. The misuse of physical and chemical (i.e. sedatives) restraint in Australian aged care facilities is documented and condemned. The article indicates that this is consequent on inadequate staffing levels. The government claims that its new policies will provide funds to increase staffing.
Experience with corporate medicine indicates that the cost of staffing competes directly with profits. In the UK the company GSI implemented a dysfunctional "factory" system of care in order to cut the cost of the care of public patients under a contract with government. A review found serious problems in the quantity and quality of staffing. Excessive sedation and restraint were a major problem. A number of young patients died. The corporate response was to threaten those who blew the whistle with an action for defamation.
The excessive use of restraints, the overuse of sedatives and serious deficiencies in staffing were among the many allegations made about Tenet/NME's hospitals at the time when it was making vast profits. It has paid US $135 million to compensate those, many of them children who were subjected to this treatment. In an article entitled "For-Profit Care's Human Cost" (NY Times 8/8/97) victims, who were powerless children at the time graphically describe what happened to them in Tenet/NME hospitals.
It is significant that those who are misused by corporate medicine are those who are most vulnerable and least able to exert their rights on a commercial "level playing field". Those exploited include children, psychiatric patients, rehabilitation patients (head injuries & strokes), and the aged. Our minister is creating a market of aged people in Australia. He claims that they will shop around for cost and quality! Is it surprising that corporations consider our health system to be an immature market which provides lucrative opportunities?
Staffing in US hospitals and disputes with nurses:- Sun's policy in regard to staffing is not known. Nurses in the USA have complained bitterly about the drop in standards, of the stress placed on nurses and of the adverse impact for patients of the falling standards of care which have resulted. Effective teams are disrupted and standards compromised by the excessive use of agency staff. The nurses unions have attempted to address these problems and have taken industrial action. It is relevant therefore that Sun was involved in a long and bitter dispute with the nursing union, about staffing in the USA at the same time as it was making record profits. The PSPRU in London investigated Sun's activities. They reported on an independent review of aged care nursing homes in the USA. Sun's facilities were ranked poorly. In aged care, standards are primarily dependent on the quality and quantity of nursing.
Staff cutting and "fat in the system":- These matters are particularly disturbing when seen in the light of the public statement by Sun's chairman and founder that there was plenty of "fat in the system". Examine these documents and decide whether the fat was in staff levels or in the large profits which funded Sun's PACMAN activities. I believe that we have good reason to be concerned. I have been unable to obtain a copy of the US Senate investigation into aged care which revealed so much fraud and do not know whether it examined the issues of quality of care. I do not know if Sun was mentioned but note that Sun's facilities were raided by the FBI soon after.
Controlling market segments:- The other matter which should concern us is the corporate practice of controlling market sectors. As I recall it was Dave Lindorff (Marketplace Medicine: The Rise of the For-Profit Hospital Chains Bantam Books) who described this practice in aged care. It appears that some corporations purchased all of the nursing homes in an area and then proceeded to milk the system to its limits. Patient care fell and state regulators were simply ignored as they could not close the homes and tip the elderly out into the street. The Australian market is a small one and a corporate giant like Sun would have little difficulty in buying control.
8. Fraud in aged care nursing homes in Australia. (to contents)
Nursing home fraud: jail term increased -- Sydney Morning Herald 11/10/97
We are very vulnerable:- This case in which an Australian nursing home owner defrauded the aged care system illustrates how vulnerable we are. The judge indicated that such services were not under the same scrutiny as the rest of the community - "the government must be able to trust them (ie nursing home operators)". In examining the documents supplied please consider whether you can trust US health corporations and Sun Healthcare. The judge pointed out that the system depended "upon nursing home proprietors acting honestly and truthfully". I have been supplying politicians with information and making this point for years. Our political leaders continue to ignore this obvious truth in the face of mounting evidence in their possession. How strange that we imprison individuals who have rorted the system to make profits, yet are so supportive and welcoming of corporations which are alleged to have acquired the vast wealth which makes them credible and desirable by doing the same things. We welcome them into Australia with open arms and ignore their conduct.
Health giants would not come to Australia if our regulations were effective:- The judge indicated that the case exposed a serious flaw in our legislation. I have been urging government to address the problems in our system and our vulnerability to such corporate practices for years. The reality is that US health corporations would not come to Australia if the regulations were effective. Our leaders have a political and ideological agenda which depends on foreign corporations and dare not risk this. Ron Williams made this point in 1992. It is evident in the revisions being made to hospital licensing regulations in Queensland. The minister is advised by a group of "stakeholders" which includes corporate providers who will strongly resist anything which might limit profits. Corporate providers are central to his policies for our health system so have undue influence.
Feeding corporate predators:- The judge refers to a "very vulnerable group" who are in "no position to make complaints". Our health minister is turning them into consumers and he expects this vulnerable group to not only survive, but to regulate what happens in his marketplace jungle. He calls this a level playing field. He does not believe that the weak should be shielded from the Darwinian forces of the corporate marketplace. In the minister's corporate jungle the weak and the ageing will become easy prey for corporate predators! The judge indicates that all the money set aside for the frail aged should "be used for the nursing and personal care of residents, and not for the benefit of nursing home proprietors or their shareholders". Citizens in the USA would endorse every word. The judiciary is joining the pope in condemning "for profit medicine", or medicine for the benefit of shareholders. They are the members of society who are trained to be objective in their assessments.
Difficulties in regulation and policing:- I have repeatedly indicated to our authorities the impracticality, the impossibility and the enormous cost of attempting to control dysfunction in health care by regulation , by surveillance and by accreditation. I have asserted that functional care comes from the forces which drive care. Effective care depends on humanitarian rather than profit motives. I have supplied vast amounts of information from corporate USA to support this. The response has been to ignore the information supplied and assert dogmatically that our processes are more than adequate to prevent such practices.
NMEspeak and our politicians:- In my early contact with Tenet/NME I encountered a new way of communicating in which facts were ignored by simple asserting the exact opposite very emphatically. The assertions were substituted for reality. I called this NMEspeak. Over the last 10 years this form of communicating has become the language of the establishment. This response is illustrative. John Ralston Saul has recently analysed the way in which language is used in a corporatist society not to reflect reality but as an ideological substitute. We are consequently no longer conscious of the real world. He aptly labels our civilisation "The Unconscious Civilisation".
A letter from the managing director of Alpha Healthcare to FIRB dated 5 August 1997 responds to the concerns about Sun and extols the virtues of Sun's entry into Australia. It is a good example of NMEspeak.
9. The duties of the medical profession. (to contents)
The Declaration of Geneva and
International Code of Ethics -- p12
...................in Medical Ethics and the Law AW Burton (1979)
World Medical Association (WMA)
..............Statement on Patient Advocacy and Confidentiality Oct 1993
The international code of ethics :- This addresses a doctor's duty to resist profit pressures, avoid misleading advertising, resist terms of employment which impact on professional independence and avoid kickbacks in any form. It goes on to address the manner in which medical professionals relate to one another and compete in a professional manner. The stark contrast between our ethical obligations and the situation we find ourselves in when working in co-operation with business corporations creates a situation which is not tenable. Our obligations in regard to ethical competition put us in direct conflict with government policies and competition laws.
The 1993 WMA statement:- This statement by the World Medical Association sets out a doctor's duty to inform responsible authorities of circumstances which might adversely affect patient health. Our authorities have been supplied with vast amounts of information showing how corporate medicine has adversely affected patient health. They have not provided a convincing "rationale for the decision" not to take remedial action. The WMA statement indicates that doctors have a duty to take further action. It indicates that particular difficulties may be experienced when administrative decisions are made for spurious reasons such as ---- "for the purpose of financial gain". While doctor's actions in addressing these problems may "appear libellous or defamatory in some jurisdictions and may be so in fact", the WMA does not absolve the medical profession from their responsibility to act.
10. Australian Newspaper reports describing Sun's purchases in Australia. (to contents)
US healthcare giant buys a stake here at
----- Australian Financial Review 5/6/97
With a $20m injection, Alpha aims to be a
------ Australian Financial Review 6/6/97
Alpha deal on ice after approval snag --- Australian Financial Review 1/8/97
Sun gets nod for 38pc stake in Alpha -- Australian Financial Review August 97
Alpha appoints Sun's Turner as a director --- Reuters 25/8/97
The question of control:- These newspaper articles document Sun's purchase of a 38% share in Alpha Healthcare. This deal made Sun the largest shareholder by a factor of 4 with more shares than the remaining top 20 shareholders. It gave it de facto control of the company. Alpha immediately purchased Health Care Corp including hospitals in Wollongong, Wentworthville and Bankstown. They will build a new private hospital adjacent to Westmead hospital. Alpha/Sun's Mr Hopper sees the company as "controlling" at least 1500 beds in NSW. The use of the word "control" is an interesting reflection of corporate and economic rationalist thinking. While paying lip service to the power of the consumer in the marketplace, the real power has come to rest with the corporations which manipulate both the market and the regulations which control it. Using "control" in this way reflects the controlling US corporate practices of Columbia/HCA and of Tenet/NME. By controlling and dominating large sections of the market these corporate giants were able to dictate the way in which medical care was provided and so defraud the system. Clearly Mr Hopper understands the corporate health care marketplace and unlike our health minister does not suffer from the illusion that health care consumers can have any real impact. Our minister thinks in NMEspeak. He talks of customers controlling the cost and quality of care as if they were able to exert control over powerful corporations and were not vulnerable to misuse.
Integrated services:- Note that Alpha has diversified into non-hospital businesses which now accounts for 25% of revenue. This is the practice of buying up general practices, radiology practices and pathology services and is referred to in corporate jargon as integration. In the USA the practice is now under fire because it has enabled corporations to dominate the market, reduce the power of consumers, control the medical profession, control the provision of medical care and indulge in cost shifting and a variety of other fraudulent practices. Even Columbia/HCA's has acknowledged that this was dysfunctional and is moving away from it. (NB What might work well were health care provided within an environment driven by humanitarian considerations is severely dysfunctional when introduced for the purpose of generating profits.)
Sun is well placed to "revolutionise health care in Australia":- Note also that rehabilitation accounts for 55% of Alpha's case mix. Sun Healthcare provides in aged care integrated services across nursing homes, rehabilitation, subacute (step down) hospitals, pharmacies as well as in managed care. It is therefore well placed to introduce US corporate practices into these sectors of our health service, and to be the group which implements our minister's plans to revolutionise health care through "step down" hospitals.
Possible links with Tenet/NME and Vista Healthcare:- The reports indicate that other major shareholders include the Berjaya/Hospital Pantai group and the Tan and Tan family group. These are both major shareholders in Singapore's Parkway Holdings which purchased Tenet/NME's Singapore and other Asian hospitals in 1995. Parkway entered into some sort of relationship with Tenet/NME to run these hospitals for them. I suspect that this arrangement has now expired but note that a new company Vista Healthcare, comprised largely of past Tenet/NME staff has formed in Singapore and that Tenet/NME maintains a link with it. It acts as an international consultant advising health care corporations with international ambitions. I do not know if there is any relationship with Parkway or Alpha and whether Vista advised Alpha and the Tan family in their dealings with Sun and our health authorities. Vista staff are very experienced in dealing with Australian authorities. They were directors of Tenet/NME/AME at the time when Tenet/NME operated in Australia. They know our system well and would be an obvious choice to advise corporations planning to enter Australia. Their dealings were considered by NSW Health to show a lack of "frankness and candour".
Parkway Holding's record:- My inquiries about Parkway Holdings prior to 1995 were very positive and there was no suggestion that they had indulged in any of the practices which characterised Tenet/NME. They were a property group which had funded a Singapore hospital which the local doctors continued to run. I have also heard no adverse information about them since that time. Both the Tan family and the other Malaysian groups have now had extensive exposure to the financially successful US business practices of Tenet/NME. However good their intentions may be they have a primary fiduciary duty to their shareholders and will therefore have a duty to adopt business practices which produce greater profits. They will be well aware of the financial benefits of an involvement with Sun Healthcare and this move is in the financial interests of their shareholders. We should be under no illusion that their obligations extend any further than this. The Chicago pioneer of economic rationalist thought Milton Friedman has indicated that the marketplace would not work properly if social responsibility were to intrude.
11. Information from the United Kingdom. (to contents)
Can we defuse the NHS time bomb
BusinessAge Feb 96 p 36-41
(see allegations 1 to 5)
The NHS and privatisation:- This article addresses the privatisation of the British National Health System (NHS), suggesting that this is a time bomb because of the way in which the system will be defrauded. The article reviews the extent of fraud in the US health system and the role of "drug cartel bosses" in US health care. It also reviews similar fraudulent practices by UK health care corporations and points out that these have large US corporate shareholders and many are controlled by US giants. The many US corporations entering the UK market are described. The article singles out Tenet/NME and Sun Healthcare as the two of particular concern and notes their UK holdings.
The profits from aged care:- The article indicates how poorly the UK is equipped to vet and control corporate practices. This is an issue I have taken up repeatedly in Australia. Note that in the UK our health minister's plan for a privatised aged care system has been accomplished. The companies generate trade margins of 30%. In other words 30% of the money paid by the frail aged goes not to their care but to US shareholders. The same will happen to the savings of the Australian frail and aged, savings which our government is now directing to fund services provided by profit hungry US corporations like Sun Healthcare.
Corporatisation:- As in the USA smaller community health care facilities in the UK are being forced out of business because they are not efficient. Business analysts and even Mayne Nickless indicate that this is happening in Australia. The smaller businessman has no future. As has happened in the banks, care, concern and the human face of society are replaced by efficiency.
Underfunding of monitoring processes:- Note that inspection and compliance authorities are unable to cope with the problem and that government is refusing to fund them. I have repeatedly raised the question of the costs of effectively controlling corporate practices by regulation and policing in Australia. I have expressed concern at the current policy of reduced government funding. Politicians and government departments have not responded to this concern.
Contracts with corporations:- The UK audit commission has expressed concern about contracts between government and corporations. Their spokesman indicated "You can't set up contracts and assume all is well. Of course you have to inspect them regularly". The minister of Health in Victoria has responded to my concerns by indicating his faith in contracts. My evidence that Australian governments have not enforced the terms of contracts and my concerns about the practicality, the difficulty and the cost of surveillance have not been confronted.
Large corporations have the whip hand:- An authority indicates that the UK is moving to the situation where only a small number of large corporations dominate and control the market. He states that "They rather than the authorities will have the whip hand". I have expressed the same concern many times and pointed out that our smaller sized market makes us particularly vulnerable. In regard to concerns about Sun Healthcare the Business Age documents items 1-5 in the overview list.
U.K. Community Care & U.S. Healthcare
Extracts from report by Public Services Privatisation Research Unit. (PSPRU) London,
16 November 1995. (allegations 1, 2, 3, 6, 7, 9, 10, 11, 12 and 13. )
Overview:- The summary (p1) gives an overview of developments in the UK and of the main concerns about US corporations referring to allegation items 6 and 7 in regard to Sun. Pages 5-7 describe the extent of the dysfunction in the US Health system and the way in which fraudulent practices are endemic to the system. The US National Healthcare Anti-fraud Association claims that fraud was costing $100 billion a year. This Association and the Director of the FBI both gave evidence to the Senate Commission on Ageing chaired by Senator Cohen. Some points from this evidence are provided in the report. Tenet/NME's guilty plea and $379 million fine are described.
Survey of standards - political influence - regulations:- A section on standards in US nursing homes refers to the important findings of Consumer reports who analysed 60,000 government inspections of 43 groups of homes evaluated on a number of measures of standards of care. It concluded "the quality of care at thousands of the nations (ie USA) homes is poor or questionable at best. Facilities allow life-threatening bed sores to develop, violate residents dignity, ---- ". "the political influence of the nursing home industry and the erratic enforcement of state and Federal laws permit nursing homes to continue to operate despite repeated violations of health, safety, and nutrition standards". This seems to be confirmation of what happens when corporations have the whip hand, the situation in the USA.
The industry, not surprisingly responded by being critical of this report (see Modern Healthcare 4/9/95 p 96) claiming that the government investigations on which it was based were snapshots and not necessarily representative. Procedures had been changed since. Such criticisms would be anticipated. Sun run a large number of facilities so making snapshot errors much less likely. In any event this is the only totally independent evaluation of care available and it must therefore be used in assessing Sun's suitability to provide care to Australians. We must give Australian patients and not Sun Healthcare the benefits of any doubt. I indicated earlier that Dave Lindorff described in 1992 how by controlling sectors of the market, corporations were able to thumb their noses at regulators who were powerless because they could not close homes and throw patients onto the streets. Sun may not have been one of these corporations but the Australian market is small and very vulnerable to a corporate strategy like this.
For profit vs not for profit -- care:- The final finding of the Consumer reports review is of particular interest in the light of our governments determination to privatise and corporatise health and aged care. "---- for-profit facilities on average seem to have the poorest record and that the small number of government owned nursing homes are better than average. All chains in the bottom 25% were for-profit while most of the top-ranked chains were non-profit". This larger grouping is less likely to be influenced by snapshot errors. This report mirrors the adverse findings when a similar comparison of government inspections was used to compare for-profit hospitals (Columbia/HCA) with their not-for-profit competitors and government run hospitals in Dec 1996. This congruence lends further support to back the Consumer Reports findings. The evidence is clear but political ideologues committed to the marketplace reform of health care will not look. Instead they accept the rationalisations of the industry.
This report and politicians:- Both the PSPRU report and the comparison of general hospitals were in the possession of FIRB and available to the deputy treasurer. The magazine Consumer Reports would be available in a Canberra library. It is difficult to believe that he did not show these documents to his colleague Dr Michael Wooldridge, whose department is responsible for policing fraud in our health system. Both the minister and his department have carefully dissociated themselves from any involvement in the decision to admit Sun to Australia.
The concerns about Sun:- Pages 8- 10 address Sun Healthcare, describing the chairman, Andrew Turner's career and Suns rapid expansion by mergers and acquisitions. It records the massive profits made from nursing homes. It describes the FBI investigation and the matters of concern, quoting from the Wall Street Journal. I have not included the pages dealing with Integrated Healthcare Systems or Tenet Healthcare. I have supplied this information elsewhere.
12. Why we should be very suspicious of the decision to allow Sun into Australia. (to contents)
We need to examine the behaviour of politicians in the past and relate this to the strong business and economic rationalist political forces at work to understand what has caused them to disregard our welfare and to knowingly support the entry of corporate criminals into Australia in the past. These forces are stronger today than they have ever been. Senior politician's careers are at stake. The decision of the deputy treasurer to ignore the objection of NSW when he brought Sun Healthcare into Australia is likely to be a reflection of the "pain" of our politicians. International health consultants advise corporations to exploit this "pain". They claim there are "silos of opportunity". If our politicians fail to corporatise our health system then they will be forced to open the whole area to rational discussion and to openly review the vast volume of available evidence. This will inevitably expose major deficiencies in the economic rationalist ideology and result in the development of a system which would limit the application of economic rationalist solutions not only to health care but to other humanitarian endeavours. Our leaders see this as a threat to the universal applicability of the market forces which they believe should be the driving force for all our activities. The following article provides a key to this.
Hospital laws to be reviewed -- West Australian 10/8/94
This article is revealing of the relationships between politicians and the health departments which existed in Australia in 1993 and 1994. It is also revealing of the willingness of our governments to turn a blind eye to information in their possession when this challenges their policies. To understand the significance of this article you need to know the background.
The Tenet/NME story:- Until the present federal government gained power health department appointments were reasonably secure. Health departments were able to take an independent stance when this was in the interest of citizens. West Australia, NSW and Victoria did so when confronting Tenet/NME in Australia. Tenet/NME was brought into Western Australia in 1991 during the Carmen Lawrence government and was strongly supported by the WA coalition party when it gained power. By Feb 1993 WA and NSW health departments were in possession of a large volume of disturbing information. In February and March 1993 the WA health department prepared a series of reports in which they indicated that Tenet/NME's majority holding in AME posed a serious threat to the Australian Health system. They indicated that the department did not have the power or the legal protection to remove Tenet/NME/AME's hospital licences.
WA advise their minister:- The WA health department advised that the minister set up a process to address the issue of Tenet/NME/AME's hospital licences. They also indicated that there were major deficiencies in all state and federal regulations which were designed to regulate church and community groups who were well motivated. Our system was not adequate to deal with the threat of corporate medicine. They advised a co-ordinated review of regulations involving all state and Federal legislatures. The WA government ignored this advice and instead supported AME.
The establishment response to WA Health department's report:- In September 1993 justice Yeldham granted AME a licence over the objection of NSW health. Yeldham had himself accepted that the information in his possession indicated NME's unsuitability. Instead of rejecting the licence application outright he granted the licence subject to conditions which he claimed would shield AME from NME's influence. It is this decision and the complete inadequacy of the conditions he imposed which were of so much concern. The WA government immediately attempted to direct public hospital pathology services to AME's pathology business. The Federal government also directly supported AME with taxpayers money through the Australian Investment and Development Bank (AIDC) and the department of Veteran's Affairs. In addition a consortium of Australian banks gave AME a large loan to fund expansion in Queensland, Victoria and NSW. This loan was conditional on an NME trained administrator running the hospitals and on continued access to Tenet/NME's expertise under the terms of a contract which Yeldham simply ignored. The continuation of this contract effectively emasculated the conditions which Yeldham claimed would shield AME from Tenet/NME's influence! This was hidden from the public by the wording of a section of the conditions which were written by AME's lawyers.
Tenet/NME's position becomes untenable:- In early 1994 an Australian citizen obtained advance information of the planned guilty plea and $379 million fine in the USA. Health departments and the medical profession were informed. Press reports describing similar practices to those in the USA in an NME hospital in Singapore became available. Victoria stood firm as did doctors in Queensland. AME withdrew from these states. FIRB finally acted on advice from NSW Health department and blocked the purchase of Hanley Moir pathology in NSW. They restricted Tenet/NME's further expansion in Australia.
WA Health goes public about its concerns:- It seems that WA Health tried to initiate a review of regulations again at this time. This article in the West Australian in August 1994 reports information supplied by Nigel MacBride, head of WA Health department's legal section. In this MacBride indicates the advice he has given in regard to revising the regulations in WA. Once again the WA government failed to act.
Tenet/NME believed that government were still on side and wanted them:- After the guilty plea and the renewed support of US bankers, Tenet/NME/AME indicated that they were confident that they could persuade Australian politicians to review the FIRB decision to restrict their expansion. This was reported in the press. It is interesting that they could feel so confident unless of course they had already been advised that if they could show evidence of reform then the decision would be reviewed - in other words unless they had inside information. Senior staff from the USA including Michael Ford the president of NME's international division came to Australia in October 1994 and went with Denis Brown the ex-Singapore administrator running the Australian hospitals to lobby our politicians.
Politicians were manoeuvred into the correct decision:- My experience and distrust of politicians leads me to strongly suspect that the initial decision by FIRB (really the deputy treasurer) to block Tenet/NME was a temporising measure which would be lifted when the publicity had blown over and Tenet/NME was able to claim that it had taken steps to reform its practices. The political, business and economic pressures to retain Tenet/NME in Australia were very strong. To counter them our politicians were supplied with full transcripts of the Singapore doctor's allegations describing attempts by Ford and Brown to trade in patient referrals. Brown and Ford had not given evidence to challenge the Singapore doctor's evidence and the allegations made against them. The arrival of these documents on their desks very shortly before the lobbying groups arrival, gave politicians time to read them but did not provide an opportunity for any plans to be made to address the problem, or for Tenet/NME to learn of this and cancel the meeting. The inability of Brown and Ford to explain their failure to contest these allegations would have made it impossible for politicians to justify withdrawing the ban on Tenet/NME's further expansion. Their likely behaviour had been anticipated and they had been "set up" to ensure that they had no choice but to behave in the interests of Australians.
Political priorities, not the welfare of Australians have determined subsequent decisions:- FIRB (actually the deputy treasurer) very rapidly approved the entry of the health multinational Generale de Sante Internationale (GSI) as a purchaser of Tenet/NME's Australian holdings and then refused to review the decision when supplied with information which indicated dysfunctional profit before care practices in some of its hospitals. This desperation to replace Tenet/NME with another international megacorp is a reflection of the political pressures analysed by Ron Williams in 1992 and to which I have referred in the section of "Rewards of Deviance" supplied earlier. Wide adverse publicity followed and GSI withdrew. GSI has now been sold but I do not know the reasons for this. Our politicians showed a similar blindness in welcoming Columbia/HCA into Australia in February 1997, at a time when its dysfunctional practices were receiving wide publicity in the USA. A US congressman had predicted criminal investigations and prison sentences. Once again action by doctors and Australian citizens who secured documents and made them available caused Columbia/HCA to back away.
The end of this story in WA:- The saga in Western Australia did not end with McBride's statement to the press. Freedom of Information legislation was passed in 1995 and the reports made to the minister in 1993 were released late in 1995. These reports were tabled in the WA parliament in October 1995 at the time when Tenet/NME's Australian holdings were being sold. The minister maintained his position and his support for Tenet/NME. It is clear that he regretted their departure. Since that time I believe that 11 senior staff, including MacBride have resigned from WA Health. Sweeping changes have been made in other states. Tenure of senior posts has become far less secure. The likelihood that state authorities will stand up to politicians in the future is remote.
The implications of this information for the deputy treasurer's controversial decision to bring Sun into Australia:- The pressures on our politicians to behave in their own political interests and in the service of their ideologies, rather than the welfare of Australians are greater today than they have been. in the past Their desperation and their pain are only too apparent. We need only examine the attempts to force doctors into hidden agreements with a company which has in the past made agreements to defraud their customers, and the attempt to induce the banks to offer health care packages. There is consequently no reason to believe that politicians have behaved with any more probity in bringing Sun Healthcare into Australia. We have every reason for insisting on a full disclosure of all matters surrounding Sun's entry into Australia. The documents disclosed by FIRB under FOI are not adequate.
Questions need to be answered:- Has our minister and his department had any contact with Sun or Alpha and have any steps been taken by federal ministers to encourage Sun to enter Australia? Did Sun behave with probity and integrity in its dealings with FIRB and in its disclosure of relevant information? What advice did FIRB give to the deputy treasurer? Did the deputy treasurer ignore the advice given by FIRB? Has the government made any behind the scenes agreements with Sun, Alpha and the Moran group? Has the minister given them any undertakings in regard to government policy which we are not aware of? Will they be the vehicle for the forceful introduction of managed care into Australia? More importantly does the Sun,/Alpha/Moran complex have the support of the opposition federal labour party and have they made any commitments? The present government is not doing well and it is unlikely that it will regain power. An election is imminent. Sun is aware that Tenet/NME and Columbia/HCA came unstuck and the reasons. Its track record on the same issues is not good. It would not come into Australia unless is was very confident of the support of any future government.
Both political parties are fully informed:- Both the Hon Trish Worth,MP, Chairperson Government Health, Family Services and Vets Affairs Committee, and the Hon Judi Moylin MP, at the time Minister for Family Services are in possession of extensive material relating to the practice of corporate medicine (including managed care) in the USA. They are aware of the corporate forces at work and of the consequent fraud and misuse of trusting people for profit. The shadow minister for health, The Hon Michael Lee has been supplied with the same material, but to my knowledge has not attempted to challenge the path which the government is following. His predecessor, Dr Lawrence was premier in WA when Tenet/NME entered Australia in 1991 and the federal labour government continued to support Tenet/NME in 1993 when Dr Lawrence was federal minister for health. She had been supplied with extensive material relating to Tenet/NME's business practices. Her response was identical to that of the current minister which is included in the documents.
13. Federal Correspondence and FIRB documents. (to contents)
I have obtained access to correspondence with the federal minister for health and to FIRB documents obtained under Freedom of Information regulations (FOI).
Letter from a Federal Senator 28/8/97
Letter from the Minister for Health and Family Services 1/8/97
This letter from the minister is very similar to that I received when I supplied documents relating to Tenet/NME's business practices to Dr Lawrence when she was minister for health in 1993. The minister and his department claim that they have no responsibility for private hospitals. They have advised FIRB that the responsibility lies with NSW and WA where Alpha owns hospitals.
The trail of responsibility:- The ministers department is responsible for Medicare and for the investigation and prosecution of those who defraud medicare in Australia. He does not express an opinion in regard to the widespread fraud in the USA or about the introduction into the Australian health scene of a major player which is being investigated for fraud in that country. Two previous US giants have departed amidst revelations of fraud and the misuse of citizens. The dates are of interest. The letter to the minister from a senator was written on 17 June 1997. The US department of justice abandoned its criminal proceedings before or on 16 July 1997. The exact date when Sun advised FIRB of this is not known but it was probably 17 July 1997. The information that this was in order to pursue the matter through the civil courts reached Australia on 21 July 1997. The Department of Health and Family Services was advised by FIRB on 25 July and their opinion solicited. The minister replied to the senator on 1 August but this information was not given to the citizen who made the inquiry until 28 August some time after the decision made on 15 August to admit Sun had been reported in the press. We are entitled to ask whether the minister has had any contact with Sun or Alpha staff. Has he been lobbied by outside parties on this matter and what was his response? It is the practice in the USA for wealthy corporations to spend large sums to lobbing politicians and making donations to political funds. The minister has denied responsibility and we need to be assured that he has behaved with suitable probity, and that he and his department have directed any approach by Sun or Alpha to the relevant state departments. We need to be assured that he played no part in encouraging Sun to enter Australia.
A Yes minister solution is employed:- The processes employed to secure Sun's entry into Australia are revealing. The federal minister who is so eager to turn our health system into a level playing field and corporatise our health system, the minister who has a responsibility for addressing the problem of medicare fraud fails to express an opinion when a company being investigated for fraud enters Australia. Instead he uses the administrative ploy of correctly claiming that his department does not have any jurisdiction in the matter. It lies with the sates. The state department which he claims does have the responsibility objects to Sun entering Australia. The minister's junior colleague then uses the Federal powers invested in him by FIRB legislation to overrule the objection of the state which the minister claims has responsibility for the matter! Dear Oh! dear dear me! What a wonderful "Yes Minister" solution to the problem. Sir Humphrey Appleby would be immensely impressed.
Foreign Investment and Review Board (FIRB) -- Functions
FIRB Confidentiality -- Extract from Policy Perspective's on Foreign Investment and the role of FIRB by Tony Hinton. Oct 1996:- Note that FIRB is an advisory board only. The decisions are made by the treasurer or the deputy treasurer. Note the extensive provisions to protect the confidential relationship between the government and its FIRB advisers and also to protect the confidentiality of information relating to the corporate applicant. At the same time this secrecy can be seen as a serious limit on open government and an opportunity for a dedicated economic rationalist government to globalise our economy and bring dysfunctional groups into the country without proper scrutiny. While an argument might be made for policies like this for car importers, or the makers of ice cream they are certainly not applicable to situations where our personal welfare, our health and our environment are involved. The regulations controlling FIRB belong, like those involving hospital licences to a past era where integrity could be assumed and where government was independent from and more powerful than business corporations. They do not provide the protection given by an openness to public scrutiny
Letter from FIRB dated 22 September 1997 in regard to Sun Healthcare:- Note that Mr Hinton, Executive Member of FIRB specifically makes the point that the decision was made by the deputy treasurer. We do not know if this was based on FIRB's advice or whether it was made in the face of contrary advice.
Letter from the Treasury re documents supplied under Freedom of Information 11/12/97
List of documents released under FOI and
those withheld -
(Numbers in brackets refer to the number on the document)
Dealing with limited information:- Sun's application to FIRB is dated 27 May 1997(1). The documents released are largely fax cover sheets, many of which contain little or no information. I have therefore simply indicated on the list of documents released who sent and received them. Those with any useful information are marked with an asterisk and I have included copies. Some useful information can be obtained from all this but there are so many gaps that conclusions must be tentative. Clearly there were a number of telephone conversations and some decisions were conveyed verbally. None of the documents supplied by Sun to explain events in the USA are supplied. We therefore have no choice but to base our assessment and any action we take on the significant number of documents and information available at this time. We should look for congruence between different documents, while acknowledging that our position is tentative and that additional information might call for a revised interpretation. We can only act on the information released.
FIRB asks NSW about Sun:- The correspondence with NSW Health is revealing. NSW gave permission for their correspondence to be released with an explanation which is given in the letter 11 December 1997. FIRB made inquiries only from WA and NSW and not from any of the other states which might one day be dominated by Sun Healthcare - a minimum interpretation of the "consultation with relevant state government authorities" referred to in the FIRB letter of 22/9/97. In fact WA was only approached on 25 July 1997 (30) a month after FIRB had been advised to do so by the Health Insurance Service on 25/6/97 (13) and after NSW had objected. FIRB first notified NSW of Sun's proposal to purchase 38% of Alpha on 11 June 1997(5). On the same day FIRB provided the Australian Federal Police with reports that Sun were under investigation by the FBI and asked them to investigate(4). From the information supplied it can be concluded that this information had not been disclosed by Sun Healthcare. NSW Health were supplied only with Sun's application and not with this information. From the latter correspondence (16) it can be concluded that they gave their approval to Sun's entry. There is nothing to suggest that FIRB supplied the information given to the Federal police to NSW. This was essential for an informed decision. The NSW health minister was supplied independently by another source with information about Sun around this time. It may have been as a result of a telephone inquiry by NSW that FIRB supplied the additional information on 27 June 1997(16). The comment "Since our original advice it has come to our attention" is interesting in the light of the identical dates on the faxes to NSW and Federal police. We can only speculate on the telephone conversations! NSW have previously been very critical of FIRB. This letter also by its wording reveals that Sun did not disclose in its application to FIRB that it was being investigated by the FBI . NSW objected to Sun's entry on 15 July 1997(20,20A).
NSW object to Sun:- From the letter dated 11 December 1997, the fax from FIRB to NSW dated 17/7/97(22) and the pencilled note dated 21/7/97 made by Margaret Kyburz on the letter of 15/7/97 (20A) it can be inferred that Sun's lawyers advised FIRB that the FBI's criminal proceedings had been withdrawn without advising that this had simply become a civil matter, the more common method of prosecuting health care fraud in the USA. That they were being "less than frank" soon became apparent. I am aware that the full press release about this matter was obtained from the USA on 21/7/97 and was probably in the possession of NSW on 22/7/97 together with an explanation of the manner in which US authorities preferentially prosecuted health care fraud through the civil courts. It seems that there were further phone calls because FIRB confirms to NSW that the investigation is ongoing and asks whether the objection still applies on 23 July 1997(26). This suggests that they already know that it probably will. It is interesting that the press release from Sun supplied by FIRB (34A) is different to that which was sent to NSW in that the headings on the FIRB document is in capitals, and that supplied to NSW was lower case. In a fax dated 25 July NSW reaffirms its objection (32). The rather pointed comment referring to their earlier objection is revealing. It states "The NSW Government did not distinguish between criminal and civil investigations and so by implication, the NSW Governments objection still stands while civil investigations are being pursued." Bureaucrats have their own means of expressing their sentiments within formal language. NSW is not impressed by the behaviour of Sun and FIRB. They are probably aware of the pressures on the federal government, on the minister for health and consequently on FIRB.
A lack of "frankness and candour" by Sun Healthcare? The lack of frankness and candour displayed by AME and NME in their dealings with NSW Health was one of the reasons cited for advising Yeldham to reject AME's licences in 1993. They felt that AME could not be trusted with the lives and well-being of Australians. Part of this lack of frankness was Tenet/NME's application to FIRB without disclosing that it was being investigated in New Jersey and Texas for misusing patients. In their dealings with NSW, Tenet supplied half truths and withheld information. Documents obtained from the USA exposed this lack of integrity and NSW promptly advised Yeldham to reject the licence application. His decision and his vulnerability to "improper influence" are now well known. What is revealed is that Sun has behaved in exactly the same way. It did not volunteer information highly relevant to an assessment of its suitability to enter Australia. It then supplied a misleading half truth. Legally it is not required to be honest and up front but this is a provider of health care and it is asking Australia to trust it with the care of its citizens. The matters Sun is concealing are very important and very relevant to their operations.
The corporate legalistic approach:- All of the major US corporations, including Tenet/NME and Columbia/HCA have capitalised on any loopholes in the laws and state regulations. This is considered a legitimate corporate practice. They have adopted a legalistic approach ignoring their ethical and moral obligations. I cannot accept that this is appropriate conduct for a company which is to be entrusted with the care of our vulnerable elderly and the trusting sick.
FIRB's advice to the treasurer:- When Sun was challenged with the FBI investigation it responded with only half the truth and did not reveal that the civil investigation was ongoing. I find it difficult to believe that FIRB were not as affronted by this conduct as were NSW in 1993. It would be most unusual for FIRB to disregard an objection by the largest state in which the company will be operating. As a consequence I strongly suspect that FIRB advised that Sun's application be rejected and that the deputy treasurer acting for the government did not take this advice.
Were cabinet and the Health Minister involved in the decision?:- I do not believe that a decision to bring a company being investigated for fraud into Australia over the objections of one of Australia's largest states and quite probably probably also over the advice of FIRB would have been made by the deputy treasurer alone. It would have gone to the full cabinet. The minister for health and the treasurer would inevitably have had a major input into this decision. The decision on behalf of the government, by the deputy treasurer becomes less and less tenable as the matter is explored. We expect our leaders to behave with probity. Did they do so?
The Department of Health and Family Services:- Like me FIRB clearly believed that this would be a matter of concern to our health minister's department. They supplied them with Sun's application but not the other material on 16 June 1997 (7). The minister was however personally informed of the concerns about Sun by a senator on 17/6/97. The minister's department responded on 25/6/97 (13) advising FIRB to contact NSW and WA indicating that the federal department had "no responsibility" and that the responsibility for the ownership of hospitals and their licensing rested with the states. FIRB is nevertheless concerned that the department would have some views when they know that the company is being investigated for fraud. They may not know that the minister had been informed of this before the response on 25/6/97 (13). FIRB asks the minister's department for comment again on 25/7/97 indicating that Sun is under investigation. I can find no record of a response. Once again FIRB indicates "Since our correspondence (ie on 16/6/97) we have been informed". The documents show that FIRB were in possession of publicly available documents containing this information on 11/6/97 four days before it wrote on 16/6/97 (see 4). FIRB elected not to advise those whose opinion they were asking of this information and then claimed that they did not know of this at the time. What is really going on? Who is deceiving who?
The federal police investigation:- The federal police were asked to investigate the allegations about Sun on 11/6/97 (4). The results of this federal police investigation and the date of their reply have not been disclosed. We do not know whether they visited the USA and examined all the court documents or whether they interviewed the manager who had informed the FBI of Richard Turner's direct involvement in the matters under investigation. We do not know if they examined the publicly available documents referred to in the court documents to determine whether the matters involving a lack of frankness and disclosure referred to in these documents were factual. In the past the US department of Justice has been extremely unhelpful when Australian authorities made inquiries. I obtained the information about the FBI's massive investigation of Tenet/NME from fraud investigators and FBI agents whom I spoke to when I visited the USA in 1993. I supplied this information to NSW Health in July 1993 but it was not confirmed and Justice Yeldham ignored it. Departmental international investigations (e.g. the initial investigation of Tenet/NME carried out by NSW) have sometimes been no more than a guided tour around corporate hospitals.
The Australian Government Solicitor:- Documents on 24/6/97 (11), 23/7/97 (48) and 11/8/97 (43) indicated that FIRB took legal advice, presumably in regard to the allegations about Sun and the options available to them in addressing the problem posed by Sun's entry to Australia.
FIRB's Minute to the deputy treasurer re Alpha dated 13/8/97 (47)
This document was released under FOI but the actual recommendation in the first line has been deleted as have paragraphs 9 to 11 and 13 to 16. The first paragraph indicates that Sun Healthcare is pressing for a speedy decision for commercial reasons. Tenet/NME exerted similar pressure on NSW in 1992 and 1993. Paragraph 2 describes Sun's operations and indicates that it is under investigation. Paragraph 3 describes Alpha's operations in Australia and its foreign shareholders including the Malaysian group Tan and Tan Developments Berhad (20% holding) and the group Berjaya Group Equity (Cayman) Ltd (19.88% holding). With Sun the combined foreign holding will be at least 78%. Paragraph 4 documents Alpha's purchase of Health Care Corporation Pty Ltd (HCC) and paragraph 5 indicates that Sun's investment will fund this. This it indicates is part of Alpha's "long term strategy to be a fully integrated health care provider". This strategy should be examined in the light of the adoption of patterns of integrated services by Tenet/NME, Columbia/HCA and other US giants and the way this integration has been misused for commercial advantage rather than patient care. It has provided opportunities to control the way care is provided by exerting pressures on doctors and to indulge in a variety of fraudulent practices. Paragraph 6 records the NSW objection. Paragraph 8 provides further advice in regard to the US Department of Justice's investigation. Paragraph 12 addressed the issue of control. It indicates that the control of Alpha "would appear to change to include a new foreign person" and that action would be available under the Foreign Acquisitions and Takeovers Act 1975. It further states
"Under the foreign investment policy for the services sector, proposals are approved unless contrary to the national interest"
Letter from the Treasury to Sun's lawyers 15/8/97 granting Sun approval
All of the documents relating to Sun attached were in the possession of FIRB and available to the deputy treasurer. In our assessment of the government's ( ie deputy treasurer's) action in bringing Sun into Australia the critical issue is whether in the light of this information a reasonable and sensible person could possibly have been so confident that Sun's proposal was not contrary to the national interest, that he would disregard the objection of the state government primarily concerned.
Could any sensible person have made this decision?:- My view is influenced by the large number of allegations made. I do not believe that the FBI would have raided hospitals and that the Department of Justice and US states would have commenced fraud investigations unless there were substantial reasons for concern. To secure approval to mount an FBI raid rather than subpoena documents the FBI have to produce substantial material to show that a crime has probably occurred. The large number of actions taken by shareholders serves to add fuel to these concerns. Such actions are costly and would not be taken unless the parties considered that they could prove the allegations. Sun has already settled one of these court actions for $24 million, double the amount paid by Tenet/NME in 1991. I believe that any sensible person would take the position adopted by The Australian Financial Review in 1994 in regard to Mayne Nickless. They would conclude that there was substantial substance to the allegations made.
My prime concern in all this (as it should be for our politicians) is for the welfare of patients and the integrity of our health system. I am therefore influenced by the poor rating obtained by Sun in outside reviews when taken in conjunction with the findings of Senator Cohen's inquiry into ageing, the allegations of understaffing in US corporate hospitals, the dispute with nurses and the corporate claim by Sun's chairman that there is excess fat in the system. I am also acutely aware of the vulnerability of our health care system and of the conduct of other US health care giants. There is simply too much smoke for there not to be a large fire. I do not believe that any reasonable or sensible person could reasonably conclude that Sun's entry into Australia is not contrary to the national interest. The fact that this is health care, an area where trust is so critical makes the decision even more incomprehensible. Please don't believe me. I could be biased by the vast volume of information describing corporate misconduct in my possession. Look at the small selection of documents I have provided.
Foreign Investment Case: Sun Healthcare Group Inc -- brief re parliamentary questions.
FIRB briefs the minister to prepare him for questions about the issue. Note the claim that FIRB consulted extensively. We do not have much evidence of this in the FOI documents. Note also that "The outstanding investigation by the US Justice Department was assessed as not warranting rejection of this foreign investment application." It does not indicate whether this was an assessment made by the businessmen on FIRB's board or the deputy treasurer. I do not have access to the agreement with Alpha but the claim that " The proposal will allow Alpha access to Sun's experience in operating health care facilities in the USA and the UK" is particularly disturbing in the light of the ministers stated plans to revolutionise health care by using subacute hospitals.
A similar arrangement was made between AME and Tenet/NME in 1991 to give AME access to Tenet/NME's disturbing business expertise and the computer programs used to monitor and prosecute the US practices. Tenet/NME claimed its expertise was an asset to Australia and our businessmen agreed. This expertise resulted in Tenet/NME paying $1 billion in fraud settlements and to compensate patients who had been misused for profit. AME paid over $1 million each year for this Tenet/NME expertise under the $1 million a year agreement. Yeldham crafted licence conditions which he claimed would shield AME from Tenet/NME's business culture in 1993 but did not prohibit access to this expertise. How the culture could be separated from the expertise developed within it remains obscure?
Like Tenet/NME and Columbia/HCA, Sun's expertise was developed in the US marketplace within the US business culture where dysfunctional practices have been richly rewarded. The allegations about Sun are not reassuring in regard to the likely nature of this expertise. Once again we have the heavily used and unsubstantiated fallback position that "Importantly, the activities of health care delivery companies in Australia, including Alpha, are regulated by the relevant state authorities." Such claims never confront the total failure of state and federal regulations in the USA or the funding and expertise implications in Australia.
Letter Treasury to Sun Healthcare's lawyers 4/9/97 re joint venture with Moran Health Care Group Pty Ltd.
FIRB gave its approval for Sun to buy into Alpha in 15/8/97. The application to buy 51% control of six Moran facilities was lodged on 27/8/97, 12 days later and approved only 7 days later. This purchase has not been released to the press and none of the states, particularly NSW has been notified. Unlike the Alpha purchase Sun will have an outright majority and will fully control the operation of the hospitals.
Letter Alpha Healthcare to FIRB 5 August 1997 (now on web site)
This letter was released under FOI some time after the original material. The importance of this letter is that it openly indicates Sun's intention to be involved in the provision of aged care and also in step down facilities. Alpha intends to capitalise on Sun's expertise in these areas.
"Sun Healthcare Group, Inc (Sun) is an industry leader in the United States and the United Kingdom in long term and subacute healthcare."
Commenting on the ageing population and disease processes in the aged the letter states
"--- investment by international market leaders such as Sun, is directly in Australia's best interests.
"Sun's healthcare skills match Australia's needs"
"Sun's investment will assist Alpha in the growth of a robust Australian subacute and aged care industry."
"There are currently severe gaps in Australia in the areas of sub-acute care, community and domiciliary and aged care. The subacute and aged healthcare industry badly needs the experience, expertise and investment funds of leading private sub-acute and aged healthcare provider."
"Sun's skills portfolio perfectly fits Australia's demographic patterns of community ageing and its consequent healthcare requirements."
There can be no doubt about Sun's intentions in Australia, nor that it plans to run nursing homes. Nursing homes are licensed by Dr Wooldridge's own department. He refused to comment on Sun's admission claiming that hospitals were licensed by the states! How remarkable that his junior colleague disregarded the objection of the state where Sun would operate.
Note also Alpha's interest in Sun's expertise
"Sun's investment will provide the Australian health care industry with:a broader base of experience in integrated health provision (from rehabilitation to sub-acute to community and home nursing care) than is currently present;
international experience and a comprehensive view of western health markets in subacute care;
models of healthcare currently unavailable in Australia, e.g.: certain 'best practice' models and benchmarks; technical direction and expertise; new technologies and treatments; currently unavailable knowledge and skills; leadership and focus in subacute health care"
"With an enhanced capital base, Alpha Healthcare will be strongly positioned to provide a more comprehensive range of health care services in order to satisfy a rapidly growing public need."
Several issues emerge here:-
Integrated services:- While integration in the interests of patients may have advantages experience in the USA has shown that in the corporate for profit environment it has been severely dysfunctional and has been used to secure market dominance and control, to obtain compliance and co-operation from the medical profession and as a means of defrauding medicare by cost shifting and other unethical or criminal arrangements. It is also anticompetitive as doctors are required to refer along the corporate path as corporate managers, rather than doctors take control over the care which patients receive.
Sun's international expertise:- US corporations have been selling their dubious expertise and practices to gullible politicians all over the world creating a false credibility for their activities. International consultants speak of "silos of opportunity" and urge corporations to sell their corporate packages directly to politicians by exploiting their pain. Businessmen welcome this because corporate profits are immense. In 1991 the Australian company Markalinga (renamed Australian Medical Enterprises - AME) entered into an agreement with Tenet/NME to pay over $1 million a year for their dysfunctional expertise and the use of their managerial staff. The nature of this expertise and its consequences were reported in US and Australian newspapers. Even after NME had paid $200 million to settle fraud related court actions Australian banks made large loans conditional on this agreement. I have examined newspaper and other documents and as an "ageing Australian", the introduction of Sun's expertise frightens me.
Market control:- In the USA market control and dominance has reduced or eliminated choice. As I recall Dave Lindorff in his book "Marketplace Medicine" described how corporations bought up all the nursing homes in an area and then thumbed their noses at regulators attempting to maintain standards. Regulators could not close the homes and throw the frail aged out into the streets.
Misleading claims:- In the final paragraph of the letter Alpha states
"Sun's proposed investment has already been closely scrutinised, with positive outcomes by both independent experts and by Alpha Healthcare shareholders - - - -."
This interests me because I have examined similar expert reports by Arthur Andersen when Tenet/NME purchased Markalinga in 1991 and by Baring Brothers when Tenet/NME sold in Australia in 1995. Both evaluated only the financial issues and the prospect for profits for shareholders. Arthur Andersen failed to address the Texas and new England government court actions alleging alleging fraud and the misuse of patients for profit and the control of doctors nor the senate investigation in Texas and the numerous accounts of kidnapping in the press. They failed to address the need for hospital licence holders to be fit and proper persons in Australia nor the implications of this for the business. Neither of these reports addressed issues of integrity and patient care. When I took these matters up with Baring Brothers they replied that these considerations were not in their brief. It would be necessary to carefully review not only the report but the brief given to the independent experts.
The deceptive use of language:- This letter exhibits many of the features of Tenet/NME correspondence, particularly a letter from Markalinga dated 6 June 1992 and a statement made by NME on Australian television in October 1992. At the time I called this "NMEspeak" to draw a parallel with George Orwell's "newspeak", the creation of a false reality by the misuse of language. John Ralston Saul has since written at length about this. The technique is to ignore all matters of concern while making elaborate claims to credibility, and making assertions and claims which presuppose that the company's conduct in the areas of concern are absolutely exemplary. This sounds very impressive to the conceptually illiterate and is readily accepted by them in the place of evidence and argument. I felt so strongly about this that I wrote a strong criticism of this letter.
14. Past Efforts to address the loophole in FIRB regulations. (to contents)
Letter to the Hon Treasurer of Australia The Hon Mr Dawkins 3/10/93
The case of Tenet/NME and FIRB:- In 1993 I obtained documents from FIRB under FOI in regard to Tenet/NME's entry into Australia in 1991. These revealed a major loophole for criminals wishing to enter Australia. Criminals and those threatened with criminal convictions can enter Australia legally without disclosing information which would be relevant to their suitability to operate in Australia. There is no requirement that they disclose such information and there is no penalty or requirement that they leave Australia should they later be shown to have failed to disclose relevant information. Tenet/NME took advantage of this giant hole in the protective legislation and then simply thumbed their noses at state regulatory bodies such as the health department in WA which did not have the power to block them. In NSW Tenet/NME/AME adopted a very aggressive approach and threatened legal action if the licences were rejected. Had they commenced such an action then the health department would have had to mount a very costly taxpayer funded defence bringing witnesses from the USA. This was particularly difficult for them because the state government at that time was supportive of Tenet/NME. NSW Health would require government approval for the funds to fight a court action. The legal section of the department had taken independent advice and clearly felt that they could defend their action. It is to their credit that they advised against a licence - but they were then overruled by Justice Yeldham. The loophole in FIRB regulations places state regulatory bodies in an impossible situation. I wrote to the treasurer to draw his attention to this problem and urged him to address these deficiencies. At this time I did not know that WA Health department had made the same recommendation, with as little success.
GSI and then Sun use the same loophole:- I do not have details of Generale de Sante Internationale's application to FIRB in 1995 but suspect that the same thing happened then. It has now happened again in the case of Sun Healthcare, but the revelations about the FIRB process are far more disturbing. The company's failure to disclose information and their deliberate less than frank disclosure was known to FIRB and to the deputy treasurer before the deputy treasurer gave his approval. Both knew that WA would be powerless and that NSW had previously advised the rejection of a licence because of a similar lack of frankness and candour. Both must have realised that now that the criminal proceedings against Sun had been altered to a civil action NSW and WA would be in exactly the same difficult situation in which they found themselves in 1992/3. All of this information has been made available to government departments over the last few years. These are intelligent men and women, our leaders. Do they watch "Yes Minister" and learn how to get things done.
WA Health department had drawn attention to legislative deficiencies:- The WA Health Department had already , in February and March 1993 indicated that our federal and state legislation was deficient and urged that something be done about this. This advice was ignored. I did not obtain these reports until 1995, but such reports would have created a stir in government departments and it is likely that federal departments were aware of them. WA Health were pressing the matter strongly and it seems likely that they correctly foresaw that the situation would recur.
Letter from Dr Carmen Lawrence, minister for Human Services and Health to Senator Belinda Neal, member of Senate Community Affairs Reference Committee dated 4 October 1995
Letter to chairman of Senate Community Affairs Reference Committee 18 Oct 1995.
Medicare guarantee for investors The Australian ?7/10/95
Senate Community Affairs Reference Committee:- During 1995 I drew the serious deficiencies which had been exposed in FIRB and in the state regulations, which should protect citizens from US corporate health care predators to the attention of the members of the Senate Community Affairs Reference Committee. I supplied them with the 1993 reports from WA health department. I understand that several members were eager to mount an inquiry into these issues and the Tenet/NME debacle provided a focus point for this. There was some opposition. and the letter from the minister for health to Senator Neal dated 4/10/97 was not supportive. When NME pulled out of Australia enthusiasm for the planned review of health legislation diminished. I countered this by writing to the committee on 18 October 1995 pointing out that exactly the same problem had surfaced in the case of GSI, the French health care giant. GSI had been given approval to enter Australia so rapidly that none of us had been given an opportunity to inquire into its practices. The letter dated 18/10/95 describes the concerns about GSI and the way in which FIRB and the deputy treasurer gave approval without making any inquiries then refused to address information when it was made available to them. A number of us had picked up the telephone and spoken to the people involved in dealing with GSI in the UK. Information and documents were readily obtainable. FIRB received several submissions within days of their hurried decision. There was adverse press publicity and GSI stopped bidding to buy AME and enter Australia.
The labour government and economic rationalism:- The newspaper report from the Australian was sent to the Senate Community Affairs Reference Committee with the letter dated 18 October 1995. It is of interest because it addresses the development of integrated services by corporate providers in the private sector in Australia. This attractive sounding practice which is claimed to increase efficiency has been extensively exploited and misused by giant health care corporations in the USA. The AMA express their concern about this. The validity of these concerns in 1995 is now only too apparent from the dramatic exposures, during 1997 of the abuse of these integrated systems in the USA. The final paragraph is fascinating in that it reveals the economic rationalist perspective of Mr Gear, the deputy treasurer who made the decision to bring GSI into Australia. He says "the Government's principle objective was efficient patient care". This was the labour government speaking, not the coalition. It is clear that both major political parties are determined to corporatise health care in the interests of "efficiency" regardless of the actual non financial costs to citizens.
Explaining political behaviour:- It is time to make some attempt to analyse political behaviour. What is happening? Why do politicians behave like this? What are the options?
a. The corrupt politician theory:- We can postulate that our political leaders are highly intelligent but essentially corrupt and self interested. They have never abandoned their intention to bring foreign giants into health care in order to rid themselves of the recurring problems and responsibilities which plague the health portfolio. There may be personal, political or perhaps financial advantages for individuals. Under this theory some of those in whom we have placed our trust have deliberately frustrated legislative reform as this would have restricted their ability to bring criminal and/or dysfunctional corporations into Australia. They have correctly interpreted the information supplied to them and understand that dysfunctional corporate practices are endemic to US corporate health care providers and are the consequence of developing a corporate health care marketplace. If the legislation were reformed then they would be unable to bring them into Australia.
b. The thick as two bricks political theory:- We can postulate that our leaders are unbelievably stupid. In my letter to the Senate Community Affairs Reference Committee dated 18/10/95 I describe an "Alice through the Looking Glass" telephone conversation I had with a senior Veteran's Affairs Canberra official. We can postulate that all of our government and both political parties think in this way. As economic rationalists they value efficiency and particularly economic efficiency above all else. Tenet/NME, Columbia/HCA, Kaiser Healthcare and many other health care giants have displayed great efficiency, efficiency in defrauding the system, efficiency in exploiting the financial opportunities presented by patient care, efficiency in cutting staff to maximise profits. These people have become enormously wealthy through these practices and consequently enormously credible in corporatist eyes. That the great god "efficiency" could lead to the misuse and abuse of citizens on a massive scale is unthinkable.
c. The Cognitive psychology explanation:- Neither of these tongue in cheek hypotheses is credible, although they may partly explain some actions. Some at least of the cabinet are transparently honest people. There is no reason to doubt that our health minister believes very sincerely in what he is doing. He is so sincere that he is able to convince his colleagues, his party and large numbers of uninformed Australians. Our leaders come from all over Australia. Can we really accept that they operate in "through the looking glass" mode?
Comparable situations:- I have once before been closely associated with a similar situation where there was as large a chasm between facts and common sense on the one hand and political ideology and policy on the other. This was the Verwoed Government in South Africa. Verwoed was a very intelligent and a very sincere man, and intensely religious. He was the intellectual who developed the theoretical "parallel but equal development for black and white citizens" arguments used to support the ideology of apartheid during the late 1950's and early 1960's. As Minister for Native Affairs and then prime minister he applied his theoretical concept of parallel but equal development to "reform" South African society into the ideological utopia he saw. He did this in the face of overwhelming evidence that it could not work and that the consequences for black South Africans would be disastrous. Verwoed was sincere and credible as were some of his colleagues. Within the context created by his political colleagues and the white population of South Africa the arguments were appealing. They seemed sensible and fair. He was able to persuade his colleagues and most of white South Africa that black Africans would be better off. He was able to do so because these people all thought within a narrowly defined set of ideas and compartmentalised any conflicting thoughts. While South Africans were well aware of contrary evidence and alternate points of view, these were never set against one another. A language was developed within which these matters could be handled without having to confront the contradictions. Within this language all opponents were communist and so became outcasts whose views were discounted. As a consequence all opposition and alternate points of view were discredited. To those in the country these beliefs were very real and made sense. I exploited these policies and their dedicated application to obtain equipment for my specialist unit in the hospital providing services to blacks where I worked. Once I had identified a comparable hospital providing services to whites with the equipment I needed I was always successful in getting that equipment for my patients. The real difficulties arose when I needed to provide the sort of services which were not needed in a white hospital.
A similar situation in Australia:- A similar set of beliefs now determines government policy in Australia. We live in a society which thinks in corporate and marketplace terms. Corporations, corporate managerial practices and economic experts are accepted unquestionably. If anything is wrong then trained managers are called in as consultants to resolve the problem. We have a grand plan to restructure society in terms of economic theory. Once again we have politicians who are receptive to credible sounding political theories and a population eager to think within this framework and adopt ideas which are attractive to them. John Ralston Saul has written at length about the consequences. He has shown how language is used to maintain ideological illusions in the face of evidence.
The chasm between belief and fact:- I believe that the explanations for the behaviour of our politicians are, as is so often the case in real life not simple. They lie within the realm of cognitive psychology. I will not address these as my understandings of the way the forces and political stresses operate to produce these effects is moderately dated and I am not a psychologist. This is also not a rigid explanation and as in South Africa, our politicians probably represent a spectrum of society, the clever, the corrupt, the stupid, the personally ambitious and those who are unhappy about what is happening but dare not get up and say so. The consequence in both countries has been the adoption of ideas, of policies, and of practices which are in direct conflict with all the facts when viewed from alternate perspective's. There is nothing unusual about this. There are many examples where governments and groups of citizens have adopted ideas and practices plausible within the group but ridiculous to any objective outside observer. Look at Germany (go and watch Schindler's List to see the process at work), Yugoslavia, Cambodia etc.
The validity of economic theories:- I do not want to suggest that the economic policies are not internally rational and that there will not be some efficiency and economic benefits as a consequence. Hitler was very successful in dragging Germany out of the recession in the 1930's but millions of Jews died. White society prospered under Verwoed in the 1960's. Both systems ultimately crumbled at vast cost to citizens. Dysfunctional ideologies often do provide some useful insights. Some of Verwoed's arguments can be seen in the aboriginal claims for recognition of their culture! The problem with government policy is not the possible short term economic benefits predicted by the theories but the other long term consequences for society and the people who live in it. These are not encompassed by the theories. This is particularly apparent in health care where the mental and physical well being of citizens are at stake. Not only are the consequences of such policies painfully obvious to those who think outside economic rationalist perspective's but the economic rationalist experiment has been tried in health care in the USA. It has been an abysmal failure.
I therefore favour the cognitive psychology explanation of political behaviour. The ideological pressures on our political leaders are forcing them to place a barrier between themselves and the alternate perspectives which give more insight into the real world. They simply will not set the evidence against their policies. They will not use common sense to challenge the theories which have become so important to them. Pseudo-explanations are developed and illogical claims are made to deal with the chasm between fact and the fiction of the ideology. Criticism and dissent are muzzled. Behaviour becomes increasingly irrational as democratic principles, value systems, probity, legal scruples and eventually even the lives of citizens are progressively sacrificed at the alter of expediency and the psychic need to support the insupportable.
15. Fraud in aged care in the USA. (to contents)
Special Committee on Ageing - US Senate 1995-96 Members
Senator Cohen's Health care fraud and abuse amendment -- Congressional Record 3/10/97
Health fraud costs billions in US. Brit. Med J 1/4/97
These are some samples from some of the information and comment about Senator Cohen's report into the care of the ageing. Extracts from statements by witnesses have been given in the material from the UK. I have been unable to obtain a copy of this report or the transcripts of the evidence of witnesses. What is clear is that it revealed widespread fraud in the provision of health services to the aged. We are clearly entitled to imagine what actually happened to the care given to the vulnerable aged who were exploited in this way. We can draw parallels with the way children were treated in profit hungry Tenet/NME's hospitals and in GSI hospitals in the UK. We can look at the consequence of similar practices elsewhere and fear the worst, but at this time evidence for the misuse of patients is not available to us. I do not know if Sun was mentioned in this report or by witnesses. The investigation was conducted during 1994 and Cohen's report was published towards the end of 1994. I understand that the FBI investigation into Sun's activities commenced towards the end of the investigation in October 1994 and subpoena's were served demanding disclosure of documents in December 1994. We do not know whether FIRB obtained the Cohen report and witnesses statements through the Australian Federal Police and whether they took the findings into account. Sun is one of the major aged care providers in the USA.
16. Sun's own account of events in the USA. (to contents)
Extracts from Sun Healthcare's reports to the US Securities and Exchange Commission
The earliest reports to the SEC which have been obtained date from 15/5/96. Earlier reports are no longer readily available. Information and quotes from them are given in the court actions which allege that Sun failed to properly disclose matters relating to the FBI investigation to the SEC and to shareholders. The allegations acknowledged in these reports are those which Sun itself admits to and which they must legally disclose. They are presented from Sun's point of view and Sun expresses its opinion. Sections of the actual court documents will give a better picture of the allegations, referring to the chairman and the boards direct involvement. I have attempted to take short relevant and representative extracts from the earliest and the latest reports, including others when they give additional information or greater detail. There are many hundreds of pages.
Court actions by shareholders
The Careerstaff Class action (allegation 14):- This action alleged that the Company aided and abetted an alleged breach of fiduciary duty by directors of Careerstaff. This action was discontinued but several other actions related to the Careerstaff deal were amalgamated into a Group Class action and this was settled for $24 million
Sun Healthcare Group Inc Litigation Class action (allegations 1, 15, 16) :- Six actions were commenced by shareholders in regard to the events surrounding Sun's alleged failure to properly notify shareholders of the FBI's investigation and raids on its hospitals and the financial consequences for shareholders involved in the take-over of Careerstaff. They were amalgamated into a single class action which was settled for $24 million in October 1996. The allegations in this action must therefore be accepted as much more likely to have substance.
Golden Care (also called Suncare) Litigation (allegations 1,15,16,17):- This action seems to relate to Sun's expansion and acquisition of Golden Care. The company asserts that the claim will not impact on their financial position and is without merit. I do not have access to these documents. A common thread which emerges from the information the company gives about these actions is the inference that the company has shown a "lack of frankness and candour" in its dealings with shareholders and the SEC. Such a lack of frankness may not be illegal in the USA and may not as the company claims impact on its financial position. It may reflect only shrewd, perhaps unscrupulous and certainly aggressive business practices. Businessmen and our political leaders consider such aggressive practices as a legitimate solution to our health care problems. We are nevertheless entitled to consider the possible consequences of applying such aggressive and possibly unscrupulous business practices to the care of Australia's frail and elderly citizens.
Bricknell Partners v Turner, et al (allegations 1,18):- Scant information is given in the company reports to SEC. The court documents themselves quote from company reports and from other documents. These quotations must be assumed to be accurate although some allowance must be made in that the extracts may be out of context.
Federal Investigation (allegations 1,2,19,20,21,22):- These extracts represent the company's account of this investigation. They claim here that they first became aware of the investigation by the US Dept Justice and the Department of Health and Human Services' Office of Inspector General (OIG) in January 1995. Other information reveals that the investigation commenced in October 1994 and that a subpoena demanding documents was served in December 1994. Many of the court actions are consequent on the company not informing shareholders (and even board members) of these matters until June 1995, six months later. Note that the prime concern about this investigation and the consequences should the outcome be unfavourable are financial. The company does not believe this will have a significant impact on the company's financial position. The company discloses in its 10-Q report on 14/8/97 that it will not be subject to criminal proceedings but that civil investigations are ongoing. In the USA fraud is most commonly dealt with through the civil courts as the fines are much larger, act as a greater deterrent and provide the government with large sums of money.
State Investigations (allegation 23):- The company does not believe that the investigation in Connecticut into possible misinformation in cost reports will impact on the company's financial condition or results. The S-4 report on 10/10/97 reveals that there are inquiries being made about cost reports in another state as well. It claims that these reports were made by a company prior to Sun's acquisition of the hospitals. This merely serves to confirm my assertion that such practices which are designed to stretch and even exceed the limits of legality in the interests of profits are endemic to the US corporate system of care. Businessmen and politicians consider this to be legitimate. Conduct which is less than frank is consequently legitimate. Directors have a fiduciary duty to maximise all opportunities to make profits for shareholders. The application of this sort of morality to humanitarian endeavours such as health care is what I am so critical about. The ethos of the corporate and caring worlds are simply not congruent.
Costs of litigation:- The company has spent US $5.5 million in 1995 and US $4.25 million, a total of almost $10 million in 2 years on legal fees relating to the federal and shareholder matters. This is as large as the total amount of the first settlement by Tenet/NME in Texas in 1992. The size of the legal expenses surely gives some indication of the gravity and the extent of the matters which are actually under investigation.
Conflict with nurses and with the nurses union:- The nursing community have been among the most outspoken about corporate practices in the USA. They have complained bitterly about problems in staffing, the inability to cope with work loads and the consequences for standards of care. Nurses are continuously in contact with patients in the hospitals and are therefore in a better position that doctors to see the consequences for patient care. They struggle to provide it. Nurses have addressed these matters in public statements, in meetings, in demonstrations outside hospitals, by marching through the streets of major cities and in industrial action against the major corporations including Kaiser and Columbia/HCA. My information is that the dispute between Sun and SEIU, the nurses union has been very bitter and that these matters rather than financial considerations were central to the confrontation. I have seen news reports of this but cannot find them. The company's expenses of US $4 million in 1995 in addressing this confrontation is a reflection of the nature of the dispute. This dispute with nurses needs to be examined in conjunction with the findings of the independent survey of nursing homes, the findings of the Senate committee into ageing, and the claims by Turner about "fat in the system".
Tax Audits:- The company is the subject of tax audits in Ohio and California. It is not stated whether these are routine procedures or whether Sun has been singled out for an audit because there are concerns about its tax returns.
Factors Which May Affect the Company:- This section describes the pressures on US companies and the vast profits they have been making. Governments are introducing cost containment measures, increasing regulation, retroactively making reimbursement adjustments, increasing inspections and imposing fines, refusing payments, baring medicare admissions and forcing closures of facilities not meeting standards. These are only some of the pressures which have made US companies so enthusiastic about international expansion. This section interestingly documents the difficulty for corporations posed by the prohibition of fee splitting arrangements in health care and the possibility that some corporate practices might be considered to be fee splitting. Businessmen consider fee splitting to be a legitimate business activity and some professional groups have succumbed. I understand that fee splitting among accountants is now a standard procedure. The fact that the customer on the accountant's level playing field might feel that he or she was not getting independent advice as a consequence clearly does not weigh against the business advantages.
Acquisitions:- Sun Healthcare, like Columbia/HCA has expanded by acquisitions and mergers very rapidly from only 7-8 facilities in 1989 to well over 400 in 1997. This PACMAN activity has extended to international acquisitions and its entry into Australia is part of the same process. This section describes the recent acquisition of Retirement Care Associates and Contour Medical Inc (Feb 1997- 107 facilities), an increased holding from 29% (purchased in 1995) to 71% in Ashbourne - UK in 1997, the acquisition of Careerstaff in June 1995, the acquisition of Golden Care in May 1995, the acquisition of Columbia Health Care (Canada) in Nov 1995. It has also expanded by the use of leases and management agreements. The companies preoccupation with expansion and with profits is exemplified in these sections. It indicates its intention to "continue to explore international acquisitions, particularly in Europe."
Such "consolidation" of business groups has become a central feature of business activity in the 1990's. Efficiency, credibility and economies of scale are favoured by the market forces and the theories of the economists. The impact on the structure of society and on the lives and opportunities for individuals are not competitive considerations. A basic legitimacy for capitalism within the democratic system has been that individuals and small groups could actualise themselves through their actions in society, prosper and be innovative. Rewards were both pecuniary and a sense of personal achievement. Smaller business groups are now unable to compete and are either absorbed or go under. This is the level playing field so loudly proclaimed by our minister as providing opportunities for all to compete for the customer shopping for quality and cost. In practice it is dominated by predatory groups which bully and destroy competitors and control the customer whose choices are limited. Our government claims to represent small business in Australia while at the same time it actively aids and abets corporate control through its economic rationalist emphasis on efficiency and economies of scale. Personal motivation , and a sense of personal achievement and satisfaction in the provision of services to others are the forces which drive health care and other humanitarian services. The US experience shows that the corporatisation and consolidation of health care under the control of profit hungry businessmen is disastrous for society because it destroys these very human motives.
Directors and Executive Officers of Sun:- The directors of Sun and a short curriculum vitae of each is supplied.
Remuneration of directors and senior officers:- Business managers are now amongst the highest paid members of society and newspapers indicate that their remuneration is often "puffed up" by large incentive payments. About 80% of US hospital CEO's receive incentive bonuses. This has been one of the major forces in driving the misuse and abuse of patients for profit. These documents show that senior executives receive "Long Term Compensation Awards" and "Options" The extent to which these are actually incentives and whether incentive payments are made to nursing home and hospital staff is not known.
Final Comment:- These documents reflect the business world which now controls and dominates US medicine and which our Australian leaders see as the efficient way to provide health care. Profit and growth are the two determinants of outcome which count. Illegal activity is evaluated not by the cost to those who have been exploited but by the consequences for the corporate bottom line. Employees build their lives within an environment in which a sense of self worth is based on profits generated and not on service provided. In the health care marketplace high standards of care increase costs disproportionally to the profits generated. Lower standards permit reductions in costly staffing. The cost savings far outweigh any loss of business. The customer is not the patient but the managed care company and the insurer who pays the bills. Their prime interest in the health marketplace is cost and not care. Our health minister has expressed his determination to reform health care into a competitive level playing field for the benefit of consumers. His subsequent statements reveal that this will be a level field in which managed care will be paid for by insurers who will contract with corporate providers - the economic rationalist utopia in which the funds provided to care for the patient are dissipated in profits for insurance company and corporate health care stockholders. What remains is available for care but executives are further rewarded if some can be diverted to increase profits.
17. Nursing care in US hospitals and aged care nursing homes. (to contents)
Hospitals shouldn't sacrifice patient needs to lower costs - Modern Healthcare 27/3/95 p 24
Home care's bad apples on display in Congress, on TV - Modern Healthcare 4/12/95 p 84
Nurses nation-wide air gripes against hospitals - Modern Healthcare 10/4/95 p 3
Hillhaven under siege again as union launches first salvo - Modern Healthcare 13/3/95 p 48
Hospitals putting profit margins ahead of high-quality nursing care - Modern Healthcare 6/2/95 p 32
ANA report stokes restructuring debate - Modern Healthcare 13/2/95 p 38
Unions make inroads in efforts to organize nursing home workers (The SEIU's primary target is for-profit nursing home chains) - Modern Healthcare 29/5/95
Sun subsidiary settles labor dispute in Conn - Modern Healthcare 13/11/95 p 25
These articles are simply representative of many and take us from general considerations about for-profit pressures on care, to information about nursing in corporate general hospitals such as Kaiser and Columbia/HCA, Home care fraud and then those areas where nursing rather than medical care is important in securing patient comfort, well being and survival; ie. nursing homes and subacute care hospitals. The articles lead us to Sun and its dispute with the nurses, its expertise in US nursing home and subacute care, and its entry into Australia.
The for profit motive and its impact on nursing care:- The first article is a Commentary by Modern Healthcare's editors calling for restraint in the application of managed care and in the preoccupation of for profit groups with collecting money and limiting services. It is representative of many similar attempts by this journal, whose readers are the managers and corporate providers to draw attention to the dysfunctional for profit pressures without alienating its readers. This is echoed in the statement "The focus of this healthcare industry seems to be on garnering market share, expansion, shifting capital into those areas, instead of delivering patient care," by CNA (Californian Nurses Association) President Kit Costello. "We're the first organisation to question the financial need for restructuring." This is quoted in an article entitled "Labor looks to lead counter-revolution : Calif. nurses try to establish beachhead in war on market-based reforms such as managed care." in Modern Healthcare Oct 16, 1995 p 47 which I have not copied here.
Nurses fight staff cuts which impact on care:- The remaining articles are a small sample of those describing the attempt by the nurses and the nurses union to counter the decline in health services consequent on being squeezed between corporate provider profit pressures and managed care restrictions. The validity of these 1995 concerns about staff cuts, and about "dressing untrained workers in uniforms like nurses" and so substituting less skilled and untrained persons for nurses simply to save money is given greater credence by the recent exposures in the USA. The concerns extend across the entire hospital spectrum. Note the targeting of Kaiser Healthcare and Columbia/HCA (not supplied) with mass demonstrations in California, Chicago and New York and other actions in Michigan, Florida, Illinois, Minnesota, Montana, New York, Ohio and Kentucky (not supplied). Note that Home Care, a service provided to the aged featured prominently in Senator Cohen's aged care inquiry. One Home Care provider admitted cheating medicare of $5.6 million for services he failed to provide to the aged. A nursing home billing specialist creamed off $7 million. It was easy to get away with these scams because policing of health care is costly and probably impossible. It will detect only the most blatant practices. I have repeatedly asserted that a health care solution like that in the US, which drives fraudulent practices using economic pressures and then tries to control them by regulation and policing is fundamentally and deeply flawed. It cannot work.
The nurses suggest ways to monitor and control the impact of staff cuts:- The article (Feb 6) is a thoughtful Commentary by Geraldine Marullo executive director of the American Nurses Association (ANA) in which the forces at work, the practices and the consequences are carefully analysed using data collected by the ANA. This data is further reported on Feb 13. The results mirror similar findings by the Service Employees International Union (SEIU) in 1993. Measures are suggested by the ANA for documenting and monitoring the consequences of the staff cuts and employment of untrained personnel. That corporations have not adopted the suggested system is hardly surprising.
The impact of staff cuts on standards in nursing homes:- The SEIU's main concerns have related to staffing practices by for profit corporations which operate the nursing homes where many of their members work. The California Nurses Association has also been active in addressing problems in nursing homes. The articles describe the actions they have taken. The targets of their attempts to resist pressure to contain costs at the expense of care have been the biggest offenders which are the largest for-profit groups. The for profit groups have fought back by intimidating union members and staff. There have been court actions by the union and by corporations as the union secured injunctions to restrain these practices and corporations lodged defamation actions to intimidate the unions. The largest nursing home providers were involved including Beverley Enterprises, Hillhaven, Horizon and Sun Healthcare. The SEIU produced two reports about Hillhaven. One entitled "Unsafe Haven: A Case Study of Hillhaven Corporation's Oakland Nursing and Rehabilitation Center" claimed "deficiencies in ensuring quality of care". Another "Unsafe Havens: Hillhaven California and the Subacute Health Care Business" raised questions about patient care at 30 Hillhaven-operated subacute-care facilities in California. Another review of nursing home care in Horizon nursing homes by a Massachusetts patient-care advocacy group found "a pattern of chronic violations of patient-care standards". The various corporations denied the findings of these reports.
The relevance to Sun Healthcare and to Australia:- These disputes and the allegations have relevance to Sun, not only because they suggest that these matters were endemic to the nursing home business, but because its chairman Richard Turner received much of his early administrative experience working in Hillhaven when it was owned by Tenet/NME and its board was controlled by NME' founding members including Eamer and Cohen. Turner was a co-founder of Horizon which grew rapidly. Turner left Horizon to found Sun Healthcare in 1989.
Subacute care in the USA and the new plans for Australia:- The report on Hillhaven's 30 subacute hospitals is of particular concern because of our health minister's recently announced plans to reform health care in Australia by building subacute-care facilities (he calls them step down hospitals) and offering Australian states incentives to do so. We should be particularly concerned that Sun, a US company which specialises in providing subacute hospitals, which has been in a similar conflict with nursing unions, which is the subject of US federal and state government investigations, and which is accused of being less than frank in its disclosures to shareholders as well as our FIRB, was brought into Australia by the federal government over the objections of the NSW government, the state where it will operate.
Sun settles with unions in Connecticut and faces another investigation:- The final report documents that the bitter dispute between the unions and Sun's Sunrise nursing home subsidiary in Connecticut has been resolved. Sun withdrew its defamation action against the union. The seriousness with which Sun viewed this nurses union action and the bitterness of the conflict is reflected in the $4 million which it spent in addressing the matter. The union could not have matched this. It is interesting that Connecticut's attorney general immediately commenced an investigation of 18 Sunrise nursing homes in that state and this is reported in Modern Healthcare in Nov 1995. A relationship between the nurses dispute and information which prompted that investigation is not stated. I do not have the early 1996 reports to the SEC but I do not recall seeing a report disclosing this Connecticut investigation to SEC and so to shareholders before March 1997.
18. Court Documents. (to contents)
Re Sun Healthcare Group Inc Litigation -- Class action (allegations 1, 2, 3, 4, 9, 10, 11, 12, 13, 15,16, 19, 20 to 37)
Sun Healthcare acquired Careerstaff in June 1995 prior to informing shareholders that it had been aware of the FBI investigation for 6 months. Careerstaff stockholders had exchanged their shares for Sun stock. Sun's share prices plunged. Six separate court actions were commenced and subsequently consolidated into this class action. Soon after similar actions were commenced in regard to the acquisition of Golden Care in May 1995. I do not have access to court documents from this action.
This Group action has been settled for $24 million and for the purposes of acting in the interests of Australian citizens I believe that we can assume that there is substance to these complaints and that the factual information provided is correct. The content of public and verifiable statements and documents indicate at the very least a lack of frankness and candour in the information supplied by Turner and the Company. I have listed the bulk of these allegations under the items above.
The Final Judgement and Order of Dismissal ratifying the settlement was on May 5, 1997. In clause 5 the court approves the settlement of the class action as set forth in the Stipulation. Each of the releases and other terms are described as fair, reasonable and adequate to the settlement class. The judge appears to agree that the claimants deserve the $24 million. Clause 13 indicates that none of this may be deemed to be "an admission of, or evidence of, the validity of any Released Claim, or of any wrongdoing or liability of the Settling Defendants or their related parties". Such clauses are normal in civil settlements and were employed by Tenet/NME and SmithKline Beecham in their massive settlements. The allegations are not tested in court and corporations continue to deny them. Such settlements do not serve society well and the Australian Business Review was critical of Mayne Nickless when it settled in a similar way and then denied the allegations. As ordinary citizens concerned for society we are entitled to examine the size of the settlements, the evidence provided and the nature of the allegations, draw our own conclusions and then take such action as we feel to be required to protect Australian citizens and the society we live in. The action I am taking is to make this material available to those who have these responsibilities and to make relevant comments based on my experience in studying corporate behaviour and the many documents in my possession.
Brickell Partners derivatively on behalf of Sun Healthcare Group, Inc.
(Allegations 3, 4, 12, 38 are referred to in the extracts provided. The sections not provided cover much the same ground as the group class action but do add some additional allegations. These additional pages refer to 1, 2, 9 to 11, 15, 16, 18 to 20, 22, 25 to 27, 35, 39-42)
This action describes the company's rapid expansion by acquisitions during 1994 and 1995 prior to the disclosures in July 1995. It covers much of the same ground as the grouped action, lending support to the accuracy of some of the statements and the quotes from documents. It expands on some of the allegations and sheds additional light on others.
19. The public face of Sun - What the newspapers say. (to contents)
Andy Turner wants the government out of health care. Period - New Mexico Business Journal, April 1996
Interview - views about government:- This is a report of an interview with Turner. The article describes Turner as "The dynamic, outspoken and sometimes controversial CEO of Sun Healthcare Group Inc." He left the Tenet/NME owned Hillhaven to jointly found Horizon, a nursing home subsidiary in 1986. He left Horizon in 1989 buying 7 nursing homes from them to form Sunrise Health Corp . Turner's view is that the government should "butt out of health care". No comment is made that Sun is at this time being investigated for attempting to defraud the government funded Medicare and Medicaid systems! He asserts that government should fund the poor through the private sector. His views are congruent with the policies of the Australian government and would be music to our health ministers ears. Turner believes that care of public patients should be contracted out to private corporations, the view of most governments in Australia. He blames government regulations (which he was at the time alleged to have breached) for the costs of US Health care rather than the corporate demand for profits. Turner is opposed to medicare and supportive of managed care as the means of providing care to public patients.
Corporate language:- The corporate perspective and misuse of language is revealed in Turner's words when it is suggested to him that the quality of health care would suffer if the US got rid of regulators. This is where all corporate arguments fail abysmally. The response is revealing.
"The quality of health care suffers because of government support and regulation.1 The system takes away incentives to improve. 2 The marketplace would close poor operators. 3 If the government were to withdraw, disparities in quality would show.4 People would shop.5 They would find out which hospitals really offered the best care, and the ones that didn't would be out of business. 6 We don't think about free enterprise in the health care industry."7
A critical examination of this statement:- This is a classic example of the corporate misuse of language to fly in the face of fact and reason which Saul is so critical of. The issues of concern are not confronted. It is the sort of language used by our minister for health. Like the assertions which justified apartheid it is very plausible when interpreted within the narrow perspective's of economic theory and the marketplace. When I first encountered it in a conversation with an NME administrator and in documents in 1991 and 1992 I called it "NMEspeak". NMEspeak was characterised by the dogmatic assertion as incontrovertible fact of exactly those things which were most wrong and which were most vulnerable to criticism.
The facts about corporate health care have been available for a long time. Each number refers to the assertion in Turners answer.
*1 -- The quality of health suffers because profit pressures dominate over care and regulations cannot control this. Exposures of corporate practices since 1991 provide plenty of evidence.
*2 -- Incentives in the corporate marketplace are to improve profits and not care which suffers as a consequence. One need only examine the success of Columbia/HCA and Tenet/NME.
*3 --- In health the marketplace encourages poor operators provided they are economically efficient and willing to exploit the system by placing profit ahead of care. Incentives are linked primarily to profit not care.
*4 --- If the government were to withdraw, corporations would be more able to conceal the quality of care in their hospitals. Investigations have repeatedly revealed poor standards of care in corporate hospitals, matters which corporations and the corporate funded accreditation bodies had failed to address. We need only examine Tenet/NME and Columbia/HCA. The 1994 Consumer Reports review of nursing homes including Sun's directly confronts Turners assertion. Accreditation bodies have failed so badly that legislation is being brought in to make them accountable to citizens rather than corporations.
*5 -- People do not have the knowledge or enough experience of being ill to shop around effectively. They rely on corporate advertising and on the advice of doctors who are under corporate influence and control. Simply examine the way Tenet/NME operated. People do not find out which hospitals really offer the best care. They are confused by the mass of inaccurate advertisements. That patients are easily taken in, misled and misused is illustrated by Tenet/NME's conduct, by Columbia/HCA's success and by Kaiser's dominance in the face of evidence about its gate keeper activities and of standards in its hospitals.
*6 --- The best care costs more and those who provide it go out of business. Those who present only an impressive facade of care thrive.
*7 -- The last statement is the only true comment in this extract. Our population does not think about free enterprise in the health care industry except within the confines of the corporatist language used in this statement. We are part of the corporatist society which Saul describes as "unconscious" because of its blinkered point of view. If we did think about it and examined the evidence critically then we would see how free enterprise, an important guiding principle in our society was being misused. This would make us conscious and corporate medicine would vanish overnight.
In this statement Turner is using language to create a disconnected through the looking glass world in which everything is the opposite of the real world. Each one of us is drowning in a sea of information, claim and counter claim. Perhaps this is why we are prepared to grasp and hold on to strongly asserted statements even when they fly in the face of reason.
The role of business in health:- Turner states " I think operating health care as a business is a must. As long as the government operates the system, there will be no incentive to do better." Turner like his economic rationalist supporters uses more NMEspeak and cannot conceive that humans are motivated by anything other than greed. Pride in service and performance is not acknowledged. Government health services do badly when they crush and frustrate pride in service. The facts are that in the USA standards are good in high quality teaching hospitals where pride in performance and professional status drive services. Contrary to Turner's assertion, standards of care in the USA are inferior to those in Australia. In Australia much of the health service is provided through medicare, public hospitals and church or community not-for-profit hospitals. Professional performance and humanitarian considerations rather than profit have dominated care. International measurements reveal that overall standards of health and of care in the USA are among the lowest in the developed world, even though its profit oriented health service is the most expensive. This is not to suggest that there are not problems in funding our health system and that there is no room for improvement. That such problems exist is no justification for introducing a system which has failed so badly or for bringing "players" from that failed system into Australia.
Business ideas for reforming health care:- Turner follows Califano in his evaluation of the costs of health care for US manufacturing businesses who provide health insurance for employees. He also follows Califano in stressing the problem of the enormous costs during the last years of life and the necessity to ration these. Like Califano he suggests that this would be best done by market pressures. I find the rationale for using aggressive profit oriented market pressures, rather than professional considerations and value systems to decide which lives deserve treatment and which should be denied care very disturbing. The prospect that profit hungry corporations should make these decisions is terrifying, particularly in the light of Turner's statement about "fat in the system".
Fat in the system:- Turner states "There was and there continues to be, tremendous fat in the health care delivery system at a number of levels. We haven't even begun to cut the fat." Then later he addresses bureaucratic waste and fat in the provision of nursing services. He concludes "There is ton's of fat in the health care delivery system". This is the CEO of a company whose nursing homes have performed poorly in an independent evaluation and which is making vast profits in order to expand its corporate empire.
Confronting the "fat in the system" assertion:- Once again we need to set this claim against the facts and other information. The first consideration is that the quality of nursing home care is dependent not on business acumen but on the human qualities of those who have the patience, the dedication and the empathy to sit with, listen to and respond to the ailing, the mentally disoriented and the frail. The single most important service provided is time, the time of those in contact with the patients. These human values and the time involved cannot be measured or quantified in terms of profit's generated. Care will depend on the optimal use of available funds in purchasing time for care. We therefore need to set Turner's claim against the strong assertions of staffing problems and falling standards by nurses. Nurses like other health professionals have a prime interest in the welfare of their patients and this is reflected in the reports by the SEIU and by patient advocacy groups. Remuneration is important but is seldom a prime consideration. The strong stance taken by nursing unions and the bitter conflict with corporate nursing home operators can be seen as a reflection of problems in the nursing homes. Their stance is strongly supported by the magazine Consumer Reports 1994 adverse evaluation of the for-profit nursing home operators. We should see this statement about "fat in the system" in the context of the profit and growth priorities revealed in the company's statements to the SEC and to shareholders. The court documents, particularly the group action settled for $24 million reveal that the company's profits were increasing rapidly each year. As a consequence of this share values rose and Sun were able to use the value of its shares to fund its growth. The government is investigating to see if the company defrauded medicare and whether Turner instigated this. We can speculate whether the profit and empire building motives were the strong forces which drove the directors to this. We are also entitled to ask whether the rapidly increasing profits described were as much a consequence of cutting the costs of care as of fraud. When we examine the profits it is apparent that there is fat in the system and that the fat is the profits made for shareholders and so not available for care. In government and not for profit charity organisations limited funds would not be dissipated in this way.
Step Down Care:- Note the reference by Turner to subacute care, the new revolution planned by our health minister. Speaking of the future Turner says "You're going to spend less time in the hospital and you're going to get quickly shuttled to what we now call a nursing home". and "I think private business will become the primary purveyors of health care services and that the government-run homes are going to be fewer. I don't see much future for not for profit homes". Do great minds think alike so closely? Can we doubt that our minister and Turner have shared thoughts? What do our church and community hospitals feel about this?
1. I feel that the striking thing about Turner's statements is the congruence between his views and those expressed by our health minister and revealed in his actions. This is significant in view of the manner in which Sun was brought into Australia and the rapidity with which our minister announced plans to revolutionise Health care through "step down facilities" - a Sun speciality. We should ask what the relationship between Sun/Alpha and our politicians has been and what influence Sun has had on government policy.
2. The second issue is a theoretical one. I have suggested that the corporate health care marketplace selects certain personality types and fosters certain sorts of conduct and that this is dysfunctional for patient care and the health system. These undesirable features develop as a consequence of the application of a marketplace form of Social Darwinism which selects only on the basis of profits. This concept is based on my study of corporate documents, the US marketplace and the reports and available descriptions of the major players in Tenet/NME and Columbia/HCA. I have suggested that people who are highly motivated but one eyed in their approach will succeed. Such people will often be very successful in attaining their objectives. They work within narrow frames of reference and are able to compartmentalise conflicting evidence and perspective's so insulating themselves and their actions. They fail to confront conflicting viewpoints and the adverse consequences of their actions. Dogmatic assertions, a disregard for the truth and the use of rationalisations serve them well. Such rationalisations can be used to justify criminal behaviour which is then condoned. Some people like this are very intelligent.
Rokeach, a psychologist analysed this behaviour and the various factors which impacted on it in 1960. He called it "closed minded" behaviour. The psychiatrists have been less kind and talk of "successful sociopaths" (see Robertson et al MJA 1996). The milder form described by Rokeach is, he claims part of the spectrum of normal human behaviour. In a balanced democratic and civil society such persons are continually challenged and a form of social control exists so that their considerable energies can be directed productively. In a corporatist society and in modern corporate business organisations these social controls are eliminated because of the narrow frames of interpretation which are used. Such persons are able to dominate and control. In a world where success and credibility are measured in dollars people like this can ignore critics. Robertson et al indicated that many successful businessmen show sociopathic traits.
I have argued that in health care profits compete directly with care. They are made by limiting care and by aggressive business practices which have a negative impact on care. Those concerned at the consequences go under or else move elsewhere. Those able to look the other way are enormously successful. I have argued that the public statements of Columbia/HCA's founders and of Tenet/NME's founders and executives, as well as the documents and information available indicate that such a personality has been at the root of their success. These people are personable and relate well. They believe implicitly in what they are doing and have total confidence in themselves. They develop plausible explanations to justify their actions and seldom accept that they have done anything wrong. They are quite genuine in the things they say and do as they have already convinced themselves.
3. Are the views expressed by Turner appropriate in a provider of health care in Australia?
Watch them grow. And grow:- New Mexico Business Journal, April, 1996
This article describes Turners career from Hillhaven, through Horizon to Sun. It describes the rapid growth of both companies through PACMAN mergers and take overs.
This article also addresses the development of subacute care and of a post-acute care health delivery system. The objects are to improve profit margins, occupancy levels and payer mix. The order in the article is significant and patient care isn't even mentioned - this is the business mind! The race is to "position themselves for the niche" created as acute care hospitals are pressured to shorten their length of stays. It seems that these "post and subacute care facilities" are providing higher profit margins. The article goes on to explain how the US system is squeezing smaller operators and not-for-profit groups out of the health care business. The heading "Efficiency Does it Every Time" highlights that the emphasis is on efficiency rather than care, the same approach adopted by both of our political parties. (remember the statement of Mr Gear in 1995). The article states "The strategy today is growth and expansion", a point I made in discussing the previous article. "Sun and Horizon/CMS are growth companies; they do not disburse dividends. Instead they reinvest their earnings in their respective companies and in future growth to place themselves in the best possible position for the next major merger, the next large acquisition." How like Columbia/HCA. This paragraph helps us to understand the motivation behind most of Sun's practices. We can understand why it displayed such a lack of frankness and candour in its dealings with shareholders. Sun operates primarily in Massachusetts, Washington and Connecticut.
In the section "The Fickle Market" the article describes the pressures for reform in the USA and the uncertainty which this creates. This is why Sun and other corporate giants are protecting their interests by expanding into countries where these uncertainties do not exist.
The Evening News Jul 17, 1997 --
-- Extracts only from HEROES --- and ---- Fool on the Hill
This is a business analysis which compares what is happening in Columbia/HCA with Sun Healthcare. The market has been waiting for Sun to resolve the matter and as Tenet/NME showed timing is important. For one or other reason Sun has been able to delay and hold off the fraud investigation. The issue as a news item has now gone cold. Any sign of a settlement will be accepted positively. The announcement that the investigation has become a civil one reassures the market because a civil settlement however large will not prohibit eligibility for medicare and medicaid payments which is the critical issue . The only concern is the financial impact. Even if Sun, like NME pays several hundred million dollars in a civil settlement the impact on its financial status will be minimal, the cost of a few hospitals only. In the case of Tenet/NME the response of the market to a guilty plea and something in the order of $1 billion in fraud related settlements was positive as the matter had been resolved without limiting access to medicare and medicaid payments. The response of the market was to support Tenet/NME in an immediate massive take-over and expansion program funded by loans from the banks. Tenet/NME had a demonstrated performance record and its legal skills in dealing with its fraudulent practices were admired.
It is within this world of stocks and shares that the real decisions about health care are made. It is the profit pressures here which determines the disease treatments which will be targeted in advertisements, the sort of illnesses which will be treated, the nature of the treatment given, and the way in which individuals and their rights will be handled at a personal level. In his book Marketplace Medicine: The Rise of the For-Profit Hospital Chains, published in the late 1980's Dave Lindorff indicated the manner in which individual patient care was determined by financial policy decisions made in corporate board rooms. In the case of Tenet/NME it is possible to trace the path from stockbroker's analysis, through monthly reports to the board, through hospital computer generated monitoring documents to the misuse and abuse of patients in the hospitals in order to defraud their insurers.
Comment on the business world revealed:- These three articles, the corporate reports to SEC and the contents of the court documents provide a window into the corporate world which now controls health care in the USA and which our minister is encouraging in Australia. We can justifiably ask whether this is the appropriate milieu for the provision of health care -- regardless of the validity of the accusations made about Sun. Can powerful executives whose eyes are so firmly fixed on growth and on profit be entrusted with the welfare of sick citizens? Our minister is urging health professionals to enter into contracts and agreements with these groups whom he considers to be our allies. He wants us to work in co-operation with them. Agreements and contracts are designed to accomplish shared objectives and are based on shared value systems. Can the medical profession bring itself to identify with corporate objectives and share corporate values? The answer from the USA is that they can. Once they can be induced to converse and think in plausible corporate jargon then they lose their professional perspective's and adopt the corporate solution willingly. In the late 1980's and early 1990's large numbers of doctors in Tenet/NME psychiatric, rehabilitation and substance abuse hospitals went along with corporate practices and the misuse of patients. Doctors are now queuing up to do MBA's and other business courses.
20. Information from Sun's Web site. (to contents)
About our company
This supplies information about Sun's corporate leaders, where it operates and its many subsidiaries including the number of facilities and number of beds. This includes financial data and a list of recent press releases to May 1997
Sun Offering Home-Health Care ( a New Company called Health Factors - anticipates revenues of over $11 million)
Sunrise Adding to Southeast Market (Sunrise will expand by one third when it takes over 82 RCA facilities)
Sunscript Pharmacies Growing (Describes take-over and mergers)
Sun Acquires 110 Nursing Homes in Regency Deal (USA)
Sun Acquires Nursing Homes in Northern Ireland (Has 5 in Ireland- adding 3 more. It owns 133 facilities in the UK.)
Sun Healthcare Group Subsidiary Makes Offer For Ashbourne (in the UK it owns 29% and is buying the rest)
Sun Healthcare Group Acquires U.K. Pharmacies (buys three more pharmacies)
Exceler Makes Offer for APTA Healthcare (This Sun subsidiary buys this company's 33 UK nursing homes)
These press releases by Sun document its recent very rapid expansion.
Forbes Annual report - Sun Healthcare financial information
21. Alpha -- Moran and Sun Australia. (to contents)
Alpha Healthcare:- A brief review of Alpha's history and its recent 1990 entry into health care - Alpha's directors, Alpha's Divisions. Alpha's major shareholders and extracts/comments from Alpha's public statements.
Extract from "Go for the doctor" from Shares June 1997 - re Mayne Nickless and Alpha.
1. The more recent strong emphasis on a corporate policy of US style integrated services and the recent purchase of GP practices, radiology and pathology services. A structure of integrated divisions has been set up to pursue this policy.
2. The switch from hospital only services to integrated services was followed by a 32 % increase in profits. This has been the formula US companies like Tenet/NME, Columbia/HCA and Sun Healthcare have used for their enormous financial success. When introduced with the intent of improving services such integration is attractive. Its use primarily for profit in the USA has facilitated the reduction of services by cost and staff cutting, put pressures on doctors to provide corporate style services, reduced patient choice, directed referral patterns which were not in the patient's interest, allowed corporations to control the market, and facilitated illegal cost shifting and many of the other fraudulent practices in the USA. While Alpha may not intend to use it in this was, the potential to do so remains.
3. The very recent interest in rapid growth. The main thrust of Sun's corporate ambitions have been in growth.
4. Turner is a director of Alpha and Wimer, also from Sun is an alternate director.
5. Sun is the largest shareholder with 16 million shares. It has four times as many shares as the next largest shareholder and more shares than all of the remaining top 20 shareholders. This gives it de facto control of Alpha.
6. Sun's strength as a provider of subacute care is mentioned as is the direction health care is taking in Australia.
7. Note that Hopper is managing Director and also a Director and Secretary of Sun Healthcare Group Australia
Moran Health Group Pty. Ltd.
The information provided indicates that Moran runs Nursing Homes, Private Hospitals and Retirement Villages. The directors are listed. It is a private company and so not listed on the stock exchange. It is more difficult to get information.
Sun Healthcare Group Australia Pty. Ltd. -- this is a shelf company
Note that two of the three directors are US citizens and the third is Hopper, the MD of Alpha. Columbia/HCA also found an Australian manager (Mr Sam from Ashbourne Hospital in Adelaide) to act as the front person for its entry into Australia. Columbia/HCA came in under its own name and arrogantly advertised its intention to spend $1 billion in acquisitions. This caused the medical profession to react strongly. Doctors went to the USA to find out about it. Columbia/HCA was forced to back off.
Sun has been more circumspect, following the advice of international advisers to come in quietly under the umbrella of a local company. There has been minimal publicity to stir the medical profession. By buying only 38% of Alpha Sun has created the illusion that it does not have control - but it promptly put in another $10 million signalling its expansion plans only to those who looked carefully. It is likely to follow the advice of international advisers to target key doctors to get them on side with corporate practices, so that they will act as advocates within the system.
In the case of Sun's purchase of 51% outright control of six of the Moran hospitals with the option to acquire the remaining 49%, the purchase was kept out of the newspapers and Sun were able to slip it through FIRB in 7 days without anyone knowing. or objecting. Even the states were not informed. The option to buy the remaining 49% ensures that Sun will have the base into which to direct funds and from which to expand and dominate Australian health care in its own name -- once its footing in Australia is secure. With so much support from the government, it can't fail!