19 September 1998
Department of Human Services
GPO Box 4057
Licenses for Hospitals owned by Alpha Healthcare
I refer you to our previous correspondence and the documents which I supplied relating to Sun Healthcare. I wrote to warn you of Sun's entry into Australia in late 1997 and early 1998. I supplied you with documents. As I recall my last letter was dated 9 January 1998. I have heard that Alpha has now won the contract to build the new Mildura hospital in Victoria and that this project is going ahead. It concerns me particularly that it is to provide services to public patients and that you have granted a hospital licence for this project.
Past Correspondence:- I have in the past corresponded with your department in regard to the suitability of licences for National Medical Enterprises, Mayne Nickless and possibly Columbia/HCA. The first two now have criminal convictions and have paid many millions of dollars in fines. Columbia/HCA's entry was held at bay by our actions until the first of many raids on its hospitals caused it to retreat from the Australian market. It is now the subject of a massive fraud investigation in the USA
Propriety in corporate health care providers:- I realise that propriety is no longer a consideration in granting hospital licences to corporations in Australian states. Your interpretation of the "fit and proper" provisions of your regulations have changed dramatically with changing governments and the increasing corporatisation of health care. It is consequently unlikely that you would take any action in regard to licences because of recent impropriety in the conduct of an international company with a controlling interest in a local company. The fit and proper provisions are no longer enforced in Australian states when corporate interests are involved. Nevertheless I feel that you should remain fully informed about the matter so that you cannot in the future claim ignorance.
Briefly the position is as follows.
Sun in Australia:- Sun Healthcare is a massive US multinational company specialising in nursing homes, aged care and subacute step down hospitals. They have a 33% holding in Alpha Healthcare which is larger than all the other major shareholders combined so that they have de facto control. They also have a 51% holding in six Moran facilities. I do not know whether any are nursing homes.
Sun's conduct:- The concerns about Sun relate to allegations of improper behaviour by directors, of fraud and poor standards, and to allegations that the chairman of Sun, who is now a director of Sun personally instructed staff to defraud medicare. The matter was initially investigated by the US department of justice but these investigations have been abandoned in favour of state civil prosecutions. Rather than defend themselves the company are tacitly acknowledging their conduct by making settlement offers to Connecticut Authorities. Connecticut have refused the offer and are demanding a larger settlement.
Insurers and fraud:- In addition to this the company is being pursued by insurers. In an attempt to avert court proceedings the company is making little attempt to confront the allegations but is making settlement offers to the insurers.
Shareholder's allegations:- Court actions have been settled with a large number of shareholders. That there is some substance to the allegations is suggested by the settlement sums paid. The largest was US $24 million. It is difficult to work out from the information supplied to the US Securities and Exchange Commission exactly how much money has been paid in settlements related to its conduct. I guestimate that it has paid something in the region of US $50 million in settlements and legal costs to date. That there is substance at least to some of the serious allegations seems clear.
Standards and staffing:- The company was rated very poorly in an independent review of aged care facilities some years ago. The nursing profession has been very critical of standards in for profit aged care nursing homes including those owned by Sun. It was involved in a bitter and acrimonious dispute with nursing unions in regard to staffing levels, standards and salaries with both sides going to court alleging serious breeches in conduct.
Sun's entry to Australia:- Sun's entry into Australia in 1997 was approved in spite of the objection of NSW where most of Alpha's hospitals are located. FIRB carefully indicated to me that they were only an advisory body and that the decision was made by the deputy treasurer. They would not disclose their recommendation to me.
Dr Wooldridge:- The minister of health dissociated himself from the FIRB decision on the basis that hospitals were licensed by state authorities. In fact Alpha ran three pathology businesses which are licensed by the HIC. It had also clearly indicated its intention to enter the aged care sector using Sun's expertise. Soon after Sun's entry into Australia the minister announced his plans to revolutionise health care in Australia using "step down' hospitals. In the USA this is a speciality of Sun's nursing homes.
Federal Departments:- The HIC and the aged care division of the department of Health and Human Services were supplied with the relevant material 9 months ago. The HIC material has been referred to a committee for consideration. The material supplied to the minister's department of Health and Human Services has never been acknowledged. I note from Sun's reports to the SEC that Sun has not yet expanded into aged care nursing homes in Australia. From the content of correspondence with the department in 1994 I feel it is unlikely that they would willingly approve licences for Alpha because of Sun's holding. I think it likely therefore that the long delay reflects a dispute between the minister and his department in this matter. However with the recent appointment of a Mayne Nickless director, whom the minister has supported in the past as the new chairman of the HIC I suspect that the matter will be rapidly resolved - in much the same way as the NME matter was resolved in NSW by Justice Yeldham in 1993.
Enclosures:- It is not useful for me to keep photocopying material which is ignored. However to remind you of the material I sent you and of the issues I enclose a Windows formatted disk containing .html files from my web site relating to Sun Healthcare. These are dated March 1998. Any web browser will read them. I also enclose the text of more recent letters sent to federal departments in order to update you with subsequent developments and the continuing prosecution of Sun by those who believe that they have been wronged and defrauded. Included are extracts from the more recent reports by the company to the US Securities and Exchange Commission (SEC). This material is in Rich Text Format (.rtf) and should load into most modern computers including Microsoft Word on Macintosh and Windows platforms.
If there are original documents not in your possession I may be able to supply them.