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Sun Healthcare
The story ... Culture ... Updates .. References ... Turner interview ... Sun Growth
Sun's entry into Australia
Overview ... Arguments ... Documents ... Criticism letter ... FIRB


Sun Healthcare

The Story

This page describes Sun Healthcare's history and its problems in the USA.


Contents

1. Sun's Early History
2. Sun Healthcare's business
3. Management style
4. Business philosophy
5. Sun's nursing home practices

Nursing care
Therapy:
Medicare

6. Market practices

Surviving in the marketplace
Financial instability
Credibility and success

7. Tainted by allegations

A Long History
Sun gets into Trouble

8. Concerns at the time when Sun Healthcare entered Australia
9. Sun's entry to Australia

FIRB
Getting information

10. The Aged Care Scandal in the USA
11. Sun Healthcare's slide towards bankruptcy

Federal investigations abandoned
Changing Medicare
International operations

12. Other Pressures on Sun Healthcare

Fraud settlement
Patient care scandal
Pressure from the courts
Patient care
Pressure from regulators

13. Bankruptcy comes

14. An Update on Sun and Turner - March 2001 and August 2003



1. Sun's Early History .. (contents)

Andrew Turner, founder, chairman and CEO of Sun Healthcare trained in Hillhaven a nursing home and aged care provider owned by the infamous company National Medical Enterprises (NME). Turner and Elliot, Hillhaven's chairman left Hillhaven in 1986 and with others founded Horizon Healthcare. In 1989 Turner left Horizon purchasing 7 hospitals from them to form Sun Healthcare. Elliot continued to manage Horizon. Sun's meteoric growth by mergers and purchases rivals that of Columbia/HCA. By the time it entered Australia in 1997 it owned in excess of 400 facilities. Annual revenues in 1996 were 1.32 billion. Sun targeted aged care and also subacute care, taking patients from expensive acute care hospitals at an early stage and continuing their care in cheaper nursing home facilities.
see The New Mexico Business Journal April 1996


2. Sun Healthcare's business .. (contents)

Sun is based in Albuquerque, New Mexico. In 1997 when it entered Australia it was the holding company for several subsidiaries including Sunrise (nursing homes), Sundance (rehabilitation), Sun International (international long term care), Sunchoice (medical supplies) and SunAlliance (nursing home services such as laboratories, radiology, podiatry, dental and hospice). It claimed that SunChoice and Sun Alliance enabled it to provide a full line of services to managed care companies under a bundled product called SunSolution. It was at the time probably the third largest US chain with 258 long term facilities in the USA, as well as 122 long term facilities and 43 assisted living facilities in the U.K. Its major areas of operations were Massachusetts, Connecticut, Illinois, Washington, Texas and California. It provided an integrated service to the aged.


3. Management style .. (contents)

Sun's chairman Andrew Turner it seems was an arrogant single minded person with considerable charisma. At the height of his success in April 1996 the New Mexico Business Journal published an article "Andy Turner wants the government out of health care. Period". It described Turner as "The dynamic, outspoken and sometimes controversial CEO of Sun Healthcare Group Inc." Turner indicated his view that government should "butt out" and considered that "the quality of health care suffers because of government support and regulation". 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 also "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".

Turner was either worshipped or hated by his staff whom he drove ruthlessly. He had no doubts and was firmly committed to success in the marketplace. He was surrounded by those who believed. He marched to his own drum and did not discuss or readily take criticism from others. He even kept Sun's board in the dark about the fraud investigations. Three members resigned amidst complaints that they were not informed and that board members and shareholders were not supplied with information. Directors were unable to "act in accordance with their respective obligations without coercion or fear of reprisal".

Turners remuneration ($3.239 million in 1994) was three times that of comparable executives in other similar companies and higher than many Fortune 500 executives. He is fairly typical of successful corporate health care founders. Similar traits can be identified in the founders of Integrated Health Services, Vencor, Columbia/HCA, and Tenet/NME


4. Business philosophy .. (contents)

An article "Watch them grow, and grow" in the April 1996 edition of the New Mexico Business Journal describes Horizon and Sun's policies. I quote "The strategy today is growth and expansion", and "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."


5. Sun's nursing home practices .. (contents)

Nursing care:- Under the Medicare and Medicaid systems nursing homes were paid a set amount per patient per day. Nurses are the single most important determinant of the standard of nursing care. Nurses are also the major cost of care.

A review of nursing homes by Consumer Reports in 1994 found that standards of care in nursing homes owned by corporate chains was uniformly poor when compared with not for profit homes. The small number of government run homes did well. Sun's nursing homes performed very poorly. In spite of this in talking of the future Turner said "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". In this he was echoing Columbia/HCA's Richard Scott.

The nursing unions were in bitter conflict with Sun and other chains about staffing and care. In 1995 they took out advertisements in the Wall Street Journal warning that Sun Healthcare was compromising care. They approached the attorney general in Connecticut and asked him to investigate.

Andrew Turner's disregard for evidence and the views of others is reflected in his interview in April 1996. He 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." He spoke of bureaucratic waste and fat in the provision of nursing services. He concludes "There is ton's of fat in the health care delivery system". Sun carried out this policy. It cut total numbers of nursing staff. It replaced trained staff with low paid and unskilled "nursing aids". At the same time nursing homes pursued subacute care taking increasing numbers of sicker patients.

Therapy:- Medicare paid for treatment on an item of service basis. Therapies made money. Sun therefore employed large numbers of therapists. They provided massive amounts of therapy. We can picture the likely outcome - understaffed homes where patients become dehydrated and malnourished, are unwashed, develop pressure sores and contractures while receiving vast quantities of superfluous "therapies" for these and other problems. David Lindorff in his book "Marketplace Medicine" had described how decisions about patient care were made in corporate board rooms rather than the bedside. This is a good example.

Medicare:- Like hospital corporations in the 1970's, specialty hospitals in the 1980's, Columbia/HCA in the 1990's, and other nursing home chains in the 1990's Sun exploited the opportunities presented by item of service care to its legal limits and beyond. As the FBI realised in the 1970's prosecuting this sort of fraud is extremely difficult. Documentary support is difficult to obtain and the court is faced with uncorroborated witness' evidence.


6. Market practices .. (contents)

Surviving in the marketplace:- In the health and aged care marketplace only those with the money to grow survive. Any corporation placing care ahead of profits would not generate the cash flow and would soon be taken over. It was a case of grow or die. Sun like the other successful health and aged care corporations developed a large cash flow by misusing patients and the Medicare system.

Financial instability:- The large cash flow was used to raise massive loans from the banks to support expansion. Sun acquired company after company in the USA. It expanded into Europe and then into Australia. It clearly intended to enter the newly privatised Australian nursing home market. In order to succeed in the market it placed itself in an increasingly precarious position financially. If it did get into difficulty it would be under even greater pressure to cut the costs of care in order to service these loans.

Credibility and success:- In our new marketplace society financial success is proof of anything and everything. It brings praise from analysts and great credibility. Turner, blind to anything except his own beliefs was assured and persuasive. Politicians and businessmen were only too willing to accept his message as it was congruent with their economic policies. This process of ignoring unwelcome facts has been called "confirmation bias".


7. Tainted by allegations .. (contents)

A Long History:- Problems in the nursing home industry are not new. There have been recurrent problems over the last 20 years. There have been repeated efforts to regulate and monitor care. Few worked. With the rapid growth of market listed corporate chains in the late 1980's and 1990's the problems have grown to became a national scandal.

Sun get into Trouble:- The difficulties for nursing homes and Sun Healthcare started after a senate hearing into aged care in 1994. This revealed widespread fraud and the misuse of Medicare and Medicaid funding.

The FBI began an investigation into Sun Healthcare's practices late in 1994 and in 1995 a number of Sun's facilities were raided by the FBI. It seems that the alleged fraud in therapies, paid on an item of service basis were the prime target of the investigation.

A senior staff member supplied a statement alleging that Turner himself gave instructions that charges for group therapy be made as if for individual therapy. Turner had not been responsive to the remonstrations of staff. The behaviour of Sun's board in failing to inform the Securities and Exchange Commission (SEC), Sun's shareholders, and the shareholders of other companies offered Sun shares as part of a takeover bid resulted in multiple court actions. When Sun applied to enter Australia in June 1997 it was still the subject of criminal and civil fraud investigations by the US government and some states.


8. Concerns at the time when Sun Healthcare entered Australia
(contents)
  1. Criminal and civil investigations by the US Department of Health and the FBI involving a suspected conspiracy to defraud the government by submitting false Medicare claims. Sun Healthcare's improper billing practices allegedly included billing group therapy as individual therapy

  2. The attorney general and the Department of Social Services in Connecticut were investigating whether the company's long term care subsidiary provided Medicaid cost reports containing false and misleading fiscal information.

  3. The Wall Street Journal referred to "difficult questions over whether Sun adequately disclosed the investigation while issuing millions of shares for acquisitions". The comment indicates that directors were only informed days before the report was filed with the SEC.

  4. Shareholder suits against the company alleged that top executives knowingly withheld significant information from investors. The US inspector-general's office commenced the investigation in October 1994 and subpoenaed Sun's Headquarters for a broad array of records in December 1994. This was not disclosed to shareholders until June 1995.

    During this period the value of Sun's common stock was used in substantial part to accomplish acquisitions without disclosing the federal investigation. The suits claimed that information was withheld in order to artificially inflate the stock price by issuing favourable statements.

    One suit alleged that Turner and another director sold large amounts of stock at these inflated prices in spite of their access to confidential information and after the fraud investigation had commenced.

  5. Unhappiness on the board about Turner's management style causing resignations. Some directors felt that they were unable to act in accordance with their obligations without fear of reprisal.

  6. A study of the quality of care by Consumer Reports magazine in August 1995 used government inspection reports to rank 43 nursing home chains. Sun compared very poorly with competitors. The ranking was based on "critical deficiencies" which "relate directly to residents health and well being" and the magazine reviewed more than 60,000 government inspections of nursing homes. These inspections related to such things as pressure sores, restraint use, staff training, infection control and environment. Twenty percent of Sun's homes were among the "worst homes". Consumer Reports is the US equivalent of Choice magazine.

  7. Excessive compensation of Turner, the chairman and CEO.

  8. Poor labour relations. The company has been involved in a bitter dispute with the unions which have spoken out repeatedly about problems in staffing and care at Sun facilities. The unions took action claiming violations of workers rights and wrongful termination in retaliation for union activity.

  9. Delay in disclosing the fraud investigation. This commenced in late 1994 and the first subpoena was served on 3 January 1995. Sun did not disclose this in its filings with the US Securities and Exchange Commission (SEC) until 16 June 1995.

  10. Court documents from share holder actions quoted extensively from reports to the SEC and public statements by members of the board. These public statements were set against the FBI investigation and the share dealings of directors including Turner. At the very least they indicated a disturbing lack of frankness and candour in company dealings. That there was substance to the claims and the evidence is confirmed by a US $24 million settlement with shareholders in 1996. This was more than double the amount paid by Tenet/NME in its landmark settlement with Texas in 1992.

There was a drop in Sun's share value after the raids on hospitals in 1995 but the impact of this waned as the investigation dragged on. Banks such as the National Bank of Texas stepped in to support the company and it was soon doing well again.


9. Sun's entry to Australia .. (contents)

FIRB:- An objection to Sun Healthcare was lodged with the Foreign Investment and Review Board (FIRB) in May 1997. Australian states were informed of the issues. FIRB commenced an investigations and New South Wales (NSW) where Sun was buying most facilities objected to Sun's entry into Australia. When NSW was informed that the investigation had been dropped it withdrew its objection. However when it learned that only the criminal investigation had been terminated and that a civil action was proceeding it reaffirmed its objection. FIRB was only an advisory body. The deputy treasurer approved Sun's entry to Australia despite the NSW objection. There is much more to the story of Sun's entry to Australia.

CLICK HERE -- for the story in Australia.

Getting information:- My information had come from the United Kingdom. A contact in the USA had secured court documents for me and company reports to the SEC were available on the www. At the time I did not have contacts in the nursing home area and did not have information about patient care. I followed the company's press releases from their www site and their reports to the SEC. I did not know of the developing aged care scandal in that country.

Sun Healthcare became the preferred company to build the new public hospital at Mildura in Victoria. I had earlier indicated to Victoria my intention to objecting to hospital licences. In October 1998 I renewed my efforts to find a source of information and made some very useful contacts. The labour opposition in Victoria had been kept informed and they pursued their own investigations.


10. The Aged Care Scandal in the USA .. (contents)

As with Tenet/NME and Columbia/HCA it was not accreditation or government oversight which exposed what was happening but the community -- family members, whistle blowers and community groups across the USA.

It was a single family member who put the match to the tinder of rising anger in the community. Ila Swan in California found her mother neglected and with massive pressure sores. She looked around and saw what was happening to other patients in the nursing homes. Her complaints to local regulators met a brick wall. She decided to do something about it. She collected thousands of death certificates to examine the causes of deaths. Hidden video cameras were placed in nursing homes to record what was happening.

Swan was able to get the support of influential lobbyists. A federal government investigation confirmed her findings and the failure of local regulators. A senate hearing followed. Mounting pressure from citizens groups forced a series of investigations across the USA. These confirmed that the problems were nation wide and concentrated in the homes owned by corporate chains.


11. Sun Healthcare's slide towards bankruptcy
(
contents)

Federal investigations abandoned:- The US federal government abandoned its criminal investigation in July 1997 and its civil investigation a year latter - nearly 4 years after it had started. That several other nursing home chains have more recently reached fraud settlements and made large repayments suggests that Medicare billing fraud was widespread. We we will never know the extent to which Sun was involved if at all. The government left open the option of reopening this investigation.

During this time fraud investigators were overburdened by operation labscam and in investigating Columbia/HCA. These investigations became particularly acute after the raids on Columbia/HCA hospitals in March and July 1997. This less important investigation may have been abandoned because of the lack of resources. The FBI did not investigate fraud in the 1970's and also NME's general hospitals in the 1990's for this reason.

It is also extremely difficult to prove fraud in an item of service system because of the absence of documentary proof. One is left with the assertions of "vindictive" or "self serving" whistle blowers confronted by the denials of credible executives.

Changing Medicare payments:- Instead of pursuing the fraud which had been occurring in the 1970's government had changed the Medicare rules by introducing DRG's (Diagnostic Related Groups). Government now adopted the same strategy to contain the abuse of therapies in nursing homes. The Medicare payment structure was revised in 1997 to turn off the gravy chain on which these vast empires had been built. Therapies became part of the total payment for the patient's care.

Instead of making a profit therapists now became a cost to the corporate chains. The strong "demand" for therapies rapidly disappeared. Thousands of therapists were fired. Sun fired about 7000. The number of patients and their diseases clearly had not changed. Clearly vast numbers of patients who would once have received therapy now no longer received it. Either they were previously overserviced or else they are now not getting the care they need.

International operations:- International expansion into Australia and the United Kingdom may have been an attempt to cushion Sun and maintain its income stream in the face of these Medicare changes. Sun's management style was not welcomed by the British. It has not done well in the UK or in Australia.


12. Other Pressures on Sun Healthcare .. (contents)

Fraud settlement:- The attorney general in Connecticut pressed ahead with his fraud action claiming that Sun had claimed expenses from Medicare to which they were not entitled - even the costs of an expensive jaunt to Europe. Sun settled this for US $8.4 million in early 1999.

Patient care scandal:- The consequences of Sun's staffing policies in its homes has now been exposed. It is at the centre of the problems in care in California. It is one of the few companies which received some attention from Californian state authorities. They wrote advising it that they would not license any further facilities until Sun had corrected the problems which existed in the homes they already owned in the state. Nurses in Connecticut and Massachusetts have been in continuing conflict with Sun Healthcare in regard to standards of care. In 1998 they paid for advertisements on television warning citizens of the problems in Sun's homes.

Pressure from the courts:- One of the consequences of the increased awareness is that concerned lawyers have been prepared to take on these cases. Advocacy groups have urged relatives to chase these groups through the courts. The courts and the judiciary have responded to community revulsion at what is happening by awarding massive penalties as deterrents . Insurers are refusing to cover nursing homes against these actions. The costs of these actions are having a major impact.

Patient care lawsuits:- Sun faces over 300 law suits, most of them probably about patient care. It faces a Qui Tam action in California on behalf of the US government. This alleges that Sun has not provided the care to citizens which it contracted to provide under its Medicare agreement. It describes in detail the consequences for care of the deliberate understaffing in Sun's nursing homes. It claims that vast numbers of frail elderly have suffered needlessly and thousands have died prematurely as a result. This and five patient care actions in my possession all claim that Sun embarked on a deliberate policy to falsely market high quality care and to promise such care to those who inquired when it had no intention of providing that care. Instead Sun sought increased profits by deliberately understaffing its facilities knowing what the consequences would be.

Pressure from regulators:- Regulators across the USA have been under intense pressure as a result of the intense criticisms of their failure to act to prevent what has happened in corporate homes. Staff have been increased and there has been a spate of activity. Problems have been identified, fines imposed and companies have been forced to pay the full fines.

Alarmed at the potential for problems in homes under financial pressure the federal government has urged state regulators to subjected Sun and other companies facing bankruptcy to increased scrutiny. As a consequence it has become increasingly difficult to boost the company's profit stream by cutting staff and services any further. Sun has been a prime target of this increased surveillance across the USA.


13. Bankruptcy comes .. (contents)

During 1998 Sun's profits steadily declined and it had increasing difficulty. It fired large numbers of staff in an attempt to reduce its expenditure. The problems in liquidity were industry wide and there were no buyers. It was unable to sell its facilities to pay off its loans. In 1999 it defaulted on the payments needed to service its loans and when the banks refused to restructure the loans to give the company relief Sun entered chapter 11 bankruptcy. Shares which once traded for over US $20 now trade at 5-6 cents. At the same time the federal government has reactivated its investigation of Sun's practices and is pursuing it for the refund of payments made to Medicare.

Note that chapter 11 bankruptcy provides shelter for threatened companies. They are protected from creditors to allow them to restructure and trade back into solvency. Faced by the prospect of bankruptcies of all of the major corporate chains government have been forced to raise Medicare payments in order to bring them relief.

It is worth noting that not for profit nursing homes, unencumbered by massive loans have continued to provide superior services and are not in serious financial difficulties.


An Update on Sun and Turner - March 2001 and August 2003

In August 2000 I circulated a large amount of material which included an update on Sun Healthcare and Tirners activities.

Turner has been very busy since he left Sun Healthcare. He is still in the aged care business.

Sun continued to be the subject of allegations of failures in care. It traded out of bankruptcy in March 2002 but is in financial trouble again and is trying to sell facilities to remain solvent. It has warned it may go under.

CLICK HERE -- for the update information in 2001 and 2003 with references and extracts.

(contents)


LINKS TO MAPS
Central Map ..... Initial Map ..... USA Map ..... Australian Map ..... International Map ..... Corporate Practices Map..... (to print)
Path
Home Page ..... US Corporate page ..... Aged Care ..... Access Sun Healthcare
Sun Healthcare
The story ... Culture ... Updates .. References ... Turner interview ... Sun Growth

Sun's entry into Australia
Overview ... Arguments ... Documents ... Criticism letter ... FIRB
This page created April 2000 by Michael Wynne
Last Modified August 2003