After I had received and analysed the
material released under FOI concerning Sun's approval by FIRB I wrote
to all state licensing authorities objecting to licenses. I was
particularly concerned about aged care and pathology, both of which
fell under Dr. Wooldridge's department. He had denied any
jurisdiction in the decision referring the matter to the states
instead. I therefore wrote almost identical letters objecting to
licenses for pathology and aged care nursing homes. I sent documents
arguing against licenses.
11 January 1998
Health Insurance Commission
P O Box 1001
Certification and Approval Services Section
Aged and Community Care Division
Commonweath Department of Health and Family Services
P O Box 9848
Nursing Homes and Pathology - Alpha/Sun Healthcare
- Moran/Sun Health Group - Licences
Sun Healthcare acquisition of controlling interests in Pathology, nursing homes, aged care and subacute (step down) hospitals:- I have been very concerned at the entry of the giant US multinational Sun Healthcare into Australia because of the US government fraud investigation in progress, because of the allegations that Sun's chairman personally gave instructions to defraud medicare and because of the many allegations which impact on the integrity of the company and its directors. I note that when the Foreign Investment and Review Board approached our health minister for comment in regard to Sun he directed them to state authorities who were responsible for licensing private hospitals. I find this surprising as I understand that the HIC licences pathology laboratories in Australia and this falls within his section. The NSW government objected to the entry of Sun but in spite of this the deputy treasurer disregarded this objection and allowed Sun into Australia. I suspect that FIRB may also have advised against allowing Sun into Australia, but as you are aware it is only an advisory body and has no power.
Only 2 weeks after this approval Sun applied to FIRB to buy a controlling 51% holding in 6 Moran Health Group facilities. I do not know which 6 facilities were purchased. I understand that Moran are primarily a provider of aged care nursing homes and retirement villages. These are licensed by your department. FIRB granted this request within 6 days. I can find no record, in material obtained under freedom of information of their having consulted you or advised you of the concerns about Sun . You consequently had no opportunity to comment or object.
Sun specialises in aged care nursing homes, subacute hospitals, rehabilitation, pharmacy, and in retirement services. Alpha has a major interest in rehabilitation services. Your minister has very recently announced his intention to make revolutionary changes to health care by building step down or subacute facilities. He must have had Sun in mind! I do not know whether these facilities will be licensed by states or by a federal department.
Department of Human Services and Health procedures and regulations:- A Mr Raino Perring wrote to me on 4 October 1994 in regard to licensing of health care facilities by federal departments. He indicated that any operator of facilities " - - - must be approved as an operator. This approval involves checks of propriety, honesty, financial capacity and previous experience in the industry." He indicated that applicants "will be scrutinised accordingly." I do not believe that Sun qualifies on an assessment of the first two parameters. In regard to the last parameter it is certainly experienced. However if the allegations are to be believed this experience, like that of most of the other very successful health care corporate giants in the USA extends to methods of defrauding medicare and to boosting profits by cutting staff without regard to the consequences for care.
Fraud in the USA:- The three largest health care corporations in the USA, Tenet/NME ($1 billion in settlements), Columbia/HCA (hospitals across the US raided by the FBI in July) and OrNda have either paid massive fraud settlements or are under investigation. Massive fraud settlements have also been made by the largest providers of pathology services in the USA. The FBI's operation "labscam" netted US $800 million, the largest paid by SmithKline Beecham was $325 million. The managed care company Kaiser is also in serious trouble for refusing treatment and for such poor standards of care that hospitals were forcibly closed after some deaths. While medicare fraud is a problem in Australia, we have not yet reached the stage where drug barons are turning to health care crime as it is more lucrative and less dangerous. Our hospitals have not become one of the major groups subjected to police raids. I am concerned that by importing US corporate health care culture we are also importing people who will seize any financial opportunity, legal or illegal if they feel that they can get away with it. Integrated services have provided endless opportunity for corporations to maximise profits in legal and illegal ways. Central to most of the investigations in the USA are advantageous arrangements between corporations and doctors, often in the form of frank or hidden kickbacks based on referral or other practices which improve the corporate bottom line. Not only is the system defrauded but patient care is severely compromised. This is usually accompanied by diverting funds from patient care to profits.
I have no knowledge of such practices in Sun facilities, but fear of a similar situation arising in Australia is undoubtedly behind the mass refusal of doctors to enter into arrangements with corporations, particularly Mayne Nickless which has in the past defrauded its customers by making confidential arrangements. The provision of integrated services such as pathology, radiology and pharmacology provides the sort of framework within which subtle incentive or coercive pressures can be put on the profession to boost profits at the expense of care. Experience shows that once a significant section of the profession connives in such practices, then it becomes "standard practice" and those who hold out are unable to compete and so starve. Tenet/NME showed how successful this tactic can be. I have spoken to doctors who worked in Tenet/NME and other corporate hospitals in the USA and they have told me of the sad consequences for them of trying to blow the whistle on what was happening.
Standards of care:- US Health care professionals are up in arms about the manner in which corporate health providers place profit before care and the consequences of this for standards. A manifesto calling for action was signed by thousands and published in the prestigious JAMA journal in December 1997. Independent reviews of standards of care in hospitals and in nursing homes have found that "for profit" corporate hospitals/homes performed poorly when compared with community hospitals and government run facilities. This is hardly surprising as profits compete with care for the available insurance dollar.
I direct you to the poor performance of Sun's nursing homes in an independent survey. I am also worried by the concerns of US nursing staff, who complain about the impact of cuts in staffing on care in all sectors of health care, including nursing homes. Sun spent $4 million in one year in a very bitter fight with nurses who threatened to strike. Much of Sun's corporate effort is directed to predatory corporate takeovers and bolstering the value of its shares. I am concerned that the intense effort directed to expansion and profit might be at the expense of care.
Our vulnerability to US corporate practices:- The West Australian Department of Health investigated Tenet/NME's in Feb/March 1993 and concluded that our system was very vulnerable to US style practices. Kickbacks and other forms of fraud have already become a worrying problem in Pathology. Aged nursing homes are particularly vulnerable and frail residents can be neglected as profit hungry groups cream off the medicare funds which should go to their care. I include reports which document both of these abuses in Australia. The judge in the reported case indicated how vulnerable the aged care system was, and how readily it could be exploited. He stressed the importance of integrity in those providing nursing home services. Such fraud is still the exception rather than the rule in Australia. In other countries, particularly the USA the problem of corporate predators is so great that the pope has strongly condemned for-profit medicine. He referred to "numerous situations in which the centrality and dignity of the human person are ignored and trampled upon, as occurs when health care is regarded in terms of profit and not as a generous service".
Objection:- This letter brings my objection to licences for Alpha Healthcare pathology services, and for rehabilitation hospitals, aged care nursing homes, retirement villages as well as subacute/step down facilities whether owned by Alpha Healthcare or a Sun/Moran grouping. In both Sun Healthcare has a major controlling holding and is able to direct corporate practices. I ask that the licences of all Alpha facilities and all Moran facilities in which Sun is involved be reviewed. I do not know which Moran facilities have been purchased but Alpha owns Australian Diagnostic Services and Southern Pathology.
I also ask that you promptly acknowledge my correspondence and the documents. In due course please indicate the outcome of my submission and the reasons for rejecting it, if this is what you do.
Obligations of the Medical profession. I draw your attention to the statement of the World Medical Association which indicates that I have a duty to draw matters to the attention of the appropriate body if I perceive circumstances which might adversely affect patient care. If an adequate explanation is not forthcoming then I have a duty to take the matter further.
Control of Alpha and Moran:- While Sun Healthcare owns 38% which is less than half of Alpha's shares, this is more than 4 times the holding of the next largest shareholder and more than the remaining top 20 shareholders combined. In addition to this Sun has loaned Alpha $10 million and it is clear that its intends to use Alpha and Moran to fund the same sort of PACMAN expansion which has characterised Sun and Columbia/HCA in the USA. In the case of the 6 Moran facilities purchased, most of which I understand are in NSW Sun has bought 51% control with an option to purchase full control. It is therefore the dominant shareholder and the de facto licence holder.
A lack of frankness and candour:- I draw to your attention the continued and persistent lack of "frankness and candour" displayed by Sun in its dealings with shareholders, the US Securities and Exchange Commission and even with its own board as recently as 1995. The evidence for this is overwhelming. Far from reforming, Sun (like TENET/NME) persisted in this less than frank conduct in its 1997 dealings with FIRB. It applied to come into Australia without disclosing to FIRB matters which were clearly very relevant to their assessment and to their operations in Australia. Worse still when confronted with their failure to disclose they responded with a half truth indicating that the FBI criminal investigation had been discontinued when it had only been transferred to a civil investigation which is the usual way these matters are dealt with in the USA.
While such conduct may not be illegal a health care corporation deserving of our trust would be expected to be up front and scrupulously honest. Trustworthiness and integrity in providers of health care are absolutely critical to the care of trusting people who are vulnerable to exploitation when they are ill. The aged nursing home population are probably the most vulnerable of all and policing in this area is extremely difficult. I have belaboured these points to health departments and politicians many times over the last 6 years. I respectfully submit that regardless of the outcome of the government inquiry and the various civil actions in which Sun is involved, the sort of conduct displayed in the available documents is such that the company cannot be entrusted with the administration of our hospitals/pathology labs/nursing homes, or with a significant input into their management.
Other matters:- I refer you particularly
a. to the FBI raids, federal and state investigations into whether the company defrauded medicare,
b. to the allegation that the chairman himself, who is now a director of Alpha instigated the fraudulent practices and insisted on their continuation when their illegality was drawn to his attention.
c. to the fact that Sun has settled one of the civil actions, which make these serious allegations for US $ 24 million. This is more than twice the $10 million which Tenet/NME paid to settled the first civil action in Texas.
d. to the concerns about standards in Sun's aged care and in US for profit nursing homes and subacute care hospitals generally. These were revealed by the Consumer Reports review and in the investigations by the nurses. These problems were behind the many bitter confrontations between nurses and the large for profit nursing home groups.
e. to the context of the US corporate environment in which Sun operates and of the culture in these organisations. The problems extend throughout the structure of the US for profit health care service, from acute hospitals, through subacute hospitals and nursing homes to home care services. You are not deciding only about Sun but about whether the US system and US culture of which Sun is a representative is such that any representative organisation from that culture should be barred from holding a hospital/pathology/nursing home licence in Australia.
f. to the vulnerability of our health system to the sort of profit before care practices which have characterised the USA. The strong support which some Australian politicians have in the past given to wealthy business corporations, their record in dealings with wealthy corporations, and their track record in ignoring breaches of contracts and destructive corporate behaviour. In Queensland they have even gone so far as to reassure companies and then remove departmental members who seek to enforce compliance. (eg mining companies.) Even when our less than adequate regulations are breached they are not enforced.
Please note also
g. that soon after the deputy treasurer approved Sun's entry our health minister announced plans to revolutionise health care and save money by building step down subacute hospitals, a special area for Sun which is the second largest provider of such hospitals in the world and which has strongly advocated this approach in the USA. The opportunities seem to have been created for Sun.
h. Sun's other specialty is aged nursing homes. The government has recently and during the time of Sun's entry created a market of vulnerable elderly by their legislation requiring the aged to pay. There are not enough Australian corporations able or willing to exploit this market.
i. the congruence between the interviews given by Sun's chairman, Richard Turner in the USA and the policy statements made by our federal health minister.
j. the vulnerability of our health system to being controlled and dictated to by a group as aggressive and profit oriented as Sun Healthcare. Dave Lindorff in his book "Marketplace Medicine" describes the corporate practice of buying up all the aged nursing homes in a region, then thumbing their noses at regulators concerned about standards. They dared not close facilities and tip the elderly out into the streets.
Ron Williams in his book "Remission Impossible" predicted in 1992 that US megacorps would dictate health care policy to our governments. One wonders whether decisions about the Australian health system and the care of Australian patients are already being made in the board rooms of New Mexico. International health care consultants openly boast of "silo's of opportunity" in exploiting "politician's pain". They indicate to profit hungry corporations fleeing the revolt against corporate medicine in the USA how profitable it can be to go directly to politicians and persuade them of the benefits of the profit generating solutions which the corporation provides.
Disturbing political conduct in Canberra:- I am particularly disturbed by the conduct of the federal government in the matter of Sun. As you will see from the enclosed documents I have repeatedly written to the treasurer, federal and state politicians in regard to the deficiencies in FIRB and state health licensing regulations. These permit corporate criminals and those facing serious allegations to enter Australia and thumb their noses at state regulators. The West Australian health department attempted repeatedly to force politicians to confront this problem.
In the USA fraud and most crimes which are not directed to personal injury are prosecuted through the civil courts because far larger fines are extracted this way. Firms pay more but are able to settle the actions claiming that no wrongdoing was proven. As the Australian Financial Review indicated after Mayne Nickless did this in 1994, this is simply not good enough and we are entitled to assume that they settled for large sums because they were guilty of the allegations. The treasurer, advised by FIRB has the powers to bar megacorps from entering Australia without fear of a legal challenge. Once the FIRB process allows them into the country this creates problems for our state health departments who might be challenged by a legal appeal of their decisions. They would be forced to mount a costly legal defence dependent on voluntarily witnesses who could refuse to come to Australia. FIRB is notorious for its lack of surveillance. They have repeatedly accepted corporate applications at their face value. In the case of Tenet/NME in 1991 it did not even access the stock exchange files so did not know that newspaper reports describing events in NSW and WA in 1991 had forced a statement from the company.
Political pressures:- Our minister and his cabinet colleagues have committed themselves to an economic rationalist solution to health care, by setting up an aggressive US style corporate private sector and introducing managed care in the belief that (in spite of the 20-30% profit taken from available funds) this will contain costs without seriously compromising care. The medical profession are implacably opposed and Australian corporations lack the wealth, the power, the credibility and the ruthlessness to implement his policies. Those with the wealth have a poor local track record which (unlike the US corporations) cannot be concealed by distance. Community and church groups are interested in providing the best care they can with available funds rather than diverting their energies to fruitless expensive marketing and destructive competition with for-profit corporations. The minister requires a wealthy multinational . Tenet/NME, GSI and Columbia/HCA were welcomed but all were rapidly exposed as dishonest and as placing profit before care. Kaiser which was interested is also under a cloud. It is not to difficult to conclude that the revolution in aged care and subacute care was planned some time ago in the knowledge that there would be the resources and the US expertise to implement it. The minister may have indicated to colleagues that he had found the resources to implement his policies, although it is as likely that Sun found him. It is disturbing to think that the government may have been planning Australia's future with a group which was being investigated for criminal conduct at the time. This is reminiscent of the Whitlam government. It is likely that considerable pressure will be placed on the members of your department in regard to these licences.
I do not believe that a credible case can be made for granting a Sun controlled/influenced company licences in health care. NSW, WA and Victoria behaved with great courage and integrity in the case of Tenet/NME in 1993. The pressures are even greater today. Your integrity will be severely tested.
I believe that I have supplied you with more than enough documents for you to fulfil your responsibilities. Your responsibility is to make a decision which will protect the Australian health system and Australian patients from the sort of dysfunctional pressures and practices which have destroyed the integrity of the US system and been so dysfunctional for patients. If you require full copies of the court documents or the SEC reports then I can supply them.
Please be good enough to promptly acknowledge my letters and these documents. Please indicate whether you are addressing the issues.
1. US Hospital Giant Sun Healthcare buys into Alpha Healthcare and Moran Health Care Group:- This is a set of documents relevant to an assessment of Sun's suitability. I have included some documents which do not relate directly to Sun in order to illuminate the context and culture of US corporate medicine as well as the obligations of citizens who conclude that Sun is a threat. I have spent some years studying US corporate medicine and have made comments analysing the documents and indicating their significance. I hope you will find them useful.
2. Documents - the views of doctors and others with experience:- Condemnation of for-profit corporate medicine from those with experience of it -- a few recent samples from a large selection.
3. Mayne Nickless press reports:- Included to show that corporate crime and dysfunctional corporate patterns of thought are already part of the medical scene in Australia. Incentive bonuses and the integrated systems which were so successfully exploited by corporate criminals in the USA are already being introduced.
4. National Medical Enterprises -- renamed Tenet Healthcare:- A 1996 analysis of US corporate conduct using documents from Tenet/NME which has paid out $1 billion. It is typical of the way in which US for profit health corporations operate. My assertions that this sort of conduct was integral to US corporate for profit health care companies has been confirmed by the revelations of 1997.
5. Recent Documents Mostly Columbia/HCA:- A few selected documents from Columbia/HCA, Kaiser, Tenet/NME and others to show the extent of the fraud and misconduct revealed during 1997.
6. Government who welcomed Columbia/HCA into Australia were well informed:- The gullibility and irresponsibility of our politicians when dealing with plausible and wealthy corporate giants, this time Columbia/HCA is well illustrated. The need for independent, stable and responsible government departments is apparent.
7. Snippets from the US health Scene:- US contracts with doctors - rewarding a doctor for killing a patient - threatening to kill whistle blowers.
8. Regulation of Corporations and Managed Care:- An article which shows one of the many reasons why health care corporations like Sun are spreading overseas. Many more will follow. Regulators regulate and this article illustrates this costly mind set. The US is unable to confront the reality that greed is not the only human motive. Health care is dependent on the driving humanitarian motives. These are destroyed by an emphasis on profit. Patching with costly regulations and policing will not address the problem.
9. A Rash of News Articles About Opportunities in Foreign Countries:- Corporations in trouble in the USA rapidly establish international holdings to cushion US setbacks. Tenet/NME did this in 1991/2. Columbia/HCA tried in 1996/7 but much of this was frustrated by the medical profession which made sure its practices were widely known. Sun Healthcare did the same in 1995 after the FBI investigation expanding into the UK. With the recent pressures in the USA it is expanding further into Australia and Europe. The pressures on corporations in the USA, generated by revulsion at corporate practices has created a rush to spread internationally. Anyone with any experience of international health care has jumped on the gravy train and become an international consultant. Prominent among these are the NME staff who left Australia with their tails between their legs in 1995 when their lack of frankness and candour was fully exposed. This material illuminates the greed which characterises health care providers and gives an insight into US corporate thought processes. This is the sort of thing we are bringing into Australia.
Items 2-9 are relevant because they give context to the material I have supplied about Sun Healthcare.