1. Sun's Early
2. Sun Healthcare's business
3. Management style
4. Business philosophy
5. Sun's nursing home practices
6. Market practices
Surviving in the marketplace
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
10. The Aged Care Scandal in
11. Sun Healthcare's slide towards bankruptcy
Federal investigations abandoned
12. Other Pressures on Sun Healthcare
Patient care scandal
Pressure from the courts
Pressure from regulators
13. Bankruptcy comes
14. An Update on Sun and Turner - March 2001 and August 2003
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
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.
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
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
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.
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
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.
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.
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.
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
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.
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 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
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.
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.
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.
LINKS TO MAPS
Central Map ..... Initial Map ..... USA Map ..... Australian Map ..... International Map ..... Corporate Practices Map..... (to print)
Home Page ..... US Corporate page ..... Aged Care ..... Access 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