I had been sending material for a year
without response. The minister had now given me another address to
write to. I did so.
23 April 1999
Certification and Approved Services
Residential Care Program Management Branch
Aged and Community Care Division
Department of Health and Aged Care
GPO Box 9848
CANBERRA ACT 2600
Att MDP 75
SUN HEALTHCARE -- LICENSES FOR AGED CARE FACILITIES
Objection:- Nearly a year ago I lodged an objection to licences for facilities in which Sun Healthcare holds a significant stake with
Certification and Approval Services Section
Aged and Community Care Division
Commonwealth Department of Health and Family Services
Probity and licences:- This objection was based on the probity provisions which I mistakenly believed existed in the legislation. A faxed letter to me in 1994 from the department boasted of the extent of the probity checks carried out. It is apparent from correspondence with the minister for aged care that probity is no longer a requirement for a nursing home licence. The regulations I understand now require only financial stability and management skills.
Sun Healthcare in a nutshell:- This company has shown itself to be quite unable to manage its financial affairs in a manner compatible with reasonable standards of care. It has cut staff and compromised quality of care. It has borrowed beyond its means. It is alleged to have concealed information from shareholders in order to boost the value of its stock. These practices enabled it to fund a massive expansion program with takeovers and mergers. It is now struggling to meet its commitments and is threatened with bankruptcy. To meet its funding obligations it is cutting its already depleted staff by 30% and so further compromising care. Its management practices are illustrated by a US $8.4 million fraud settlement for unconscionable conduct described as displaying "arrogance and avarice". There have been repeated and often successful actions by shareholders who claim that they suffered financial loss because they were misinformed.
Extending the Objection:- I would therefore like to extend my objection to include the act's current provisions for what the minister's department described as "ability and experience in providing aged care and their record of financial management". I am aware that federal departments do not advise citizens when applications are made for licenses even when they have been asked by citizens to do so. I am therefore sending you additional information.
Past information and Sun's plans:- I have been supplying material to Mr O'Donnell as it became available. He has now acknowledged it and indicates that it has been passed on to you. The material describes the conduct of aged care and other health care facilities financed or controlled by US nursing home and health care chains, but particularly by Sun Healthcare. Sun is Alpha Healthcare's very dominant shareholder. It has the right to purchase 55% at any time. Sun also has 51% control of a number of facilities it purchased from Moran Healthcare. Sun's US releases indicate that it runs nursing home facilities in Australia but the minister for aged care's department indicates that none of these are licensed as aged care facilities by your department. Alpha indicated in 1997 its clear intention to expand into the aged care market and use Sun's expertise.
Australia flies in the face of evidence:- The concerns about Sun relate not only to its own conduct but that it will bring into Australia the sort of management practices and culture revealed in the vast volume of material I have supplied. Ironically, at a time when the US government is struggling with the enormous adverse impact of corporate market practices on aged care, on general and specialty hospital care, and on managed care, our own politicians are promoting the same system in Australia and actively encourage US corporations to enter Australia. The situation is so bad that health care fraud has now eclipsed the drug trade as the primary focus of criminal investigation in the USA. It is as if government policy has so much inertia that is unable to respond to the situation.
Misinformation:- Sun as you will by now be aware has a very chequered record. It settled an action by shareholders in 1996 for US $24 million. Shareholders claimed that directors had deliberately concealed information about fraud investigations in order to boost stock prices and continue expansion by trading in these shares. Several subsequent actions along similar lines have been settled for smaller sums.
Incomplete disclosure:- Sun announced in 1997 that the federal government had abandoned its 1995 fraud investigations without revealing the financial arrangements for paying costs or whether Sun agreed to forgo moneys owed to it. This is what happened in Connecticut in the 1999 fraud settlement.
Neglecting patients:- Sun is at the centre of widespread allegations that nursing home chains across the USA deliberately neglected the care of patients to boost profits and that many thousands have suffered and died as a consequence. There have been a number of very disturbing state and federal senate hearings, the most recent in Washington in 1999. In Sun's case the corporate approach to care is revealed by the chairman's policy statement in 1996. He indicated his intention of "cutting the fat" in an "industry" where a prior investigation in 1994 had already shown serious problems in care, and specifically in Sun's homes. His approach to regulation was that government should "butt out". Nurses in Connecticut were so disturbed by problems in staffing and consequences for care that they took out advertisements to warn citizens in 1995 and again in 1998. Several Qui Tam and individual court actions have now been taken against Sun alleging deliberate neglect. Some Sun homes have been closed and state authorities in California placed an embargo on any further licences for Sun facilities until their current holdings performed acceptably.
The latest information:- The most recent information indicates that Sun settled a fraud allegation in Connecticut for US $8.4 million in January 1999. Its conduct was described as showing "arrogance and avarice". Its drive for expansion has caused it serious financial problems and it is currently unable to meet its financial commitments so is threatened by bankruptcy.. Is share price has fallen from US $20 to 85 US cents. To prevent a further adverse impact on its shares, it is appealing fines and the closure of several of its facilities by federal authorities because of deficiencies in care. This effectively buys time as there is a 3 year backlog in these courts. Sun's response to its financial problems has been to freeze all salaries and cut its staffing levels by one third. What the consequences for the elderly in its already understaffed facilities will be can only be guessed at this time.
The inadequacy of regulatory control:- There has been concern about the corporate dominated aged care system in the USA for many years. A US senate inquiry in 1994 exposed extensive fraud and steps were taken to stop this. In spite of this nothing has really changed. Regulation has been singularly ineffective and the situation has become much worse. It is concerned citizens and not regulators who have precipitated the senate hearings and federal investigations. I have argued that strong competitive profit pressures in a corporate marketplace, combined with the fiduciary duty to shareholders results in profit being placed above care. A situation arises in which corporations seek to frustrate the efforts of regulators by every legal, political or other manoeuvre they can devise. Overworked regulators are progressively worn down until an equilibrium is reached in which totally unacceptable conduct is ignored and penalties are not paid. A 1999 investigation by the General Accounting Office (GAO) is very critical. It reveals exactly this situation in both federal and state regulators. I believe that this experience should be of interest to your department and to your ministers.
Sun Healthcare has already failed a probity check:- That federal licensing no longer requires that applicants are fit and proper persons to hold licences is particularly relevant in the case of Sun Healthcare. Victorian licence regulations still have a probity provision. A "probity check" in Victoria in December 1998 caused Sun to back out of the contract to build the Mildura hospital.
Probity and International trade agreements:- I am concerned that the probity provision was deliberately omitted during the last revision of the legislation in order to bring the legislation into compliance with international free trade treaty agreements. I understand that in some countries, including Canada corporations have successfully used the courts to challenge local regulations which protected citizens by using the provisions of these treaties. (see "Free trade shaking governments" in The Edmonton Journal March 6 1999 - Canada)
1. Sun Healthcare settles Connecticut fraud allegations:- This document is one of the files on the floppy disk
2. A set of accounting reports and other documents from the Connecticut proceedings.
3.. Overview of patient actions against Sun Healthcare.
4. Documents from five court actions by patients.
5. Two floppy disks containing a large number of files. These files contain articles about health care which I have received since I last supplied information to Mr O'Donnell. I have tried to select only those which contain articles relevant to Sun Healthcare and the corporate nursing home market. These files were prepared as I received the material and therefore also contain material relevant to corporate expansionism, managed care and fraud in other sectors of the health system in the USA and elsewhere. The problems created by dysfunctional competitive profit pressures are not restricted to nursing homes.
The file "GAO Report.rtf" is the summarised text (as presented to the 1999 US senate hearing) of the critical report by the federal General Accounting Office into the failure of state and federal regulatory systems to protect aged citizens from corporate practices. I have the full text of this report and also the rest of the proceedings of that hearing should you need it. All seem to be draft documents as there are several typing errors. The date of the report is wrongly given as 1998 when it was 1999. The content is quite clear and confirms the allegations by citizens across the country that the regulatory system had broken down and was not working.
These disks are formatted for MSDOS and the files are in rich text format (.rtf). They will load into microsoft word and most modern word processors without losing formatting.
6. Copy of 1994 fax re probity in aged care licensees.
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This page created Sept 2001 by Michael Wynne