The corporate market's objective is to make money in order to build an empire. So behind all the rhetoric there are three things that companies in the market are striving for.
- TO BRING IN as much money as they can - ie charge as much as they can get away with
- TO PAY OUT as little as they can get away with - ie, keep costs to a minimum by cutting the resources spent on service as much as they can
- TO SELL AS MANY of the most profitable objects or services to each person and to as many people as possible.
Restricting any of these activities reduces the potential profitability and so makes them less competitive. So the more ruthless they can be in meeting these requirements, the more successful they will be. The competition in the market is to get more money out of the customer than their competitors - not to serve the customer. It is the customer that requires them to do this and decides what they will allow to happen. The customer must have the knowledge and the power to force this to happen.
Clearly for the community, paying more for less is the most inefficient system possible, so this must be concealed from them. This is why marketing is the most important activity for those companies that succeed - and they spend vast amounts of money doing this.
Look at the glossy brochures, pamphlets and impressive websites. The marketing projects the very opposite image and so do the justifications - the prime one being a claim to efficiency. Efficiency in making money may be there, but it is not always directed at the care of the customer.
Setting it out like this may be trite, but it needs to be looked at in real terms. If you don't think it is real and actually happens, then look at the examples I give, the biggest and most credible companies in health care - both closely linked to the establishment in the USA.
Both of the giant health care companies in the USA, Columbia/HCA and Tenet (preciously NME), stated that marketing (not care) was their most important activity. When it was doing all of these things during its first major fraud in about 1990 Tenet/NME required every member of its staff to undertake some marketing activity every day in order to sell the company and its services. At the minimum, they needed to pick up the phone and tell somebody about it. Managers watched and encouraged.
In the UK, firms like Springup PR are marketing the secret of success to care homes saying "Never before has it been so absolutely vital for your care home’s listing on carehome.co.uk to be super-charged with ‘good news’ stories." and explaining how it can help them to supercharge their image. "EVERY single piece of ‘good news’ you produce has a FIVE-FOLD PR and marketing value".
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Constraining the market: The competitive corporate marketplace is not human. It is a mechanism without empathy or morality. Its excesses are restrained by people inside and outside the organisations. They impose any morality that is displayed. The managers and staff have a limited capacity to do this. The stronger the pressures in the pressure cooker, the more difficult it becomes for them to do anything that will impact on profitability.
Those who remonstrate will be crushed - and anyone who breaks ranks and speaks out will be destroyed and discredited. The pressures in the system make this imperative. So those who will do what the market requires, will flourish and those whose morality and values constrain them will not. Unless restrained, the system selects for those who serve it best.
Ultimately it is the customer and the community that generates opposing pressures to bring prices down, to ensure that money is spent to improve the service provided, that the services are the ones that are needed rather than those that make money, that unwanted services are not provided, and that the conduct is socially acceptable. If empathy is required, then it is the customer that insists. It is a knowledgeable and effective customer that makes any market work for society.
- It is the control exerted by the customer that makes the market work and when the customer is not in charge it fails.
- It is the customer that makes the managers who seek to exploit them untenable and allows those who will serve them to succeed.
- It is the customer that releases the humanity in staff and ultimately shapes a market that is able to be part of a civil society and truly serves its members.
Clearly, there are many different factors in any individual marketplace, but once the core pressures and social dynamic of the system are understood, the other things that happen become explicable. In some situations, the forces balance out well and the market works. In others they don't, the market fails and people are exploited and harmed.
In the game of empire building, the money is used for growth and in a corporate marketplace this means forcing competitors out of the marketplace or acquiring them.
It has always seemed strange to me that people would spend so much time, be so ruthless, and be so proud of the way they have destroyed others in order to build their own corporate empires. Personal success is more important for them than the welfare of others and they see this as something good.
It seems a rather inhumane type of activity, part of our evolution that now needs to be carefully directed and controlled If you have an empire building psychology, then doing it in the marketplace is better than killing people on the battlefield. But it still takes a particular sort of person to want to do that and be good at it.
In my opinion, battlefield skills require a level of ruthlessness that does not equip management to care for fellow citizens when they are vulnerable! To do it successfully in this marketplace, you have to have, or to develop, an insensibility to others lives. Strong pressures to compete aggressively, and to be proud of it, brings out the worst in us. It fosters characteristics that a civil society might be better without.
If we look for evidence of ruthlessness and inhumanity they are seldom far below the surface in the corporate marketplace.
Consumers, customers and payers
Our leaders promise us that a competitive aged care market will benefit the elderly because those providing services will compete on quality and price. We will get better care more cheaply. We live in a world of illusions and not a logical one. Clearly the sort of market I have described will not do that unless we are effective customers. To suggest that the frail elderly and their anxious families are effective is another illusion.
You can urge people to shop around, but in the absence of useful information this is unhelpful. Too often we are more influenced by the impressive advertising and the claims made than we are by reliable information and logic. We are influenced by the smile and the personality of the staff. We look for and select someone we think we can trust and don't go any further. When the people selling us services believe in what they are doing then being perceptive and reading body language is unhelpful.
This is particularly so when we are dealing with unfamiliar situations or situations where there is stress. We expect to be able to trust people providing services in sectors where we are vulnerable. We don't expect to be rorted in hospitals or nursing homes.
Who is paying:? In sectors like health and aged care it is government or insurer that is paying some, most, or all of the money for providing care. The proportion coming from the consumers themselves can be small. Each impacts on the way corporations will compete. Competition on prices is not a major consideration when government sets the fees, but does become an issue the more the consumer pays. When it is an insurer that negotiates prices with the providers then it operates differently again. These bodies and not the consumer, set or negotiate the prices. They do that in their own financial interests and not those of the consumer who is simply the meat squeezed in the sandwich.
When government beats up the value of competition, as for example, in Consumer Directed Care, we need to look at who is paying and the proportion they pay. How much difference is competition about prices actually going to make - and will that have any effect on the providers. The vulnerability of the consumer opens up opportunities for profitability that are not available in other sectors. Provided that is suitably clothed in words by analysts the sharemarket is attracted and when some make big profits by investing in aged care then others will follow.
Price incentives and disincentives
Why compete on price? If companies cut prices they are all going to lose money and struggle. Cutting prices cuts profits and any sensible company bent on making more profit is going to put prices up to whatever the market will bear if they possibly can. The only real reason for cutting prices is to put someone else out of business so that you can become bigger and more powerful yourself. You can then put prices up and make even more money.
So its usually better to keep prices up as high as the market will tolerate and for everyone to stay in business and thrive. That of course, is what companies in a stable market do - and when there is an effective customer, prices are reasonable and a reasonable profit is made.
So the pressures are to collude in keeping prices up rather than compete to keep them down and, while we think this is illegal, it just happens without any formal arrangement or even acknowledgement between parties. An equilibrium between what customers will accept and what the providers are prepared to charge results in a stable market which seems to work. There is a level of competition but as survival is not threatened, it is not so strong that it cannot be resisted when required.
Malign competition: Price wars are often strategic and directed at the deliberate destruction of competitors in order to build empires. Its not really about the customers.
A strongly competitive consolidating corporate marketplace changes the game entirely as it is all about aggression and the destruction or acquisition of competitors in order to build an empire. Manipulating prices and chasing profitability rapidly increases the cost of services and reduces quality in vulnerable sectors. There are significant additional costs to engaging in this sort of activity.
The costs of health care in the USA have risen far more rapidly under its aggressively competitive corporatised health system than in any other country and with less benefit for citizens. Large numbers of US citizens don't get proper healthcare because they can't afford to pay that much.
Most examples of market failure in health and aged care come from the USA because they went down this path first. In the USA, health care became not only the most expensive in the world, but the prime target and the most common fraud addressed by authorities. This is a consequence of this pressure cooker dog eats dog environment.
I know about this because I was studying it at the time and passing documentation about these companies on to our authorities and the medical profession. The companies had either come, or were being encouraged to come to Australia.
Please resist your gut response to think of these people as innately evil and not like us. They are not exceptions. Vast numbers of managers and employees were a part of this. It was country wide and many companies did the same or similar things. This is how people respond to the enormous pressures exerted by the marketplace, the shareholders, the analysts, the exhilaration of success and the fear of failure. The psychological processes that led them to be so enthusiastic and so proud of success at the expense of others and the fraud, which they did not acknowledge even to themselves, is something I am going to write about on other pages.
Stephen Klaidman wrote the story of one of these examples in a book "Coronary". A quote from a review of his book sums up what I am saying on this page. Think about it as you read the examples. He is referring to the pressure cooker that I am talking about. The pressures are simply too great for mere mortals to resist. We have inbuilt survival mechanisms that enable us to survive situations like this and succeed there. Most of us would behave similarly in that situation.
Klaidman never forgets that, at its core, this is a tale of a company that seems to have "cracked under pressure from Wall Street to continually boost profits". Americans are at the mercy, ultimately, of a giant medical machine. Parts have our best interests at heart. Other parts will grind our bones to make their bread.
Source: Coronary‚ cuts to heart of Tenet scandal - The Redding Record, 21 Jan 2007
Manipulating the market
Example: I often use the psychiatric frauds in the US at the end of the 1980s as an example because I know so much about it. I met those involved and collected information for our probity reviews of the company. I learned about the activity of many companies that were doing similar things to the one I was researching. There was a feeding frenzy on the vulnerable at that time as companies fought for dominance and consolidated. The human costs for the unfortunate profit bodies were simply not seen or acknowledged in the enthusiasm.
They filled their hospitals by means of deceptive scare advertising and a variety of other strategies. These included marketing and running educational clinics in schools whose object was to persuade those who came into hospital. Bounty hunters were paid $US 2,000 per head on a bed. They scoured the country and even went to Canada. They searched through the community persuading people to admit themselves to hospital. Vast numbers of insured people, but particularly children from across the USA were persuaded to admit themselves to psychiatric or substance abuse hospitals when this was not medically indicated. Children were much more profitable because government had given them better insurance and they suffered disproportionally. Uninsured patients were filtered out and not targeted. Insurers were the target.
Patients were kept in hospital for the duration of their insurance cover before they were declared cured. During that period each person was given vast amounts of largely ineffective treatment for which their insurers paid. Many, particularly children, were harmed. Vast fortunes were made and the company was widely acclaimed. Its leaders were honoured by universities to whom they donated money.
These hospitals were all inspected by state inspectors. They were fully accredited by a psychiatric accreditation body as well as the Joint Commission which accredited hospitals across the USA. When one whistleblower confidentially supplied information to the Joint Commission, they told the hospital who he was so that he could be punished.
Even more surprisingly, the insurance companies whose staff visited and vetted payments to the hospitals accepted this uncritically although they must have been aware of the fraudulent over-servicing and costs to them.
An elderly psychiatrist whistleblower in New Jersey had battled NME, the principle offender unsuccessfully for years. The company required all its staff to make political donations to the politicians in the state government. This may be why his efforts were unsuccessful. The fraud was finally exposed in Texas and not New Jersey.
This psychiatrist died shortly before he was to give evidence to the April 1992 US House of Representatives inquiry titled "Profits of Misery: How inpatient psychiatry treatment bilks the system and betrays our trust". Some of his correspondence was tabled at the inquiry.
As I recall, he told how he had complained to the medical insurers who were happily paying for vast amounts of fraudulently given treatment. He had a polite but unhelpful meeting with their board.
An old school friend was on the board and they chatted afterwards. The old friend explained that the insurer was very happy to pay the increased costs of care because the higher the costs, the higher the insurance fees they charged those who insured with them. The higher the insurance fees, the more profit the insurers made from the percentage they took.
When it was all exposed by a policeman in Texas, the insurers were first off the mark and their lawyers extracted a large fraud settlement. I wonder if they dropped their insurance fees after that? I met with their lawyers in Washington DC and some of the most damning documents I acquired came from them.
One gets small glimpses into things that happen, but are normally hidden.
Exploiting the vulnerable
Tenet/NME was the leading culprit in the 1991 scandals and Colmmbia/HCA had also been a lesser player but was fined for similar practices. Columbia/HCA had its own scandal in 1997 and ultimately paid a US$1.7 billion fraud settlement. So both had been involved in major scandals and paid many hundreds of millions in fraud settlements. These were the two giants of the US hospital industry.
Lets move forward 10 years for Tenet. By the early 2000s, both had recovered and were once again the biggest and most successful in the sector. Their new management was widely praised.
The republican leader in the senate was a member of the founding family of Columbia/HCA and exerted enormous influence. The chairman of Tenet Healthcare (previously NME) was one of President George Bush's largest donors. There was a revolving door between company executives and government departments. Bush's brother would join Tenet's board in due course. I followed Tenet more closely. But Columbia/HCA was doing similar things.
The government had lifted its 5 years of close post-fraud surveillance in 1999. Tenet had not been profitable during that time but it was planning. Tenet immediately started increasing the prices it charged uninsured patients admitted to its hospitals.
Increasing prices: At the same time they had been looking at those areas of health care that were most profitable. To stop health care providers from cherry picking straightforward cases and avoiding more complex cases, where they would lose money, government had made special provision for very complex cases requiring additional resources. They paid much more so that providers would be induced to provide care for these more difficult cases. These payments were mostly used for major cardiac, vascular and neurosurgical cases, cases requiring mores skilled staff. Tenet decided to go after these cases and rapidly expanded the departments providing these services in its hospitals.
They were also battling the unions who claimed that they were understaffing and that care was compromised. This might ring a bell for those who have read company reports from some aged care companies that have recently listed on our stock exchange. They are treating sicker residents but reducing costs for staff.
Increasing the number who paid more: "Outlier" payments, "stop-loss" payments and a similar system for workers compensation cases provide remuneration for complicated and costly procedures which are not adequately covered by the Diagnosis Related Groups (DRG) formula used for reimbursement in the USA. These extra payments are designed to address this problem for a small number of selected cases.
Without these extra payments corporations would have "cherry picked" profitable cases by treating only healthy patients and by targeting short term complication free surgical procedures. Complex cases were turned away.
Source: Tenet Health care fraud - Corporate Medicine web site updated 2007
In addition to this, Tenet indulged in a practice called "upcoding". In assessing what to charge the insurers you defrauded the insurers by increasing the coding to a higher code that paid better. The number of patients that qualified for the costly and resource intense "outlier" and "stop loss" payments increased dramatically.
At the same time, the company's managers were looking for surgeons who would do more of these operations and trying to induce them to do so. At one hospital, two doctors did between 700 and 800 unnecessary major heart operations, with all of the risks associated with that sort of surgery.
Exposure: The New York Times had been investigating health care and had noticed the rapid increase in the rate of the "outlier and stop loss" payments. They notified authorities and delayed publication while this was investigated. At the same time a priest who had been advised to have a major heart operation, obtained a second opinion, realised what was happening, and went to the FBI. Soon there were concerns about unsafe heart surgery at another hospital due to unsafe theatres that Tenet had refused to upgrade because of the cost.
The two scandals broke in the press within days of one another. I do not know whether HCA (the old Columbia/HCA) was doing the same. Information can be found on the pages below:
- Tenet Healthcare Fraud and the Outlier plus Stop-Loss scandal 2003 Corpmedinfo.com, updated to 2007
- Tenet Healthcare's Redding Hospital Unnecessary Cardiac Procedures Part I 2003 Corpmedinfo.com, Part II 2007 ---- Australian connection 2007 ---- fallout 2007
- Unsafe theatres 2007 Corpmedinfo.com
Price gouging the vulnerable Vast numbers of US citizens are simply too poor to pay for medical insurance and probably about 30 to 40% are uninsured. Ultimately, when they fall ill they have to receive care. Because many of them put it off they end up arriving at hospital in an ambulance. Tenet had been steadily increasing its prices until they were 3 to 4 times more than the DRG prices that the insurers paid for the same care. The poor were subsidising the wealthy.
The poor were paying far more than the wealthy. Almost everywhere else in countries where there is no safety net the providers of care will reduce their fees for the poor and arrange for a generous pay off period. Tenet did the very opposite.
Tenet employed debt collectors who harassed the poor forcing them to sell everything they had, their cars, their houses and leaving them destitute. No one would have been aware of this if Tenet had it not targeted the poorest and most vulnerable people in the USA, the Latinos. But a white knight, a lawyer, saw what was happening. He took up their case and went to court. HCA was behaving similarly. Information about this can be found on these pages:
- Tenet Healthcare Price Gouging Corporate Medicine web site written 2003 updated 2007
- HCA 2004 to 2007 Corporate Medicine web site written Oct 2007
In aged care too
I have given health care examples because these were so high profile and so graphic but very similar things occurred in multiple corporate nursing home chains across the USA. To illustrate this, I will use Vencor as an example. I studied Sun Healthcare in more depth because it came to Australia briefly and will use it later. Like Sun Healthcare, Vencor's meteoric growth under its charismatic founder made it one of the biggest aged care chains in the USA.
Nursings home company Vencor was investigated for what was estimated initially as a US$1.3 billion and later a $3.1 billion fraud. By then, it was in Chapter 11 Bankruptcy and a large fine would have put it out of business and like similar companies it never came to court and paid only $200 million.
Authorities were very worried about the consequences for residents of such a large provider of care collapsing. Vencor eventually traded out of bankruptcy and like other companies with a bad record in the USA and Australia, it changed its name to Kindred Healthcare. At the time my contacts sent me about 500 articles about Vencor.
Because proof in the form of a conviction was not readily available, I was more circumspect in what I wrote and instead told the story with extracts from the US press.
You don't have to go back very far - a little less than three years - to find the time when Vencor Inc. was a giant in the health-care industry, and the only question was how big it could get.
Source: Once-soaring Vencor struggling to stay aloft - The Courier-Journal (Louisville, KY.), 4 Apr 1999
Vencor reduced the number of nurses and underpaid them. There was an enormous loss of morale and like the other big chains, care suffered.
About one-quarter of Florida's nursing homes fell below state standards during annual inspections between January 1997 and March 1998. Among four of the state's six major chains - Beverly Enterprises Inc., Integrated Health Services Inc., Vencor Inc. and Mariner Health Group Inc. - the substandard rate was 32 percent to 40 percent.
Source: Profits can come at high costs The Tampa Tribune November 15, 1998
We found that homes run by large, publicly traded companies had more problems, on average, than nonprofits and homes run by for-profit companies that didn't sell stock So, what was it about having stockholders that changed a company's behavior?
The quest for profits seems to be the obvious answer, but it's more complicated than that. - - - The daily life of a publicly traded company is so intense, as stocks rise and fall minute by minute, the questions of how to nurture workers and care for residents fall by the wayside.
------ And for the most part, they're not customers. They're not in a position to get up and walk out if they get bad care.
Source: Nursing home solutions start at the top - The Tampa Tribune, 22 Dec 1998
The strategy that caused an eruption of outrage across the USA was when Vencor decided to eject residents whose insurance did not cover them well enough and tried to limit admission to those who had the sort of insurance that provided extra cover. Extra cover provided the sort of extras that are now to be offered to residents as "choices", in our nursing homes under Consumer Directed Care - if they can afford them. Extra cover was much more profitable.
At the time in the USA, Medicare paid nursing home fees for 1 month, but after that, anyone who could not afford to pay themselves or who were not adequately insured, was covered by Medicaid which paid about $18,000 less per year.
Even more confronting was the deception used when ejecting residents and dumping them back on their families. The outcry across the USA and lawsuits in Florida forced Vencor to reverse its policy.
One company, Vencor, responded in early 1998 with a plan to evict its residents on Medicaid in homes across the country,
---------- But away from the spotlight, care elsewhere has suffered under Vencor.
Source: Profits can come at high costs - The Tampa Tribune, 15 Nov 1998
Laura Morgan's marching orders were simple. As a social worker at a nursing home owned by Vencor Inc., she was to ensure that as many beds as possible were filled with residents covered by generous private insurance or by Medicare.
Patients whose high-paying benefits expired, and who thus ended up on lower-paying Medicaid, were to be moved out as soon as possible.
One of her tasks was smoothing the way with relatives. "I had to sit across from family members and lie to them, manipulate them, tell half-truths," says Ms. Morgan, who resigned in June after alerting state authorities to the practices.
A critical component of Vencor's strategy was offering high-quality care, to attract patients who could afford to go anywhere they wanted. But its record on care is slipping,
Nowhere was that more evident than in its attempts to boost the number of residents who paid their own way, had private nursing-home insurance or had their stay paid by Medicare,- - - - -
Vencor officials talked about their plans openly, deriding rivals' strategy of filling their beds with the plentiful Medicaid patients. - - - - But Vencor wanted to discharge such patients, so it could fill the beds with others who had high-paying insurance coverage.
Administrators of individual nursing homes were taught to rethink the entire admissions process with this in mind. A strategy memo passed on to Georgia homes urged administrators to plant the seed in the minds of prospective patients and their families that a stay would be short-term. "Begin concept upon admission," the memo specified, and while giving families tours of the home.
Mr. Barr, as chief operating officer, bore down on this in a memo to regional officials in the summer of 1997. "We determined months ago that we did not want to admit low-paying Medicaid only patients," he wrote. "Please let your administrators know that it's time to get on board or leave."
Mr. Norris says he received a memo in the spring of 1997 urging him to step up the effort to discharge Medicaid recipients. He says it suggested giving bonuses to employees who successfully evicted such patients. Mr. Norris brought Ms. St. Lawrence into his office and told her, they both recall, "I'm showing you this just so you know about it. This is illegal and this will never happen in my facility as long as my license is on the wall."
But a few miles away at Savannah Rehabilitation & Nursing Center, the eviction strategy went into full swing starting in April 1997, says Ms. Morgan, who was the facility's resident social worker. At weekly meetings, she says, she would be asked to explain what she was doing to move out the patients the home no longer wanted. "They would say, 'So and so has 10 more days left on Medicare, and she can't stay here. What do you plan to do?' "
Leafing through her records, she spots the receipt for a $100 bonus she says she received for discharging a couple she says were evicted improperly. From another pile she pulls out a note in which the couple's children thanked her for her helpfulness during the transfer. "They don't know what really happened," she says.
To make it appear the home was complying with state rules, Ms. Morgan says, she would falsely indicate on certain records that families had requested a discharge
Source: Bed News: The Business Potential Of Nursing Homes Is Elusive, Vencor Finds: Bid for High-Paying Patients Brings Firm Headaches, And It Has to Regroup: Medicaid Is Welcome Now - The Wall Street Journal, 24 Dec 1998
State officials have banned admissions at Rehabilitation and Health Care of Tampa for interfering with residents' rights to apply for Medicaid, the government health care program for the poor.
The home, owned by Vencor Inc., based in Louisville, Ky., also was accused of improper discharge practices. State inspectors spent several days at the home last week, but Agency for Health Care Administration spokesman Pat Glynn said findings would remain secret until the agency completed its review.
Source: Admissions banned at nursing home that was fined last year, The Associated Press State & Local Wire 5 January 1999
The residents I talked with said that everywhere they looked, they saw other residents crying inconsolably at the news. The people, many of whom had lived there for several years, explained to me that this facility had become their home. As we all do in our homes, they had put down roots. They had established important friendships with other residents in the facility and strong relationships with staff.
They reported to me that they had never in their entire lives been thrown out of any place. They were mortified. Their self-esteem was badly affected by being targeted in such a public way for something they could not help.
The effect on residents was magnified by the atrocious and deplorable way the transfers were handled by the administration at Wildwood. Once this eviction process was set in motion, it moved forward inexorably. Outcries from residents and families did little good. Complaints to the state survey agency were of no help. In fact, that agency stated that deciding not to keep residents on Medicaid was a business decision, which the facility had every right to make.
It was only as a result of outspoken residents and family members, the work of United Senior Action, a citizens' advocacy organization in Indiana which is a NCCNHR member group, and attention from the media that Vencor reversed its policy and agreed to stop the Medicaid evictions.
Source: Prepared statement of Robyn Grant on behalf of the National Citizens' Coalition for Nursing Home Reform - before the House Committee on Health and Environment - Hearing on H.R. 540 - The Nursing Home Resident Protection Amendments, 1999 Federal News Service, Thursday, 11 Feb 1999
For more information, visit these web pages:
- Vencor Introductory Overview - Corporate Medicine web site 2001-3
- Vencor's care, morality and ethics - Corporate Medicine web site 2001-3
- Vencor and fraud - Corporate Medicine web site 2001-3
Collusion as a strategy - Australia
While the talk is all about competition, in practice it is economic self-interest that is the driving force and not competition. Collusion keeps prices and profits up. It is far more profitable to work together than to compete even when you pretend not to.
Collusion in order to destroy competitors or bilk the public is an endemic corporate problem in Australia and globally. There was trucking in the 1980s (Mayne Nickless settlement in 1994), concrete companies in the 1990s (Boral and Pioneer), packaging in the 2000s (Visy and Amcor) and the cartel of global (USA and UK) banks rigging currency markets in 2015, although no Australian banks were named in this. Around this time the NAB fired a large number of staff and senior management resigned in 2014 because of currency irregularities but I don't know if they were a part of this cartel.
This sort of conduct is difficult to detect and then to prosecute. Prosecutors depend on documents, emails and whistleblowers. It is only the big companies that are blatant about it that are detected and prosecuted and then only after many years.
These cases are almost certainly red flags pointing to a much more common low key practice, one that puts smaller competitors out of business. So when we hear big companies and our politicians making extravagant claims about competition pushing down costs we need to be wary.
Those who genuinely believe it and try to compete can be shafted.
PACMAN activity: Manipulating prices up and down
The incentive to compete on prices in the corporate marketplace is to put someone else out of business and this is where size, power and strategy becomes very important. There are a limited number of hospitals and nursing homes in any locality. Big corporations will therefore move into a locality by buying or building. They will then slash prices to put competitors, usually small groups or not-for-profits out of business or to pressure them into selling.
One local operator in a locality where for-profits had bought all the other hospitals described his situation as being like a flea between two elephants. Another said "in our minds, there was no way we could survive in the long haul given the changes coming in health care. Columbia/HCA is a very aggressive corporation".
When local competitors were put out of business, prices were pushed up again and the corporation targeted the next locality. In this market, better operators were replaced by those who gave poorer care.
This strategy was so successful that those companies doing it were called 'Pacmen' - named after the computer game. The USA's largest hospital company Columbia/HCA was called the Pacman. Its competitor Tenet Healthcare, the 2nd largest was not far behind. The US aged care chain Sun Healthcare that operated in Australia for a few years was also known for its Pacman conduct. Smaller operators and not-for-profits that provided better care than the corporate giants tumbled.
Is this happening in Australia?
The nurses, families and the press have been telling us that care is being compromised for years now. On these web pages there is much to suggest that care is being compromised because cost cutting has resulted in fewer and less well trained staff. Here is a recent example. It is from a report on a coronial inquest where it seems someone died because there was no-one around to look after her.
Ms Sxxxxxx said she thought none of the residents "received the care they paid for" and that she would not put a relative into the aged care facility.
She said she had complained to her management about understaffing, describing it as "unsafe" but was told there would be no change.
Source: Hobart 85yo nursing home resident died with head stuck between bed and pole: inquest ABC News 14 December 2015
On the page Consequences of marketplaces thinking I looked at how additional funding to provide extra care for very difficult demented patients was so badly rorted that government was forced to cancel the program. This is only one of several examples. More recently the minister herself has accusing the nursing homes of rorting the system and threatening serious retribution.
Canberra will bring in huge new fines in 2016 to curb a growing trend of incorrect, or deliberately crooked, claims for government funding in the aged care sector being lodged by dodgy providers.
The fines of $10,800 per false claim will be applied for the first time and will be accompanied by stronger auditing and more deliberate targeting of assistance to help elderly patients with complex health needs under the $10.6 billion Aged Care Funding Instrument (ACFI).
Health Minister Sussan Ley said bogus claims for the high-level funding meant the program had blown out by $150 million last year and that the trend for this year looked to be even worse.
Source: MYEFO budget update: Big fines aim to stop fraud in aged care Sydney Moring Herald 15 Dec 2015
- - - the government revealed it was cutting subsidies on certain claims in the ‘complex health care’ domain of ACFI to save $472 million over the forward estimates.
- - - Minister for Aged Care Sussan Ley said these claims were “consistently higher than expected and not consistent with claiming practices in other ACFI areas.”
She announced “a stronger compliance regime” including fines of $10,800 per offence - - - ”
Ms Ley said figures showed as many as one-in-eight of 20,000 ACFI claims audited in 2014-15 were deemed to be incorrect or false. “This figure is already tracking even higher at one-in-seven in 2015-16,” she said.
This was intended to ensure fines were restricted to those providers who “had been caught making multiple, deliberate false claims, not genuine one-off mistakes,” she said.
Source: Government clamps down on ACFI claims Australian Ageing Agenda 16 Dec 2015
The pressures from increased competition and consolidation in this market are in their infancy yet it seems likely that we are already behaving like they have in these others countries. We are all human and when the only way to succeed and avoid failure is to exploit the system regardless of the consequences for others some will start doing it. Once one company does it everyone else must follow to survive. That is the price we are paying for our governments belief in the universality of free markets.
Not much competition on price in Australia
Far from competing on price, companies in Australia are simply helping themselves to government's money as well as putting their hands into the wallets of the residents and taking it out in large wads - take it or leave it. If government does not like it the market will mount a political campaign to put them out of power.
On previous pages I have looked at the way in which the funding system in aged care has been systematically exploited. But residents are also vulnerable. Companies across the board have been quietly pushing up fees so that residents have to pay more. The three market listed corporations are most profit driven and have probably led the way. We don’t know how many others are doing this because they don’t have to disclose their finances but to compete they won’t be far behind.
The big providers have given their incomes a substantial boost by adding a daily fee for those (the majority) who pay for nursing homes using a refundable accommodation deposit (RAD) and charging for other items that were previously part of the service.
FPCompanyI Health has become the latest aged care company to introduce an additional layer of fees in a move that could increase the cost of nursing homes and make it harder to compare costs between providers.
On June 6, FPCompanyI introduced an $18 a day charge for residents who meet the cost of their accommodation upfront, rather than paying in instalments. Rival FPCompanyG Aged Care introduced a similar fee in April, while Axxxx xxx xxxxs Axxxx Group (AXXXXX), part of FPCompanyH Healthcare, established a new fee last year. FPCompanyI levy, known as an asset replacement contribution fee, is the highest of the three.
In addition to the extra fee for residents who pay for their room through a so-called lump sum refundable accommodation deposit (RAD), experts have also reported that more aged care facilities are forcing clients to pay for additional services, such as hairdressing, wi-fi, excursions and wine with meals.
Source: Aged care providers hike fees by thousands Australian Financial Review 9 June 2016 (Paywall)
As indicated companies compete in maximising the money they can successfully extract from the leaking funding system. Michael Pascoe writing in the Sydney Morning Herald describes this particularly well. He uses FPCompanyI as an example because it has to disclose its finances. It is simply representative of others.
FPCompanyI shares soared to $7.84 last year as it boasted of rapid growth through its ability to take over existing aged care homes and subsequently extract more money from the federal government per patient - - -
- - its success in boosting its ACFI income in the centres it's been running for a while, the "mature" operations, is on page three (of its Annual Report). In the six months to December 2014, FPCompanyI’s "mature" average daily ACFI payment was $166.52 per client. Six months later, it was $177.58 a day. Six months later, it was $184.36.
Some of that is indexation, but indexation wasn't 11 per cent for the year to December 2015.
FPCompanyI's growth model that so enraptured the stock market last year is to buy out other aged care operators and "transition" the homes to mature status. That means cutting operating costs, increasingly occupancy ratios and boosting ACFI.
Source: Aged care clients, staff set to pay for government crackdown Sydney Morning Herald 20 June 2016 (Michael Pascoe)
The problem with this is that it is a free market and the companies can do what they like provided it is legal. The individual customer is powerless to do anything about this. She has to like it or lump it. There is no real choice.
But as Pascoe says, what is “much more shocking is that none of this ACFI system has anything to do with the quality of care” the rating system does not mean that the resident is “receiving more care, just that he needs it”. How much is spent on “looking after Fred and how much is pocketed by the operator is mainly a matter of the integrity of the individual facility manager”. In a strongly competitive market integrity is a luxury few can afford.
Pascoe indicates government is spending vast sums on attempts to monitor and regulate. But experience here and elsewhere clearly shows that regulation in situations like this is ineffective and the benefits are marginal and temporary. This is hardly surprising as the problems lie in the system. No amount of regulatory vigour addresses that. A well structured civil society that is on top of what is happening would be in a position to change the system, because it can alter the way the market operates.
Government powerless: Government is powerless because, not only is it in the pockets of the market but the market is in a position to enlist the public and opportunistic politicians by blaming government for not funding the system. Both Xenophon and the Greens are supporting the industry bodies calling for more funding and promising to “block the cuts” in the senate. A marketing blitz in the midst of an election campaign can put government into an impossible position and it is interesting that they have focused on South Australia where the government is most vulnerable.
Xenophon announced on Wednesday that, if re-elected, he would move to delay the $1.2 billion budget cut to the Aged Care Funding Instrument (ACFI) until there was a senate inquiry into the sector.
He also called for the Coalition to scrap its planned budget cuts and for Labor to revoke its support for the measures, which he said would put lives at risk and cause massive cost blowouts to Australia’s health system.
Source: Xenophon Calls for Aged Care Funding Inquiry Probono Australia 23 June 2016
- Xenophon calls for Senate inquiry into aged care funding Australian Ageing Agenda 22 June 2016
Deceptive lobbying: Particularly interesting is the website of the AgeWell campaign in South Australia. A close look at its "about" page reveals that the website is run by The National Aged Care Alliance (NACA), which claims to be “– a coalition of 48 aged care consumer advocates, service providers, professionals and unions to reform Australia’s aged care system and make sure all Australians can age well” -- and please note that consumer advocates was first on that list.
It is in fact a provider dominated forum which worked with government to design the present system. Its members are gagged and cannot speak out against a majority decision. Only one of the three seniors organisations elected to accept the gag clause. The others resigned years ago. COTA, the smaller seniors group that remained, has supported providers and government. Its CEO often acts as the consumer spokesperson for NACA and the government. It has been well funded by grants and government projects. It has been criticised as the government’s “lapdog”.
NACA’s public relations program is the AgeWell Program. AgeWell’s South Australian website is targeting the community and attacking the government
- Care for older Australians shouldn't come down to luck AgeWell Campaign South Australia web site accessed 24 June 2016
What is really interesting is that an organisation whose members have been so critical of and attacked those who criticised the free market aged care system they designed, are now enlisting citizens who are critical of aged care to sign a petition on their website and to share their stories about failures in care.
How many of those who signed really know the background behind the AgeWell program - that they are signing up to support the aged care system that they are actually criticising. The funding changes have as yet had no impact. What they are criticising is what NACA has created.
The interesting thing is that we are seeing the same sort of stories from staff and families criticising the system that I have documented on Those who know. They may well be the same people, but here they are now being recruited to support the system.
- Your Stories AgeWell Campaign accessed 26 June 2016
There is nothing new about this strategy. Large industry groups in the USA adopted very similar strategies. They funded and staffed new community organisations and induced those who visited their web sites and had no idea that this was an sham industry site to sign up as members. This artificially created industry funded community organisation then used its wealth to lobby and petition politicians on behalf of the company or industry so countering the impact of the real community groups. These groups struggle to fund similar marketing and lobbying. Its simply a business strategy.
But this is not the only attempt to enlist the public and put pressure on government. LASA, the organisation representing for-profit and many not-for-profit companies that have been exploiting the vulnerabilities in the system has started a Change.org petition lobbying the three major political parties and it is far from clear to anyone getting it who is behind this. There is a fancy animated video on the link playing on all of the common failures in care to motivate people to sign.
If any staff member spoke out about these sorts of failures in a nursing home, they would be fired. A family member doing the same would be likely to get a threatening lawyers letter.
- Petitioning Minister for Aged Care Sussan Ley and 2 other: Reverse the Aged Care cuts - and I vote Change.org accessed 25 June 2016
Government in a Catch 22 position
But lets look at what Michael Pascoe indicated the providers are likely to do:
It's the aged care clients and staff that are likely to pay for the tightening up, not the private sector's profitability. As one analyst wrote: "The listed operators are confident that additional services revenue, scale benefits and management of some costs will partially offset the lower government Aged Care Funding Instruments to largely maintain margins."
What that tends to mean is that staff and clients will be squeezed to maintain the entrepreneurs' profits.
Source: Aged care clients, staff set to pay for government crackdown Sydney Morning Herald 20 June 2016 (Michael Pascoe)
So here we have another perverse incentive. The poorer the care that is given, the more the staff and community will complain and the stronger their support for the providers will be - and the more pressure on government to increase funding and allow it to be rorted.
It's in the shareholders best interests to provide poor care and understaff. The providers fiduciary duty is to act in the shareholders best interests. Its a catch 22 situation for government, because they cannot win whichever route they take. They will be forced to pay the ransom and keep on doing so. They can't complain, because this is the system they designed, but they will retire with large packages in due course. it is the vulnerable elderly who will suffer the consequences of their stupidity.
The system may need more funding but when it had more funding and was making large profits, that extra money did not go to care. The argument is that any additional money would go the same way and should not be given until we have a system where the providers are accountable for how they spend our money.
Competition has benefits in making people strive to do better, But I hope I have said enough here to show that when it is excessive or when the competition creates perverse incentives that undermine the service provided then it can be extremely dysfunctional and large numbers of people are harmed. Companies readily become predators. This is the sort of thing I am talking about when I refer to a culturopathy. All vulnerable sectors are at risk.
As for prices and service; in this sort of culturopathy they are manipulated for the benefit of the predators preying on the community. The number and type of services provided depend on their profitability for the corporate predator and not the needs of the community and its members. They develop strategies that ultimately exploit weaknesses in the system and the vulnerability of citizens. Health and aged care are vulnerable sectors