Not-for-profit operators

Are not-for-profit's days numbered?

Elsewhere, I write about the difficulty for not-for-profits when competing in the marketplace because of their different values and mode of operation and because they are generally less willing to compromise care in order to increase competitiveness.

Other warnings

The background

To understand the threat that Not-for-profit facilities face in a rapidly consolidating market, we can look at the history of consolidating market in health and aged care starting in the 1990s.

The USA

In 1996 Robert Kuttner editor of “The American Prospect” wrote a landmark two part article in the New England Journal of Medicine. It used the USA’s largest hospital owner, Columbia/HCA as an example. Kuttner is writing about hospitals.  He describes what happens well.

He explains the essential difference between for-profit and not-for-profit:

Kuttner Part 1
- - - nonprofit hospitals must at least break even, historically they have embraced a social ethic, serving uninsured patients, taking Medicaid losses, not insisting that every admission or procedure be profitable, and spending money on research, teaching, and public health as part of a broader mission of service to the community. - - - -

Entrepreneurs, by directly imposing market principles on hospitals, overturn the explicit and implicit understandings that have allowed doctors and hospitals to balance professionalism, profitability, and service.

Kuttner explains the rapidity with which for-profits merged to acquired not-for-profits who found that they could not compete. Columbia HCA was known as “The Pacman” of the industry.

Kuttner Part 2
Columbia’s deals are notable for the speed, secrecy, and legal ingenuity with which they are accomplished. The company has flying squads of acquisition specialists backed by financial analysts, accountants, lawyers, and consultants and can negotiate a binding letter of intent with a hospital’s board of trustees in a matter of weeks.

To a town with fiscal strains and a money-losing hospital, Columbia/ HCA can look like a white knight.

Kuttner explains how not-for-profits respond by copying for-profit practices. He describes some of the consequences,

Kuttner Part 2
- - - - the big nonprofits are now in many ways defensively emulating Columbia/HCA and other for- profits. In the face of no-holds-barred competition - - - it remains to be seen whether community hospitals and teaching hospitals can maintain the distinctive values that Columbia insists have already blurred
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A market culture and market idiom are becoming pervasive, even among nonprofits. Within living memory, service areas were not called markets; heads of hospitals were administrators, not chief executive officers; hospitals did not advertise for patients; and few hospital administrators spoke of market share, let alone EBITDA- - - . All this has changed, perhaps irrevocably. But if non- profit hospitals defensively emulate for-profits, their claim to the ethical high ground rings hollow.
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If nonprofits are to retain their claim to fiscal and moral difference, they will need not only to match the chains lawyer for lawyer, ad for ad, market strategy for market strategy, and cost saving for cost saving, but also to be clearer about their own mission. And society, through better regulation and disclosure, will need to fashion clearer ground rules — or cede them to the market.

Not-for-profits became as active as forprofits in cutting staff. Kuttmer quotes what the fraud prone Tenet Healthcare (previously National Medical Enterprises) thought about staffing, but it was the not-for-profit groups that the nurses targeted about staff cuts.

Kuttner Part 2
A recent newsletter - - - approvingly quotes an operations manager at Tenet Corporation’s - - - “We determined that more than half the 350 tasks that RNs [registered nurses] perform could safely be performed by an unlicensed person.”
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A September 1994 lawsuit by the militant California Nurses Association, alleging consumer fraud in the deterioration of nursing care, chose nonprofit Alta Bates Hospital in Berkeley as its target.

• Columbia/HCA and the resurgence of the for-profit hospital business - Robert Kuttner The New England Journal of Medicine
  Part 1 Aug 1, 1996 Volume 335 Number 5 p 362
  Part 2 Aug 8, 1996 Volume 335 Number 6 p446

Representative Pete Stark, who years before piloted the Stark anti-kickback health care legislation into law in the USA, was particularly critical of the ruthlessness of corporate for profit medicine and of Columbia/HCA. He said "the for-profit chains have the minds of piranha fish and the hearts of Doberman pinschers." He indicated that Columbia/HCA was "the PACMAN of the industry." On another occasion referring to Columbia/HCA executives he stated "Hopefully they will all be in jail soon for the crimes they have committed across the country."

That should send a warning!

Aged Care in the USA: Soon after this the same thing happened in aged care. There was rapid consolidation and the aged care company Sun Healthcare became The PACMAN.  I have given links elsewhere. It is an ongoing problem in the USA with a progressive decline in the proportion of not-for-profit nursing homes - for example a decrease of 14% in Philadelphia over the last 6 years

• For-profits are snapping up nursing homes The Inquirer Daily News 26 June 2016

In the UK: The National Health System could not be sold off but in aged care Private Equity became the great consolidator. Both financial sustainability and care have been compromised.

In Australian health care the doctors refused to cooperate with government, the insurers and the providers. Unlike the USA where doctors lost control of the system Australian doctors exercised their market power to control the excesses of the market. As a consequence our health system has not suffered in the same way as the USA.

Aged Care in Australia: The process of consolidation is well under way. Doctors have no market power in aged care and it will be up to the community itself to address the problem. We need to remember that the market is simply a mechanism and a ruthless one when it is left to its own devices. It has to be controlled by the community. The proposed community aged care hub would be an effective way of doing this.

Australian research

In a recent article, aged care researcher Dr Richard Baldwin was also pessimistic about the future of not-for-profit providers indicating that they would be left behind in this expanding market because of their inability to raise capital and maintain their representation through growth. His review of the literature and the results of his research, show that quality is impacted by ownership type, with staffing one reason for this.

The evidence suggests that a greater proportion of for-profit providers is likely to be accompanied by a deterioration in the quality of care. Baldwin was concerned at the lack of data and any intention to adequately measure the impact of the changes that are being introduced on quality of care.

Favouring size over service: Clearly a government which sees market consolidation as a primary objective is likely to focus on and favour large entities and particularly for profit entities which are better placed to acquire and develop as they can raise money more easily. They will see them as more credible. Smaller not for profits will not impress although they often provide better care.

The CEO of a faith based groups with two retirement villages each containing a nursing home and also providing home care complained about the difficulty in being allocated high care beds in his 2015 annual report - so that their residents would not have to move elsewhere away from family and friends.

A chilling message

Not-for-profit’s anxiety would have been fanned by chilling message in a presentation by analysts Bentleys to an ACSA meeting in October 2015. Bentleys prepares annual reports on the marketplace for ACSA

The second slide shown was a timeline for Aged Care which would have been based on the governments plans and roadmap, which Bentleys would have been knowledgeable about. It suggested that the competitive consolidation program would result in the halving of the number of approved providers to 600 from the current 1200 by 2021 and halve it again to 300 by 2031.

If this happened then only a quarter of current providers would still be in business in 16 years. The not-for-profit providers would be well aware that they were not well equipped to compete with the for-profits in this sort of marketplace and have many among the 300.

What are they doing about this?

Not-for-profits are now required to work in a marketplace where their values and their beliefs are put under extreme pressure.  They are forced to compete against for-profit providers and adopt the same strategies.  These dominant for-profits have a different culture and they often have little regard for and understanding of not-for-profit culture, perhaps even sometimes refering to them as 'mastodons'. 

The not-for-profit provider have justifiably become concerned about their ability to survive in this very different environment. I agree with them that the only way that they can really maintain an effective presence is to behave like for-profits. The closer they get to thinking and behaving in the same way the more likely they are to succeed.

I think it very likely that this will seriously compromise care. The very idea of not-for-profit will gradually become irrelevant in aged care. In fact on another page I record how some not-for-profits are already saying that there is no difference and even describing those who think there is as mastodons. They are being advised by impressive and confident business advisers who are confirming this for them.

The whole not-for-profit sector is now following that advice and they are organising forums across the country, teaching their members the skills and thinking needed to survive in this marketplace. There is the ACSA forum in Victoria whose presentations from accountants and marketplace experts can be downloaded here.  Then there was the “Securing Our Place in The Future” in NSW on 10th November. Its presentations are not available to download but the forum is advertised here and the program is still here. 

The Leaders Summit 2016: The Business of Villages & Care in 2018 held in March 2016 had a wide seclection of speakers from banks, cionsultants, marketing firms, accountants, architects, digital businesses, developers, investment consultants, media and lawyers as well as the CEO's of large retirement and aged care businesses - for-profit and not-for-profit.  One gets the feeling that there is a bit of panic but there is good reqason for that.

The worry is that the focus is shifting rapidly into surviving by developing a competitive business and in doing so they are moving away from the mission and the provision of care that brought them here in the first place.  Care will increasingly become a commercial process and a business transaction rather than an empathic relationship.

On the section on Cultural Perspectives I will look at what not-for-profits are saying and doing and argue that, while they deny it, they are beginning to think and behave the same way as for-profits, are struggling to maintain their sense of mission, and are losing their connection with the communities whom they exist simply to serve. 

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Strategies for coping

On this page, I am going to describe seven different situations where not-for-profits come under pressure or try to find ways to respond to all these pressures and so compete successfully.  They are responding by trying to compete, by copying and by alligning themselves with for-profits in this marketplace.

Community based organisations: Conflicts with donations

On the Cultural Perspectives page I will be writing about what I have called culturopathy - situations where a well intentioned firm belief in something results in harm and sometimes very disturbing behaviour - a culture that allows hamful things to be done. 

Having to accommodate to a marketplace culture like this and adopt their practices can create many problems and tensions for not-for-profit organisations. In the past professional and community groups have been aware of the risks from the market and have adopted practices that shielded them.  Those practices are now illegal and they have to conform.  They are expected to disown their older views and think in market terms.

Their dependence on donations and other outside funding including that from government can create additional tensions, pressures and conflicts of interest for charitable not-for-profit organisations in this situation.

My argument is that in a culuropathy, funds that would normally benefit society, can also have the unintended consequence of muzzling criticism and allowing culturopathic practices that harm people to continue. The relationship between Alzheimer's and FPCompanyD, the company described as cutting staff on the previous page, can be used to illustrate this aspect of the problem. But first we need to explain the problem and look more widely.

Donations and conflict of interest

The majority of charitable organisations depend on donations and/or government funding to survive and do the good things they do. It is difficult for not-for-profit groups to reject money and most do not do so. But when they depend on donations, these  can sometimes create a major conflict of interest for them - particularly in a culturopathy.

Government funding: Government funding can create tensions and be a strong disincentive to criticising when something is wrong.  As I will explain in another section, government bodies are unlikely to see a not-for-profit that is critical of its policies as credible and reliable, particularly when the policies are part of a system of culturopathic beliefs.

Government may not want to continue to fund the critic. But even when this is not the case, not-for-profits may worry that criticism might impact their funding.  This would constrain most not-for-profits.

The Howard government stopped funding the Combined Pensioners and Superannuants Association (CPSA), which had been prominent in aged care policy but which was critical of what the Howard government was planning.  That sent a cold shiver through the not-for-profit sector and citicism of government police by welfare groups during the Howard years was muted.

There has been another attempt to muzzle our charities, the groups that actually see what is happening to the vulnerable end of our society. These charities are an important component of our civil society and they are being discouraged from participating in the debate.   While we talk of freedom, we put up with more censorship.

Alzheimer's Australia as an example: Alzheimer's Australia’s June 2014 Annual Report shows that it received $17 million from "operating grants and sponsorships" - which is about 90% of its total income.  It does not indicate how much of this is government grants and how much is from large corporate sponsorships. 

Alzheimer's Australia's Victoria’s June 2014 Annual Report shows that it received $11 million, which is at least 70% of its income from government grants. If we assume that this is representative of what happens federally and in other states, then we can understand why Alzheimer's Australia might be very careful not to be too critical of government policy.

Without making any allegations, it is still reasonable to look for reasons why Alzheimer's Australia elected to remain a member of NACA when other not-for-profit groups like National Seniors and CPSA elected to resign, rather than agree to the restrictions on public criticism imposed on its members by NACA.  While it has not gone as far as COTA in speaking in support of NACA’s proposals, or been as involved in driving them, it seldom makes any strong critical comments about NACA and government policies.

Sponsorships and donations: Most community and charity groups depend on donations from the wealthy and in our world today from big corporations. Community organisations can no longer generate all the money they need by fund-raising efforts in the community.  They depend on sponsors for their survival. This money is used for the benefit of the community and that is essential and desirable.

The problems come when there is a culturopathy, when large corporations that give them money have a different value system, and they are doing things that harm citizens. This normally beneficial arrangement creates a situation where these community groups are under pressure to be complicit or at a minimum turn a blind eye to what is happening.

Certainly in the USA, it is most unusual for a community group that depends on donors to blow the whistle or speak out about a problem in one of their donors.  A big donation effectively gags the group.  There is no reason to suppose we are somehow superhuman and different.

Alzheimer's Australia, like most charitable organisations, depends on donations and fund-raising activities.  It actively solicits donations and arrangements with "corporate partners" on all of its web sites offering 'countless branding, marketing and PR opportunities' in return. 

This very beneficial way of raising funds can have its dark side. For this reason, credible advocacy groups do not accept money or enter into arrangements that would create a conflict of interest for them.  This means that most of them are poor and they struggle.  They have to go begging for support. Wikipedia for example, maintains its integrity and independence by depending entirely on a periodic appeal to its readers for funds.  The recent internet social pressure groups like Alvaaz do the same.

But we can understand why Alzheimer's cooperates so readily with market entities that clearly reject the not-for-profit ethic and have less than stellar track records. We can understand that there are sound pragmatic reasons for doing so. Without support from and involvement with the market, Alzheimer's would not be able to operate.

To carry out its mission and improve the care of dementia sufferers, Alzheimer's has to work with the providers to improve the care they give as best it can. Groups like FPCompany NewnameC, FPCompanyD and INTFPCpnpany B provide much of the care given to dementia patients.  They must work with them and we can see that by partnering, Alzheimer's might be in a better position to improve care within the current system.  By partnering with those at most risk they can exert more influence and constrain them.

Alzheimers has a mutual support arrangement with FPCompany NewnameC. INTFPCpnpany B also has a close working relationship with it and is a sponsor of many of its fund raising activities.

Alzheimer's Victoria - partnership with FPCompanyD:  FPCompanyD is a Victorian aged care company providing care to dementia patients. As a sponsor it has given Alzheimer Victoria $120,000 over 2 years. In return, Alzheimer is advising FPCompanyD on best practice and giving its staff specialist dementia training.  Allegations made about understaffing causing a death are described on the previous page about for-profit-operators.  We do not know if they are correct, but for the purpose of this argument lets assume that they are.

As indicated above, Alzheimers is a member of NACA.  If it strongly opposes what the for-profits want, this might well discourage them from making future donations and cooperating in improving care.

Problems can arise if a major donor believes in a culturopathic system and indulges in practices that are likely to compromise care. Providers doing this will usually strongly reject the arguments of those who have concerns about what they plan to do.  Culturopathies, as I will show later, often develop plausible rationalisations for what they want to do. In aged care one of these is the holy grail of "efficient strategies" that enable them to improve care using fewer less trained staff.

This can put Alzheimer's in a very difficult position when it negotiates or remonstrates with a sponsor like  FPCompanyD that it is supervising. The sponsor might explain that other for-profit providers are coming up with similar strategies, are introducing them, saving money, and claiming that care is improved. They might be totally convinced and reject all sensible arguments.

Managers with accounting expertise but with little experience at the coal face, have been trying to find ways of providing adequate care with less costly staff. This happens even in not-for-profits.  Here is a 2003 example in Blue Care.  Everyone is going to jump on the bandwagon once someone thinks they can do this, talks glowingly about innovation, and starts making more money.

The problem: So what will Alzheimer's do - if the donor refuses to listen to them? Will they go public about this if the loss of this funding will cause other for-profits to stop working with them and stop donating so impacting on their viability.  

FPCompanyD is a big sponsor of Alzheimer's Victoria and it has a close working arrangement.  Alzheimer's Victoria is talking to FPCompanyD and training its staff who will tell them what is happening.  It is unlikely that FPCompanyD is deliberately keeping Alzheimer's in the dark, although it is possible.  If they actually genuinely believe that reducing staff would not impact care themselves, they will talk about it and if they don't, their staff will.

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Not-for-profit providers survival strategies

Not for profits have traditionally had a primary focus on community and on service to that community. That is why they came into existence. They are poorly equipped to succeed in a marketplace where the measures of performance and success are profitability and growth.  To succeed in this market they need to start thinking and behaving like for-profits.

There are two strategies for survival that are commonly adopted:

1. The first is to bring in managers recruited from the corporate sector or with special training and expertise from the market.  These managers introduce practices that are successful and their thinking is assimilated.
2. The second strategy is to form some sort of relationship or joint venture with a powerful and financially successful for-profit.  The benefit for the for-profit is that it can operate under the umbrella of a humanitarian service, while running the service as a for-profit business. The not-for-profit gets the financial benefits and learns to accept what is being done as necessary.  To be fair, the not-for-profit probably does exert some retraining influence on the for-profit but the strong pressures in the system limit their ability to do that.  As yet there is no research that I know of about this.  Joint ventures have been common in the USA.  

Joint ventures of sorts are also happening in Australia - as for example, between Alzheimer's Australia and FPCompany NewnameC Healthcare in providing dementia care, and between COTA and NRMA in running a consumer review service for providers.  In the first example below two large not-for-profit providers of care are joining together to take on the for profits at their own game and hopefully preserve some of their mission.

As I will reveal on another page, business advisers are targeting the not-for-profit sector and urging them to partner. Generally, partnerships occur when the not-for-profit has already changed its thinking, undergoes a cultural change, or brings in more market focussed management as possibly happened with Alzheimers Australia.

Example: NFPCompanyM

NFPCompanyM has moved rapidly in order to make itself more competitive.  It formed an alliance with a for-profit real estate investment trust (REIT), appointed a new marketfocused CEO and then merged with another large not-for-profit group attempting to preserve its not-for-profit identity while still becoming strongly competitive in this marketplace.

Business relationship with a for-profit April 2015

Not-for-profits cannot access funds from the share market and banks are less willing to take risks lending them money, which they may lose if their business skills do not make them competitive. But there is an option open to them which enables them to quickly raise money and compete. They can sell their nursing homes to a real estate investment trust (REIT) and then rent them back. The REIT owns the nursing homes so is left owning all the assets if the business goes under. There is no real risk for them. The REIT can always rent them to someone else or sell them. The revenue gained from the sell off can be used by the not-for-profit to fund growth and so remain competitive.

NFPCompanyM care is responding to the competitive pressures by adopting this strategy.  It has formed a business alliance with Generation Healthcare REIT and they are planning to grow the business together.  NFPCompanyM has started by selling Generation some nursing homes to raise capital for growth and then renting them back.  Generation is a company that exclusively provides this service to health care. It is now branching into aged care where there will be a good market. Partnering with a REIT is an indirect way for the not-for-profits to raise money for expansion from the share market and this gives them a better chance of competing successfully.

Capital can be raised by the for-profit very easily and it can be done repeatedly. The not-for-profit can then leverage off that by managing the facilities purchased. My worry is that it might become a house of cards.  When there is an economic downturn there may be difficulty in paying the rent.  This might reduce the funding available for care and even result in subsequent collapse.

This is what happened in 2004 in the UK when the private equity group Blackstone restructured Southern Cross, the UK’s largest nursing home operator, in a similar way linking it to a REIT with long term leases to make it more profitable - and then sold it at a big profit in 2006.  Southern Cross collapsed when there was an economic downturn a year or two later.  It could not pay the rental that it was locked into.  

NFPCompanyM care is leading the way for this strategy in Australia and others will have to follow to compete.  This is an interesting type of “joint venture” with a powerful for-profit.  This is not a criticism of NFPCompanyM Care.  It is simply to show what not-for-profits have to do to survive.

But the threat is that the not-for-profit group has to meet the requirements of its corporate for-profit partner. Corporate culture can progressively replace the not-for-profit ethic.

They are being - advised by Macquarie Capital - and as usual, there are plenty of impressive words in the press release - well-designed built environments -  positive customer experience - service innovation to meet the changing health and wellbeing needs -  transformational reinvigoration - customer-led, co-creation of services.

This sort of for-profit partnering is particularly attractive for not-for-profits. It allows them to raise money to grow from the share market with a better chance of retaining their mission.  We are likely to see more of it.  This is an innovative way of dealing with the difficulties in this new environment.

A strategy also used by for-profits: A REIT is also a well established way for for-profit companies taking risks to protect their assets and for those short on cash to raise money quickly. Big corporations taking risks in the market protect themselves from potential bankruptcy by spinning off (ie splitting) their nursing homes as a separate REIT company with the same shareholders. This then leases the homes back to the original company to manage. 

The original shareholders still hold shares in the REIT and so do not suffer huge losses if the management company goes under. It’s a safe investment so the REIT readily raises money from the stock market.  The residents have no say in all this but are trapped in the upheaval when the now protected managing company is prepared to take big risks, fails and goes under.

It seems it is becoming more popular.

New CEO May 2015

NFPCompanyM is doing the best it can under the circumstances and trying to stay with the not-for-profit mission. It has appointed a CEO who has wide experience and thinks in growth terms but in this instance from the not-for-profit sector. 

Merger October 2015

NFPCompanyM Care and NFPCompanyß announced plans to merge into what will become one of the largest aged care not-for-profits in Australia. After the platitudes about better care we get the real reasons - growth, bigger, stronger and so more competitive in a consolidating market.

Their vision seems ot have morphed a bit to include growth and marketplace strength but they have no choice. Even with this there is a danger that, in spite of his not-for-profit background, the new manager will emulate successful practices and run the company like an aggressive for-profit intent on cost cutting.  One wonders if this might have happened in companies like NFPCompanyE and NFPCompanyW, which I write about elsewhere.

Cultural implications:  If we consider the not-for-profits origins and original mission, we can understand the changes that are occuring.   Originally their focus was on serving the community. A not-for-profit would be stimulated to grow by the need for services. They would look at the areas served and their projected needs, and then look at how they could raise the funds to build that facility and operate it. So they would start by looking at need and then look for ways to meet those needs.

If we look at the rhetoric in the material above we can see just how the thinking has changed and how far it has come. The focus has changed from meeting need to growing. So providers look at where the best opportunities for growing profitably are.  These will be where people have money and can afford to pay for care, not where people are poor and need care.  It requires a strong committment to their mission for not-for-profits to give priority to serving the less privileged when their competitors are making all the money.

In the wordy press releases, there are plenty of claims to serving the community but one of the lessons we have learned is that too often these are simply words. They can become a substitute for the real thing, particularly for executives and staff who need to believe in what they are doing.  Prospective residents can be impressed by the words, so its good for business too.

In the real world, providing a really good service is costly and staff intensive. Those who do so are at a competitive disadvantage. Doing so is a luxury that the market will not allow and a more powerful for-profit partner may not tolerate.

The proposed Aged Care Community Hub:  The proposed hub is intended to create an effective customer, one who will make really good care, rather than impressive marketing the top requirement for success in this marketplace. It will change the pressures so that the not-for-profits mission and focus on providing the best service will give them a competitive advantage and they will no longer be competing shackled with a ball and chain.

The intention of the proposed hub is to make not-for-profit culture an asset and so enable them to survive and succeed in this marketplace. By giving them this sort of competitive advantage the hub would hope to force the for-profits to embrace their thinking. We might then have a service built around not-for-profit and community values, but benefiting from what the market has to offer in terms of efficient management of resources but in providing the best possible service because this will be the most profitable.

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A more traditional Not-for-profit approach

Background: Before the advent of public welfare, society itself ensured that the rich supplemented the care needed for the elderly. Not-for-profit operators, usually the church offered services to the affluent and charged the wealthy more in order to fund their services to the poor. Doctors did the same thing and this was accepted. 

Faith based NFPCompany N is trying something along the original not-for-profit principle as it seeks to compete and at the same time meet its mission to care for those in need.  It is copying the for-profits by providing luxury nursing homes in a way that has not been attempted before..

The example: It seems to have been lured by the example of for-profit operator, Mxxx Mxxxx.  He is aged care corporate billionaire Dxxxx Mxxxx's son. Like his father, he is targeting the ultra-wealthy and building palatial retirement and nursing home resorts.  Similar strategies did not work for his father.  The analysts are beating up the model.

NFPCompanyN has opened a new nursing home in NSW targeting the very wealthy and professes the not-for-profit philosophy of taking from the rich to benefit the less wealthy.  It is taking on the for-profits by targeting their wealthy customers while still serving the less wealthy and giving some of them the benefits of that life style. 

It has adopted all of the goals and strategies that NACA and the government are promoting, putting 'choices' on the agenda. It is by providing choices that the resident pays more. 

NACA and the government are trying to generate more income for the providers by getting residents to pay more for their care.  This is in order to attract more investment into this market. 

This ticks all the boxes about giving the elderly a better lifestyle, greater involvement with families and confronting ageism. I would have liked to know a little more about the nursing care and palliative care services, but that is not sexy when it comes to selling. One hopes it is there and is not the first thing to suffer if the model comes under financial pressures.

I think NFPCompanyN are trying to apply their mission and hold on to their belief in this new market successfully. I don't have a problem of offering extra luxury to those who can pay provided that is not at the expense of the service to those who are less fortunate and that the care provided is the same quality.

It is an interesting strategy and I hope they manage to make this work without becoming like a for-profit. NFPCompanyN's management has been one of those speaking up about the importance of the not-for-profit mission.  But if it does not work and money is tight, what will be rationed - palliative care, nurses, food, pads - or will some of the costly choices go?  Hopefully they will not forget their responsibility to those living in poorer areas who cannot afford this but still need the same standard of care.

But what about Consumer Directed Care?:  I wonder if NFPCompanyN have looked closely at what the impact of Consumer Directed Care (CDC) will be on their model. It is to be introduced into nursing homes soon. CDC makes it very difficult to cross-subsidise which is what this not-for-profit model does.

CDC is currently being introduced into home care (see the page Consumer Directed Care). Some consumers are experiencing major problems in home care because most providers used cross subsidisation to even out disparities in services. Many of those who currently receive home care find that they are getting more care than the new CDC package pays for. They are now expected to pay large sums out of their pockets and many are unable or unwilling to do so.  They are forced to do without or go into a nursing home.

This is because CDC pays each recipient of care a package which they have control of and spend. But those funds have to be spent on that person. So money from a package that one person does not use cannot be used to help another person whose package does not adequately meet their needs.

NFPCompanyW

Another not-for-profit is joining the rush to build luxury facilities and is making large profits

I am aware that there are residents and families who are unimpressed with the care being provided in one of its facilities.  The relative of a former resident felt able to write to the press after reading an article critical of aged care

NFPCompanyW has recently purchased another 6 facilities from another not-for-profit, paid $5.8 Million for a new headquarters and recorded  a net profit of $3.9 million for the year ended June 30, 2015.  There were lots of promises that care would be superior on company and individual nursing home web sites.

I worry that in the rush to be part of the new market and not be left behind its too easy to forget what you are really there for.

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Being too aggressive in pursuing profits?

Another pitfall for the new players in this market is the temptation to compete with the for profits in business practices and cut costs to the bone.  Claims of cost cutting and staff reductions usually push up the share price and are seen as a positive in the market. But this is usually accompanied by a fall off in care.  There is no magic formula for doing more with less, but there are many sorcerors claiming you can.

Serious failures in care

Not for profits are not immune and if they are to compete they may need to reduce staff. Rationalisations offered by the for-profit sector can sound plausible and can be readily adopted.

A possible example of this is a home owned by NFPCompanyX. A report in the press is damning. It quotes a federal government audit that is not on the Quality Agency’s web site and may have been leaked. It was staff and residents’ families, who spoke out and took this to the Complaints scheme. That staffing was such a central component of the findings points to cost cutting.  Once again it was residents and staff who had to organise themselves and act - government oversight had allowed this to develop.  How often can residents mobilise so well and why should they have to.  The proposed hub would be a local on site arm of the regulatory system and would hopefully have nipped this in the bud.

Strongly disputed allegations

On a later web page I describe the controversy surrounding another related faith based company NFPCompanyE in Queensland.   The allegations and the sanctions imposed were hotly disputed and challenged legally.  There is sufficient information to speculate about this.  The Australian newspaper reported that NFPCompanyN under its accountant CEO was making record profits when frustrated staff went to The Australian to blow the whistle about what was happening in one of their nursing homes.  The Quality Agency arrived and found that all was well.  NFPCompanyE had fired a facility manager and it seems likely there had been some problems.

Its remaining nursing homes were then Audited by the Quality Agency. They claimed that there were problems in most of them and one was sanctioned.  The CEO who was clearly proud of his accomplishments was indignant and defiant throughout. Profits plummeted.  NFPCompanyN  challenged the findings and the sanctions imposed in the Supreme Court.  The court found that the agency had been unfair to the company and reversed the decision forcing the agency to pay costs.   The company claimed that it had been completely exonerated.  What is clear is that there was some difference of opinion between the agency and the CEO.  This is the sort of situation that the proposed aged care hub would have prevented.

Our difficulty here is that no one except the company and the Quality agency know what really happened.  Had the proposed aged care hub been in place the community would have been involved in this from the outset and known what had happened.  It would be the data that they collected and not an unrepresentative snapshot made at a single visit by the agency. It would all have been sorted out far earlier.

It is clear that those concerned were genuinely doing what they thought was in the best interests of the company.

Consequence of financial pressures 

The pressures to compete financially and provide more choices might have some strange and unwanted side effects. An external catering services that provides multiple choices may be cheaper but will it really be better than an in house one that responds to needs. There are many complaints about the use of external caterers.  It is very difficult to provide person centtred care and meet personnal likes and dislikes with an external catering service.  Financial considerations take precedence.

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Consolidating

Large for profits

NFPCompanyM Care and NFPCompanyß are not the only large not-for-profits merging.  Power and competitiveness comes with size.

And yes the consolidation is to make them competitive and they are even stealing a March on their competitors by going into China early.

Community Not-for-profits

Another strategy is for community not-for profits to help each other by amalgamating or forming alliances and supporting one another so keeping control of their localities and not selling to for-profits.

It is more common for local councils to sell to a for-profit and in many instances they have done this despite strong opposition from the community.  Its more profitable for the council.  Examples are given on other pages.

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Curry favouring with government

Since 1996 not-for-profits who depend on funding from government and corporate sponsors have been acutely aware that they will be supported if they do what government requires and don’t criticize policy, and abandoned if the don’t play along. The ascendancy of the smaller seniors group COTA and the marginalization and under-funding of the much larger National Seniors and Combined Pensioners and Superannuants who were critical of government policy, and had previously been influential in representing seniors views and interests in planning, sent a chilling message.

We can understand why it is the not-for-profits who, instead of concentrating on the care of Australians, are among the first to enter into joint enterprises in China and elsewhere under trade agreements. They are training Chinese nurses in Australian facilities and forming joint ventures to provide services in China. This will ensure government support and increase their chances of being among the only 300 of the 1200 current providers predicted to still be in business in 16 years (ie in 2031).

The large faith based group NFPCompany N has gone into partnership with “the Shanghai Civil Affairs Bureau, to develop the skills of Chinese aged care professionals". The agreement signed will “plan and implement an advanced aged care professional skill training and work placement program, to be delivered in NFPCompany’s residential aged care facilities”. and “This is a great opportunity for the growth of our business as it gives us exposure and access to the international market”.

• Aged care providers advised to approach Chinese market early and slowly Australian Ageing Agenda 12 October 2016

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Commercial decisions to rationalise services

Other strategies include rationalising the services the not-for-profit provides so that less profitable services (eg, where fewer people are using the services) are closed and more profitable ones are developed. They might also withdraw services from areas where they are unable to compete with for-profit operators.  Residents in that area might be left without a service or will no longer have the choice of a not-for-profit service.

It is interesting to speculate how much profit before care can be justified using the term "commercial decision". Regulators in the USA were happy for nursing home chain Vencor to tip its poorer paying residents out onto the street because it was a commercial decision.  It was the public, not the regulator, that revolted at this inhumanity and forced a backdown. 

NFPCompanyT may be doing what it has to do and this may be necessary, but market pressures can cause providers to indulge in conduct that disadvantages those it is there to serve to the extent that it is socially unconscionable.  Aged care cannot be treated like any other commercial business but is the NDIS bureaucracy doing that here?

Panicked by the impending competition not-for-profits will be closing down older and unprofitable homes and also homes that are in need of upgrading. In the past they would have kept these homes open as they went looking for funds to refurbish or if need be rebuild. In an environment in which they are conserving resources and in which marketplace concerns dominate there is little room for sentimentality about the consequences. The closure of a 53 bed facility in Gympie may be an example of this.

Reducing costs will be another top priority. The sector claims to be desperate to attract new staff, particularly younger staff but if your future is at stake that does not stack up. A not-for-profit in Hobart has decided not to provide maternity leave after initially agreeing to do so.

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Accepting the inevitable. Getting out while they can

Larger Not-for-profits

NFPCompanyV

NFPCompanyV sold 18 NSW nursing homes in 2006 citing "financial pressure as the reason to sell its 18 aged care centres in NSW to a corporate buyer".  It was "faced with a $50 million bill to upgrade its properties over the next few years" so had " decided to quit the aged-care industry."

• NSW NFPCompanyV sells 18 nursing homes to private sector DPS News (accessed July 2016)

In 2015 its Victorian arm has decided to opt out of aged care and concentrate on other charitable activities. It has sold its six facilities to NFPCompanyW a not-for-profit that has decided to take the for-profits on by building lavish nursing homes where they can charge $1 billion bonds.

• Aged care sale guarantees high quality service to continue NFPCompanyVcare Victoria 22 Sept 2015

NFPCompanyU

NFPCompanyU Homes is a not-for-profit whose charitable endeavours go back to the 19th century with a 50 year history in providing nursing home and retirement services.  It tried to compete by growing and even tried to go public to raise money. It was unsuccessful.  It has gradually been selling off its holdings.

1. South Australian nursing Homes

It sold its South Australian nursing homes to NFPComppanyZ in 2012 which then sold them on to private equity owned FPCompanyJ in 2014.

• Axxxxx Capital’s FPCompanyJ buys into $150m aged care portfolio AFR Weekend 1 April 2014 (Paywall)

2. Victorian property

3. South Australia Retirement Villages.

In 2015 it sold most of its retirement villages to Stockland, a for-profit developer partnering with FPCompany NewnameC which manages nursing homes in Stockland retirement facilities.

 4. Queensland’s aged care

NFPCompanyU sold its aged care portfolio to FPCompanyG 2016

• FPCompanyG Healthcare buys $163m portfolio from NFPCompanyU Care AFR Weekend 7 Mar 2016 (Paywall)

Smaller rural companies

Smaller companies that have continued to provide good services in the rural community find that they can no longer do so in this new market dominated and driven aged care system.  To do so they would have to compromise on their duty to the residents and in a community where people know one another you simply cannot do that and retain integrity.  Instead they close.

The Minister of health has very recently admitted that the market is not working for rural communities but still maintains that it is working in metropolitan areas.  She says she is planning change but the chances of getting anything significant  past the majority in her party must be small. 

The closure of the Stanthorpe Nursing Home seems to be a good example of what is happening.

Stanthorpe Nursing Home

There has been a great deal of angst in Stanthorpe because one of its nursing homes has decided to close just before Christmas giving residents very little notice. Many of the frail elderly, possibly even high care residents, will have to move to facilities up to two hours away where it will be very difficult for family and friends to visit.

"Most facilities that offer that type of accommodation have waiting lists or are fully subscribed so there will be some challenges in trying to find appropriate accommodation for residents."  More beds are needed in Stanthorpe not less.

Fifty three or 65 staff depending on the source are without work and many will not find work in the sector they are trained for. There will be a loss of local expertise and involvement with the aged.

Stanthorpe Nursing home is owned by Stanthorpe Convalescent Home Pty. Ltd, a privately held limited company with three directors. The nursing home is its only business and it has operated in Stanthorpe since 1968 - 25 years longer than the average small aged care company.

As a small home it generates $1.18M in annual revenue (modeled), which is 73% below the $4.36M average for all residential care companies. It has 36 beds with 65 staff considerably more than the average facility that size.

This means that it is only making an average of $22,256 dollars per employee compared with an average of $215,303 for all organisations in Australia. This seems to be a home that has employed enough staff to look after the residents properly and accepted that this is not profitable.

•  Stanthorpe Convalescent Home Pty. Ltd Find The Company listings

It is clear from comments from the community that they are satisfied with the service provided and that it meets their needs. Some residents have been there for many years. In a letter a resident’s daughter wrote:

Research indicates that the smaller homes and those with more staff provide better care and this seems to be an example so why is it closing? The answer given was that the home "was too old, too small and uneconomic".

Residents would not have been reassured by a spokesman for the Federal Department of Health who said the nursing home was following ‘appropriate processes’ in notifying the department, staff and residents of the closure.  Becvause it was a business decision the department could wash their hands of the consequences for the citizens they were paid to serve and move on without experiencing any qualms of conscience.

The problem with a system that puts economy above society and subjugates all of society to mindless bureaucracy and a ruthless market process is that the facilities that are doing the right thing and are serving society are bought or closed down. They are replaced by those who are more successful because they don’t do the right thing and don't serve society well.

Society is progressively damaged with a loss of "social stability and cohesion".  Citizens not only suffer but becaome increasingly disillusioned with our society and its political processes.  That does not auger well for our democracy.

• See also: Nursing home residents at Stanthorpe face the boot Courier Mail 30 Oct 2015 (Paywall)

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The Community Aged Care Hub

The reasons that the not-for-profits are so vulnerable and so threatened is that the competition is not about the quality of the service they provide. If they spend money to provide really good care they will not be able to compete.

The proposed hub is intended to change the way this market operates by putting the community and those of its members who are customers in the driving seat so making the care provided the primary driver for competition.

But the hub would do more than this it would make the large profits made by the wealthy private equity and similar high risk gamblers impossible. This would put a stop to what is happening so that the bulk of the not-for-profits would be able to lift their game and prosper.

It would be the for-profits who would have to compete with the good care provided by not-for-profits in order to survive. There would be many more survivors and not-for-profits would be there in large numbers.

The prediction of only 300 of 1200 surviving, all of the community providers gone, and very few of the 300 being not-for-profits would become no more than a bad dream from the past. 

If the not-for-profits are too frightened to act in their own best interests and confront government by pressing for something like this, they could get their communities to do a little fermenting.