Excessive marketplace competition is bad for care

If you examine the health and aged care sectors it is soon apparent that far from being a "good", aggressive commercial competition in these sectors is very dysfunctional and a "bad". This aggressive market focused type of competition replaces what our society once used to see as being "normal".  This is a non-aggressive rivalry in providing the best care and being recognised by others for doing that. This is what you find in a civil society.

Aggressive competition for money results in care being compromised. The pressures impair judgement leading to unwise and often disastrous financial decisions. The wellbeing of the vulnerable is gambled away in risky ventures.

When we have no choice but to work in this context, are surrounded by true believers and when failing to do so compromises our enterprises then to survive we have to find some way of justifying our involvement.  I have a great deal of admiration for Sxxxxx Jxxx.  He is driven by mission and he has been one of the standouts in criticising those who don't do the right thing.  He has criticised the not-for-profits who have abandoned their mission.  But he is under intense pressure to accept what is being imposed and has become a part of the industry group advising government.

Jxxx manages not-for-profit Hxxxxxxcare, a beacon in the industry.  He has written the first of a series of articles on his blog about what is likely to happen in the new competitive marketplace. He welcomes the competition that he has been persuaded will be beneficial.  I am going to challenge him on this web page because I think he has allowed belief to get the better of his common sense.  I hope he will accept this criticism in the spirit in which it is given and debate the challenges.  I don't think his arguments stand up.

I am writing this page as a direct challenge to Jxxx and asking him how he believes that he can succeed in this without abandoning his responsibilities as a citizen and his mission.

Outline of content on this page

  • The first slider is an examination of Jxxx's articles and it challenges what he said there.

The extracts in the next three sliders were obtained at the time when the US health and aged care markets were growing and consolidating by going through the process of mergers and acquisitions. They give some indication of what happened. The pressures generated were enormous and although the companies all claimed to be focused on providing good care, the competitive pressures generated had nothing to do with care and few did so - although none would admit that.

There were no advantages to providing good care and little disadvantage to cutting costs and so compromising care. The not-for-profits who had a mission and tried to maintain it were gobbled up so rapidly, that those who succeeded by doing this to them were called Pacmen, a popular computer game in the 1990s where acquisition was the object of the game.

  • The second slider below addresses the hospital sector in the USA which I visited. I spoke directly to whistle blowers, senators, fraud investigators and lawyers. I gained access to large numbers of internal corporate documents.
  • The third slider examines what happened to the medical profession in the USA as this was happening.
  • The fourth slider examines a spell of aggressive corporate nursing home expansion and consolidation. I did not go to the USA to look at what was happening in nursing homes but I was in contact with several people who were. I was sent a vast number of press reports but also government reports and court documents on Sun Healthcare, the company that I was very concerned about because it had been welcomed into Australia by the Howard government.
  • The final slider explains how health care in Australia escaped.

Tip: Click to expand (+) or collapse (-) content on this page

A view from the inside

It is interesting to see how an insider in the not-for-profit sector sees this marketplace. His blog tell us about this. I have followed many of the things that Dr Sxxxxx Jxxx has said and most of the time I agree with him and like his approach. One warms to his humanity and his mission.

He now believes that operating in a Niche market and providing excellent care will carry him through. He believes that competition will allow him to do this. He may be able to survive and keep his mission alive there but he has a wider responsibility to the community and I don't think he is meeting that.

Jxxx manages not-for-profit Hxxxxxxcare.  I think he has lost the plot and I am writing this page as a direct challenge to him. He planned to write 6 blogs but I could only find four.

I don’t think he has any idea of how ruthless the marketplace can be and while he remains critical of the focus on profits he skates around the issues. At the beginning of the previous page “Not-for-profit operators” I quoted from an article by Robert Kuttner describing what happened in health care when it consolidated. Jxxx should read it.

This is what he needs to be prepared for and what Jxxx proposes will only work for niche players. If the niche is large enough or can be made more profitable then the for-profits will come after it.  But what about the rest of aged care?  It he going to desert it and leave it to the for-profits.

First lets look at what Jxxx has said on his blog:

- - in a competitive environment there has to be winners and losers! Throughout this blog series, I am going to explore who I think could be the winners and losers in an increasingly competitive aged care environment, and why.

Aged care organisations have never really competed anywhere near the level that we are going to see in the future. It's previously been a fairly uniform market. Demand has exceeded supply. Occupancy has been high in residential aged care. Delays in homecare have been so long that people have been grateful to finally have access to services at all. There were few incentives for providers to compete let alone excel.

Source: A competitive care environment: winners and losers Hxxxxxxcare 2 Feb 2015

In this blog Jxxx claims that competition will be on quality, differentiated product and price.

  • Competition on quality requires a system of transparently collected data and a customer competent to assess that data and with the power to insist on what she wants.  That does not exist in aged care.  Without it a competitive market cannot work.
  • A differentiated product presumably means finding special niche segments that you can be an expert in. This can work provided your niche is small enough else the big companies will come after it.
  • When you compete on price those with money are served rather than those in need who don’t have it. Not quite what a faith based company with a mission should be supporting.

The two groups he sees as losers are the undifferentiated metro services and the rural services. The majority of users will go to a facility near families and friends and these will be undifferentiated services. In addition the elderly have multiple different morbidities and multiple different needs. A highly differentiated service will not serve them well.

Jxxx overlooks the fact that marketing is the most important factor for success in a competitive market and that the aged are not shoppers and do not move around. They trust others to help them. They tend to stay near families and friends and that is wise as in a marketplace you need someone you know well to watch over you. 

When a nursing home becomes a loser, the real losers are not the managers and owners, but the residents and their families.

You can have all the chandeliers, menu choices and silver service you like. However, they mean nothing if - - (multiple failures mentioned) - - , it doesn’t matter what their marketing materials say: the mud is going to hit the fan at some stage.

There are two ways that clinical excellence has been achieved in the past. - - - The first - - is where a single Director of Nursing handles staff matters, resident matters and relatives. - - -

The second way is to have a strong Quality, Safety and Risk infrastructure. - - - There is a culture of clinical excellence. Such infrastructure can be expensive, so it’s likely to be out of the reach of the single service operator. This means that small providers will struggle

Source: A competitive care environment: what is quality? Hxxxxxxcare 9 Feb 2015

Sadly in our society, marketing dominates and the wealthy will opt for the luxury and the “presence” that accompanies it. As a socially responsible community we need to be concerned for them too. And as far as mud is concerned, it has been flying since 2000 and the public is so disinterested that no one notices.  It doesn't hit the fan often and when it does it is soon forgotten.

As regards excellence Jxxx relies on expensive process and that has its limits.  It can discourage empathy and inhibit our humanity. What about care motivated by compassion and understanding, the sort of culture that develops in smaller and more personal groups and in the communities where aged care really belongs. When people like this are involved and engaged in what they do their humanity can become infectious. We need the sort of care that listens to people and provides them the opportunity to realise themselves in their interaction with others. In large structured entities and in a competitive market there is little space for this.

Those providers that can differentiate and focus their service to meet a particular set of needs or serve a particular set of people in a unique way will be winners. - - - Whatever it is, they will offer something that makes them unique and differentiates them from the others.

In an increasingly competitive care environment, there has to be winners and losers. From the perspective of providers, the winners will be those who offer high quality where quality is about the total experience for the person being supported and those who offer a completely differentiated service, providing something that others don’t or servicing a sub-group that others don’t.

Source: A competitive care environment: product and price Hxxxxxxcare 16 Feb 2015

Jxxx is quite correct if this were a functioning market but he is under the illusion that this is a market that is working and has not failed. A market that fails because there is no transparency and no effective customer does the very opposite. It preys on those it should be serving.  If you look around you will see that this is happening and not only in aged care.

Investment advisers and analysts have been pretty unsophisticated in their analysis.

Jxxx looks at the investors and hopes that they will change the way they assess aged care. That credits them with humanity and that is a luxury they cannot afford.

Will all older people be winners? No. Just like with service providers, there will be winners and losers.

The winners will be older people who are able to do research. They will be able to take advantage of the availability of the new information and plan accordingly in light of their financial and medical circumstances

The losers will be those caught in the tyranny of choice. There is such a thing as too much choice. - - - They won’t know where to begin! Their new found freedom to choose any one of 50 meals will not result in them eating something perfectly aligned to their preferences.

Likewise, tools like the My Aged Care website have the potential to be confusing. Even the quality indicators could serve to exacerbate this situation. Some people will find it harder to make decisions in the new environment.

Source: A competitive care environment: it’s not just about providers Hxxxxxxcare 23 Feb 2015

Jxxx is telling us that there are going to be losers and lots of them. What sort of mission has he embraced. These are our vulnerable seniors, surrounded by anxious and confused family members at times of great stress. One suspects that Jxxx’s mission has slipped a bit!

What sort of new information is he talking about.  Those of us who look see conmen selling snake oil and an unreliable and complex accreditation process.

Now its stated intention is to move more towards being a regulator rather than a controller. It will step back a level and regulate through a minimal set of standards with the provision of a safety net.

Government regulation has not worked in the face of a strongly competitive aged care market in any country. But government in Australia. is actively abandoning regulation without replacing it with any alternative.

The government will be a loser if it tries to be responsible for things providers should own. In short, the government must prepare for organisations to fail and allow that to occur.

This might turn out to be hard because there is often a strong desire to solve problems with policy. The government will need to learn how to let go of prescribing policies and inputs. If so, this could be a great thing for the sector.

The implication is that government should abandon its responsibility to its citizens and should simply hand it all over to the ruthless marketplace and depend on Jxxx to keep them honest. The UK government has done just this.

It handed care over to the marketplace and then insisted they provide the cheap care they had promised by reducing their funding. Their regulator was ineffective. The government won financially by betraying the industry that they had promised to support but the industry had already betrayed them.  If it was about the economy then it was win win for the UK government. 

Elderly Britons have been left without care as companies tried to maintain profitability while they struggled to exit the sector.  There has been no win win in what they experienced.

I welcome the reforms that have occurred over the past couple of years and I look forward to an increasingly competitive environment. I believe that they will deliver better outcomes for the older person.

- - organizations that are unable or unwilling to invest in the delivery of clinical excellence will have trouble.

Jxxx has some problems: He seems to have swallowed the rhetoric about markets and improvement through competition. He needs to do a fact check. Look at Richard Baldwins article and his thesis. Look at what has happened in countries that like ours have embraced a free market system in aged care.  Look at the data that has been coming out of the USA for the last 30 years.

What about the residents in the 'losers' homes?: Jxxx acknowledges that there will be 'losers' as well as 'winners'. He conveniently overlooks the consequences for the frail elderly trapped in this system.

Losers struggle and in a marketplace they are not supported by the winners who benefit from their demise.  Jxxx conveniently does not write about the consequences for the residents in the homes owned by the 'losers'. What will happen to them as their owners struggle financially and then go under.

Poor providers do not collapse overnight. They struggle on for years and during that time they struggle to contain costs. The residents are not served and may be harmed.  Few of the residents that find themselves in a facility that is a loser realised the risks they were running by admitting themselves to a home that was once committed to providing the services they needed, and not prepared to do the cost cutting required to maintain viability until too late.

Jxxx does not examine what life is like for the residents in the homes owned by the winners as they struggle to build the profits they need to be winners.   Look at what has happened in private equity owned facilities in the USA and in the UK and that reports suggest is happening in some in Australia.

There is plenty of information about what happened elsewhere and growing information in Australia. How will Australia be different? We need an explanation from Jxxx - not based on belief, but on evidence and logic?

Aged care should be there to provide the best care our community can to all citizens, and not for the excitement of competing, nor for one organisation to succeed at the expense of others because it can market itself better - or even to succeed by providing successful differentiated services, if this leaves others providing inferior services, because they are not in a position (eg. locality) where they can differentiate.

Better ways of getting what Jxxx wants

Rejigging the marketplace: There are ways of getting rid of poor operators without harming the residents but that would require a properly regulated market, one that regulates to meet the needs of the seniors and puts this ahead of the illusions of the economists.

If for example providers of aged care were prohibited from being owners of the facilities they managed and communities were made the customer for both owners and providers. The community would then negotiate with the owners to rent the facilities.  They would employ the operators to provide services in those facilities.

They would be able to replace any that did not provide the sort of care they wanted. The market would then operate effectively and in the best interests of the community and its older members rather than the providers.

What happens to those who believe when it doesn't work

Many aged care providers in the USA, like Jxxx, started out with the best of intentions believing the market would work. The market dictated otherwise and step by step these providers compromised rather than admit they were wrong and fail. They were trapped.  Even when faced by overwhelming evidence they were unable to acknowledge that their belief had been misplaced and that the care they were providing was substandard.

Hxxxxxxcare has been one of the really good providers in aged care. and a role model for others but can that be maintained as he tries to compete?

On the Glassdoor employment website Hxxxxxxcare has two reviews. The second makes some positive comment about the experience gained but then has some criticisms. It is only two reviews but is this a sign of this beginning to happen?

Management poor residents suffer:

Cons: Communication inconstant and confusing at times, mainly because nurse handover is usually incomplete and rushed. Also, many of the staff speak English as a second language so at times hard to understand. Hard as well for the residents.

Advice to Management: Pay more to the foot soldiers. Less yourselves. Don’t walk the talk. Training is pie in the sky stuff, not clinical enough. (VH) little substance more, too many preaching cliches and platitudes. Basically boring and narrow minded. Not enough realistic training provided.

Positive and eye opening:

Cons: Hard work in aged care particularly in the high care ward, office politics were often difficult to handle

Advice to Management: Consider discussing office culture, often staff are lazy particularly on weekends when managers are not working

Source: Glassdoor reviews of Hxxxxxxcare (accessed July 2016)


It is clear from what he has written elsewhere that Jxxx clearly feels that not-for-profits with a mission can survive this and succeed by providing good care, particularly if they specialise to provide specialised types of care. He is very positive about the benefits of competition. I hope that he is right and that he has discovered how this will work and has learned from what happened elsewhere. The information in the next two sliders illustrate what has happened in similar markets elsewhere.

That information is in part a challenge to Jxxx to show that he has an answer to how not-for-profits with a mission can survive in this environment because they have not done well elsewhere. Challenge him to show that this will work for the aged care system as a whole and that the community and their elderly members will benefit.

Jxxx is not alone

The new chairman ACSA, the body representing not-for-profits has just published an article claiming that not-for-profits in Australia will do better that they have in other countries. It is interesting that they too have been building up strong balance sheets with the extra funding that came with the Living Longer Living Better program.  This is probably in order to protect themselves, which may be why some of them are now also being accused of not providing the sort of care that residents expect.

With the marketisation of aged care, many have suggested that not-for-profit providers will see their share of the sector fall, as has happened overseas. But Australian NFPs are in a very different place, argues Pxxx Sxxxxxx.

But I would argue that Australia’s NFP aged care providers are in a very different place from our colleagues overseas. Amongst other things, the Australian NFPs are characterised by generally strong balance sheets, a history of innovation and growth focus, and diversification across residential care, community care and retirement housing, with often broader welfare and health programs.

There’s no doubt that NFP providers have some big challenges to confront, and an important conversation to have about our collective role in the aged care sector.

Source: Keeping the mission in the market Australiian Ageing Agenda Opinion Mar-Apr 2016

I note that in spite of ACSA members' strong balance sheets their CEO is mounting a campaign to get more money from government.  This was after the government blocked funding after large numbers of providers upcoded, lodging claims for extra services to which they were not entitled.

Jxxx Kxxxx, chief executive of Aged and Community Services Australia, which is launching a campaign next week against the funding cuts, denied any suggestion of rorting by the sector.

Source: Aged­care providers ‘maxing’ on funding ; The Australian 9 June 2016

The Community Aged Care Hub

I know what Jxxx wants and we would like that too but I think a factcheck will show that while he might manage to secure a niche for himself and his company this will be by abandoning any social responsibility to the rest of the community and its seniors.

What is needed is a market that works properly. For that you need an effective customer and an effective community (civil society). That is what the proposed aged care community hub would hope to achieve. There would be some prospect of giving Jxxx the sensible functioning market be wants. We would welcome support from him and hope he will come to his senses and give it to us.

Jxxx predicts that competition will become more intense. It is clear that the share market and private equity will be the two forces driving this competitive consolidation. I examined a vast amount of material from the USA when it went through this process in the late 1980's and 1990s, first in health care, particularly hospitals and then in nursing home care. At that time private equity had not entered the sector. Its advent has increased the pressures for profit and ramped up the pressure.

The hub proposal I am suggesting has considered what happened in the USA and the UK and is specifically designed to prevent that from happening in Australia. It is intended to ensure that Jxxx and his company, as well as others like him do survive and that their mission, which I agree is important for good care, and the specialised services which I agree are needed can withstand the pressures.

The illusion I suspect he has, is that good care has anything to do with success in this marketplace. That is a common misconception. My argument is that, in the sort of competitive consolidating market we are likely to have, good care does the very opposite. It makes you vulnerable and stops you from performing well in the market.

Even if he can succeed in this marketplace, I suggest he would be even more successful in the sort of marketplace where there is a consumer backed by an informed and effective community customer (the hub), one that will recognise and support the sort of service he hopes to provide.

  Back to top of sliders

Hospitals: Consolidation, acquisitions and growth

Globalisation was also a large issue in the 1990s. In 2000 I wrote a web page describing how Australia, under the Howard government, was eagerly participating. The big US companies were pushing the USA government to make health care part of the globalisation agenda. The feeding frenzy in the USA extended to acquisitions in other countries and Australia was a target. Our government was welcoming but fortunately it did not happen as they intended. It is worrying therefore that a document surfaced in Jan 2015 indicating that the Abbott government has been secretly negotiating trade agreement.  An agreement with China has now been completed and more are being negotiated. It is clear that the markets that our politicians want to exploit are those in Asia.  To do that we need large home grown corporations, both market listed and private equity, with the capacity to compete globallly.  The evidence  clearly indicates that these groups provide inferior staffing and care.

The frauds in the USA: What happened in the USA in the 1980s and 1990s was not deliberately planned wickedness. Many believed that what they were doing was acceptable - even beneficial and good for care. They were sitting in their vast offices high up in skyscrapers and either could not hear, did not acknowledge the consequences, or persuaded themselves that financial success indicated good care.

This was a hierarchical system so they remained isolated at the top - and there were always reasons that could be found to discredit critics. They strongly denied any allegations made. By the time the denial below was made the company was well down the path to a culturopathy. Within a few years its practices would appall the nation and result in a criminal conviction.

... This company does not engage in illegal and improper conduct. God help anybody that does ..."

Source: Statement by John Bedrosian a cofounder of Tenet/NME in 1985 when NME was accused of attempting to bribe politicians to revise a license decision by donating to party funds. published in Modern Healthcare at the time.

Illustrative quotes from the USA


Pro-market theorist Milton Friedman has admonished corporate officials to shun any "social responsibility other than to make as much money for their shareholders as possible".

But corporate executives are employed by shareholders, not patients. Ultimately the laws of the market demand allegiance to profit over health, and the laws of the land require corporate officers to maximise shareholders returns.

Source: Should such organisational imperatives govern health care? Boyd J W et al , Lancet 8 July 95 page 64

"What is a crime is the galloping privatisation of the nation's health resources and the rise of a competitive health care system that has less and less to do with health and access to care and everything to do with money."

Source: The patient as a profit centre: Hospital Inc. Comes to Town. Carl Ginsburg The Nation 18 Nov 1996

Brad Gray, director of the division of health and science policy at the New York Academy of Medicine, said health care fraud is unusual compared with other types of fraud.

The patient rarely knows whether the service received is appropriate and the purchase is most often made by a payer -- a health insurer or government plan -- that is not present, Gray said.

"You really do have a situation in which there is a need for a lot of trust and honesty," Gray said. "If you put organizations in place with strong incentive structures, big profit expectations and ambitious revenue goals, you are asking for trouble."

Source: HealthSouth Scandal the Latest in Health Care Ills by William Borden Reuters 5 Nov 2003

For-profit Hospitals

They save money by laying off nurses, then hire consultants and bureaucrats to figure out how to avoid unprofitable patients and maximise revenues. For profit hospitals increase costs, decrease care and generate windfall profits."

Source: 1997 investigation reported in New Eng J Med.

"In other regions where large, for-profit firms dominate the health-care market, such as the South East and in El Paso, Texas, studies have shown that the corporations increase hospital prices to boost profits."

Source: Rex Dalton - reporter - San Diego Union Tribune - Commenting on the looming dominance of for profit corporations in San Diego (About 1997)

The co-chair of the council set up to sort out the emerging problems consequent on corporate care in San Diego stated "If you incentivize health care you can tip the playing field away from the 600,000 uninsured in San Diego County, a number that's rising in a growing economy. That sends a chill down my spine."

Source: Public asks more voice in fate of health care The San Diego Union Tribune 13/3/97

Not-for-profit Hospitals

Not for profits were trapped because their mission of care did not give them a competitive advantage and drained their profits. They were put under intense pressure. Either they adopted similar practices or they became easy pickings. Their acquisition by large for profit hospital chains was helped by encouraging the existing managers of the not-for-profit to sell or merge. The chains offered to retain them on a much higher salary.

Statements made by not for profit executives who found themselves crushed between the giants Columbia/HCA and Tenet Healthcare (previously NME) reflect their predicament as like being caught between "two 800 pound gorillas" and "I am like a flea between two elephants."

Source: El Paso on health care frontier. The San Diego Union Tribune 21 June 1996

The industry was well represented in parliament by the Frist family, who founded Columbia/HCA. There was intense lobbying and large political donations by all hospital and aged care corporations.

Representative Fortney Pete Stark was one of the few who tried to do something about what was happening. Over the years he succeeded in getting some restraining laws passed and is best known for the legislation prohibiting kickbacks to doctors. In the extract below he speaks to legislation to contain for profit hospitals takeover of not-for-profit hospitals.

Columbia/HCA was building its empire rapidly. The legislation was also an attempt to ensure that accreditation bodies such as the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) were no longer subject to control by corporations.

"- - society thinks of the medical system not in terms of keeping patients well or helping them get better but instead as a fiercely competitive business in which survivors concentrate on making tremendous amounts of money." ----------- "The goal isn't health care any more - the goal has become the care of the stockholder interest."

"the for-profit chains have the minds of piranha fish and the hearts of Doberman pinschers."

Columbia/HCA was "the PACMAN" of the industry.

Source: Representative Fortney Pete Stark Congressional Record 6 Jan 1997 -- 13 feb 1997 and 10 Sept 1997

Specialist Hospitals

The scandals that engulfed the specialist hospitals in 1991 are commonly thought to have been about psychiatric hospitals as that was where it was exposed and where most care was directed. But the same or similar things happened in substance abuse hospitals, which were included in the same fraud court cases. There were allegations of similar conduct in rehabilitation hospitals and I was aware of concerns that similar practices had occurred in one company's General Hospitals. I spoke about this to an FBI fraud investigator in 1993 and was told they were aware of this but that they simply did not have the resources to widen their investigations.

"The introduction of the commercial enterprise mentality to psychiatric care, the abandonment of ethical, scientific principles by many mental health care providers, and the indulgence of greed have allowed these developments to occur. The provision of mental health care, especially as it relates to the psychiatric hospital industry, has largely changed from what was once a professional and caring environment and an honourable part of the medical world, to one that is based on commercialism and profit. The changes that have developed over the past decade are very pervasive, deeply entrenched, and have occurred across the entire United States"

Source: Evidence US House of Representatives Inquiry entitled "Profits of Misery" April 1992 Dr Charles Arnold

National Medical Enterprises: I was interested in one particular company, National Medical Enterprises (NME), which had entered Australia and been granted licenses to operate in NSW and West Australia. I had lodged objections and went to the USA to investigate. Many others had behaved similarly but I did not collect that material. I saw much more than I could take with me and some that never became public.

I have more information and internal documents about NME's wholly owned subsidiaries, Psychiatric Institutes of America (PIA), its psychiatric division, and Recovery Centers of America, its substance abuse subsidiary, than on any other company. They provide a wonderful insight into how large numbers of people can become highly motivated and driven when they lose touch with the real world and create an illusionary one. Incredible as it may seem and in spite of all the inconsistencies, many if not most of them thought they were so successful because they were providing good care. People who had doubts were not team players. They were not welcomed and soon went elsewhere.

This is readily apparent from internal documents. This company focused on marketing and on getting people into hospital in any way that they could. They tracked every step of the recruitment and hospitalisation on a computer program to be sure as few as possible escaped. They paid bounty hunters to go into the community to persuade anyone who could be persuaded they had a problem into hospital. The company kept them there for as long as they could and concentrated on getting as much profit from each patient each day as they could.

They had designed a 'programmatic system of care' that aimed to provide as much treatment as possible each day. Psychiatrists who were team players handed their patients over to the company's treatment program and became wealthy. Those who would not were not supported and starved.

By using the words and practices of business terminology to create a new medical world, humanitarian and ethical principles could be denigrated and abhorrent practices became legitimate. It was a very efficient system - for making money.

Stockbrokers heaped praise on this and the company was the darling of the share market.

The prosecutor in Texas told me that all of their hospitals in that state were fully accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). All the company's psychiatry hospitals were also accredited by a psychiatric accreditation body. Neither had detected the problems and seen anything amiss in what was being done.

"The company has by far the highest occupancy rate in the business. Its programmed approach to psychiatric care has proven very successful. - - - - - - - - - - - Revenues per patient day will continue to experience double-digit growth, and capacity is likely to continue to expand by at least 10%."

"In psychiatry and rehabilitation, NME's businesses are major factors that have achieved leading clinical positions in their respective specialties."

"NME is unique in that it is among the premier providers in each segment in which it participates."

"The division's facilities feature a programmatic model of care, whereby each patient enters a program dedicated to his or her particular diagnosis and receives specialized treatment; there are currently 70 such programs under way at the division's facilities.

Source: Extracts from stockbrokers reports in 1991 referring to NME

A psychiatrist described this program of care to the US House of representatives

In the "programmatic" concept, a medical facility is used by persons with absolutely no medical training to perform activities which are neither medical nor therapy, but the activities are labeled as "therapy" and are billed as such to patients and insurance companies. The programs provided are inappropriate for a medical setting, do not necessitate a hospital facility, and could be inexpensively provided in alternate settings.

Source: Evidence US House of Representatives Inquiry entitled "Profits of Misery" April 1992 Dr Charles Arnold

A hospital administrator describes the pressures in the hospital

Several administrators and controllers were fired because they did not meet the financial goals. No one that I can recall was ever fired over a patient care issue. There were no measurements nor did we ever attempt to track patient care of the result of our treatments."

"There was a tremendous amount of pressure put on everybody within the PIA (Subsidiary of NME) network that we had to meet or exceed our budgets. There was no question in anybody's mind about that "All of the marketing and referral network policies and procedures came from a corporate level."

"The success or failure of the referral system was more important than the success or failure of the treatment of the patients"

Source: Extracts from Evidence US House of Representatives Inquiry entitled "Profits of Misery" April 1992 Mr Russ Durrett - Tenet/NME hospital administrator

Senator Moncrief in Texas was the chair of the first investigation carried out in that state. He gave me access to the records of his inquiry.

... social workers, school counsellors, probation officers, crisis hot line workers and even ministers were paid to refer paying patients to private psychiatric hospitals. These are the people in our communities we have all been taught to trust -- not avoid ..."

Source: Senator Mike Moncrief, chairman of a Texas senate inquiry in 1991.

Television programs and mental health books were used to fan community anxieties and urged citizens to phone a company hot line manned by people whose instructions were to persuade those who phoned to come for a free mental health assessment. Untrained staff doing these assessments were required to check that the person was financial (insured) then persuade them to commit themselves to hospital for a full assessment. Once there they were trapped. The company tracked each person's "conversion rate" to assess their intake performance. The company's "golden rules" instructed the administrators who managed these employees.

... I want them to be able to sell the benefits of the free evaluation ------- regularly review and discuss each others' conversion rates ---- to be sure that they don't have professional/personal issues or biases that can impede their intake performance ..."

Source: Internal Tenet/NME corporate document setting out "golden rules" for administrators in charge of untrained staff doing evaluations

I was also aware as early as 1990 of disturbing business practices and a culture where care was structured for profitability rather than high standards of care in an international general hospital that was making huge profits for this company at the time. One example of this is court evidence that I quoted in a submission I wrote to Tenet's ethics committee in 1996. It is on the Corporate Medicine web site. Go to Section E. Singapore - allegations of trading in patients. The company's International Division was a part of its General Hospital Division in the USA and was managed by that section. When I spoke about my concerns to an FBI agent in the USA in 1993 I asked about their General Hospiatal Division. The agent indicated that they were aware of issues but simply did not have the manpower to investigate.

Living in different worlds: The thing that I found so surprising and difficult to understand was that the world that these companies lived in seemed to be on another science fiction planet, yet incredibly their belief in what they were doing was real to them. They really believed in what they were doing and had no doubts.  They were able to explain away everything and if they could not they became angry and attacked the messenger.  It bore little relationship to the sort of world that most of us thought we lived in.   I will write more about this on other pages.

Rehabilitation Hospitals

In 1998 I researched rehabilitation hospital giant, HealthSouth, when it entered Australia. It had an unblemished record. It had totally dominated the rehabilitation sector acquiring all of its competitors and had not indulged in any of the practices that had tarnished almost all the other successful health care companies.

My argument at that time, that you could not succeed in this marketplace without compromising care or indulging in fraud, seemed to have been disproven. Then in March 2003 a $4 billion accounting fraud by HealthSouth was exposed. It had been working closely with banks and auditors who all ducked for cover.

"HealthSouth is really a good corporate citizen," Alexander (HealthSouth spokesperson) said. "HealthSouth has never been involved in any of the national health-care scandals.

Source: MONEY & MEDICINE State probes purchase of hospital share; The Providence Journal-Bulletin March 6, 1999

While WorldCom was heaving entries from its expense column onto its balance sheet in billion-dollar chunks, while Enron sprouted fraud at multiple, apparently unorchestrated levels, HealthSouth employees carefully altered invoices, painstakingly covered their tracks on the asset ledger and made sure to keep the fiddles too small to attract auditors' scrutiny, the government alleges.

Source: HealthSouth talent is said to be in its sleight of hand The Baltimore Sun April 13, 2003

"The whole market is surprised," says Premila Peters, an analyst at KDP Investment Advisors. - - - "It really is horrific. I think people feel really violated when something like this happens in health care.

Source: HealthSouth, CEO Face Charges On Earnings USA TODAY - MARCH 19, 2003

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Doctors in the USA

In the 1980s the once powerful doctors were targeted by Ronald Reagan's health adviser Joseph Califano. They were gradually forced into contracts with the hospitals, who wanted the doctors to make money for them, and the insurers, who were determined to keep the costs down. 

This was called Managed Care which meant managing the care given by the doctors in the corporate and not the patient's interests.  It is what doctors in Australia have been fighting government and insurers about since 1998. Government keeps trying as their ideology sees controlling doctors as essential for the implementation of their policies.

Doctors in the USA were trapped between the two types of corporate interest.  If they resisted they could be pushed out of the hospitals for not making money or be "delisted" by the insurers who approved or disapproved the care doctors wanted to give their patients.

Their career prospects and their financial security depended on their not confronting what was happening so they were powerless to do what Australian doctors did. Some doctors thought that if they became businessmen themselves and became involved they could influence the system for the better.  That did not work!

... The doctors said they are being treated as subcontractors by some of the health care organizations," Ms. Jennings said. "They've been told, 'if you cant deliver X patients in a day for X amount of dollars, then we'll go down the street and get someone who can'".

One Irvine student, Dr. Arnold W. Malcom, 51, a radiation oncologist in Burbank, said he wanted to be able to take on bureaucratic rules - like having to send patients across town for tests simply because a health care organization has a contract with a laboratory. "Whether they're in a wheelchair or on a stretcher doesn't make any difference," Dr. Malcolm said.

Source: The Doctors Filling M.B.A. Programs - New York Times, 25 Dec 1995

Dr Linda Peeno giving evidence to a congressional committee described how, instead of being investigated and fired she was rewarded for restricting care for a patient who died as a consequence of her decision. She said "It brought me an improved reputation in my job and contributed to my advancement."

Another San Diego physician stated "Those people are turning a respected profession into an industry".

Source: Doctor lets patient die, is rewarded with raise. - The San Diego Union Tribune, 19 Jan 1997

- - - quest for profits is harming the quality of patient care in California."

A Californian doctor is quoted as saying "I cant do the patient advocacy I was able to do six months ago. I can't afford to be de-listed again."

Referring to the heart of the physician patient relationship -- "The tragedy is that this heart is being ripped out by blatant profiteering masked as efficiency."

Source: Many HMOs don't put patients first. The San Diego Union Tribune 23 March 1995 article by Masek, a doctor and Cohen, chairman of a consumer advocacy group

The editorial states "Restoration of the right of freedom of speech to doctors -- and freedom of information for patients -- will still not restore another right, the freedom, for doctors, from fear of 'deselection' ". The editorial indicates that 83% of US physicians hold some form of managed-care contract. "This gives nearly omnipotent managed-care plans the power to bully individual doctors, who scurry to be included on insurers' lists."

Source: Manipulated care: gagging doctors, blinding patients. Editorial in The Lancet, 5 Oct 1996

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Nursing Homes: Consolidation and growth

I did not go to the USA to investigate nursing homes when Sun Healthcare entered Australia in 1997. I objected to its operating hospitals here on probity grounds and Victoria eventually accepted this and blocked its ambitions there. It became bankrupt.

There was intense criticism of nursing home care in the USA at the end of the 1990s. I developed contacts who were actively pursuing these issues and they sent me vast amounts of information and I gave that, which related to Sun Healthcare, to authorities. I contributed in the USA by distilling this information into a series of web pages that I wrote in 2001. Some in the USA have since found them a useful resource.

The extracts and comments below are based on or come from my introduction to each company on these web pages. There is a vast amount of information. I used many quotes from press reports to tell each company's story. Those selected below are the major nursing homes operating in the USA at the end of the 1990s during the feeding frenzy as large company's grew, acquired and consolidated and during the collapse of this market.

There were thousands of residents in all of these company's nursing homes - expecting to get care while all this intense and stressful commercial activity was going on. It was a never ending stressful and disorienting cycle for staff with each new owner introducing another set of management strategies that it felt would generate more profit. Inevitably the only way to do this was to reduce the major costs, care staff, further. Ways of doing so and explanations were developed.

The response of the US public was to form groups that supported residents' families that had suffered and helped them take legal action. Staff often leaked damning documents. Juries were horrified and awarded massive punitive awards which judges confirmed on appeal. This made the business unprofitable in those states that did not cap the damages awarded, and several of the big for profit companies vacated those states, throwing an increased load on the not-for-profits and putting more pressure on them.

There was intense lobbying by the big companies and they succeeded in having damages capped in some of the states. The nursing homes' insurers paid most of the legal costs and the punitive damages. Insurance costs rose dramatically across the USA and all of the nursing homes including the not-for-profits struggled to make ends meet.

The rapid growth of the for-profit sector during the 1990s was based on vast profits generated from subacute and step-down care, a sector paid on a per item of service basis. This lent itself to over-servicing and rorting. The sector collapsed at the end of the 1990s when government stepped in to stop the rorting and to prosecute fraud. Many of the companies entered voluntary bankruptcy and needed assistance to survive.

At about that time I stopped tracking events in the USA but I think more and more states probably capped the amounts that could be paid in punitive damages. What seems to happen now is that the juries still award massive punitive damages indicating their displeasure at the company's conduct, but the actual amount paid is then negotiated by the parties.

There is an in depth review of what happened during the late 1990s period on a web page called Overview of Corporate Nursing Home Care At the foot of that page are links to additional pages containing representative extracts from a large volume of material published between 1996 and 2003. Much of it is confronting.

Genesis Health Ventures was a company that seemed to start with a mission but the market dictated otherwise.

Genesis is a particularly interesting company because it seems to have set out with a mission to provide good care. It believed that the market was the way to do this. Not only was their business philosophy flawed but the two objectives proved incompatible. Despite convincing evidence to the contrary it continued to maintain that government was to blame for their business failures and that they were providing excellent care. They attacked the critics who exposed their deficiencies, generating their own explanations to explain their criticisms.

Source: Genesis Health Ventures on Corporate Medicine web pages

Mariner Health Group in contrast was a purely business venture by businessmen intent on profit. They started with a company called Grancare that had a very poor record for care. They operated by merging into other companies and assuming their names so repeatedly escaping their bad reputations for care. Mariner was simply the last of these. They spent vast sums with the intention of securing market dominance over large areas and then capitalising on that monopoly to make money. It built up a very large debt.

Mariner had now established a vast integrated empire supplying an extensive range of services. Management believed that Mariner was in a position to capitalise on the opportunities offered by the patients in its care, particularly Medicare patients. It had established market dominance in a number of areas.

It was not long before Mariner was reaping the consequence of all this stupidity. It never made any money and in November 1998 the 4 month old Mariner Post-Acute care was put on "credit watch by Standard and Poor. Within 6 months it was selling parts of its empire, starting with home care which was no longer profitable. At the same time it went to its creditors to renegotiate loans. It sustained large losses each quarter and its share prices tumbled. By March 1999 Standard and Poor had downgraded it. - - and finally entered Chapter 11 bankruptcy in Jan 2000, less than eighteen months after it was formed.

Source: Mariner Health Group on Corporate Medicine web pages

Sun Healthcare is the US company that came to Australia and I will use later as an example to illustrate culturopathy. Its charismatic founder persuaded politicians in the USA and Australia that you did not need well trained expensive staff to care for the frail elderly. That had consequences for both countries making it legitimate to replace nurses with untrained carers.

Beverly Healthcare was the largest health care chain at the time. In the 1960s and 70s it had gone on a acquisitions spree ending with 1000 nursing homes but in financial trouble. It survived that by selling some but then built up its empire again. During this period it was using a number of strategies to maximise profits from its empire and pay down debt. It paid large fraud fines but was not as heavily leveraged as the other chains and survived the government's crackdown on dysfunctional practices in the late 1990s

An analysis of the material relating to Beverly reveals the vast gulf between two worlds. On the one hand a very impressive and successful national corporation. It is admired and respected in the marketplace. It has close political links. Staff who have worked for Beverly are given responsible government positions. Beverly itself has no doubts about itself or of its place in the scheme of things.

Others see Beverly as the ultimate evil empire. A company which deliberately understaffs and neglects frail and vulnerable people to fuel its corporate success. It indulges in fraud and the public purse is the victim of this fraud. It is ruthless in the pursuit of its critics and opponents. Its labour relations are vindictive. It uses the law for its own purposes and appeals whenever an attempt is made to penalise it or restrain its excesses.

There is much to suggest that the second (world) is a real world of human suffering and compassion. The first world has all the hallmarks of a social abstraction, which has lost its grasp of reality.

Source: Beverly Healthcare on Corporate Medicine web pages

Vencor was a very successful company that crashed when politicians stepped in and fraud investigators looked at the company

Vencor's Rise:- Vencor became one of the largest and most successful of the nursing home chains. Depending on how you look Vencor is both a newcomer to the nursing home industry and at the same time one of the oldest of the nursing home chains. It illustrates the dynamics of the health care marketplace particularly well. It rapid growth and commercial success was built on fraud and the exploitation of vulnerable people who were unable to fend for themselves.

Vencor was a Cinderella success story. It enjoyed great prestige in the marketplace. It was supremely confident and had grandiose ideas. Its senior staff were royally rewarded. It developed plans for grand palatial headquarters in Louisville, Kentucky. This was never completed.

And Fall:- Vencor was the first nursing home chain to collapse in spectacular fashion when legislation removed the opportunities for fraud and when the public exposed the failure of the corporate chains to provide the services for which they had been paid.

Source: Vencor on Corporate Medicine web pages

Integrated Health Services (IHS) was another nursing home that pursued innappropriate strategies and like Sun Healthcare exploited Post Acute Care and came unstuck when government stepped in to stop the rorting.

Integrated Health Services (IHS) was one of the strongest advocates of post-acute care, of diversification and of integration. It followed Columbia/HCA's MacMedicine model by seeking to buy up and provide a complete range of services. It marketed "One Stop" care. It argued most strongly for post acute care and exerted more political influence than any other nursing home chain.

Guided by its chairman Dr. Robert Elkins, a psychiatrist it pursued its model of care with a single mindedness that ignored facts and reason when they did not fit with the model. More than any other nursing home chain IHS illustrates the inapplicability of the business model of care. The provision of health care based on understandings embodied in the words growth, profit, bigger is better, diversification, and integration has failed with unfortunate consequences for everyone involved except the perpetrators of this nonsensical model.

Source: Integrated Health Services on Corporate Medicine web pages

Extendicare was a Canadian company that jumped on the bandwagon in the USA and retreated back to Canada when it all came unstuck. One of its claims to distinction is the massive punitive damages awarded by juries angered at its nursing home practices.

In the Marketplace:-Extendicare is a Canadian company. It operates primarily in the USA. It joined the 1990's acquisition frenzy and used its income stream to buy and buy, so that it would remain competitive. Nearly a year after the government put an end to the exploitation of Medicare it went out and bought Arbor Healthcare for US $432 million.

Within 6 months of this its profits were slipping and it was soon making a loss. Extendicare survived by selling a large number of nursing homes in the USA and closing facilities and services, which were not profitable.

Patient Care:- Complaints, state actions and litigation (e.g.. Florida) suggest that patient care has been a serious problem in a number of Extendicare facilities. It was targeted by litigants in Florida. It had difficulty in obtaining an insurer. It ultimately sold all of its Florida facilities.

Source: Extendicare on Corporate Medicine web pages

15 Years later and its even worse in the USA: Anyone who believes that large corporations and private equity in an uncontrolled market is the way for Australia should be strapped into a chair and be forced to watch this 2013 horror video.

It shows horrific images and then goes on to analyse how the system in the USA works and the close nexus between these corporations and politicians that have blocked all efforts to make real change.

This is why I am so concerned and so critical of the secretive and close links between NACA, the politicians who accept their advice and their senior citizens mouthpiece COTA. This is the same US video linked to from the web page '19 years of care'.

Fault Lines - Elderly Incorporated (YouTube 20 Sep 2013) introduced as "Fault Lines investigates the business of elderly care, and what happens when corporations put profits ahead of care". I was sent similar video clips and was aware of what was happening in the late 1990s. Politicians in Australia were told but they were focussed on their economic agenda and were not listening.


And the game is still to grow by acquiring not-for-profits and making them profitable. In Philadelphia for example for-profits ownership of nursing homes increased from 49% in 2010 to 63% in 2016.

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How Australian Health Care Escaped

Australian health care escaped the worst of the US health corporate onslaught and was able to contain the practices of the local companies. This was due to two factors.

The first was the state probity provisions, which although imperfect did the best they could when supplied with information collected from the USA. It made it very difficult for the US companies as they all had poor track records by Australian standards and they got a vast amount of negative publicity as a result.

The second was the independence of the medical profession in Australia and protection given to them by the Australian constitution. They knew what government was planning and warned them in 1996.

"The government should not assume the professions resolute adherence to ethics in the face of economic loss." ----- "Such competition is lethal for standards; it is not in the public interest. It is this message that the medical profession must clearly convey to patients." ------ "With the price of services as the sole determinant of health care, ethics will fail and standards will fall. Governments will establish standards bureaucracies, despite inadequate methods for assessing quality. Money will be diverted from patient care to the ever increasing bureaucracies, while professionalism declines."

Source: Dr Peter C Arnold, Chairman, Federal Council, AMA (MJA 2/9/96 page 272)

The Australian constition prevented the Howard government from forcing doctors to enter into contracts with insurers and hospitals. In 1998 they resisted pressure and refused the contracts offered. Doctors had seen what happened in the USA and were not going to follow that path. They also opposed the entry of some of these companies into Australia.

When Australia's largest hospital corporation, Mayne Health attempted to introduce unethical practices that harmed care, doctors revealed themselves as the real customers and took their patients elsewhere. The company's finances collapsed. It sold all its hospitals and broke up. Having really effective customers whose interests were aligned with those of their patients and who were prepared to use their market power redefined the sort of market we had in health care in Australia. Success now depended on providing the sort of facilities and the sort of staffing that the doctors needed to provide good care. This did not solve all of the problems in the corporatisation of our health system but it was a major factor in keeping them at bay.

Relevance for the proposed hub

I had been worried that Australia would follow the USA, but I had not recognised the key difference in the context here and in the USA - that the doctors had power to act as customer and stop it in its tracks by deciding who wins in health care.

The proposed hub builds on the insight of this experience and it is intended to do in aged care exactly what the doctors did in hospitals, ie change the context within which the market has to operate by creating an effective customer whose interests are aligned with the consumer of the care. This should ensure that ethical conduct and good humanitarian care become the deciding factors in determining who wins and who fails in this marketplace.

I am not suggesting that people in the community and doctors do not act in their own interests, and are not human and vulnerable. It helped that in Australia doctors interests coincided with those of their patients and the community. Hopefully in the proposed hub there would be a balance of interests.

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Explaining the proposed hub

The proposed community aged care hub is, I feel, the best if not the only option that we have. It is based on solid market principles, the ones that have been conveniently overlooked. It will have to address the many problems that we now face, problems created by the illusions on which our system is based. But if the key requirements are met and not fudged, then it has a good chance of doing so.

It is not a panacea and will need plenty of support from both community and government. It will work to the extent that its activities are based on solid data, sensible logic and the debunking of illusions by real people from the community - people living in the real world of aged care.

It will depend on not-for-profits taking the bits of paper off their walls, and instead actually regaining (internalizing) their sense of mission, their values and their norms. It will mean actually living them and not putting them into a convenient mental compartment, from which they can be pulled out and put on display when needed.

It will include, as I suggested in 2000, the creation of ethical and value-based barriers, that are accepted by the for-profit sector as the basis for use by those providing care and those doing business with the sector.

The proposed hubs are intended to create a context across the country where this can happen. They will not remove all the pressures, but it is the only way to contain them. Regulatory vigour cannot compete with market forces, but we can create a different system, one where market forces themselves work.

It is essential for politicians to support this if they are to undo the harm they have done, and create an "effective" market system. By effective I am talking about one that creates structures that make a market work. I am contrasting this with the current "apply everywhere" generic model that, in vulnerable sectors, "depends" on ineffective, and some claim onerous and burdensome, oversight and regulation.

The consequences of not acting: If we do not accept that the aged care market as it operates in Australia today is broken, then I predict that the distrust and unhappiness will continue to grow, as the need to generate a profit stream grows. The allegations and wild counter allegations I will describe on another page will escalate.

When I stopped tracking the US aged care companies in the early 2000s, there was intense debate about the use of "grannycams", something resorted to by family members, who hid video cameras to record and expose what was happening to their parents in the for-profit homes. This is a vivid illustration of how trust had evaporated. The situation has become so bad in the now market-dominated UK system, that the Care Quality Commission in that country is bringing out guidelines for management and families to use grannycams, when they suspect their family members are being harmed.

This is what has happened to trust in these countries. Will this be Australia in a few more years, as the pressures generated by the need to meet the long-term costs of "consolidation" have to be met by competing companies?

Please note: The first four sections of Aged Care Analysis are published and the remaining sections will be made available as soon as possible.

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