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Content of this page
This corporate web site addresses the
issues of corporate health care within a
broad framework. A web page describing
this broad context should be considered as
an introduction to each page on the web
site. If you have not yet read it then
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This web page examines the 2006/7 purchase of
DCA by CVC Asia Pacific and CVC Capital Partners,
both part of Citigroup. It examines objections
lodged and their failure in the light of what is
known about Citigroup and its previous investment
in Australian health care as well as earlier
correspondence with the federal department of
aging.
This web page briefly reviews the growth of DCA. Citigroup's tawdry track record is sumarised and NSW Health's probity review of Citigroup in 2005 (with the imposition of conditions on the licenses) is discussed. The correspondence I had with the department in 1999 about probity and the changes made to the aged care regulations in 1996/7 are mentioned. Links are provided to pages that explore these matters. They are all relevant to what happened when Citigroup's subsidiary purchased DCA.
The sale of DCA to Citigroup subsidiaries, subject to approvals from Australian regulators, is described. Objections were lodged with the relevant authorities. While the outcome was predictable the correspondence is interesting because of what it reveals.
DCA
The giant market listed Australian multinational radiology and
nursing home group DCA had grown very rapidly. In 1998 it abandoned
its other investments and put all of its efforts into nursing homes
and radiology. It used the profitability from its radiology business
to fund its meteoric growth in nursing homes across Australia and New
Zealand.
In 2006 it started to falter claiming that this was due to problems in its radiology division. It is also likely that it realised that aged care was not going to become the steady cash cow it believed it would. This sector had not yet become profitable.
It had used the profit stream from its radiology business to raise the money for its expansion in nursing homes. If the profits from radiology were falling then its ability to service its $900 million in loans may have been threatened.
In any event, the once enthusiastic shareholders dumped the company in droves. Its share price tumbled. It became a takeover target and DCA seemed eager to sell itself.
DCA shares plunged in May following a profit downgrade and hit a low of $2.25 in August.
Sep 2006 Shares plunge
Raiders on a roll with DCA bid The Australian September 26, 2006
Radiology and aged care company DCA Group Ltd has reported weaker first quarter trading, with soft revenue growth in its imaging business and lower than expected occupancy rates to blame.
Nov 2006 Weaker
DCA Group reports weaker-than-expected first quarter growth Australian Associated Press Financial News Wire November 3, 2006
Mr Purves said DCA and its adviser, UBS, examined all other options, including splitting the group's aged care assets into a property trust to raise up to $250 million.
Sep 2006 Rejected other offers
Mr Purves refused to disclose the identity of other bidders or the nature of their proposals. However, he said the CVC offer provided the best outcome for shareholders in terms of value and certainty.
Radiologists see the light Herald-Sun September 26, 2006
DCA chief executive David Vaux is said to have been very receptive to the overtures of private equity, - - - .
Dec 2006 DCA Receptive
CVC gets nod for DCA The Australian December 9, 2006
Venture Capitalists CVC Asia Pacific and CVC Capital Partners were the successful bidders.
DCA's history is reviewed in depth on another web page.
Click Here to go to the DCA web page
Citigroup
As indicated by the letters "CVC", CVC Asia Pacific and CVC
Capital Partners are Citigroup's Venture Capital subsidiaries in Asia
and Europe. They are part of Citigroup. The structure and rather
complex legal relationships are addressed on a page examining the
purchase
of Mayne Health Hospitals in 2002 by
the same group.
CVC Capital Partners and Citigroup formed CVC Asia Pacific in 1999 to launch large buy-outs in the region and it has acquired 20 companies with a combined value of $US8.5 billion ($11.3 billion) since.
Sep 2006 CVC's Asian ventures
Private equity: now it's a $2.7bn health play Australian Financial Review September 26, 2006
Citigroup is a company with a dreadful track record for recent involvement in scandals on Wall Street and around the world. It paid large fines for deceiving and mislead those it claimed to serve and whom it advised.
Citigroup was implicated in setting up the Wordcom, Enron and other Wall Street company frauds. Investors lost billions, many their life savings. Reports indicate that Citigroup has paid in the region of US $10 billion to settle actions by defrauded shareholders of these companies. Reports claim that Citigroup's chairman was lucky to escape prosecution and prison.
The critical issues relate to its probity and its suitability to provide and control the care given to sick citizens and the frail elderly.
Click Here to explore Citigroup's involvement in fraud and its conduct.
Citigroup and Mayne
Health
When Australia's largest hospital owner Mayne Health collapsed
(see Mayne Crashes) in 2002 all of its hospitals were
purchased by a consortium led by CVC Asia Pacific and CVC Capital
Partners. CVC Asia pacific promoted itself as a turnaround expert.
Few in Australia realised that these were part of Citigroup.
Australia's Foreign Investment and Review Board (FIRB),
a rubber stamp welcoming multinationals, is supposed to monitor and
vet multinationals entering Australia. It has a very poor track
record in health care. It took no action.
When Australian's realised that this was Citigroup an objection was lodged with the NSW Health Department to the transfer of hospital licenses to Affinity Health, the consortium's purchasing vehicle. This was on the basis of the lack of probity and the consequent risk to citizens.
NSW Health does not have the resources to fight a legal challenge to its decisions by a multinational but its regulations do not specify a time frame. NSW Health department spent 18 months doing a thorough investigation and probity review before granting licenses with restrictive conditions to protect the system. It is interesting if not significant that the company had decided to sell the hospitals two years ahead of its original plan and the sale was well under way when the licenses were granted.
Details and a letter from NSW Health describing their decisions and the protecting conditions imposed are on another web page.
Click Here to see NSW Health's response to Citigroup
Correspondence with Australia's aged Care Regulators in 1999
Hospitals in Australia are controlled by state regulations and departments. Nursing homes are a federal government responsibility.
When I wrote to the federal aged department in 1994 about the possibility or the infamous Tenet/NME entering aged care in Australia they boasted to me of their probity processes.
In 1996/7 the newly elected coalition government, advised by prominent members of the for profit nursing home sector rewrote the aged care regulations turning nursing homes into a corporate friendly marketplace. Probity requirements in state hospital licensing regulations had proved a stumbling block for several multinationals supported by the coalition parties. This clause was removed from federal regulations.
The dysfunctional entity Sun Healthcare indicated its intention to enter aged care in 1999. Objections were lodged. I corresponded extensively with the department in regard to the issue of probity and the efficacy of accreditation processes in controlling market pressures towards dysfunction. I received repeated assurances about accreditation and was assured that the regulations were designed to ensure that only suitable people were approved as providers. I was assured that any material I provided would be considered.
This correspondence is interesting because of the recurrent failure of the accreditation process in aged care since then.
Even more interesting for the purchase of DCA by Citigroup are the last 4 letters where I was given assurances and responded to them. One of them was from Prue Karmel , Director, Certification and Approved Services. She later responded to my 2006 objection and this needs to be seen in the context of her earlier assurances.
The situation in 1999 was exactly comparable to Citigroup in 2006. Under the regulations Sun Healthcare could have entered aged care without being reviewed by the department of aged care. This was not revealed in the correspondence making a mockery of the assurances I was given. Sun Healthcare was going bankrupt at the time so did not try to enter aged care and they knew this. These assurances could only have been true if the regulations had subsequently been altered - perhaps by ministerial decree to allow Citigroup to avoid them.
Click Here to examine the 1999 correspondence
Click Here to go directly to the letters about probity and from Ms Karmel
DCA's directors and managers seemed to welcome the opportunity to de-list the company and take it private where it would be less accountable to volatile shareholders. Management agreed to stay on and invest large amounts of their own funds in the equity buy out.
I have not included press reports criticising this and the conflict of interest created for management. It put shareholders in a position where they had no choice but to accept the offer. While some protested, 98% voted in favour. The selected press extracts tell the rest of the story.
Note that DCA selected Citigroup over a multitude of other interested bidders in spite of its well known track record. My interpretation of this is that DCA placed its own financial interests ahead of its duty of care to the community and the frail elderly. It gave these precedence over the risks Citigroups practices create for the sector. This impacts on its probity and suitability to serve vulnerable sectors and goes to the root of the problem of fiduciary duty and the corporate marketplace.
One can also speculate about the possibility that DCA selected CVC because this considerably reduced their duty of disclosure and the level of oversight by market regulators. This is a tactic attempted by US companies seeking to hide fraud. (eg. HealthSouth) There is no evidence to suggest that DCA is trying to hide fraud.
DCA Group has boosted its appeal as a takeover target after its joint venture in the United Kingdom was named the preferred bidder for a multimillion-dollar surgical and imaging diagnostic contract.
Sep 2006 Scoop in the USA
DCA lifts appeal with UK contract Australian Financial Review September 13, 2006
DCA said it had signed a scheme implementation agreement for an offer on all its shares with funds advised by CVC Asia Pacific and CVC Capital Partners.
Sep 2006 DCA acccepts offer
DCA says it received a number of takeover offers Australian Associated Press Financial News Wire September 25, 2006
"As previously announced on 8 September, DCA's directors have reviewed proposals from a number of independent parties in respect of DCA's ownership," DCA said.
Sep 2006 There were other options
DCA shares jump almost nine per cent Australian Associated Press Financial News Wire September 25, 2006
"As a condition of the Scheme Implementation Agreement, DCA’s Managing Director David Vaux, I-MED’s CEO Gary Barnier, Amity’s CEO David Armstrong and other members of the senior management team have agreed to invest alongside CVC’s funds.
Sep 2006 Getting everyone motivated by profitability
This investment reflects the importance that CVC places on management’s contribution to the DCA businesses going forward.
Furthermore, Mr. Vaux will sell his family company, in which he holds DCA shares, to CAID, and have an A$8 million investment in the group.
In addition, CVC has stated it is their intention to make available equity investment opportunities to other DCA management, as well as radiologists in the I-MED Network."
DCA BOARD RECOMMENDS OFFER FROM CVC ASX Announcement and Media Release September 25, 2006
In a bid to keep DCA's radiologists on side Mr Vaux and other senior management will remain and will take equity in the new unlisted business. The radiologists will also be given the opportunity to take equity in the business.
Sep 2006 Aligning radiologists interests
Radiologists see the light Herald-Sun September 26, 2006
AUSTRALIA'S second-biggest provider of aged care, DCA Group, is likely to disappear from the stock exchange lists after its board unanimously backed a $2.7 billion private equity offer.
Sep 2006 DCA to be de-listed and go private
------------------------
CVC's proposal includes a cash offer of $3.50 a share and involves the group assuming $900 million of DCA's debt.
Raider swoops on DCA The Age September 26, 2006
CVC plans to delist the health care group from the Australian Stock Exchange if it is successful in acquiring the shares, through a new private company known as CAID.
Sep 2006 New Company CAID
DCA Group backs $2.7b CVC offer The Courier-Mail September 26, 2006
One of the conditions of the sale was the approval of Australian government bodies and regulators. These included the FIRB and ASIC
The principal conditions to the implementation of the Scheme are the approval of DCA shareholders, the Federal Court of Australia (or such other court of competent jurisdiction under the Corporations Act agreed between DCA and CVC) and several regulatory bodies such as ASIC, FIRB and the NZ Overseas Investment Office.
Sep 2006 Conditions for the sale
DCA BOARD RECOMMENDS OFFER FROM CVC ASX Announcement and Media Release September 25, 2006
Particularly interesting is the minister for aged care's statements. This minister has since resigned amidst a scandal involving share dealings in the area of his own portfolio, as well as 72 share dealings which he had failed to disclose to the Prime Minister. This is required. He had also misinformed the prime minister about them.
His downfall released allegations of his standover tactics in the political wrangling in his own party indicating the lengths he would go to, to obtain what he wanted. The ASIC, FIRB and Approved Provider authorities are supposedly independent advisory and regulatory bodies and the issues had not yet been referred to them. In a revealing statement the minister tells us what they will decide and indicates that the failed industry created accreditation system will address any problems and prevent them. Little wonder that DCA's chairman felt so confident about it and could "live with it".
The Howard Government cleared the way for foreign ownership of Australian aged healthcare assets, with Aged Care Minister Santo Santoro saying change of ownership would not interfere with regulation.
Sep 2006 Government jumps gin before responsible bodies review sale
"It is through the accreditation system that the Government enforces quality standards in residential aged care, and ensures public funding is used appropriately," Senator Santoro told The Australian yesterday.
"The ownership structure of the home does not impact on the ability of the Aged Care Standards and Accreditation Agency to enforce these standards," Senator Santoro said.
DCA Group operates more than 6000 aged care beds and chairman Robert Purves yesterday said CVC had given "assurances" it would uphold standards.
Raiders on a roll with DCA bid The Australian September 26, 2006
The deal is subject to shareholder and regulatory approval in Australia and New Zealand -- "We thought we could live with those conditions," Mr Purves said.
Sep 2006 Confident enough to live with
Raiders on a roll with DCA bid The Australian September 26, 2006
This put the director of the Approved Provider body with whom I had corresponded in 1999 in an impossible position as she could no longer meet the assurances she had given me.
OBJECTING TO THE TRANSFER OF APPROVAL STATUS TO CITIGROUP
The matter now became very interesting. The Foreign Investment and Review Board (FIRB), Australian Stock Exchange, Australian Securities and Investment Commission (ASIC), and the Department of Health and Aging were all supplied with information and objections.
Objections were on the basis that Citigroup was not a suitable (lacked probity) body to own or operate nursing homes in Australia. NSW had already carried out an extensive 18 month investigation in the much less vulnerable hospital sector and found the company lacking. It had imposed restrictions. The letter from NSW Health was attached and used to support the argument that these bodies should protect our elderly by blocking the sale because of the sectors far greater vulnerability.
I had corresponded with FIRB and lodged objections to health care companies entering Australia on many occasions before. I pointed out their past failures and the particular vulnerability of the nursing home sector. I did not get a reply to my registered letter. I did not know that the prime minister, the minister for aged care and presumably his ministerial colleagues had already taken the decision without waiting for advice from FIRB. FIRB is only an advisory body and the government is not required to take their advice. They also knew that the changes they had made to the regulations in 1996/7 had ensured that a multinational buying an Australian company would not have to seek approval. I did not know this.
The four letters written on 26 September 2006 are very similar and I have placed the text of that to the Department of Health and Aging on the web site. It was registered mail and I asked them to acknowledge receipt.
To be sure that the matter was not sequestered in one state I sent copies to the departments officers in other states and in due course these all reached Canberra. A few weeks later I phoned the Queensland office and was as assured that I would get acknowledgment and a reply within weeks.
Three months later the sale had gone through and the court had approved it so confirming that all approvals had been given. On January 8, 2007 I wrote again reinforcing the issues and asking what had happened.
Click Here to read the Sept 26, 2006 and January 8, 2007 letters to the Department of Health and Aging. It will open in another window.
It was well over 4 months before I got a reply to tell me that the Department of Aging had no power to review the approval of DCA when it was bought and controlled by another company. My letter had simply been pigeon holed until the whole matter was off the front pages. It is reasonable to conclude that they didn't want to tell me in case I took the matter public and exposed the way the department had been emasculated by the government and was now unable to do its job - the one touted so loudly by the government.
This is not the sort of inefficient thing that a government department does deliberately unless its own failures are to be exposed. Could the minister have instructed it?
This illustrates the extent to which the government department's powers to protect citizens had been eroded by the big businessmen who wrote the legislation for the government in 1996/7. The federal nursing home accreditation system that replaced previous state monitoring was set up in the same way.
The reply came from the same Prue Karmel with whom I had corresponded in 1999 and I could only feel sorry for her given the assurances she had given me in 1999 and the position in which the minister and the government had placed her. Her department had not reviewed Citigroup's suitability and could not do so because the government's legislation created avenues that allowed criminal groups into Australian health and aged care.
While some of her 1999 wording may have been strictly correct the two letters together reveal a lack of frankness and candour in the department. What she was acknowledging was that she had not been given the powers needed to do her job and protect citizens. She could not meet the letter or the spirit of the assurances she had given me.
The processes which had once protected the frail and vulnerable from the sort of people who would create situations in which they would be misused had been replaced by 3 yearly oversight processes, which could be circumvented. Instead of preventing them they now dealt with problems after they had been detected and complained about. This of course is not how she put it as she explained how the elderly were protected.
By documenting the recent changes introduced by the minister she was admitting that the processes were inadequate and had failed. The absence of any comment about Citigroup's suitability as an owner of nursing homes speaks.
My response was sympathetic about her difficulties in meeting the letter and the intent of her assuring 1999 letter. The comments about the system and what had happened speak for themselves. This correspondence should be read together with the 1999 correspondence.
Click Here to bring up the 1999 letter in a separate web page. It is near the bottom of the page.
Click Here to bring up the 2007 letter and my reply.
Thank you to the politicians from both parties and the aged care groups who took up the issues on this page with government after I canvassed them by email. I have letters from The Hon Christopher Pyne, minister for aged care, and the Hon Tony Abbott MP, minister for health and aged care. Both letters indicate that steps are being taken to tighten up our legislation so that unsuitable organisations cannot slip through the system without being assessed.
Clearly the efficacy of these new measures will depend on the details of the proposed legislation, particularly the extent to which the assessment will extend wide of the directors to include the track record and culture of the organisation as well as its controlling shareholders. We need to be sure that they can be trusted to put the welfare of the residents ahead of their bottom lines.
Click Here to read the letters and assess the undertakings.
What did the minister really promise?
A remarkably similar problem surfaced in August 2007 at the Belvedere Park nursing home owned by a man who has a record of criminal behaviour and of recurrent problems at the nursing homes he owned going back into the 1990s. This was only 2 months after giving these assurances. I quote the minister's response as it was reported "owning a sub-standard home did not automatically disqualify players from the industry".
Are we looking at more empty promises, a smoke and mirror play with words, or have the government's corporate controllers vetoed the changes? The trade unions have never exerted so much power.
Also does it tell us something about the way the minister's mind works that he uses the word "players" to refer to those who should have, and still occasionally actually have, chosen to invest their lives and create the meanings which bring fulfilment by caring for the frail and vulnerable.
How many have escaped assessment?
The revelation that since 1997 owners buying companies and presumably also single nursing homes that already have approval status have not had to undergo any sort of approval process is mind boggling. This would have occurred when the owners continued to operate them or new owners were contracted to provide the care. This is likely to have included most if not all of the aggressive financiers, private equity groups, bankers, trusts and developers who build and then contract to an already approved provider. That means perhaps a majority of owners of for-profit nursing homes in Australia. It is the owners who hire and fire those running the homes, control the funding that impacts on staffing, supplies, maintenance and renovation. They can have a profound impact on the ethos of the service and on the standard of care given. This is well illustrated by the recent finding of deteriorating staffing and standards of care in nursing homes acquired by private equity firms. This was truly legislation written by the business community and the industry for the industry, and acquiessed to by a grateful party beholden to them for support and electoral victory.
One can only ask what the response of this powerful industry was to an undertaking requiring their conduct to be scrutinised before they could buy into the industry. Would the ministers really alienate their strong supporters by doing this just before an election. Would the industry exert pressure to stop them?
BUPA Buys DCA from Citigroup's subsidiaries
On 3rd October 2007 it was announced that BUPA had bought Citigroup's holding in DCA's Australian and New Zealand nursing home empires and controlled these subsidiaries. Citigroup's CVC Asia Pacific had made a large profit. BUPA is a giant US insurer that is aggressively commercial. It has expanded globally and has also become an owner and provider of many medical services in addition to insurance. Most of its profits now come from its international operations and it has been very profitable. BUPA bought AXA's insurance businesses in Victoria, South Australia and the Northern Territory in 2002. It has been aggressively commercial seeking to grow and expand. It has eyed both Medibank Private and MBF as merger targets as it seeks to consolidate and gain power and leverage when negotiating with hospitals. The danger is that it will be in a position to negotiate such low payments to hospitals that care is compromised more than it already is.
BUPA was involved in a bitter and very aggressive dispute with Healthscope in 2003. Those sick citizens insured by BUPA became the meat in the sandwich and it is clear that the care of many was compromised as they were pressured by BUPA to disrupt their care by changing hospitals and so doctors. In addition the entire health system was ruthlessly squeezed by BUPA and Healthscope as they pursued their personal economic agendas rather than the interests of the sick and aging citizens for whom they had assumed responsibility.
BUPA has also been the subject of a recent tax case in Europe where adverse findings were made. The limited details I have obtained suggest that it may have been a tax cheat. A body with greater powers and the ability to force BUPA to disclose should examine this issue too. Do we want confirmed tax cheats controlling the funding required to care for our elderly?
It is therefore essential that BUPA's suitability as an owner and provider of nursing homes be carfully scritinised.
HAVE ABBOTT AND PYNE
KEPT THEIR PROMISES
Will BUPA be required to seek approved provider
status?
BUPA is clearly a test case to determine whether the two ministers' promises to tighten the approval process so that companies like BUPA and Citigroup's CVC Asia Pacific would have to seek approval status were more than empty but reassuring words like those I received from Ms Karmel in the ministers department in 1999.
On the 4th October I faxed and posted an urgent letter to Ms Karmel asking her as a matter of urgency whether the regulations had been altered and whether BUPA would have to seek approval. That I have received no reply 10 days later strongly suggests that nothing has been done. An election has now been called and if so nothing will be done.
In light of this lack of response I sent a registered letter to the approval assessment section of the aged care department in Brisbane with copies to all states, drawing their attention to BUPA's aggressive commercialism and its behaviour in 2003. I followed this up by phone on 18th October but they refused to tell me whether BUPA would be required to seek approved provider status.
Labour are currently hot favourites to win the federal election in Australia. We would be naive indeed if we believed that labour would automatically honour undertakings given by the current government. Tony Blair in the United Kingdom, has been a strong supporter of the privatisation and contracting out of public health services to aggressive profit centred groups. Probity has, by all accounts, not been an important consideration for him.
Click Here to read my letter to Ms Karmel and for updates on developments.
Click Here for a web page on BUPA. I will put what background information I can find there.
The battle continued. Another web page describes the correspondence and the efforts made to address these same issues in regard to the sale to BUPA
Click Here to go to the page dealing with BUPA's approved provider status and the failure of the labour party to act.
The labour party did eventually revise the aged care legislation in December 2008 claiming that this would address the issues of unsuitable owners. To test the legislation objections were lodged in regard to the approval status of the company Milstern and its owner. The outcome suggested that the legislation was still ineffective and did not do what was claimed.
Click Here to go to this page
Blackstone attempts to buy Japara
In June 2011 the US private equity group, Blackstone, attempted a takeover of Japara, an Australian aged care group. Internet searches revealed a number of disturbing reports about Blackstones conduct. The approved provider process was advised of this. They confirmed that despite the 2008 amendments to the aged care act 1997, buyers of companies that already held approved provider status did not need to apply.
They also indicated that as the process was "in confidence" they could not reveal if a company had applied. There is no way that a member of the public who has information would be able to assist by supplying it. The 2011 productivity report also does not recommend changing the approved provider legislation.
Click Here to go to this web page
For Updates:- A good way to check for recent developments in aged care is to go to the aged care crisis group's search page and enter the name of the company, nursing home or key words relating to any other matter in the search box. Most significant press reports are flagged there. The aged care crisis web site has recently been restructured and some of the older links used from this site may not work.
Web Page
History
This page created Mar 2007 by
Michael
Wynne
Updated July 2007, October 2007, Feb 2010, Oct 2011
