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HEALTHCARE
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copyright material. They are owned by the reference
given or its owner. They are reproduced here for
educational purposes and to stimulate public debate
about the provision of health and aged care. I
consider this to be "fair use" in the common
interest. They should not be reproduced for
commercial purposes. The material is selective and
I have not included denials and explanations. I am
not claiming that all of the allegations are true.
The intention is to show the general thrust of
corporate practices as well as the nature and
extent of any allegations made.
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Shareholders
This page gives an outline of Alpha and Sun
Healthcare's activities in Australia. Alpha was a
company with a prime interest in profit. It turned
to health care in 1988 after failing for 20 years
in other areas. Sun Healthcare used Alpha as its
joint venture vehicle to enter Australia.
The page also gives my comments and assessment of
what happened to Alpha. I speculate about what may
or may not have been happening behind the scenes
and what the involvement of politicians was in
bringing Sun into Australia.
Overview and Analysis
(1988 to
2001)
The bottom of this page also provides the main links to other pages about Alpha Healthcare. It provides some links to pages about Sun Healthcare.
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CONTENTS
Alpha Healthcare was formed in 1969 and after a series of failed ventures entered health care in 1988. It struggled for many years then unexpectedly embarked on a rapid period of growth in 1996. At this time government had adopted a market based health and aged care policy and was looking for multinational corporations to make its policies work. There is much to suggest that Alpha received some political patronage and in 1997 Sun Healthcare, a giant US corporations bought into Alpha and funded its further growth.
There were serious concerns about the companies US practices and the Foreign Investment and Review Board (FIRB) overruled an objection by New South Wales when it approved Sun's entry to Australia. The concerns about Sun's US practices continued to grow and in December 1998 the company backed out of Victoria after its probity was challenged in a government investigation.
Thereafter Sun Healthcare and Alpha's fortunes waned. Alpha was forced to abandon its grandiose ambitions and sold off most of its debt. Sun Healthcare entered bankruptcy in the USA and Australia. Sun deserted its Alpha shareholders and handed the company to takeover bidder Ramsay Healthcare on a plate by selling Alpha's debt to Ramsay behind Alpha's back.
Vast resources of energy, personnel, capital and time were squandered on the company's primary activities in the marketplace and in the business of competition. I have suggested that in any other system this extensive and inefficient waste of resources would not have occurred. They would have been directed to the care of the sick. This is what citizens were paying for and this is the primary focus in health and aged care.
I question whether the culture and ethics
revealed provide a suitable context within which society's Samaritan
health and aged care responsibilities can be met. The hostile manner
in which Alpha was taken over is particularly revealing.
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contents
Following is a summary of observations and project status developed after a series of meetings with government officials, private sector lawyers, consultants, civil engineers, and financiers. These recent meetings have indicated that in order for U.S. companies to optimize chances of success in major project activity, it is essential to form some sort of partnership with a local company, combined with a long term market strategy. There are many local companies with significant expertise and experience in major project activity. USFCS Sydney is in the process of identifying the local network involved in major projects at the concept, feasibility, design and consortia formation stages so that contact information may be passed on to interested American companies. (Note that Alpha's projects were analysed) "Report dated 31 March 1993, prepared at the American Consulate - Sydney." AMCONSUL SYDNEY --- IMI: NEW SOUTH WALES MAJOR PROJECT UPDATE Market Reports April 14, 1993
Looking for profits:- The company was founded as Corella Minerals in 1969 and changed its name on a number of occasions. It listed on the stock exchange in 1980 as Alpha Resources. It was essentially a company looking for somewhere to make money - usually without much success. From mineral exploration it moved to wines, then back to oil shale exploration. It became an investment company and purchased the Insurance Corporation of Ireland. This did not work out and in 1988 former doctor Richard Opara took control of the company and went looking for money in private hospitals.
Other listed private hospital companies, such as the Perth-based Markalinga Trust, and former doctor Mr Richard Opara's Alpha Pacific, have faired better
-----------------------------
Richard Opara took control of Alpha Pacific early in 1988. In March this year the company issued a $2 million share issue to help fund part of the $9 million purchase of a private surgical hospital in the Sydney suburb of Hunters Hill, taking its bed numbers to 321.Mr Opara wants to build the company into one of the industry's major players. He bid unsuccessfully for the HCA sale earlier this year, and then again when HCA re-opened negotiations in October. However, if he had succeeded in buying the ten hospitals he would probably have sold off a number of them to help repay the finance for the deal. (A HEALTH INDUSTRY IN THE THROES Australian Financial Review November 8, 1989)
Hospitals: Alpha took up 10% of Hospitals of Australia when it floated in 1986 but sold this to Mayne Nickless in 1988 after an attempt to take over Alpha failed. Alpha soon owned four hospitals and started expanding. It established rehabilitation and management services. It was soon in debt and went through a difficult time in 1993/4 when it suffered a string of losses. In 1992 it changed its name from Alpha Pacific Ltd to Alpha Healthcare Ltd.
- - - but remains hamstrung by more than $40 million debt., (The Sun Herald 04 Sep 1993)Financial debacle facing Alpha Healthcare and Australian Medical Enterprises. ------------------------------ -Investors have learned the hard way that microeconomic factors are the crucial variable in many businesses, but especially health-(Healthcare: It's a gamble. Bulletin with Newsweek, 08/08/95,)
ABSTRACT: the Australian Stock Exchange has become a magnet for leading conglomerates from Malayasia and Singapore seeking to diversify internationally, reports Russell Baker; companies discussed include Ipoh, Alpha Healthcare, - - - - - (Australasian Business Intelligence August 29, 1995 from the Bulletin)
Foreign capital:- At around this time Malaysian groups were looking to invest in Australia. Two related groups Tan & Tan and Berjaya Group Berhad invested large sums and by 1996 at least they were the dominant shareholders in Alpha. One of the Tan brothers had an office in Sydney and spent much of his time there. These groups were also heavily involved in Parkway Holdings, which purchased Tenet/NME's Asian hospitals in 1995.
US influence:- Although Health Corporation of America and American Medical International had left Australia some years the legacy of their thinkng remained. Tenet/NME had recently spent 5 years in Australia. At that time the Malaysians had little experience in hospital management. Tenet/NME had been very successful financially. Tenet/NME had been contracted to manage the large specialist money making Singapore hospitals purchased from them by the Malaysian groups. These Malaysian groups very probably also had dealings with Vista Healthcare in Singapore. Vista was run by several ex-Tenet/NME staff. It is clear that these Malaysian investment groups were heavily exposed to US health care thinking. They learned their health management skills from Tenet/NME. US marketplace jargon was soon evident in Alpha senior management's public statements.
Ultimately Alpha aims to have a division of approximately 15 medical centres giving Alpha access to 5% of the general practice market in Sydney. Primary healthcare has obvious flow on effects to other medical services, namely pathology, radiology, specialist services and ultimately hospitalisation and is a starting point of all medical treatment in Australia. By vertically integrating primary healthcare right through to hospital services, Alpha will be able to offer patients a full range of services in a completely seamless system. (1996 Annual Report)
Adopting well proven US strategies:- In 1996 Alpha committed itself to expansion, diversification, integration and the economies and negotiating power of size. It recognised that doctor's referrals originated from general practice and it was among the first in Australia to recognise the potential profits which could be gained by securing those referrals. All of these business strategies were firmly established in the USA. All of the large US market listed corporate empires were built on them.
Enhancement of shareholder value is our primary focus. Acquisitions will only be made on the basis they are accretive to existing earnings per share and provide a positive return above our weighted average cost of capital. 1997 annual report
Tenet/NME had built its massive empire and defrauded insurers by controlling doctors and their referrals. It is clear that the adverse consequences of these commercial practices for the health system were never considered by Alpha. As in the USA quality in care was publicly claimed but seldom featured in its business plans. Care for the corporation had replaced care for the patient as the primary focus of health care.
The four general practice primary care centres - - - - forms the cornerstone of our strategy to build a branded chain of facilities around metropolitan Sydney. Financial report 8 Sept 1997Grey mare Corelli landed a big plunge and earned herself a possible crack at black type company with a gutsy win in yesterday's Alpha Healthcare Class Six Plate (1300m) at Kembla. Corelli goes to top of class Illawarra Mercury 21 Feb 2000
Alpha started marketing itself and like Columbia/HCA adopted a branding strategy. Horses raced for the Alpha Healthcare Plate at the local Illawarra races.
No longer content with being one of the top two private sector healthcare providers in New South Wales, Sydney-based Alpha Healthcare is now keen for Asian patients to benefit from its fine facilities and expertise. --------- Alpha is therefore one of Australia's most professional, respected and successful healthcare companies. Alpha healthcare expands patient benefits through quality Service Asian Business Review, Oct 97
Alpha grasped the importance of credibility and corporate presence. This was revealed in 1997 when Alpha promoted itself as a major health care player with plans to expand into Asia.
Alpha is trying to diversify away from a dependence on in patient hospital services, establishing family healthcare - - - radiology divisions ---- buying primary care and general practice centres - - - - bought a pathology business -- and an occupational rehabilitation division. Go for the doctor! - Shares June, 1997
Building an empire:- During 1996 Alpha confidently built the foundations for a future integrated empire. It purchased a number of primary care facilities, as well as pathology laboratories and radiology practices. Its string of small hospitals provided general medical and surgical services, as well as rehabilitation. All of its facilities were in or near Sydney except for a day surgery facility in Perth. It lacked a major tertiary centre for complex problems and major surgery. This was essential for its policy of vertical integration. It was looking for capital, which it was unlikely to find in Australia. It would welcome additional expertise, particularly in areas to which it could diversify. It needed a powerful funder to provide the capital needed to fill out the skeleton organisation it had set up with more purchases - and so give it market power and control.
This game is about size - if you're negotiating with the health funds and you're negotiating with the government you need a critical mass and that's what Alpha has been seeking to do for some time" Paul Hopper commenting on purchase of HCC --- Australian Financial Review 21 May 1997
Dissipation of resources:- It is clear
that during the years 1996 to 2001 a very large portion of the
company's energy, personnel, emotional, and financial resources were
devoted to the business of the market and of competition. Attention
was focussed on the business rather than service to customers. One of
the prime reasons for moving to a competitive market system is the
perception that the market is more efficient. Surely it would have
been much more efficient if these resources had not been squandered
in this way - had they instead been focussed on serving the
community.
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contents
With public hospitals facing a troubled future, one merchant bank believes the next step will be privatisation. - - - - - the transition will not be easy Bankers Trust Investment Bank is gearing up for a revolution in Australian health care. Business Review Weekly, Monday, 08 Sep 1997
Speculation and Conspiracy theory:- We live in an era when conspiracy theories have a horrible habit of becoming true. Policemen supposedly protecting citizens set up assassination squads to kill some citizens in the service of state ideology and they don't see this as wrong (South African Truth Commission). Sects of religions that are essentially caring and humanitarian develop into angry terrorist organisations whose suicide missions successfully kill over 6000 US civilians and disrupt the markets of the entire world.
In Australia a chief of police in Queensland is knighted for his services to the community. He is found to be the ringleader in a protection racket. Prominent members of the government are corrupt and are jailed with him.
Police in NSW have a well organised network for selling confidential information obtained during the course of their duties. Corrupt practices involving protection rackets and other financial arrangements with criminals are widespread in NSW. Judges, should be impartial and above influence, yet they put themselves at risk of influence by sexual misbehaviour in public places. The police protect them.
A suggestive context:- Health care is now practiced in an environment where health care consultants enthusiastically advise their clients that there are "silos' of opportunity" in playing on politician's pain and see nothing wrong in this. Politicians responsible to citizens act as travelling salesmen, touting for business, building relationships with wealthy corporations and offering financial and other inducements for them to set up in their states. They are also responsible for regulating, policing and punishing these new friends. They believe that they are acting in the best interests of their constituents and boast of their success in creating jobs. If we wanted to design a system vulnerable to collusion we could not have done much better. There are a ready set of marketplace explanations to make unacceptable conduct seem desirable and legitimate.
I make no apology for speculating about possibilities. It is a healthy activity - healthy for society, provided of course that we do not accept speculation as proof. If the circumstances look suspicious then they should be explored further.
WHEN the Prime Minister recently visited the Hunters Hill Private Hospital to see its $2 million refurbishment, Boutique hotel feel for patients Sydney Morning Herald 16 Apr 1997
The circumstances:- Alpha's rapid expansion was an enormously ambitious project for a small bit player that had only 2 years before been severely burned by too large a debt. It should have learned from this experience - yet here it was borrowing heavily again. One wonders at the courage and ambition - and the reasons for this.
The market undoubtedly welcomed the election of the liberal/national coalition government early in 1996, but as a press report later commented the grandiose ambitions of a small bit player seemed totally unrealistic. One wonders whether someone was in a political information loop and whether Alpha could have been part of a wider plan. Could it have been positioning itself for what it knew was coming.
I think that we can legitimately ask about the sort of support being given by government, and whether anything was being negotiated by government on Alpha's behalf? Direct government involvement in corporate activities in Australia has become increasing legitimate. It was already well established in US government practices. As early as 1993 the US Consul was exploring opportunities for US companies in Australia. Several local health care ventures, among them Alpha were included in their report.
It is therefore worth noting that the Prime Minister himself came to open the refurbishing of a small Alpha private hospital in March 1997 - not something which you would expect the Prime Minister to undertake himself. These duties usually fall to state politicians. Dr Wooldridge has been at pains to point out that hospitals are state responsibilities and he has no role.
Pressures on government:- Australia simply did not have the large health care corporations needed to make the changes to health and aged care that the government planned. The local market had shown little enthusiasm for health care. They were perhaps reluctant to take on the medical profession. The Medical Profession were united in opposition to the government's plans. The president of the AMA had taken time to express his personal disquiet at the government's policies when he introduced the minister at a meeting of the Medical Association in Canberra in May 1996. The minister and a number of economists were telling the professional association about the new policies for health care.
Ron Williams had predicted in 1992 that large experienced multinationals would be seen as the future for Australia's health system. The labour government had been burnt by their experiment with Tenet/NME. Despite this large multinationals were essential if the new government was to accomplish its planned market based "reform" of the health system. The newly elected coalition government spent 1996 creating an aged care marketplace and preparing for a managed care type corporate health system. The health and aged care bureaucracy were restructured to embrace market thinking and practices. Government were looking for corporations to make their new system work.
Suspicions:- It is hardly a coincidence that the largest and most expansion oriented US health care company Columbia/HCA should move to enter Australia in March 1997, a year after the government were elected. It was followed 2 months later by the most rapidly growing and successful nursing home group in the USA, Sun Healthcare. The MacMedicine policies espoused by Columbia/HCA and the market philosophy expressed by Sun Healthcare's Andrew Turner in an article titled "Andy Turner wants the government out of health care, Period," were both congruent with the governments privatisation and "small government" policies. Columbia/HCA was experienced in controlling doctors and getting them to think the corporate way.
At a ground breaking ceremony today, the Federal Minister for Health and Family Services, Dr. Michael Woolridge, launched the construction by Alpha Healthcare Limited ("Alpha") of its $55 million 136 bed Westmead Private Hospital. --------------- Looking ahead, Mr Hopper said - - - "There are opportunities ahead as governments seek to increasingly involve the private sector, either through co-located projects, or contract management of existing and new public hospitals.Federal Minister for Health launches Alpha Healthcare's Westmead Private Hospital Alpha Healthcare Limited Press Release 9 September 1998:
There must be a real suspicion therefore that the government went touting for multinationals to bring into Australia and that they turned a convenient blind eye to extensive adverse information about these companies - information which was readily available in the USA had they looked. A critical review of Columbia/HCA's practices was published in the New England Journal of medicine in June/July 1996. A national television program had exposed their practices in October 1996 and a highly respected politician interested in health care had stated publicly that their executives should be imprisoned.
A measure of the government's desperation
when its plans were frustrated was the appointment of a senior member
of Mayne Nickless, a company recently convicted for defrauding its
customers as chairman of the Health Insurance Commission (HIC). The
HIC is the body responsible for investigating and prosecuting fraud.
It also licences pathology laboratories, a common area for health
care fraud.
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In January 1995, the Company learned that it was the subject of a pending Federal investigation. The investigating agencies are the United States Department of Health and Human Services' Office of the Inspector General ("OIG") and the United States Department of Justice. -------- Sun 10-Q15 May 98In 1996, the Connecticut Attorney General's office and the Connecticut Department of Social Services ("DSS") began an investigation and initiated a hearing in order to determine whether the Company's long-term care subsidiary submitted false and misleading fiscal information on its 1993 and 1994 Medicaid cost reports.Sun 10-Q/A 22 May 98
In July 1997, the Criminal Division of the U.S. Department of Justice informed the Company that it had completed its investigation of the Company, and that it would not initiate any actions against the Company or any individuals. The investigation by the Civil Division of the Department of Justice and the OIG is still proceeding. The government continues to collect information, and the Company continues to cooperate with the investigators. Sun 10-Q15
EXTRACTS FROM SUN HEALTHCARE REPORTS TO THE US SECURITIES AND EXCHANGE COMMISSION
Credibility:- Sun Healthcare's meteoric growth had made it the darling of the US share market. Sun's founder and chairman was a charismatic character with total conviction about the market and the market practices he espoused. He had a loyal and committed following and a proven track record in the marketplace. Sun's strategies closely mirrored those now followed by Alpha. It had the money to invest. It also brought expertise in nursing home and subacute or step down care. It ran a diversified health service including pharmacy and medical supply divisions. These would be used to colonise the Australian system. This would enable Alpha and Sun to diversify further. Available documents show that Alpha planned to capitalise on this expertise.
Sun also formed new divisions of its SunScript and SunChoice subsidiaries in Australia. They are pharmacy and medical suppliers. Sun Healthcare Expands Overseas Presence Albuquerque Journal May 06, 1998
Problems:- Sun was also under investigation for fraud by the US government and by at least one state in the USA. The FBI had raided its facilities. It was claimed that Turner himself was aware of the fraudulent practices and was short with staff when they drew his attention to it. Shareholders had accused Sun's directors of deceptive practices and their actions had been settled for US $24 million.
Patient care:- An outcry by citizens about standards of care in nursing homes in California culminated in a confirmatory investigation by the federal General Accounting Office (GAO) and a federal government hearing in June 1997. There was press coverage - even Time magazine published. Thousands were alleged to have suffered needlessly and died prematurely because of lack of basic care. Sun Healthcare was at the centre of these problems and the Californian government had barred it from further expansion in that state. In a nation wide review of care in nursing homes based on government findings Sun Healthcare was one of the worst performers.
Available information:- Sun's was
forced to disclose some of these matters in its annual publicly
available reports to the US Security and Exchange Commission (SEC). A
search of the SEC files and a literature search would have disclosed
these matters. Legal documents were available for little more than
the cost of photocopying. The government did not look for them.
Australian citizens did and sent the documents to authorities.
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ABSTRACT: News that Health Care Corporation will be acquired by New South Wales' Alpha Healthcare in June 1997, was met with enthusiasm and support by shareholders of the private hospital operator. Alpha set to buy Health Care Corp - Business Intelligence June 30, 1997 SOURCE: Business Sydney
Reports to shareholders:- Sun's purchase of 38% of Alpha subject to FIRB approval was announced in May 1997. It was providing capital to purchase Health Care Corporation. It is customary for a firm of accountants to be employed to give independent advice to shareholders on the benefits or problems in a situation like this. I have not seen such a report but fraud settlements and patient care issues are not usually included in such reports. It is unusual for them to have a permanent impact on the bottom line.
Objections to Sun's entry to Australia:- The bulk of Alpha's operations were in New South Wales (NSW). NSW authorities and the Foreign Investment and Review Board (FIRB) were independently advised of the fraud investigations and that there were questions about the care provided in Sun's facilities. A few weeks later they were supplied with court documents describing corporate conduct in the marketplace. When NSW opinion was sought they objected to Sun's entry to Australia. NSW would not have wanted to put themselves in the difficult position they had found themselves in with Tenet/NME in 1993. It is interestng that the objection was not made from the health department which issues licenses. When objections to hospital licenses for Alpha, (because Sun was a dominant share holder) were later lodged with this department they were not acknowledged.
- - - purchase of Health Care Corporation Pty Ltd has been delayed after the Foreign Investment Review Board raised concerns over the involvement of American health care giant Sun Healthcare Group Inc.------------------ (FIRB)- - has baulked at reports that the Civil Division of the US Department of Justice was investigating the billing practices of Sun's subsidiaries. Alpha deal on ice after approval snag- The Financial Review 31 July 1997
Political footwork:- Dr. Wooldridge, federal minister for health refused to involve himself in the decision to admit Sun on the basis that hospital purchases were a state matter. This was in spite of the fact that his department was responsible for licensing the pathology laboratories Sun was purchasing and the nursing homes Alpha had indicated it would purchase. His department was also responsible for investigating and prosecuting health care fraud and Sun was under investigation for fraud in the USA.
The investigation:- The Australian Federal Police were asked to investigate but their findings have not been released. The FIRB is an advisory body only to the treasury. They deal with commercially confidential information and their deliberations are not public. They carefully pointed out to me that the deputy treasurer made the decision to overrule the NSW objection and allow Sun Healthcare into Australia.
Politics:- If as I have suggested Columbia/HCA and Sun Healthcare were an essential component of the government's plans to restructure our health system, then Columbia/HCA's withdrawal following FBI raids in March 1997 was a major setback. If Sun Healthcare was refused admission then government plans would have been in tatters. The pressures to bring Sun into Australia, despite these revelations, which it is likely Sun did not volunteer must have been enormous.
Footwork:- The strategy of publicly passing the buck to state authorities but then using the power of the treasurer to overrule their objections is revealing. Sun's executives came from the USA to meet with staff and smooth things over. Government would have been eager to accept their explanations. Those who had objected to Sun were not given the same opportunity.
But the deal was given approval on Friday after Sun returned with more information about the investigations at the FIRB's request. - - - "It was very straightforward. Sun provided everything that was asked and more" the managing director of Alpha, Mr Paul Hopper said last night. Sun gets nod for 38pc stake in Alpha Australian Financial Review 18 Aug 1997
"The acquisition is another step in the strategic development of Alpha as an integrated healthcare provider in the primary health care, diagnostic, imaging, and occupational rehabilitation markets. " Acquisition of Diagnostic Pathology Release 4 Dec 1997
Trust between partners:- Alpha shareholders were unwisely getting into bed with a group whose dealings with shareholders had been heavily criticised in the USA. The quoted documentation in the US court actions seems damning. One questions the sort of analysis done on Alpha's behalf and the advice they were given. They would eventually be betrayed and fall victim to similar practices.
- - - major shareholder Sun healthcare Group Inc has provided $10 M loan financing to Alpha unsecured. To part-finance a number of proposed acquisitions in pathology and radiology services. $10 M Unsec. Loan finance -- plans for conv. Note issue Press Release 11 Dec 1997Mr Chet Bradeen, Sun Healthcare's representative on the Alpha Board, said that with the strengthened capital base resulting from the Note issue, Alpha was well placed for further expansion. Alpha Healthcare Shareholders Endorse Convertible Note Issue Alpha Healthcare Limited Press Release 18 February 1998
Growing and growing:- Sun's investment and backing allowed Alpha to buy Health Care Corporation which James Hardie had been trying to sell for some years. This added to Alpha's hospitals. Alpha took over bed licenses, and the contract for the construction of the new co-located Westmead Private Hospital. This would be the tertiary referral centre in Alpha's integrated system. Alpha continued to build its empire by buying pathology and radiology practices during 1997 and 1998.
The Victorian Minister for Health, Mr Rob Knowles, headed north of the border yesterday to enlist the help of Sydney's private health care community to assist in Victoria's efforts to revamp its public hospital system.Victoria seeks cure in private Australian Financial Review 24 Jul 1997
Entering Victoria:- Victoria's first
attempt to privatise a public hospital in La
Trobe using Australian
Hospital Care, a local corporation,
had been a headache. Their minister went north to Sydney looking for
expertise. Alpha invested in a provider of home support services in
Victoria and started building a relationship with the Victorian
government. Its integrated policy was promoted as a "holistic private
health care service". In September 1998 it was awarded the contract
to build and run the new public hospital in Mildura, Victoria.
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``In Australia, the private hospital sector includes what the U.S. nursing home business refers to as subacute care. Therefore, this investment represents an opportunity for Sun to leverage its clinical expertise in an emerging healthcare marketplace,'' said Andrew L. Turner, Sun's chairman and chief executive officer. Sun is currently one of the largest U.S. providers of subacute care in the long-term care industry. Sun Healthcare Group to Acquire Interest in Australian Company [ PR Newswire] 1997 June 4 Company Press Release (Sun Healthcare)
Hospital needs:- Sydney suffered from a lack of tertiary well equipped private hospitals. Privately insured patients were taking up beds in major teaching hospitals. Too many seriously ill patients and major surgical procedures were being conducted in small cottage hospitals like those owned by Alpha. I suspect that the original plan (perhaps by government and Alpha) was to use Sun's expertise and turn these smaller hospitals into step down hospitals. Patients could be transferred to them as soon as the acute and more intensive phase of their illness was over - an industrial conveyor belt system of care in which Sun specialised. At the same time as Sun bought into Alpha in 1997 it bought a 51% stake in 7 similar small Moran hospitals.
The Commonwealth will offer the states $500 million in extra funding to trigger a health revolution that would see fewer people using hospitals.- - - - - - - - includes a $500 million capital fund to pay for construction of "health halfway houses" for people not sick enough to be in hospital but not well enough to be at home.
The so-called step down facilities would cost less because care would be less intensive. Wooldridge injects $500 m for reform, Courier Mail 18 Dec. 1997
Wooldridge's solution:- In December 1997 only 2 months after Sun entered Australia Dr. Wooldridge announced his plans to revolutionise health care using step down hospitals. He offered state governments financial inducements to adopt this model.
Nursing homes:- If Alpha also moved into nursing homes then it would have an integrated system including tertiary hospitals, subacute care, nursing homes and home care services. Citizens, once captured could be moved seamlessly through this system making a profit at each step - pass the parcel had been established as a very successful way of making money in the USA. The only bit missing was funeral services.
What happened to these plans?:- One can only speculate as to what happened to these plans. In December January and February objections to licences for Sun dominated facilities were lodged with all federal and state licensing authorities and they were supplied with supporting documents. During the ensuing years a steady stream of material describing Sun's US business practices became available in Australia and was sent to licensing authorities, politicians, community organisations and politicians.
Step down care in the USA:- The subacute care market in the USA was unravelling. The boom in subacute care in the USA was shown not to be motivated by a move to improved or cheaper services but by the opportunity to exploit loopholes in the Medicare system. In response to widespread misuse and fraud the system of DRG's had been introduced into US hospitals. It was not introduced into nursing homes and rehabilitation facilities.
Corporations like Sun Healthcare claimed that the costs of nursing homes and rehabilitation facilities were much less than acute hospitals. This pretext was used to move patients from hospital to these facilities as soon as the acute phase of their illness was over.
Groups like Sun employed thousands of therapists and gave vast quantities of care for which Medicare was billed on an item of service basis. At the same time the basic nursing care which patient's needed, a cost was squeezed so that standards of care were poor. Medicare was exploited and defrauded and health costs climbed even more rapidly.
The federal government responded in 1997 changing the regulations so that excess therapy became a cost. Miraculously far fewer patients needed therapy and Sun alone fired 10,000 therapists. Companies, which had built their empires by exploiting the Medicare billing opportunities offered by subacute care started a rapid slide towards bankruptcy - although they did not immediately recognise this themselves.
Did Australia find out?:- I like to think that someone in a government department or even in parliament examined the material they received and took the trouble to contact colleagues in the USA then reported to government.
Australia was at this time introducing DRG's
into its general hospitals. Dr Wooldridge never mentioned step down
hospitals again and the small hospitals did not perform well for
Alpha or Sun. The 7 hospitals purchased separately by Sun eventually
entered bankruptcy and were sold off. Alpha closed a number of its
unprofitable facilities. Neither Sun nor Alpha attempted to buy
nursing homes. They did not seek nursing home licenses.
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The group said it will continue to devote resources to participate in the Victorian government's hospital privatisation program, in addition to examining selective stand alone, private hospital acquisitions which meet its investment criteria. ------------------------- "This together with strong support from our major shareholder, Sun Healthcare Inc, places Alpha in a very strong position to continue our expansion strategy." Alpha says cautiously optimistic AAP NEWSFEED September 14, 1998
Victorian regulations:- A review by the West Australian Health Department found that Victoria was the only state whose regulatory structure gave it the power to successfully challenge the probity of large corporations, particularly multinationals. It did so with Tenet/NME in 1994 and this was the only previous occasion in which a state authority had successfully blocked a multinational application for a license. New South Wales' attempt to do so was overruled by Justice Yeldham and they have not tried again.
The private hospital system is trying to cut back on its dependence on private health funds by embarking on joint projects with public hospitals, and contracting out its services.Funds crisis: private hospitals now thinking public
Australian Financial Review 14 Oct 1998
An opportunity:- When Alpha won the contract for the Mildura privatisation project in September 1998 the very considerable amount of material now available about standards of care in for profit corporate chains in the USA was tapped and made available. Much of this referred to Sun Healthcare. It was the only state where Sun could be successfully blocked. The opposition produced this material in parliament and forced the government to set up a probity check in regard to Sun Healthcare.
The Victorian Opposition today increased pressure on the government over the privatisation of Mildura Hospital, pointing to evidence of poor patient care by the preferred bidder's parent company. - - - is also under investigation in Connecticut for allegedly providing misleading financial returns. VIC: Questions raised over Mildura Hospital bidder AAP NEWSFEED November 11, 1998A company linked to the privatisation of the Mildura hospital has been banned from running any more nursing homes in California after a series of violations that endangered patients' health. - - -Health tender raises concern The Age 07 Dec 1998
In December last year, the California Health Services Department revoked Sun's licence to operate the Mission De La Casa Nursing Home in San Jose after it was repeatedly fined for patient care violations, Mr Thwaites said.
Sun, the major shareholder in Alpha HealthCare which is the preferred bidder, was fined a total of $53,000 for 10 incidents of patient violations in the year from November 1996.VIC: Bidder for Mildura Hospital under a cloud in US AAP NEWSFEED December 7, 1998
Sun withdraws:- In late December 1998 the government advised the company that Sun had been found wanting. Sun withdrew from the Mildura project blaming everyone except themselves. This decision made it almost impossible for Sun to expand into any other state. Probity is not circumscribed by state boundaries and any state seeking to grant Sun a license would have to confront and explain the Victorian decision. Sun's whole existence centred around its policy of growing. Its share price was based on this. Prospects in Australia were now bleak but it would take time to work itself out.
Managing director of Alpha Healthcare Paul Hopper said the decision to withdraw from the Mildura project was based on government advice it was not satisfied with the results of a review of Alpha's major shareholder, Sun Healthcare Group of the United States.Alpha pulls out of Aust hospital project AAP NEWSFEED December 23, 1998
Deserting a sinking ship:- The two
Malaysian groups who had once dominated Alpha seem to have recognised
the problems inherent in Sun's dominance. They knew what had happened
to Tenet/NME in Australia and Singapore after its practices were
exposed. By the end of 1998 they had markedly reduced their holdings
in Alpha.
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Alpha changes:- Struggling hospital operator Alpha Healthcare Ltd is discussing a range of options with private health funds in a bid to improve margins, new managing director Mr Mark Compton said yesterday. BRIEFS Australian Financial Review 26 May 1999Alpha Healthcare today announced a net loss after tax and abnormal items of $21.256m.Year End Financial Result to 30 June 1999 Alpha Healthcare Limited Press Release 10/09/99
Economic hard times:- 1999 and 2000 are the story of a dramatic reversal in policy. The various diversified entities did not perform well and they did not generate the expected profit. They did not produce the revenue needed to service Alpha's debts. Alpha started losing money and its prospects looked grim.
There has been a re-structuring of senior positions, including the appointment of a new Managing Director, Mark Compton. He and the rest of the Senior Management Team are re-focusing the Company's efforts to align, more closely, with its core competencies. Costs have been substantially reduced and this, in conjunction with the new operational focus, has seen a significant upturn in recent months' results. Approximately $1.0m in salary costs at an executive level alone has been removed in the last few months. Year End Financial Result to 30 June 1999 :: Alpha Healthcare Limited Press Release 10/09/99Alpha's directors believe that the medical centre businesses no longer have a strategic fit with the Company. Mr Compton said that "our medical centres were originally purchased as part of a vertical integration strategy with diagnostic services. The changes which have occurred in the diagnostic services market have led to this integration strategy being set aside. This allows Alpha to concentrate our capital and management resources more fully on our core business of operating private hospitals." Alpha Divests Medical Centres Alpha Healthcare Limited Press Release 23/11/99
Policy changes:-The managing director who had promoted the US style policies during 1996 and 1997 was replaced. The buzz words expansion, diversification, integration and the economies and negotiating power of size disappeared almost overnight and were replaced by phrases like core competencies and core business. Alpha did not invent all this. In the USA Medicare had provided endless opportunities for billing for services as the patient parcels were passed from one integrated and diversified service to another. When the Medicare system of funding was changed to stop the system from being misused in this way the entire house of cards collapsed. Corporate giants competed with one another to find buyers for bits of their empires as they concentrated on their "core businesses".
Secondly, we decided to exit the diagnostic services market with the divestment of our pathology and radiology businesses to Sonic Healthcare Limited and Mayne Nickless Limited respectively ALA - Chairman's Address to Shareholders Australian Associated Press November 23, 1999
Sales:- Alpha sold off all of its pathology businesses, its radiology businesses and its primary care centres. They were no longer part of its strategy. Alpha fired staff, rationalised, and closed unprofitable facilities. It sold many of its hospitals to a real estate investment group and then leased them back. All this gave it capital to pay back its debts which it did. It pinned all of its hopes on the new Westmead Private Hospital which was nearing completion and which promised to be very profitable.
Mr Chet Bradeen, Senior Vice President of Sun Healthcare Group Australia Pty Ltd advised Alpha that this filing for reorganisation in the United States "will have no impact on (Sun's) Australia/Asia Pacific commitment and operations" ALA - Sun Healthcare Files Voluntary Petition Australian Associated Press October 15, 1999
Debts and friends:- When Alpha had
purchased Health Care Corporation in 1997 it had paid James Hardie in
shares and a series of loans given by James Hardie and Sun
Healthcare. Sun had lent more money for subsequent purchases. Alpha
had paid its other debtors. It had not repaid these loans fully and
was consequently ever more dependent on Sun and Hardie's goodwill.
Extensions to the loans had been negotiated and by 2001 the prospects
for early repayment of the loans were looking good. Existing
hospitals were benefiting from the federal government's heavy
subsidies to private insurers. Westmead was doing well. Nevertheless
Alpha's friends and co-investors Sun and James Hardie were still in a
position to close Alpha down if they called in the full remaining
debt of $31 million.
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Confidential dealings:- Alpha's friends now stabbed it in the back. By now Sun was in bankruptcy both in Australia and the USA. Sun's receiver in Australia regularly consulted with Sun's Australian directors who were also members of Alpha's board. Sun was trying to sell all of its international operations including its holding in Alpha.
Without telling Alpha's board Sun Healthcare, its receiver and James Hardie quietly sold their $31 million in debt to Ramsay for only $11 million. They also sold Sun's shares to Ramsay for 40 cents a share. An alternate bidder who offered to pay Sun and Alpha's shareholders more was rejected without an explanation. Ramsay then made a takeover offer for Alpha at 40 cents a share. Sun and James Hardie sold their remaining shares to Ramsay.
Alpha fights back:- Alpha advised its shareholders to reject the offer which they believed was only half the real value of Alpha's shares. They lodged an objection to the bid made by Ramsay with the government's takeover panel asking that the deal with Ramsay be unwound.
A group of independent shareholders believed that Sun's director on the Alpha board owed a fiduciary duty to all shareholders, not only to Sun. As such he had a duty to disclose Ramsay's offer for Sun's debt and give Alpha's shareholders the opportunity to bid for that debt. While Alpha might have had difficulty in quickly raising $30 million they could readily have raised more than $11 million. This would have been easier because there was another bidder prepared to pay more per share and also buy the debt. When Ramsay and Sun refused to disclose details of the circumstances surrounding the pre- bid deal these shareholders lodged an objection with the Australian Securities and Investment Commission (ASIC) asking that the deal be unwound.
Alpha goes under:- The takeover panel ruled in favour of Ramsay. The independent shareholders believe that their complaint was not even examined.
No one else would bid for Alpha while Ramsay held its debt. If Alpha shareholders had refused to sell then Ramsay would have been in a position to call in the debt and close Alpha down, taking its physical assets in payment. In all of its letters to Alpha's shareholders Ramsay stressed that it was in control of Alpha's debt. Reluctantly Alpha's board advised shareholders to accept Ramsay's 40 cents per share offer. Alpha was acquired by Ramsay Healthcare.
On reflection one wonders if Alpha's shareholders would have welcomed Sun Healthcare in 1997 had they or those acting on their behalf examined the court documents in some of the many court actions taken by shareholders caught up in Sun's takeover dealings - and then spoken to the persons involved.
Alpha's minority shareholders fight on:-
Some shareholders have taken to the courts in order to obtain
redress. Others have taken up the matter with the Minister for
Financial Services and Regulation asking him to investigate the
manner in which their complaint was addressed by ASIC.
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Care has not been compromised:- My critics can legitimately claim that there is no evidence that foreign investors in health care have pursued practices, which compromised health care in Australia. This they claim is because our system is different.
This mis-states the situation. Neither foreign nor local corporations have sufficiently dominated our system. The culture within which care is provided is still dominated by that of the nor for profit community groups and the medical profession. In the USA it took 20 years for corporations to dominate and only then did the problems in care consequent on market practiices emerge.
Atypical pressures:- Both Tenet/NME and Sun Healthcare entered Australia under a cloud. There were widespread allegations about the standards of care in their US facilities and fraud in their billing practices. In both instances their hospital licences were challenged on the basis of probity. Politicians, state regulators, accreditation bodies and even groups in the community were well informed about these matters. Both companies were thus under intense scrutiny. Breaches in care would have been disastrous. There was no room to pad profits by cutting care or by working the Medicare system as was done in the USA.
How care is compromised:- Sun Healthcare is accused by its US critics of deliberately and knowingly compromising care in its facilities in order to boost profits. I must stress that in my view in most instances the deficiencies in care and fraud were not deliberate decisions made in company board rooms, although they were a consequence of these decisions which were made for commercial reasons. Senior staff genuinely believed that the market was the best way of providing services. They readily accepted that their financial success was because they were providing better services. They ignored the evidence provided by their critics.
It was the market itself and not individuals that dictated that patients' care should be compromised. This happened in a myriad small steps as powerful pressures were generated to cut costs and increase profits. A plethora of justifications and rationalisations were developed to justify each step and maintain the illusion. Even those who recognised what was happening acquiesced on the basis that this was "the American way" or "that's the way the system works". A variety of methods of looking the other way or compartmentalising unpalatable insights were used. Individuals who failed to accommodate in some way had no future in the system. It selected for all the wrong people.
What happened is a reflection of the way in which the majority of normal individuals respond to the situations in which they find themselves when their wellbeing is at stake. Whistleblowers are the exception. All too often they are people who have fallen foul of the system in one way or another. They are discredited because they are seen to be biased by their own experiences and therefore no longer objective.
Darwinism:- As is well illustrated by Alpha, corporate success and survival in a consolidating market depends on growth. Those companies unable to grow go under. Groups that don't generate a revenue flow by exploiting the funding system or reducing care for patients cannot afford to grow and are acquired by those who do. With only one or two possible exceptions all of the most successful market listed hospital, aged care, managed care, and pathology groups in the USA have built their empires by either cutting care or exploiting funding arrangements - commonly both.
Care in Alpha's hospitals:- I have not seen any accounts of failures in care in Alpha hospitals. Looking at the material I have I detect a genuine commitment to care - even in management. They may even have believed that success in the marketplace could be based on providing good care and that increased investment in care would pay off.
The pressures created by Sun's US reputation served to focus staff on providing good care. They had no choice. They had no room for manoeuvre or to rationalise. Alpha claims that their commitment to quality was recognised by the Australian Private Hospitals Association 2000 Awards for Excellence. There is no reason to doubt this.
Was this Darwinism at work?:- Alpha's downfall was undoubtedly multifactorial and I do not want to suggest that their failure to indulge in fraud or exploit the vulnerability of their patients was the prime cause of their downfall. I am simply suggesting that this may have contributed to their problems.
Perhaps their fortunes would have been different if they had developed a system for milking Medicare in step down hospitals, or even been able to halve the number of nurses in their hospitals without alarming regulators.
In fairness they would not have realised that
this is how Sun and other health and aged care groups built their
empire's and that the success of the policies Alpha had inherited
from the USA depended on their doing so in Australia. Turner himself
never doubted that Sun Healthcare was providing superior care and he
aggressively attacked those who suggested otherwise. Other corporate
entrepreneurs have behaved similarly.
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Alpha Outline:- This is a detailed itemised account of Alpha's history starting in 1969 and ending in 2001.
CLICK HERE to go to this page.
Alpha References:- This page lists a large number of sources of information about Alpha. The headings and short extracts or summaries provide "word and paragraph bites" which give the flavour of the way in which the health care marketplace thinks and operates. These extracts are not complete and do not necessarily reflect the full thrust of the articles. The originals should be sought for accuracy and detail.
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The shareholders' case:- Smaller Alpha shareholders feel that they were unfairly treated in the deal with Ramsay. They are still pursuing the matter.
CLICK HERE for more details.
A Dissenting View of Health and Aged Care Corporatisation:- This page describes my personal efforts to confront and discredit government's plans to corporatise Australia's health system and to block Sun's expansion in Australia between May 1997 and June 2001. I had previously been active in forcing Tenet/NME out of Australia and in alerting Australians to the dangers inherent in Columbia/HCA's business practices. When Sun Healthcare entered Australia I lodged objections. I used material describing what was happening in the USA to contain Sun and to put pressure both on the company and on government. I do not know what influence these individual efforts had on events - if any. The page does however reveal some of what went on behind the events described in the other three pages.
CLICK HERE to go to this page.
Sun Healthcare:- There are several pages which describe SunHealthcare's US operations.
CLICK HERE to examine these pages.
Sun Healthcare's entry into Australia:- There are a few wordy pages dealing with the information available at the time when Sun entered Australia. They also describe what was revealed by documents subsequently released under freedom of information (FOI) legislation.
CLICK HERE to examine these pages.
Web Page
History
This page created September 2001 by
Michael
Wynne
minor adjustments September 2005
