DEFICIENCIES IN FIRB

Since 1993 I had been plugging away at the deficiencies in the regulations governing the Foreign Investment and Review Board (FIRB). These allow unsavoury health care corporations ready access to Australia. The FIRB granted access to Sun Healthcare in August 1997. When I obtained information under freedom of information I put these concerns into writing again. I copied my 1993 and 1995 letters about this and attached them.

Note:-
Subsequent to writing this review the US government abandoned its civil investigation of Sun Healthcare but Sun paid a US $8.4 million fraud settlement in Connecticut in February 1999. In December 1998 Victoria elected to perform a probity check on Sun Healthcare. Sun was found wanting but continued to operate in other states until Sun entered bankruptcy in Australia in 2000 and Alpha was taken over by Ramsay in 2001. Victoria is the only state in Australia which has the legal protection needed to take on multinationals.

 The entry of National Medical Enterprises (NME) into Australia in 1991 revealed a serious loophole in state and federal regulations governing health care. Generale de Sante Internationale (GSI) and Sun Healthcare have both used it.

1. Companies are not required to disclose matters which impact on their integrity to the FIRB when they apply to enter Australia even when they are facing serious investigations by foreign governments and policing authorities. There is no penalty for concealing relevant information. Criminal organisations facing serious problems in another country can shield themselves from local pressures by entering Australia and moving resources here. NME moved 25% of their operations out of the USA.

2. FIRB is an advisory body consisting primarily of businessmen and the confidentiality of its deliberations and advice is protected by stringent FOI restrictions. The decisions are made by the deputy treasurer who is free to disregard advice. Decisions which are not in the nations interests can therefore be made on the basis of political expediency without any accountability requirements.

3. The Securities and Exchange Commission has no power over foreign companies. They can take action only on the basis of criminal conduct by Australian companies. They cannot act on the basis of criminal conduct by the parent multinational company or by criminal conduct of office holders when in another country.

4. In the USA the criminal courts are primarily used for crimes of violence and there is a very long delay in bringing actions to court. Penalties for fraud are small and were described by one investigator as a pat on the wrist. In the corporate world there is no stigma attached and the fine was part of the cost of doing business. Health care groups accused of fraud or of the misuse of patients are therefore prosecuted through the civil courts by government agencies.

Most of these actions are settled for large sums out of court, with a premium often paid for a "no wrongdoing proven" tag. While this is a greater deterrent, the company then continues to deny the allegations. The absence of criminal convictions creates problems in enforcing the requirement that health care corporations in Australia should be "fit and proper persons" A civil settlement of the US governments fraud investigation of Sun Healthcare, however large the fine will create exactly this problem.

5. Hospitals are licensed by state health departments who each have different "fit and proper" requirements. In Queensland for instance only the holder of the licence need be a "fit and proper" person. A criminal record in a controlling company is not relevant. Those states and federal departments, like West Australia and the Department of Health and Family Services whose licence provisions include controlling organisations also have a major problem as the law does not adequately protect their decisions. Aggressive legalistic organisations will do all they can to protect their financial interests and will threaten a legal challenge.

In the case of international organisations the company could (and NME threatened this) more easily challenge the decision in the courts. The cash strapped state government would be forced to fund a multimillion dollar court action against a very wealthy and experienced adversary. International witnesses would have to agree to give evidence as they could not be forced to do so.

This is particularly difficult when the government of the day sees short term political mileage in the offerings of the international health care corporation. Not surprisingly no state health department has had the courage to challenge corporate threats and reject hospital licences for an international company on the grounds of its parent although Victoria called NME's bluff and gave some indication that it might do so in 1994. By this time there was extensive documentation showing misinformation by NME's Australian subsidiary so that they could be confident of winning.

The consequences:- The consequence of this is that the approval of the entry into Australia of a multinational Health Care company by FIRB virtually guarantees that hospital licences will be approved. Furthermore the government through the powers of the deputy treasurer can overrule FIRB so giving the government power over the states in regard to the provision of hospital licences. It can bring whomsoever it likes into Australia and there is little accountability.

The Government were aware of this loophole:- Unbeknown to me the health department in West Australia had identified these problems in March 1993 and had advised that steps be taken to address them. The problem became clear to me when I obtained information under FOI from NSW Health and from FIRB. I wrote to the treasurer, Mr Dawkins drawing his attention to this on 3 October 1993. In 1995 I learned of the advice given by WAHealth and noted that GSI had used the same loophole.

I now corresponded with members of the Senate Community Affairs Reference Committee pointing out these problems. I urged an integrated review of FIRB and state regulations. I believe some consideration was given to this. Members of the present government were on that committee. I am concerned that the government has used a loophole in the regulations which I pointed out to them. I believe that they have done so to bring a company into Australia in order to force changes to our health system. These have short term political advantages but long term potential consequences for citizens.

Being suspicious:- Was there a deal? One can only ask whether some deal had been brokered between the government and Sun? Did Sun see "silos of opportunity" in identifying "politicians pain" in the Australian situation? Did Sun follow the advice of international health care business advisers like Vista Healthcare to approach politicians directly and market corporate solutions to them? Did Sun offer to use their US experience in nursing homes and subacute care to solve the governments difficulty in introducing a corporatised, profit and competition driven system of health care into Australia? Did Sun offer to use their wealth to solve the problems of funding nursing homes and reducing costly hospital stays? The public statements about cost containment and plenty of "fat in the system" made by Sun's chairman in the USA would have been music to the minister's ears.

Was the pain of our government so great that they were prepared to sink to exploiting deficiencies in our system in order to gets Sun into the country - or had an agreement been negotiated some time before?

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Australia

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Alpha Healthcare
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This page created April 2000 by Michael Wynne
Modified Sept 2001