The following letter was sent out to various organisations and government members, by Dr J Michael Wynne in June 2008, in an effort to have the concerns regarding probity in aged care addressed.  To date (2018), the problem remains.

Dear member of parliament,

Most members will be concerned for the welfare of the aged in their electorates. I do not know if you have a specific interest in aged care but if not interested please discard this and accept my apology for the intrusion. Alternately forward it to those with an interest or responsibility.

Please note that in hospitals doctors control referrals and admissions and so are in a position to exert strong economic leverage and use this to maintain standards. This does not happen in nursing homes where health professionals exert much less influence because they have little economic leverage. You might feel it appropriate to encourage your members to lobby their local member about this issue.

Problems in Aged Care Regulations

I am writing to politicians again about a serious anomaly in federal aged care regulations and ask that we should once again press for changes through the political system and party channels.

Some may remember my correspondence in April 2007. As a result of your efforts the previous federal coalition government promised in June 2007 to address the issues but lost government before doing so. After 6 months of inquiry and correspondence it has become clear that the present labor government is reluctant to do so. I am therefore writing to ask members to once again press the issues through political channels.


Since 1997 any criminal or otherwise unsuitable organization has been able to gain control of nursing homes and for practical purposes buy "approved provider status" without being required to undergo any sort of assessment. This was exposed when an objection was lodged to the purchase of DCA nursing homes by a private equity arm of Citigroup.

The objection was based on Citigroup's poor track record in exploiting those to whom it owed a duty of care. It transpired that Citigroup's subsidiary had not been required to seek approved provider status. Approval status came with the purchase. It was an add on value, traded in the marketplace - particularly valuable to a company like this.

An 18 month thorough probity review of Citigroup's private equity group had previously been performed in NSW. Licenses for operating in the much less vulnerable hospital sector were eventually granted to this same Citigroup subsidiary but with conditions giving greater protection - and only when the company was already selling the hospitals.

It became clear that the majority of the wealthy financiers, banks and private equity groups that now own large numbers of nursing homes would have purchased their approved provider status when they bought into the sector. Few would have had their own suitability assessed.

I drew this matter to the attention of politicians and aged care associated groups in Australia in April 2007. Some took this matter up. In June 2007 both the federal ministers responsible agreed in writing to address the problem in proposed legislation, although it was not clear what form this would take. This was not done before the election.

The issues are explored and copies of correspondence have been placed on this page.

The Labor government's response

I was unable to get a response from the labor shadow minister for ageing prior to the election but have corresponded with the newly appointed labor minister for Ageing, the Hon Justine Elliot, and her department since the election. There has been a reluctance to release information or give any undertakings.

When forced by questions on notice and by FOI requests they have responded by simply restating the current regulatory position. It is clear that the labor party has either put aged care on the back burner, or the minister and her advisers do not understand the significance, or lack the courage to deal with the response of the corporate marketplace. Any useful changes are likely to be ideologically unpalatable to the market.

These developments are explored in greater depth and the correspondence is available on this page

The Issue

Extracts in letter from Ms Allison Rosevear, Assistant Secretary, Residential Program Management Branch, Dept. Health and Ageing (April 17, 2008) on behalf of the Minister for Ageing:

As I have advised previously, the Aged Care Act 1997 (the Act) does not regulate the ownership of approved providers; it focuses on assessing the Approved Provider entity and the individuals that may exercise executive or managerial control of the Approved Provider. If there is a change of ownership of an Approved Provider which results in a change of the directors or senior management then the Approved Provider is required to notify the Department of the changes and the Department may review the Approved Provider's suitability in light of the notified changes

The Australian Government is committed to quality care for frail older people and monitors this in the aged care sector through the accreditation system. The Department of Health and Ageing is responsible for monitoring and recording approved service providers' compliance with their obligations under the Act and the Aged Care Principles.

All residential aged care services - - - - - must go through the accreditation process at least every three years.

The issue as explained by the present minister (above) arises from a contrived, artificial and invalid separation of owner from provider in the regulations. This invalid construct sees the two as quite separate, whereas some are owners as well as providers.

Owners are clearly intimately concerned with the profitability of the businesses they own and clearly consider that they have every right to participate in the management of these businesses, particularly when they are not generating profits. In contrast the owner is not seen by the present minister to influence the provider, or to participate in any way in decisions that might impact on care. This is unrealistic. This is about care and ultimately almost all financial decisions impact on care.

Furthermore it is inconsistent. BUPA operates nursing homes in the UK and multiple other countries so is a provider, yet when it purchased DCA from Citigroup it was an owner and so did not have to seek approved provider status. DCA's subsidiary Amity presumably holds the approved provider status. Is it reasonable to expect BUPA not to apply its international experience to its new purchases?

Approved provider regulations are directed only to the criminal records of subsidiary providers, their directors and key managers. Owners are free to replace those who will not do what they require with those who will, provided they have not yet been convicted of any crime. An unsuitable individual or company simply needs to restructure the paper trail to run the business.

It is fanciful to suggest that an owner whose interest in its purchase is commercial would not take an interest in this purchase or participate in business decisions that might impact on its profitability and so on care. Equally ridiculous is the suggestion that it would not insist on appointing like minded senior staff. The stake held by each owner reflects its degree of control. As impossible is the ability to detect and police interference by an unsuitable owner in the running of nursing homes. The track record for this in Australia is already poor.

All this is well illustrated by Citigroup's private equity buyout of DCA. Private equity owners typically purchase less profitable companies and restructure them to make them more profitable and so more valuable. Citigroup's subsidiary did this when it purchased DCA. It sold within 2 years at a huge profit. It could not have done so without actively participating in management and in cost cutting. It clearly had every intention of doing so. By far the largest nursing home cost (probably in the region of 50%) is nursing (numbers and skills). Failures in care and staffing ratios are intimately related.

The nature of the owner therefore becomes critical, probably more critical than the provider. It is the controlling entity, and as such is in a powerful position to influence outcomes for residents. Under the probity requirements abandoned in 1997 it would have been a prime regulatory concern.

While nursing staff are barred if they have criminal records, the suitability and criminality of owners is regarded as irrelevant. Nurse aids receive more scrutiny so we must assume that they are seen as a greater threat.

By any standards the approval process is a political farce - a waste of providers time and tax payers money. It reflects the coalition party's bondage to the industry before the 1996 election and may be one of the parts that nursing home mogul Doug Moran claims he wrote for the new government of the time. If it is not to be made effective then government should stop deceiving the public and trash it.

The importance of the owners is well illustrated and the issue is made more acute by the revelations, in 2007, in the USA, that the acquisition of nursing homes by private equity has been associated with a decrease in staffing and a deterioration in care. Regulators in the USA are now paying far more attention to ownership.

There are hearsay accounts suggesting that similar problems in staffing and care following private equity acquisition are happening in Australia. There is insufficient publicly available information available for a similar objective assessment.

Control of the quality of care provided has come to depend on the three yearly accreditation visit by an agency based in far off Sydney. This is supplemented by the occasional unannounced (but not always unexpected) visit. There is also a complaints mechanism dependent on nurse whistle blowers and on formal complaints lodged by inexperienced relatives.

Nurses fear victimisation and distrust the legislative protection offered. Relatives fear that their loved ones will be targeted if they complain. Their complaints are all too often rejected because the lone voice of the family member is contradicted by staff. This leaves them frustrated and disillusioned. Most failures in care are likely to remain undetected.

The oversight and accreditation required to make even these measures work, and the paperwork on which it depends, increase the costs of care. They become so onerous that resources are diverted to them and these are at the expense of care in even the best homes. They become counterproductive. Nurses and providers complain bitterly about the burden and the impact this distraction has on care.

A system that is:

  • so inviting for aggressive profiteers,
  • one where cost cutting is so closely linked to poor care and
  • one that depends on such onerous, delayed and inadequate after the event controls,
  • is one that has been set up to function poorly.

It creates a "what we can get away with" approach, across the board mediocrity and penalises excellence. We can hardly expect it to work well.

A first step in addressing these problems would be to closely scrutinise the owners, those actually holding the purse strings. They ultimately control the money and so the supply of human and other resources on which care depends.

Dr J M Wynne MB.ChB.,FRCS.,FRACS.,Grad Cert Ed