Prior to 1997, probity provisions in the aged care regulations required those licensed to own and operate nursing homes to be fit and proper persons - in essence to be the sort of "person" whom the community would trust to provide the particular service to vulnerable people and not exploit their vulnerability. In making the assessment, the degree of control as measured by ownership stake was critical. The sort of behavior that was expected by society was made clear.

The slider sections below, explain how probity requirements were abolished, the unfortunate consequences and how we can change it to make it work again.

What has happened

Probity provisions were seen to be an obstruction to the "legitimate" operation of the free market so it was abolished in 1997.

Instead an 'Approved Provider process' was set up. This was a behind-closed-doors process protected by commercial in confidence. The identity of applicants was not disclosed and there was little vetting, if any, of character. This sent a very different message about the sort of behavior expected of providers. I have written an in-depth detailed analysis of what happened in aged care and the consequences.  It will be on a web site I will be setting up in due course.  On that I explain the profoundly negative impact this had.

After a number of early scandals involving owners who also managed their facilities, those with criminal convictions were barred from holding management positions involved in care but, critically, not from ownership.

Owners hold the purse strings, appoint managers, and determine financial policy - a critical determinant of staffing and care.

Worse still, corporations that purchase nursing homes or provider groups that already hold approved provider status do not have to apply for it. They do not need approval so any criminal, unprincipled investor or blind-believer in a dysfunctional system of care can buy into nursing homes.

All this was concealed from the public and those who asked. It was not until attempts were made in 2006 to object to purchases by an unsavory corporate giant that the true situation was reluctantly revealed. The department was forced to explain in 2007 and then elaborate further in 2011.

It took 12 years of effort and correspondence with the department, starting in 1999, to acquire all the facts.

On the other web site I will look at the extensive information available. This shows that it is the ultimate owners, rather that the managers who operate the nursing homes, that have the largest impact on care. This is not surprising because, as the old probity regulations recognised, they hold the purse strings so control the policies adopted and the funds available to pay for staff and provide care.  They set the often optimistic profit targets, tell the share market what their targets are and are then under strong pressure to meet those targets.

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The Consequences

There is now overwhelming evidence that ownership is a critically important factor in determining the sort of care given in nursing homes. Residents, their families and local communities have no say in who owns the nursing homes. Residents can become profit bodies, impersonal vehicles for generating profit. Their care is traded on the market like any other commodity.

Residents and their families may have exerted their market right to carefully select a suitable provider who provided good care, only to then be sold off to a provider from hell, one intent on squeezing every last dollar to make a profit.

Nursing home residents are not in a mental or physical condition and few live long enough to be able to do much about this. Some retirees who have been sold off with their retirement village in the same way have spent the last 10 to 20 years of their lives in bitter and traumatic dispute with an owner very different to the one they started with.

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The Proposed Hub

No society can permit this sort of thing to happen to their frail elderly, but in Australia, very few realise that it is happening. The confidentiality surrounding the approved provider process must be abolished and each new owner and/or provider of a nursing home should apply and be vetted even if they already own or operate nursing homes in Australia.

The information should be made public. Residents, their families and the communities of all facilities or services being sold should be advised and submissions invited. Government departments are notorious for rubber stamping applications. Affected citizens are far more motivated to investigate. All  submissions and any material supplied should be publicly available. These are matters of serious public interest.

The Central committee should be represented on the approved provider process and they should be able to invite representatives from the localities affected if they so desire. Under no circumstances should a community be forced to accept an owner or provider to whom they are strongly opposed. Only those who communities feel they can trust should operate in the sector. That is how markets work to ensure that unsuitable people are put out of business. If nobody wants them then they don't have a business model that works.

Making the market work

If the community hub is to be an effective customer and make this market work then it is critically important that the hub structure play a central role in determining who will be permitted to care for the frail elderly in their community - perhaps even being the party that contracts with the provider.

Local communities must be able to evaluate objective evidence of performance elsewhere. In order to assess the suitability of an applicant they should know what others have found and be able to discuss their experience of the applicant with community groups around Australia, and in other countries. This will force potential providers to consult with, establish a relationship with, and make arrangements directly with local communities before applying for approval. Takeovers of existing companies would be closely examined by the central hub organisation, which would consult with the regions affected.

Local communities cannot do without aged care services, and providers cannot make money without a viable service. These are the pressures that operate in all effective markets. They ensure that there is a balance between the need for the service provided, the sort of service provided and the cost.

Having a crucial role in deciding who will provide care to your community would be the most important change in creating an effective customer. It would be a powerful driver for improving standards across Australia.

 Companies that failed to staff adequately, or provided substandard care would soon be out of business. A company's success would depend, as much on its demonstrated values and the care it provides, as on its bottom line.

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The section below, explores the ownership issue further and gives examples showing where it can go wrong.

Approved provider not the same as the "Owner"

It is essential that in a reformed Approval Process, the government body approving providers be advised of the full paper trail of ownership. The company responsible for care should be specified and its financial reserves guaranteed. The government department should also be advised of any changes to this so that a clear and publicly accessible record of responsibility exists.

Because of the lack of information about owners and the inadequacy of information about nursing homes, very few customers, or their families, are in a position to know what they are signing up for. No publicly available reports by the regulators reveal any information regarding the ownership or categorisation (eg. charitable, religious, not-for-profit, for-profit, private for-profit, market listed for-profit, private equity etc.) of the nursing home.

As I will illustrate on the companion web site, attempts at acquiring even the most basic information about nursing homes are actively discouraged and blocked. Governments almost instinctively hide information and ours is worse than most. Both the UK and the USA give far more information to prospective residents and their families. This is a particular problem when searching for information about companies that have had problems in their facilities as they often change their names in the hope that customers will not know it is the same group.

The "poster example" that I will give to illustrate a failed market on my own web site was a US health care company called "National Medical Enterprises" that entered Australia in 1991. After a massive scandal in the USA it changed its name to "Tenet Healthcare". The word "tenet", it claimed, signified its new values and trustworthiness. It did not change its practices and ten years later the renamed company was involved in an even more confronting scandal.

Australian Aged Care examples:

Cambridge Aged Care: No one would have known who Cambridge Aged Care was because the approved provider/s were a group of trust companies “Manormay approved providers”. But there was a paper trail and the owner was Cambridge Aged Care. Its majority shareholder was a Mr Snowden who had a documented criminal history. He appointed two of his fellow directors to be "Key Personnel" of the trusts holding the licenses. It seems likely that money was funnelled away from care.

In 2013 two of its five nursing homes failed so many of the accreditation standards, and the care was so bad, that both were closed down by the government. Large bonds had been paid by about half the residents, and these should have been invested securely. But when residents and their families from the closed homes went looking for their money it had gone and the company was bankrupt. Worse still, government had known almost 2 years earlier that the company was not financially stable and had not warned residents and potential residents.

But this was not the first time groups with criminal owners have been a problem. It was an outcry about the activities of criminal owner-operators a few years ago that forced the government to legislate that those with a past criminal conviction were not eligible to be "key personnel".

At the root of the infamous Riverside scandal in 2000 was a dispute between the directors and the majority owner, who, after many years of problems had, even in that early period, been barred from being a director and being involved in managing the nursing home. There will be more about owners on the other web site.

Opal Aged Care: The Accreditation Agency site audit report made on 10th March 2014 for Quakers Hill Nursing Home states that the "Approved provider" is DPG Services Pty Ltd. DPG stands for Domain Principal Group so DPG Services Pty Ltd. is the subsidiary that holds the approval status. It is part of Domain Principal Group (DPG) who were largely owned by AMP Life, whose funds were managed by AMP Capital. This changed in 2013 when Asian tycoon, Goh Geok Khim's Singapore-listed G. K. Goh Holdings Limited bought half the company.

Currently, Goh Holdings and AMP Life each own 47.62% and the rest is owned by managers. In 2010 there was adverse publicity about care in nursing homes operated by Domain Principal Group. The Quakers Hill Nursing Home (referred to above) was the home, where in 2011 eleven frail residents died after a fire. It was lit by a disturbed and angry nurse. The nurse's disturbing track record and references had not been checked. Other staff had complained to their superiors about his behaviour and use of drugs but they were ignored. There were no automatic sprinklers. Nurses struggled to evacuate bedbound patients down an inadequate narrow ramp.

Later, on 4th June 2014, the company was renamed Opal Aged Care. Opal is a gemstone which has a nice friendly sound to it. To find all this information the prospective elderly resident and family might have to find all of the material listed below under references, as well as remember the fire and search for it. A web search under Opal would not have brought up the information about the fire.  While all this was 4 years ago and Opal may well now provide excellent care prospective residents should have access to a company's track record and then satisfy themselves that things have indeed changed; and that a relapse is unlikely.  The proposed hub would have all this information and be able to advise.

Private Equity groups owning or operating nursing homes are prone to have complex structures of holding companies so that the money is held by entities well removed from the actual operator. When individuals or groups in the USA have attempted to take action for damages suffered, they have had difficulty in finding out which of the multiple companies involved is actually liable. They have sometimes discovered that the liable company does not have any money and declares bankruptcy, and the others holding the money are not legally liable. There is no possibility of redress.

While it has not happened yet, Australia might be particularly at risk because of our system of refundable bonds.

Some residents and their families have already had trouble with dodgy providers. It has taken years to recover their money, by which time most nursing home residents are long dead.

References: (Links on this page checked on 24 September, 2014)

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We would love to hear your thoughts on the direction aged care should take in order to make life worth living and working in Australian nursing homes: Join our conversation  Author: Dr. Michael Wynne, Copyright 2015