Market processes in simple terms

To be a competitor you need a growing income

Getting money: The money for this marketplace activity comes from loans from the banks, from private equity groups (big investors with lots of money), and from investors in the stock market who are offered bundles of shares, on which the company pays a percentage return. The value of shares depends on actual returns, promised returns or on growth or promised growth.

Loans: To get money from the bank you need to build up some capital of your own and you also need a big enough income stream to be able to pay the interest and reduce the loan. The stronger your regular income is, the more you can borrow. Interest on loans varies from time to time and a company needs to plan its strategies so that it borrows when lenders are lending at a good interest.

Ambitious not-for-profit groups, anxious to be big players in this sector and compete, need to display the same business skills if they are to build the capital and have the income stream needed to get loans. If they don't compete, they will become irrelevant.

Listing on the stock market: To list on the stock market you need to convince investors that you are safe so you need some capital, and you also need to persuade them that they are going to make plenty of money from what you do. You need to have a strong income stream, a track record for maintaining it, and be able to show that it will grow. Once listed you can raise more money by 'floating' more shares and showing that you will use that money to generate even more income for your shareholders.

It seems there are many more interested in listing but they probably don't have enough capital or a big enough income stream to attract investors. They may need to generate more profit from the services provided.

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Market analysts

Market analysts play an important role in ramping up pressures on the companies. Based on the, sometimes optimistic, information the companies provide, analysts give projections for earnings and/or growth.

Analysts' analyses and projections influence the large institutional, as well as other buyers and lenders and so drive the share price and the enthusiasm. These projections become a target that the company must meet if they are to continue to get positive reviews. If the reviews are negative, the company will make every effort to generate more profit from what they do to reverse that.

Positive reviews by analysts, like those below, praising a company’s success in meeting financial targets bring in the Mum and Dad investors as well as the managed funds. When its "compelling" that means almost irresistable. Mum and Dad's might borrow against their houses to buy shares.  Share prices rise. The company's value is greater.  It can borrow more money, sell more shares and grow more rapidly. That is what the competitive game is about.

Motivated analysts and particularly banks drive the market and they are a long way from the bedside in the nursing homes.  They have no idea what is happening there. The analysts by their expectations set the amount of profit that needs to be taken from the business, and only what is left is used to pay for care.

What is important for analysts

So how do analysts assess aged care businesses.  What do they look for.  Notice in the quotes below that the only interest the analyst has in the residents is the capacity to squeeze more of them into the same nursing home so that they get more money for that investment and the potential to sell them more extra services and get more money out of them.  Who assesses whether crowding in more residents impacts on the lives of others and if the extra services are of any value to the residents as contrasted with their profitability?  Well no one that I know of.  All the government wants is for there to be more choices.

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Investors: The bulldozers that build the market

It is no longer the mum and dad investors that the companies listed on the sharemarket depend on - the people with consciences who might feel guilty at the way the company they invest in behaves. It is the big managed funds such as institutional managed or pension funds. They invest others money and these investors seldom know where the money is invested and where the dividends they are paid come from. These companies have millions to invest in other companies and their decisions can be life or death for those companies. They listen to the analysts but also do their own analysis.

Managed funds: The managed funds themselves are only interested in the returns they will get on their investment.  Their employees' bonuses are linked to the profits they make for those customers who trust them to get the highest possible yield. It is their interest that ultimately drives the market.  This is why values, norms and the public good struggle and why the market has become so impersonal and ruthless. Their employees don’t know what happens at the coalface and their only interest is in the sort of profitability that will give the company the maximum return on its investment and contribute to the size of their bonusses. 

I previously quoted JohnRalston Saul's criticism of the corporatist's "desire to buy and sell as effectively as possible eliminating other considerations”?  Have the staff and residents become "other considerations' that have to be eliminated to serve the interest of this market?  What is the impact of this on the staff and residents in the facilities?

The bulldozers: Aged care providers that don’t perform economically and meet their expectations are doomed. If other sectors are more profitable then the aged care companies have to find some way to match that if they want to survive. Those that do, by whatever means they can find, will prosper.  If not the dozer will push them onto the scrap heap without noticing the staff and the residents that are part of the now worthless package.  A more profitable company that can squeeze more profit by selling biscuits that make us fat or cure all potions that don't work will replace it.

AXXX for example is a listed investment company. People invest in them and rely on their expertise to make money for them.  Aged care is only one of its investments. It invests in FPCompanyH, which has to make at least as much profit as the others that AXXX invests in if it does not want to be dumped.  There is nothing wrong with AXXX.  I am simply using its existance as an example.

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The market game

One of the great mistakes that angry critics make is to think that this is greed. Businessmen are highly motivated and dedicated. They are arrogantly sure that they are delivering on care. Success and status is seen as confirmation of this. Neither greed nor empathy are what drives most of them. Market-speak frequently refers to participants as 'players' in the 'game'. It's the excitement and the satisfaction of winning - of being successful when others are failing.

The more you read what they say, the clearer this becomes. One of the FPCompanyG founders said that "we get more out of the doing side. Were both creators." Even Christopher Pyne, when minister for Aged Care, talked about 'players' in the sector.

Its a complex and exciting game full of risks and opportunities, creating strategies, planning and harbouring your resources. Its the excitement of the game that many find so exhilarating - success - watch your children at it. They are preparing for this life.

The question that worries me, is whether our frail elderly citizens, at the end of their lives, should unwittingly become part of this game, with all its risks and pressures.

Impression management: In the period leading up to an Initial Public Offering (IPO) it is critically important in inducing investors to buy your shares, that you create a good impression.

Not only do you want to impress the investors with glossy photos and illustrations, but you also need to persuade yourself that you are not selling them a pup. The players are not deliberate fraudsters. They need to believe themselves.

Many critics, including an academic doing research, have complained that providers focus on impressive-looking facilities at the expense of care for those who actually need it. It's what everyone will see. A letter from the daughter of a resident in a FPCompanyG home published in The Age said it again. It states it so well that I am taking the liberty of reproducing it here in full, but am omitting the name.

These are the people who actually see what is happening, but they are never heard:

One wonders what was happened in this nursing home since the float. Has it improved - and are those huge profits going to improve care.  On 20th February 2015 "newly listed FPCompanyG" is reported in The Age to be on track for its IPO targets "more than half way to meeting its full-year net profit targets" of $29.6 million.

It attributes this to more money from government because it has "a larger number of residents needing high or acute care". It also "reduced its staff costs as a percentage of revenue to 60.5 per cent, from 63.5 per cent in the prior half - - - ."

Its like reading "Alice Through The Looking Glass". In this new "logical world" everything is the other way around to what we are used to - but do the residents see it that way too?

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Profitability

In late 2014, Crikey obtained a copy of an internal annual survey of nursing home profitability carried out by Bentleys Chartered Accountants. They wrote an article about it. This illuminates and explains what is happening, and why people see the system failing them.

Nursing homes increased their profitability by 159% in the previous year by cutting down on hours of care and other costs per resident. This, as I have explained, is the only way that these groups can generate the income stream to compete successfully in the market game. If they fail to do so, they become losers.

In the same article, a comment by Charmaine Crowe, Senior Policy Adviser for the Combined Pensioners and Superannuants Association, summed it up:

Staffing levels: That Crikey report is the first report we have had that actually gives staffing ratios and these come from the industry itself.  As I read the figures, they tell us that in 2014 residents were getting on average 5.2 hours of registered nurse care and per fortnight and 16.8 hours of PCA care.  That adds up to 22 hours of nursing care which works out at 1.6 hours per resident per day. 

If that is all the care the residents are getting, then we can compare it with a recommended figure of 4.5 hours of nursing care per day advised in the USA.  Below 4.1 hours there is a risk of failures in care. Below 2.9 hours per day most residents needlessly suffer harm. In the USA, the average figure is about 3.5 hours per day.  But the article does not mention enrolled nurses so that is probably a bit lower than it really is -- so we are still in the dark

The Crikey article says this is 13% (nurses) and 39% (PCAs) of total care staff hours.  So what do they do for the rest of their time? Is the rest of the time spent on non-care activities?  But we can't be sure because we don't have the original documents and can't be sure exactly what is being reported. Are staff being diverted from care to do more administrative work because this would cost more?

The 2015 Bentleys report

A year later another Bentley report was obtained by the Sydney Morning Herald.  Fairfax journalist Tom Allard obtained a copy of the 2015 Bentleys report. Because it is confidential, we only know what he tells us. This includes an additional 40% rise in profits with a 7% drop in the time spent on care.

It seems that Crikey did not report all of the time spent nursing (eg. enrolled nurses) in their review of the 2014 Bentley report.  The 2015 report gives the total time spent by care staff during 2014 as 42.71 hours per fortnight (3 hours per day).  This fell to 39.8 hours (2.8 hours per day) in the 2015 report. This is still below the 2.9 hours below which US reports indicate most residents needlessly suffer harm.

Allard also described the allegations of rorting that were being made. A Bentley spokesperson responding to the concerns expressed felt that the reforms were working well claiming "They can do more with less. This is absolutely efficiency.”

It is a pity we can’t see and assess these reports ourselves and have to be content with crumbs and sometimes misleading conclusions.

A very different view: Those businesses that worked with the industry were quick to respond. Provider Assist explained why the claims of profiteering were being made and why they were wrong. They acknowledged the value of the Bentley report and the accuracy of its figures. They justified the additional profitability. on the basis that residents were being expected to pay accommodation costs themselves. They blame the decreasing time on care on the difficulties in recruiting staff. They deny the rorting.

On the same day a senior partner from Stewart Brown who claim they are "the market leaders in benchmarking the financial performance of the aged & community care sector" wrote a similar article in Australian Ageing Agenda which stimulated some comment mostly supportive of the criticisms.

• Beyond the headlines: a closer look at the sector’s finances Australian Ageing Agenda 13 Jan 2016

The Bentleys National Report 365 collecting data for the year ending 30 June 2015 was released on 1st October 2015.  On 15 December, 2.5 months later, Stewart Brown released a public report with a much larger numbers of responders. It examined the previous 6 months data. It came up with very different figures from the 6 months subsequent to the Bentley report and rebutted it.

How do we cope with this uncertainty: Bentleys has been making these reports for 20 years and should be very experienced at it. It is a National partner of ACSA, the body representing not-for-profit providers.  Presumably it tries to get a representative sample. Stewart Brown is the industry leader in aged care benchmarking.  Why would the two get such very different samples and come up with such contradictory results.

The issue I see here is that like so much in aged care, the information that we get publicly wherever it comes from is generally supportive of what the industry claims and it is released by the industry. But when we get access to information that is confidential or that we are not supposed to see then a very different picture emerges. What should we think?

Are the critics correct?:  That strong critic of our corporatist society, John Ralston Saul, suggested in 2001 that we are "obsessively trying to regulate society through trade" (On Equilibrium p58).  He and others argued that increassingly our society was being driven by "interest" as contrasted with the "disinterest" that is needed to act responsibly for the good of society. That other critic Robert Kuttner observed around the same time that we no longer recognise and develop our "social selves".  Saul quotes Adam Smith "The wise and virtuous man is at all times willing that his private interest should be sacrificed to the public interest - - - (p66)". 

Have we reached a stage where our society is so entirely interest driven that even the content of the data and the logic we use are molded by the particular interests of those involved. Is this why there is such an enormous difference in the way aged care is understood by government and providers on the one hand and by staff and residents on the other.  Is it true that we no longer have "wise and virtuous men" to turn to?

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The pressure cooker

The drive to persuade investors and list on the market is a high-pressure enterprise and managers must be very focused. They can't allow themselves to be distracted by side issues.

FPCompanyH has informed the market that it made a $5 million payroll error in the months before it floated. They claim that "The review has shown that in some instances loading on overtime was not identified and paid to some employees". The inference is that this was a genuine mistake and may not have been deliberate. It may even have been genuinely unexpected.

Another recent article on 8 May 2015 reports that $4.8 million was underpaid to a company Aged Care Services Australia Group's (ACSAG) workers during the previous 6 years and that Fair Work Ombudsman believed the underpayments were not deliberate. 

Ironically, a search for ACSAG comes up with a link urging readers to “Benefit from the latest and most advanced developments in aged care with Aged Care Services Australia Group. Visit us to find out more”.  The impressive web page itself no longer says that.  It also reveals that ACSAG is a subsidiary of FPCompanyH with a link to an even more impressive FPCompanyH website directed at the elderly market.  It is not clear to me whether this $4.8 million is part of the $5 million payroll error described earlier or an additional disclosure of further underpayments to workers.

I am willing to accept that this was not deliberate but in my experience, management's attention in these high pressure situations is usually much too focused elsewhere to listen to unwelcome news that would derail their plans. They choose not to hear. Situations like this need to be tightly scrutinised and penalties imposed to help others focus on what they are doing and disclose fully when informing investors. Hopefully ASIC will investigate this as it is unacceptable.

Too often employees in the business who try to draw management's attention to something like this are ignored. While the exact sum may have been unclear to them, it is difficult for an outsider to accept that no one working in the payroll section realised that anything was wrong, when there was as much as $5 million missing.

Asking us to believe that employees who are not paid $5 million of overtime don't make enquiries and complain to their nursing home managers stretches our credibility. We can only draw our own conclusions. Surely, someone realised something was amiss and spoke to their superiors or even to management.

Too often this is how we humans behave in response to high stress situations. We cannot deal with so many issues at once. Unwelcome news whether its financial, or information showing that care is deteriorating because of staff shortages and alienation, is far too often put on the back burner and stays there until changing circumstances force it into the open. The circumstance here is likely to be action by the employees or their union. They would have suffered because they have not been paid large sums they are owed.

But the market’s memory is short and as soon as it is clear that whatever was done has actually increased profits - or at least not affected them then all is forgiven.  Regardless of its reason for collapsing, a company whose share price has collapsed and is now recovering offers a bigger opportunity for profit than one that is steady.  Its picking these opportunities that adds to the excitement of the market game for investors.  Company's who make big proifits by exploiting the vulnerable suffer temporary setbacks but are soon rewarded again.

The Daily Reckoning on 14 Sep 2015 has an impressive graph showing the steady growth of FPCompanyH’s share price. It indicates “If the stock should run further and make a significant break over the May high of $2.89, then it is strongly suggesting positive news is coming.”

Overselling themselves: The pressures  to oversell their offerings are very strong and tempting for those planning an IPO. They may be tempted to overstep the limits. Some claim that PECompanyO did just that in order to capitalise on the enthusiasm of investors following the successful floats of FPCompanyG and FPCompanyH.

Gullible investors may lose money, but ultimately, it is the residents who will feel the pressures when things come unstuck financially and there is a scramble to extract more profit from their care.

So, private equity group PECompanyO has walked off with its big profits leaving FPCompanyI's management under strong pressure from the market to increase its profits by February. Where will that profit come from, and what will the consequences be for the care of residents in these nursing homes?

FPCompanyI’s determination to rise to the occasion and its strong commitment to growth and expansion is illustrated by their paying big money to poach an expert in acquisitions from a world bank:

It seems there were plenty of perks to encourage him.  He was able to buy two properties from FPCompanyI for over one third less than the just over $600,000 it had paid for them only three months earlier.  If we look at what was happening to the company and the revelations about its operations in 2016 when this information was disclosed we can question whether the high flying businessmen that this largesse attracts are the sort of people that are suited to aged care. What do they actually know about caring?

• FPCompanyI's Sxxxxx Bxxxxx: the apartment whisperer of Southport Australian Financial Review 8 September 2016

FPCompanyI has also recruited the recently retired manager of Ramsay Healthcare the most successful hospital provider in Australia, Pxxx Gxxx to be its chairman. He is very upbeat about the prospects for big companies in aged care.

In the full article Gxxx attributes these improved prospects on the considerable amount of money that the Abbott government made available to aged care and its requirement that the residents pay far more for their care and if need be sell their homes to do so.

Critics ask how much of that increased funding has gone to care and how much has simply made it more profitable for the big companies. As there is no accountability no one knows where the money goes. What is clear from the Crikey reoport and from some company’s own reports is that it has not gone to staffing.

Numerous studies show that the quality and number of nursing staff is the most important determinant of care in nursing homes. International studies show that larger companies and the larger facilities they build generally have fewer nurses and poorer care. But Gxx claims that like Ramsay these market changes will result in better care.

Ramsay Healthcare's influence: The Australian newspaper’s praise of Pxxx Gxxx’s marketplace skills need to be taken with a pinch of salt. It was his mentor and predecessor Paul Ramsey, who had the insight not to push cost cutting too far, that brought Ramsay its success. Ramsay was a ruthless businessman but he had insight. At the time of the psychiatric scandals in the USA, Ramsay was operating in this sector in the USA. It was the only for-profit operator that, as far as I know, escaped the 1991 to 1994 psychiatric scandals and did not exploit the vulnerable.  It sold out quickly when the scandal broke and the sector collapsed.

In Australia Ramsay Healthcare was a more modest player building its empire by owning hospitals in Niche markets where there was little competition and it could charge more. Ramsay also recognised that the real customers for private hospitals were the doctors, particularly the surgeons.

When Australia biggest hospital operator Mayne Health was put out of business by the doctors Ramsay was waiting. It soon bought almost all of Mayne’s hospitals. That is why Ramsay is now in such a dominant position and has done so well. It is still constrained in how much cost cutting it can do because there are still plenty of not-for-profit operators that doctors can take their patients to.  Ramsay Healthcare's story is described here.  Ramsay did buy some aged care facilities earlier but the sector was not profitable at that time and it sold the business.  The Abbott government's largesse with taxpayers' money and with the life savings of senior Australians has changed all that.  Will it desert the sector and walk away again, if and when, it becomes less profitable?

If Pxxx Gxxx has learned enough from his mentor, Paul Ramsay, then he may be better at responding to new situations. He might move quickly to work with the proposed community aged care hub and use that to outsmart his corporate competitors. But that may only happen when he realises that this can't be stopped.

FPCompanyI growing rapidly: FPCompanyI has pushed up its profitability and has embarked on a buying spree. With so much effort directed to meeting its income targets and growth, one wonders just how much of their focus is on care and how much money is being spent on the resident’s needs.

Combined Pensioners and Superannuants (CPSA) is critical of the way FPCompanyI has developed a “productivity index” which measures its efficiency in squeezing more profit from the money provided to it by government to care for residents. CPSA is not accusing the company of fraud but it questions the way it gets its figures and where it gets its profits.

• FPCompanyI’s dodgy index CPSA web site 23 Oct 2015

CPSA looked at the figures that are available in its reports and listed FPCompanyI’s figures. It also claimed to have looked at two other market listed companies. If found that there were large sums in the “leftover” basket and wondered how much had gone into the bottom line rather than services to residents. While they do not say it in so many words they are clearly concerned that money that should be going to care is going to profits.

FPCompany NewnameC Aged Care (previously FPCompanyA) is also on the march intent on catching up with its rivals and putting pressure on them.

A new nursing system: FPCompany NewnameC has apparently introduced a new nursing roster system which it claims is to benefit residents. In this it may be following other companies who have been able to reduce staff costs by restructuring nursing services.

On 2nd July Nine News published a statement about a FPCompany Newname C nursing home from an anonymous whistle blower

FPCompany NewnameCs response to the accusation can be found here

• Aged Careless A Current Affair, Channel 9,  2 Jul 2015

Consequences of the 'game': My argument is that if we have no choice but to be part of this game, then, if the ultimate object of the game is to provide good care and quality of life, the rules of the game should ensure that that objective is met.

I think it is very clear that the rules of the game often do the very opposite. Not-for-profits are now trapped into playing this same game, but as they play this distracting game many still have their eyes slightly more focussed on the intended objective.

This may explain why a recent study shows that for-profit operators are sanctioned for poor care in Australia more than twice as often as not-for-profit operators. If the game was to provide good care, then not-for-profits should be flourishing and winning - but many of them are struggling and being eaten up by for-profit competitors.

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TISA global agreement: Adding fuel to the Pressure Cooker

If you agree that the pressure cooker is already causing major problems then consider what is likely to happen as aged care services are included in international free trade agreements. The negotiations are all about maximising trade opportunities so that Australian companies can get wealthier and bring more money into Australia - a laudable objective. It is also a high pressure game and it is economists and businessmen who are at the table. Civil society is not there and its all done in secret.

A core philosophical position for free market negotiations is the liberalisation (removal) of local regulations that restrict the operation of this free market. One of those regulations was the probity requirements for the owners and providers of aged care. These clearly set out the requirements for this vulnerable sector. Owners and providers had to be fit and proper persons - i.e. they could be trusted to put the interests of vulnerable seniors ahead of their own.

The repeal of the probity regulations by the Howard government in 1997 radically altered the expectations for prospective owners and providers. Aged care became a free market and, no matter how tarnished an owners reputation, there is now a way for that company and its owners to enter our aged care marketplace. The aged care sector now operates under exactly the same rules as any other market. One of the major reasons why aged care is broken today is because of what happened in 1997. 

In spite of many protestations, the likely consequences of these changes for the welfare of seniors were ignored, have not been confronted since, and are not a consideration in current negotiations.  Our welfare as we get old has been sacrificed at the alter of economic prosperity through free markets.

The China-Australia Free Trade Agreement (ChAFTA): One wonders at how much else protecting the vulnerable was traded away in the recent trade agreement with China. The whole article below is worth reading. It explains how Andrew Robb sweet-talked the Chinese into agreeing. In this article the manner in which the whole agreement was negotiated and how aged care was included is revealed. Its all about commercial opportunities. One wonders at the morality of selling our broken aged care system to the Chinese?

Trade in Services Agreement (TiSA): But there is more to come.   Consider what might happen after the much broader Trade in Services Agreement (TiSA) is finalised.  Services means health and aged care as well as things like financial advice.  Australia is one of the countries most enthusiastically driving the negotiations and it is keeping it all confidential so we will not know what is done in our name until after they have signed it and we are trapped.  The information we do have comes from leaked documents published on Wikileaks. The information being leaked is worrying.

The days when we could take action to protect ourselves from multinationals like Tenet/NME, Columbia/HCA and Sun Healthcare and see them off will be gone if what Australia is pushing other countries to do is accepted. There will be an international court higher than our own with little transparency and no appeal process -  a court run by industry that will make the decisions for us.  So if we  thought we would not be like the USA and have the same sort of health and aged care system then we need to think again.  We have already had large multinationals and private equity in health and aged care.  Care franchise Home Care Assistance, a profitable US company with a  strong focus on profit is already looking for franchisees to provide Consumer Directed Care in Australia.

The Undercurrent on the Guardian website has a video explaining some of the problems with this agreement.

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Adding two and two makes twenty two

Is it possible that there is a link between:

1. the additional funding provided by government and extracted from consumers of aged care under the Living Longer Living Better program and the government’s strong support of consolidation in the industry and
2.  our economic deficits and the attempt to solve them by entering international trade agreements in services where we will profit from serving the sick and frail elderly in foreign countries?

Could there be deeper and more worrying policy issues that we are not being told about?

A look at the information we have:

1. Clearly Australia will need large well structured and competitive companies with deep pockets if we are to enter the global aged care services market where we will have to compete successfully with US, European and Asian companies. If we don’t consolidate we won’t be able to compete successfully.
2. Recent papers in Australia (see Policy and Evidence) have confirmed that aged care facilities operated by for-profit companies are sanctioned for poor care more than twice as commonly as not-for-profit companies. This fits with studies in the USA. These show that large market listed chains and private equity groups that form as the market consolidates have fewer staff and provide inferior care. Because we don’t measure care or staffing numbers we can’t confirm that this is why our system performs so poorly and why this has increased as the market has consolidated. It  seems likely.
3. The suggestion in confidential leaked reports that profitability is soaring and the marketplace reports indicating that the market in aged care is booming. Consolidation reliies on large profit streams to negotiate the loans required for takeovers, mergers and floats. Consolidation becomes a feverish activity in booming markets. It can reasonably be concluded that the Living Longer, Living Better money is driving this process very successfully.
4. Contradicting this impression of a booming sector are claims from the industry that it is battling financially. These claims are supported by a publicly available report that was performed soon after the leaked confidential one. The difference is difficult to understand or explain.
5. The increasing unhappiness about aged care, about staffing, about elder abuse and about failures in care is reflected in media reports and in the unhappiness of staff who see what is happening but have no choice but to be part of it. This is documented in the previous section "19 years of care". All this suggests a failing system that is harming and not helping.
6. Also confronting any misgivings we have are the promises that were made by politicians about the benefits of the Living longer Living Better program for the elderly.

Fearing the worst: Should we be worried?  Have economic considerations been put ahead of the care needs of Australians?  Is all this support for John Ralston Saul’s concerns that I quoted on the previous web page including

1. “our desire to buy and sell as effectively as possible eliminating other considerations”? 
2. Instead of being “subsidiary activities” have economic activities been allowed “to lead the way” and in doing so have they “deformed every aspect of our society”?
3. Have our politicians not had the “commonsensical energy to maintain the public good above private interests”.and
4. Has “such a perpetually virginal domain as economics got control of the public agenda”?

A dystopian thought: Its a horrendous thought to even cross our minds.  Were both the political parties that we have to choose from willing to deliberately deceive us by telling us that their policies were for our benefit when they were really intended to support a process, market consolidation, that leads to our aged care being provided by provider companies that evidence clearly indicates provide poorer standards of care and are at risk of exploiting our vulnerability.

These companies in both health care and aged care have exploited and harmed the vulnerable as exhibited by multiple scandals in other countries. In Australia scandals in other sectors have ruthlessly exploited the vulnerable.  It is possible that this is already happening in aged care but we don't know because we don't look?

The suggestion that our politicians are willingly and deliberately sacrificing the seniors, who have made Australia what it is today in order to make Australia a wealthier country for the next generation is of course blatant scaremongering and, if they were not politicians, libellous.  If they are deliberately and knowingly doing this then the ethics of selling something that provides inferiour care and might exploit their vulnerable citizens to our neighbours is confronting.

But of course not: There is nothing malicious or dishonest about this because our politicians and the businessmen they cooperate with and support  believe in what they are doing. They are not lying - at least not deliberately.

As Saul and many others have documented true believers don’t consider for a moment that what they believe in can be harmful. He describes this as an “unconscious civilisation” and it is our civilisation he is talking about. They are not conscious of what they are doing. They have no doubts and are so committed that they don’t see what is in front of them.

They don’t see what we see when we look at what is happening here. True believers believe so implicitly that what they are doing is to benefit us that they have no hesitation in keeping us in the dark and hiding what they are doing with platitudes - just in case we are stupid enough to object.

Historically common behaviour:  Look at what has happened when other true believers imposed their ideas on society in the belief that this was what was best for them. As Adam Smith said over two hundred years ago it is not villains but the virtuous believers that are most difficult to deal with. They believe totally and cannot be persuaded. Hitler, Stalin, Mao, apartheid, Syria are extreme examples where people who could not be persuaded. Look what they did in pursuit of their goals.  By then Adam Smith was long dead and forgotten. 

Incredibility: We never consider that our leaders would do anything like this.  Its incredible.  But sadly they are as human as the rest of us and as human as the other true believers l used to illustrate the process. I am not suggesting that the outcome has or will be as devastating but that the processes at work and the unwillingness to look at evidence and logical contrary opinion is a similar human failing - a trap we all risk falling into. 

Democracies are intended to prevent this but if you look at what critics are saying about our democracy and how our politicians harp on about the economy at election time and ignore our society and its needs you realise that our democracy is very sick. There is more about our broken political system here.

So it is quite wrong to blame politicians for what is happening if in fact there is some truth in these dystopian ideas. While they may try to deny that this is happening, the evidence of what is happening is there.  It is the intention and explanation for it and their refusal to openly confront the evidence that we don't understand.  

Our politicians and businessmen are human too and like multiple other humans they escape the uncertainty of doubt by believing in what they are doing. To be absolutely sure they need to persuade us to agree with them. That is how we all “realise” ourselves and establish our position in society and ultimately in history. To be whom they want to be they have to persuade you.  They can’t use evidence or logic because its not there. Listen to them during the election.

Be kind and remain doubtful: Instead of useless anger and trying to blame them we need to keep an open mind.  We need to understand and be sympathetic becuase we have probably all behaved similarly. But as citizens we need to decide how we can deal with this situation. As Adam Smith indicated, that these people are genuine makes it a much more difficult problem for us.

We need accurate information:  But whatever you think about this explanation we simply don’t have the information we need to confirm or refute it. It is certainly worrying enough for us to start collecting accurate and reliable information about the way companies are spending our money and about staffing and failures in care. In light of the possibility that this might be happening. it must be totally independently done. This is what the proposed community aged care hub is intended to do.

China in top five trends for 2016

While our own aged care system is beset by failures in care and accused on "maximising" the funding opportunirties at home business leaders have their eyes on the opportunities in China.

Corrs Chambers Westgarth claim to be “the most globally connected law firm based in Australia” and to stand for “THE COMPETITIVENESS OF AUSTRALIA AND OF OUR CLIENTS AND THE SUCCESS OF OUR PEOPLE – EVERYWHERE.” They are looking for custom in these new markets.

On its web site an article identifies trends for 2016. These include improved product offerings, More consolidation and IPO activity, separtaion of aged care and retirement villages, growth in home care, and opportunities in China and cross border activity. In referring to China they say:

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Private equity

This form of profit making is slightly different. While private equity companies will be attracted by the solid nature of a business as displayed by its capital and income stream, more often they look for short term profits.

They look for situations where they can rapidly increase the profit stream and so make the company more profitable. This enables them to float the company on the share market and get much more from the sale than they paid for it. The quickest way to increase profits is to reduce the major costs - staff and good care.

Not surprisingly, a recent study shows that private equity on average  give the worst care and the longer they own the facilities, the worse the care gets. Sometimes their money-making strategies in aged care can leave a trail of trouble after they have gone. Everyone forgets that there are real people caught up in the buying and selling and in the corporate collapses. They don't get the public attention that those who are harmed by an earthquake or tsunami get! No one looks to see what can be done to prevent this from happening to them.

This YouTube video is a tongue-in-cheek take on the impact of private equity ownership of one such group:

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Market cycles

But the market goes in cycles. Much of the time it is flat, but there are times when people have money to invest and when it is booming. This is the opportunity ambitious companies have been waiting and saving up for. That's when companies float on the share market, and when mergers and takeovers occur. There is a frenzy of activity, and people who have prepared for the moment walk off with huge profits.

Where are we now (2014/15): The world has been in recession for several years with the global economic downturn. Analysts have been waiting for it to bounce back and telling the market it was coming soon. Good businessmen have been building 'war chests' and doing everything to increase their income stream so that they are ready to seize the opportunity when it arrives.

The press reports documenting many failures in care starting in 2010 that were referred to on a previous page, '19 years of care', are revealing of the consequences of the pressures to increase profitability.

In September/October 2014: Analysts were telling the companies that the time was now. The global market had recovered. They are diving in and the private equity firms were there too.

In summary, FPCompanyG has been building up its income stream and has just floated, making its owners very wealthy. FPCompanyH had also floated recently and initially did very well. FPCompanyA/FPCompany NewnameC is buying, advertising the fact that it is building impressive looking facilities and thinking about floating. Consultant businesses are also out there seizing the moment and advising not-for-profit companies to 'partner' (a euphemism for a type of merger, often with a for-profit) if they want to survive, suggesting they bring in new managers, and that they need a consultant from the market to make it work.

The pressure and the context force smaller companies out:  Private for-profit companies are often founded by individuals or families who are strongly motivated by an ethic of care. In a 1994 analysis in the USA some companies like this performed very poorly but others were found to provide the best care of all, better than most not-for-profits. This was perhaps because this structure gave them greater freedom in choosing whether to provide good care or whether to maximise profits - an illustration of the importance of motivation.

These companies which often own 2 to 10 facilities can struggle. Their mission of care comes under pressure and they will be tempted to sell themselves and get out. So they will watch the cycle and choose the right moment to sell themselves.  A number of sizeable family businesses are being acquired.

Large family businesses can decide they have had enough and when they sell at the right moment it is the big companies that will encourage them to vacate the sector by making them very wealthy very quickly. The Cxxx family saw the opportunities in aged care in the 1980s. They started their nursing home business in 1986.

By 2012, when company's were consolidating and INTFPCompanyB came knocking they were ready. They sold off their 10 nursing homes and walked away with a $250 million bonanza. It was the money and the owners who made the decision and decided who would care for the elderly. The residents in the nursing homes and the community where they operated had little choice. These were the people who had supported these businesses for 25 years and made the family wealthy.

• Meet Australia’s newest Rich Lister: The Cxxx family reveal how they sold their aged care business for $250 million this week Smart Company 21 December 2012

The aftermath (2016)

To get the capital needed these companies have to demonstrate a steady profit, and in their enthusiasm quite often make overly optimistic assessments of their potential. They now have to pay interest and reduce their loans.

They have to meet shareholders' expectations, or else their share price will fall and they will not be able to raise more money from the share market. Those who can keep the income stream up are going to raise more money and take over those who haven't been strategic enough to do so and whose share price falls.

This is how the market works. It rewards those who are the most efficient at making money and rids the system of those who can't match them. Care and money come from the same income stream and the pressure to make a profit is far stronger than the pressure to excel in providing care.  That is what the proposed Hub is intended to change.

Preparing for the next cycle: As the market flattens astute businessmen will start thinking ahead preparing for the next time a boom comes around. Those who become large enough can establish a monopoly of sorts, and cash in further.

They will conserve their funds and keep their capital in reserve. Instead of maintaining funding to residents they will try try to continue growing and keep costs down with greater “efficiencies”. With staff by far the largest costs any efficiencies must address staffing and that has consequences for care. Efficiencies always impress investors and when the cycle come around again the company will be ready and waiting to list. In 2016 the government reduced funding for aged care and the market went off the boil. Some analysts have “downgraded the sector”.

For most a downturn is a warning. For others it is an opportunity to buy shares cheaply. It probably depends on what you are prepared to risk.  Companies with spare cash and lost of money will go looking for bargains and accept the risk that government will be as obdurate about increasing funding as they hace been in the UK leaving them with loss making assets they can't sell.

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What happens in a downturn (2016)

Government steps in

The government has finally despaired of having its funding rorted by the marketplace. It has stopped it and as happened in the USA in the late 1990s and in the UK, where private equity has been a major problem share prices have fallen, some up to 20%. I look at the consequences in the USA and UK and the insights from that for Australia on other pages. We need to look at the the way this is now playing out in Australia.

The political response

The first response of the industry has been to mount a massive public relations exercise about billions of dollars in “funding cuts” during an election campaign.  This is an attempt to get one of the major parties to promise to “restore funding”. They have attempted to harness the mounting community's criticism and anger, which they have up to now downplayed and discounted, to their cause. Minor parties like the Greens, Xenophon, Lambie and Wilkie that will not be saddled with the problem have already promised to support this and to block the cuts in the senate if they are elected.  Aged and Community Services (ACSA) is pressing the issue stressing the problems created for the industry.

• Aged care fails to register as a national priority, but there is hope Australian Ageing Agenda 8 July 2016

What had happened

There have been many allegations that funding that should have gone to care has been redirected to profit and growth and at the same time that government funding has been systematically rorted to feed the market frenzy. As share prices tumble the explanations mount up. Not surprisingly it seems that the industry’s enthusiasm for the excitement of the game got the better of them.

Industry explanations

The same article describes the justifications offered by the industry. The CEO of the industry group, LASA, claimed that the “emphasis on funding home care is hurting the residential aged-care providers”. One industry expert claimed “We are awash with home care. Some 5995 additional high-care home care places were awarded on March 18, 2016”. There are claims by industry that there are large numbers of empty beds and that occupancy has dropped from 96% to 92.3%. They coorectly assert that there are more sicker people in nursing homes and they need more costly care, but they fail to acknowledge the evidence that this has not been accompanied by an increase in staffing to care for them and the suggestion that the money that should have gone to care went to profit.

But the NACA family have not got their act together. COTA which is mounting a strong campaign pressing the government to restore the funding it has cut claims that instead of occupancy falling there are long waiting periods - the very opposite.

An industry spokesman who made similar claims on ABC radio and asserted that we had a world class system, got plenty of robust criticism.

• Aged care ABC Radio National Saturday Extra 11 June 2016

Justifying charging the elderly more

The industry body LASA’s CEO suggested that the poor nursing homes would have to start charging residents more.  As I will show on subsequent web pages (see Competition on price) rather than reduce the profits they have promised their shareholders the big providers had already responded to the downturn by charging residents extra for accommodation and for some services.

The economist's view

The economists in looking at this acknowledge the impact on vulnerable residents but see financial regulation as the priority here. This focusses on financial decisions but ignores what is happening at the bedside.

The impact for those receiving care

Probably the best review of what has happened was by Michael Pascoe writing in the Sydney Morning Herald. He addresses the issues surrounding “exploiting a flawed funding model – a model that encourages exaggerating care needs and discourages improving the health and independence of individuals.” . He suggests that “aged care clients and staff that are likely to pay for the tightening up, not the private sector's profitability” and that “additional services revenue, scale benefits and management of some costs will partially offset the lower government Aged Care Funding Instruments to largely maintain margins."

• Aged care clients, staff set to pay for government crackdown Sydney Morning Herald 20 June 2016 Michael Pascoe

The obvious conclusion is that if the vulnerability of the funding system is addressed the industry will have to turn to the vulnerability of the residents and get the profits they have been promising there. In short, the governments crackdown is going to cost the elderly more money and they are likely to get even worse care.

The Community Aged Care Hub

The proposed aged care community hub offers government a means of ensuring that government funding goes to where it is needed, that those who get care are protected and receive the care they need, and that those companies that best meet the community’s expectations will be able to make a reasonable profit. If the market is suitably adjusted so that ownership and management are separated, the fallout for residents from market failures can be minimised.  The focus must be on designing and implementing a marketpllace that works for the community and for elderly citizens, and not one that serves an ideology that replaces all of the lessons of the past with a set of illusionary beliefs.

Ultimately the claims that the corporate marketplace can provide care better and more cheaply (ie efficiently) than the community and government will be tested. This claim has never been tested anywhere because the absence of an effective customer and the oversight of a reflective civil society has meant that we have never had a level playing field. Could this be another of the many illusions on which economic ideology is based?

I am not an economist but I have a sneaking suspicion that the additional costs involved in the highly competitive corporate marketplace might just be shown to be less efficient.  A marketplace that is designed to serve the vulnerable sections of our community and be less aggressively competitive (the more traditional model) might have many advantages in cost and quality that the big profit focussed corporations cannot match.

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Appendix: Profits are Golden

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