Government services to vulnerable sectors that have been contracted to the private sector and services paid for largely by government are particularly at risk of becoming a culturopathy because the customers are disempowered and have no or little economic leverage. This has relevance for health and aged care because both are subsidised and regulated by government. Regulation is seldom very effective.
In health care in Australia, the adverse impact has been markedly reduced because doctors have market power have have resisted government. They can act in the best interest of the sector and their patients. This is also in their own interest. Their colleagues in the USA fared less well and major problems have occurred there. I argue that aged care in the USA is a good example of culturopathy and that aged care in Australia, if not already a culturopathy, is well on the way.
I am particularly concerned that Consumer Directed Care (CDC) with its strong focus on the provision of services in a free market system will create a situation where the perverse incentives, the vulnerability, the isolation of individuals and the fragmentation of services in home care will create multiple vulnerabilities which will be impossible for government oversight bodies to monitor.
Although consumers make a significant contribution, CDC is primarily a government funded service to vulnerable people that is being contracted to the marketplace. To understand the risks we need to look at what has happened in other sectors when government has done this.
A related version of outsourcing follows the notion that the provision of government services should be made "contestable". Services normally provided by government agencies or by non-profit community groups are opened up to for-profit providers.
Often they do this (undercut not-for-profits) by cutting corners on the quality of the service they deliver. Leave a loophole in your contract and they'll jump right through.
And here's a point you won't find in any textbook, but all the stuff-ups of recent years should have woken us up to: when you give businesses access to the government's coffers, a surprisingly high proportion of them lose all sense and start acting like robbers in Aladdin's cave.
Witness: all the unsafe behaviour by outfits trying to make a killing in the pink-batt boom; all the operators using inducements to sign up students for unsuitable courses, the costs of which were borrowed from the government; all the operators using the lure of permanent residence to rip off foreign students with phoney courses.
Source: Think twice before throwing open the government coffers Sydney Morning Herald 16 July 2016
If we want to understand what might happen, then we can look at what happened to the Commonwealth Employment Service, now called Job Services Australia, and to Vocational training previously provided by TAFEs. Both were contracted out to multiple for-profit and not-for profit entities. This is similar to the situation we will have with CDC. Large multinationals were involved and made many millions in profits. I give an outline of these two scandals here but will return to particular happenings on other pages where they illustrate particular risks for aged care.
Example 1: Job Services Australia
On 23 Feb 2015, ABC Four Corners program "The Jobs Game", used whistleblowers in the industry and in government, past staff, consumer's accounts and a multitude of documents, many of them forged, to describe massive rorting (some of it legal) and gaming of the system to make enormous profits.
The for-profit groups certainly led the way, but the poisonous culture across the sector soon involved not-for-profits as well and some of those were doing similar things. The incentives in the system were all pushing people to do the wrong things.
Job seekers were deliberately exploited and not helped when it was more profitable for the company. Instead they were offered sham courses that were profitable for the company but did not help them. There were multiple instances where vulnerable unemployed people were exploited and sometimes harmed. Many went their own way to find employment which the company then claimed payment for by forging documents.
Government were told and given evidence, but this was often ignored - even by Pxxxx Sxxxxxxd a strong advocate in government of the privatisation of the employment system (and now CEO of FPCompany NewnameC).
While the government did eventually pursue some of the companies in order to recover fraudulently obtained money, none were prosecuted and punished. It was not in government, nor their political masters' interests, for the system to be seen to have failed. Instead, they rejected allegations and defended the system in parliament.
... The managing director of a private employment agency told (ABC) Four Corners: "There are incentives to be involved in sharp practices from a financial and performance perspective."
"We had to do the same thing [because] everyone was doing it," the source said.
"The Government does not want to expose the whole industry."
Source: Government recovers over $41 million worth of false claims after 'rorting' of Job Services - ABC Four Corners, 23 Feb 2015
Vocational training
Vocational training had previously been provided by the government and funded through HECS (loans paid back later) funded TAFEs. Well structured courses run by trained and experienced teachers produced graduates including well trained level 3 and 4 nurse aids. The Howard government opened this to the free market and funded this through loans which the graduates paid back later when they were employed and could do so. The TAFEs lost support and funding, so also lost staff.
The scandal in Vocational training was exposed by the ABC 7.30 report on 3rd March 2015. Australia's largest private vocational training provider EVOCA was accused of deceptive practices. Its training courses were funded by HECS payment from government. It was accused of marketing itself to potential students who had no or little chance of obtaining a degree, including some who could not understand English. It then made every effort to prevent these students from dropping out early while it collected HECS payments.
Only a relatively small number of students finally obtained degrees. Those who could not cope and dropped out were left with large HECS debts to pay off over their lives if they ever made enough money. If not, the government was left to carry the shortfall. The winner was EVOCA. An investigation is now underway.
Example 2: Vocation LTD
A second company Vocation Ltd behaved similarly and it is clear that others were involved as well - once again problems were industry wide. A scandal is usually a red flag to widespread problems, but too often no one really wants to look.
Vocation is a company whose chairman was John Dawkins. He was federal minister for education and training in the Hawke labour government. He introduced major educational changes. Since then he has been an adviser on education to governments. Vocation’s web site advertises its courses and promises the world. It is most impressive.
We believe that business success lies in high-performing, proactive and fulfilled people. So that’s where we start – by giving your people the knowledge and skills they need to be the best they can be.
Source: Vocation Ltd web site accessed 9 May 2015
For information and more detail of events see "The rise and fall of Vocation" in the Australian Financial Review, 2 November 2014.
The company Vocation Ltd was part of the feeding frenzy. It rushed to list on the share market in December 2013 and then increase profits, raise funds and acquire competitors. The pressures were enormous and like its competitors it seized the opportunities presented by the vulnerable and gullible people it was being paid to educate. It eventually came unstuck.
Rumours about its conduct abounded but the company continued to deny anything was wrong until the end of October 2014. It then admitted that it had been audited and that the Victorian government had withdrawn $20 million in funding in July.
The house of cards collapsed. Vocation's share price fell from over $3 to 7 cents as it sold off businesses in an effort to pay its debts. It was fined $20,000, suffered a $273 million loss and is being sued by customers and shareholders.
In many ways, Vocation was a product of its time - and government policies that saw a $9 billion industry grow from nothing in the space of a few years.
Within a year of listing on the Australian Securities Exchange in December 2013, Vocation's market value had soared to $782 million.
But in October 2014 serious questions about the company's profitability emerged, sending its share price plummeting, and causing class action lawyers and corporate recovery experts to pounce.
Mr Johnson said he was concerned about the vocational training sector as a whole, which had sprung from nothing to a multi-billion-dollar industry in the space of a few years, largely on the back of government subsidies
"They were competing against the TAFEs, they were only offering the courses where they thought they could make a lot of money, and there was lots of talk going around of them encouraging students to do courses that weren't right for the student and passing people that they probably shouldn't have been passing," he added.
Source: Vocation shares slump after returning to trade ABC News 25 Feb 2015
... Vocation received a writ in the Supreme Court of Victoria on behalf of a class action group, alleging misleading or deceptive conduct and breaches of the Australian Securities Exchange's continuous disclosure rules
Source: Vocation, embattled education and skills trainer, posts $273m first-half loss (ABC News, 2 March 2015)
A report describes the government's evaluation of training for child care. It gives some indication of the way vocational training is being truncated by the market in order to turn out graduates quickly and pocket the money that should have been spent training them.
News Corp Australia can reveal the Australian Skills Quality Authority review into childcare standards has found training providers are significantly fast-tracking courses and leaving students vastly underprepared to take care of children in registered childcare facilities.
A whopping 70 per cent of Certificate III courses are being delivered in programs of less than one year’s duration, when the Australian Qualifications Framework stipulates 12 to 24 months as the minimum requirement.
Even more concerning is that 20 per cent of Certificate III programs are being delivered in 26 weeks or less.
The AQF requirement stipulates 1200 hours of training for a Certificate III, however the average in Registered Training Organisations audited was just 750 hours.
Source: A new report has found that a massive 70 per cent of childcare courses take less than a year to complete News.com.au 19 Aug 2015
Example 3: Careers Australia
A third company, Careers Australia illustrates both the tendency to reoffend and the ineffectiveness of a system that relies on regulation to control problems. When these companies get into trouble they see the failure to meet regulations as the problem and not what they are doing.
Instead of abandoning their successful practices the response is to find ways of doing what they want to do that do not breach the regulations. So that the problem that resulted in the exposure of the practices continues - but this time they can claim it is legal.
The allegations were first made by ABC 7.30 Report at the same time as the other scams in February 2015 and then included in a further report by News.com:
One of Australia's biggest private training providers is being accused of using salesmen who are targeting disadvantaged areas and enrolling poor students with fake entrance exams.
Sources: Careers Australia salespeople accused of enrolling poor students with fake entrance exams ABC News 26 Feb 2015
Business Diploma gold rush: Private colleges sign 10,000 students up to $90m worth of loans news.com 2 March 2015
A year later and the company was the subject of action by the ACCC. They were raided by federal police. They were made to repay $40 million. Government funding was withdrawn and there was litigation as the company tried to reverse this. It entered voluntary liquidation.
- Phoenix Institute loses funding case Sydney Morning Herald 7 March 2016
- Australian Careers Network collapses, leaving 15,000 students in limbo Sydney Morning Herald 22 March 2016
- Training provider Australian Careers Network collapses, leaving students in the lurch ABC PM radio 22 March 2016
- Australian Careers Network: 15,000 students left without courses as private training provider collapses ABC News 22 March 2016
- AFP raids Australian Careers Network after referral from Department of Education Sydney Morning Herald 12 April 2016
- Australian Careers Network Melbourne headquarters raided in AFP fraud probe ABC News 12 April 2016
- NSW minister promotes TAFE report involving company raided by Federal Police Sydney Morning Herald 20 April 2016
- Careers Australia repays $160 million after student loan scandal Australian Financial Review 16 May 2016
- Australian Careers Network eyes $253 million from government Sydney Morning Herald 22 May 2016
In spite of all this and 4 months after entering voluntary administration, there are allegations that the practices were simply altered to meet the law. Enticements by gifts of computers had been prohibited so they loaned them instead. They abandoned their door to door sales strategy but instead induced other organisations where people registered to include a clause that allowed them to give phone details to Careers Australia.
Door to door visits were replaced with cold marketing calls which were not illegal. A door to door salesman who was paid to stop him from speaking out, felt compelled to break that agreement.
There are new allegations one of the country's biggest private vocational education providers, Careers Australia, is using large call centres to pressure vulnerable people into signing up for expensive courses.
Careers Australia buys phone numbers from marketing companies and Pxxx Jexxx (whistleblower) would ring them to try and find potential students.
Careers Australia denied cold calling students and told 7.30 anyone receiving a phone call had already expressed an interest in vocational education. - - - - "The data that we do purchase is done through a registration process. They clearly know that it is Careers Australia."
Source: Careers Australia allegedly enrolling vulnerable students into expensive courses over phone ABC News 14 July 2016
A door-to-door sales broker who blew the whistle on major training college Careers Australia says the company paid him to keep quiet after he spoke out.
However, after he went public he said the college paid him $5,000 in return for signing a confidentiality agreement.
Earlier this year Careers Australia had to repay $44 million to the Federal Government and cancel 12,000 bogus enrolments after it admitted it broke consumer law.
Source: Careers Australia: Whistleblower claims private training college paid him 'hush money' ABC News 14 July 2016
These courses were all once run by TAFE but the bean counters decided that TAFE was expensive and inefficient when compared with the private sector. This was all that government needed to privatise. It seems clear that the "efficiency" of the business model depended on practices that were totally unsuited to the sector.
It was only sufficiently rewarding and competitive when deceptive and unethical sales techniques were used and this depended on exploiting the vulnerability of people in the community who had no prospect of benefiting, and on providing substandard cheap training.
So far, all we have seen is fines and punitive expensive regulation. No one in the establishment is even mentioning changing this system so that it works. The public no longer thinks that way and neither major political party is capable of doing so.
The University based online magazine The Conversation has addressed this and the Sydney Morning Herald has also highlighted the problem.
The standard answer is better regulation, but there are huge doubts as to whether this could work. This is not just because of the huge number of private providers, whose business models are so complex that regulators will always struggle to keep up.
Sources: Privatisation of vocational education isn’t working The Conversation 24 February 2015
Privatisation turned vocational education into a den of shonks and shysters Sydney Morning Herald 3 Dec 2015
The consequences in vocational training and relevance for aged care
Why it's relevant: CDC is being funded by government and consumers. As shown on this page, providers, including multinationals are already gearing up for the feeding frenzy and talking up the profits that can be generated. Government is depending on this potential for profit to draw the investors it needs into the sector. There is no reason to think it will be different to vocational training and there seem to be no plans to prevent things like this happening.
There is no way of vetting and preventing companies like Vocational Ltd from entering the CDC market. Like Vocation Ltd, they can be led by senior politicians or other highly credible people. Australia is getting more and more like the USA with a revolving door for politicians and senior bureaucrats. Lucrative board positions can be waiting for those the corporations like. Their enthusiasm for serving the public can be blunted by the prospect of a lucrative future career. Too often, they are with companies that have had problems in the past or get into trouble later. In addition to the two mentioned on this page, there is a health minister from 1996 who ended up in trouble with ASIC.
Some groups (and perhaps politicians) enter a vulnerable market believing that what they are going to do is highly credible and desirable, but as the pressure mounts they are faced by competitors who profit by behaving differently and they must follow to survive. Harmful things are done by the company or its subsidiaries. Senior executives under pressure know, but don’t acknowledge. This is how we humans behave. The vulnerable aged might be just too tempting to resist.
And more: There will be more about this vocational training scandal and about a similar situation that exists in the privatised training of carers for the aged care industry on the later page "Pot Calling the kettle black".
Government response: In a typical knee jerk response to the exposures about Evoca in the ABC 7.30 Report, 4 weeks before, the federal government announced fines 'upwards of $100,000'. But the article reveals that most fines are actually in the $10-20,000 region - not much of a deterrent.
It was revealed that companies have even been targeting and enrolling elderly residents in nursing homes who will never work and that we, the taxpayer are paying for it.
Dodgy training providers who have been offering students cash and free laptops to enrol in courses will from today face immediate fines of up to $100,000. - - - the sector which has been open to consistent rorting under the VET FEE-HELP scheme.
Nursing home residents are among those targeted by unscrupulous training providers who have been netting government support for signing up elderly residents in courses they will never use or potentially complete.
“Penalties for the fines range from a couple of thousand dollars to ten thousand for a single breach, and for multiple breaches there is the potential for the ultimate fine to be hundreds of thousands of dollars,” Senator Birmingham told News Corp Australia.
Previously ASQA has only been able to write warning letters or take regulatory action such as cancelling or suspending a provider’s registration.
Source: Dodgy training providers face fines upwards of $100,000 under VET crackdown News.com 2nd April 2015 (There is a videoclip on this News.com web page about Vocation Ltd)
Why fines don't work: The problem is that oversight and penalties seldom work long term. When the incentives are strong enough people who have tasted huge profits will find a way around it in time.
I argue that the best way to deal with these problems is to redesign the system and create new contexts where the incentives do not exist. Those who are there for the wrong reasons will go elsewhere. The problem is that this often directly confronts politician's core beliefs so does not happen.
The dilemma for government: The problem is that the government cannot close down all of these operators. They no longer have the staff or the resources to take over the services themselves as their staff have been fired. They will not have made provision for this in the budget.
If they issue fines or penalties commensurate with the crime, then the companies will collapse and the government will have to take over. Quite apart from the difficulties, the political consequences and the need to confront ideology make this untenable. The companies hold all of the cards and can soon go back to doing the same things knowing that government will have to play along. I have given examples of how this happened in the USA and elsewhere.
The real victims: As always, the people who really suffered are the innocents who enrolled in these substandard courses, spent time studying in the belief that what they were learning would give them the skills they needed and they would be offered jobs. Instead, Vocation was forced to recall more then a 1,000 of its qualifications.
These people will now lose their jobs if they have one and if not, they will no longer be able to find employment. One can only ask what compensation they will get. The powerful and the rich, including shareholders will extract what they can from this company. They have only lost money and they have the resouces to get what they can from the mess.
The real victims whose lives have been devastated will have little chance of getting any compensation. One nurse whose degree has been withdrawn has been working in aged care for 7 months. She says that she has no idea what she will have to do to get her qualification now or who will be paying for this, particularly if Vocation goes under. Who is to blame, Vocation or the politicians who foisted this disastrous system on to the sector?
In this case, government has assured students that they will not have to pay for the retraining but some doubt that they will ever get the training they require.
In this sort of market there are winners and losers, and whatever the reason for their demise, those whom the losers were supposed to be caring for are the real losers - the ones who really suffer.
Private training college Vocation has been forced to recall more than 1,000 of its qualifications including hundreds in child care and aged care after Victorian regulators found the courses were sub-standard.
Almost 200 students who completed a Certificate III in Child Care, 250 students who completed a Certificate III in Aged Care, and 383 students with a double qualification of business studies will have to hand back their qualifications and inform their employers.
This latest audit by the Victorian Registration and Qualification Authority (VRQA) follows an investigation last year which found about 6,000 students had studied sub-standard courses.
More than 3,500 qualifications were recalled, and Vocation was forced to repay $19.6 million in state government funding.
- - - eight early childhood services and four aged care homes had indicated they employ staff affected by the recall of qualifications.
Source: Hundreds of Vocation private training college graduates forced to hand back qualifications ABC News 22 April 2015.
Embattled education group Vocation will tear up the qualifications of 1100 of its students and hand $8 million back to the Victorian education department as it struggles to regain its feet.
The withdrawal of qualifications applies to students who undertook four programs during 2014 in aged care, children's services, business administration and competitive systems and practices.
Source: Vocation to tear up 1100 student qualifications including first aid, aged care Sydney Morning Herald 18 May 2015
But what about the businessmen: To what extent should we blame the entrepreneurs that seized the opportunities for deliberately exploiting and harming these students. Some may have done so deliberately, but surely not not all of them. Those who had doubts about the market would not have become involved in this. Many must have believed in what they were doing.
Normal business practices: They were entrepreneural businessmen and without insight they simply applied normal business practices and marketing to a vulnerable sector. They were very successful and became very wealthy so re-inforcing their belief in themselves and the free market system. Not being educationalists, they provided courses efficiently and used incentives to encourage staff to do so. As in aged care, there was no one to set the limits of efficiency and restrain it.
This also happened in health care in the USA: Others competed and they were soon all competing and doing the same thing. It is standard practice to offer customers incentives and anyone who could be persuaded to do the course would have been encouraged. As in health care in the USA this became the most important business activity and essential for success. The normal processes of willful blindness and bad faith would have anaesthetised them to what they were doing. If anyone had doubts then the fact that everyone was doing it would have reassured them.
Trapped by the system: When it all fell apart their entire world and everything they had done would have collapsed. They would not have seen what they had done as wrong, only as a breach of the regulations. They would have done everything they could to rescue the situation.
Hindsight: None of this should surprise us. It is perfectly logical for them given their background and thinking. If we look at the social dynamics of the system created then it was the likely consequence. It was only preventable if someone outside the marketplace had looked at it sensibly, and then also had the power and the credibility to persuade true believers of the consequences - an almost impossible task.
Lessons: If we consider the level of understanding that financiers and economists have of health and aged care then we can legitimately ask whether something similar has and is still happening in aged care. Unlike health there is currently no group with both the insight and the power to forcefully stop it.
Additional information and links
- When 'qualified' is no guarantee of competence – Aged care workers undertrained - The Australian, 6 Sep 2014
- The rise and fall of Vocation Australian Financial Review, 1 Nov 2014
- The capture of public wealth by for-profit VET providers at the 31st Annual Federal Conference of the Australian Education Union, 9 Mar 2015
- Hundreds of Vocation private training college graduates forced to hand back qualifications - ABC News, 22 Apr 2015
- Vocational education: how the shonks and shysters took control - Sydney Morning Herald, 26 Sep 2015
Will it happen in CDC?
If you look at the way CDC is being set up, you could reasonable conclude that the government has not learned anything. It is on the same track and doing the same thing - but that is what happens in a culturopathy - they know, but because of the pressures, they are unable to acknowledge it - so don't know or at least don't take it into consideration.
There are a number of concepts that might be at play here including paradigm paralysis, compartmentalisation, willfull blindness, bad faith, knowing but not acknowledging etc. While they complain about bludgers and reduce pensions for the needy, politicians turn a blind eye to businesses that are stealing far more from the taxpayer than bludgers could dream about.
Who will speak out?
For most of the 19 years of the reformed aged care system, the victimisation of whistleblowers and the fear of retribution against the family member in care have served to hide what has been happening. This is a problem whenever people are vulnerable. Will providing care at home when the person receiving care will be alone with the person the family have complained about be any different.
Here are two examples from disability care where a similar vulnerable situation exists and where it has all been kept under wraps. In one it is only coming to light 20 years later. To what extent has the same thing been happening in aged care over the last 19 years?
People with disabilities have been found severely neglected, repeatedly raped, with broken bones and left humiliated in their own faeces for hours at a time, a Senate inquiry has been told.
Ms Richards said people with disabilities often did not report abuse because they feared retribution from people within the facility they lived in.
"They are very vulnerable and unable, more often than not, to speak up for themselves," she said.
"They are worried about retribution,
Source: People with disabilities raped, beaten, neglected while in care, hearing told ABC News 10 April 2015
Illustrative of the way in which these things are swept under the carpet and ignored is something that happened 20 years ago which those involved are now speaking out about.
The wheels of the self-protecting Victorian bureaucracy were turning, making sure that the complete story of the shameful treatment of the Mornington Peninsula residents would stay hidden.
Source: Disabled were abused in house of horrors and governments covered it up The Age 11 April 2015
In talking about the Vocational sector in a video on the Sydney Morning Herald website (20 April 2016), Michael Bachelard says that the public simply does not grasp the extent of the problem in vocational training putting a figure of $4 billion on this fraud.
Aged care is probably as vulnerable. We need to look at the business model used in aged care and ask whether it is funnelling money human resouces and motivation away from care and if so how much and how many are suffering as a result. What is the commercial model costing us and how much could we save to fund something more sensible if we did it differently?