Report calls for “Visibility” as bankers swarm around Aged Care

They get about in Ferraris and Lamborghinis though they cry for more government assistance to help the elderly. They rack up dazzling financial returns but say they can’t guarantee a nurse-to-patient ratio for their frail nursing home residents.

Welcome to aged care, a government money trove which lures investment bankers like bees to a hive. Wherever there is corporate welfare to be had, taxpayers’ dollars up for grabs, there will be bankers and private equity types swarming.

One, merchant bank Moelis Australia, is touting 20 per cent returns for investors in its Infinite Fund, 20 per cent over four years from nursing homes; that is a huge return.

Another, private equity group Allity, with its dozens of corporate entities stretching to the Caribbean, gave its investors overseas a 15 per cent return on a loan. The interest was raked offshore, no tax.

There is a “consolidation” afoot in aged care now, that is, corporate players involved in takeovers, “aggregation plays”, preparations for share market floats, divestments and acquisitions.

It is timely therefore that the final report of the Senate Inquiry into the Financial and tax practices of for-profit aged care providers has been handed down. As anticipated, and in line with submissions from michaelwest.com.au and the Tax Justice Network calling for transparency, the Senate report found there was “limited visibility” in this sector, scope for tax avoidance and “further investigation” was warranted.

http://michaelwest.com.au/aged-care-allity-and-the-jersey-connection/

It is also timely because the Royal Commission into Aged Care, announced two months ago by the Morrison government, needs to consider the financial structures which control and house Australia’s elderly. If they are going to be looked after by private equity players – whose reputation for aggressive financial practises is well earned – there must be more transparency in the sector. And these are among the findings of the Senate report.

The committee considers that the insights provided by TJN-Aus, and in turn through this inquiry, demonstrate that current frameworks—in particular, the ability to use stapled and other complex corporate structures—provide scope for providers to potentially avoid, or at the very least minimise, their tax obligations.

The committee is concerned by the apparent difficulty in obtaining a complete picture of these practices by for-profit aged care providers. The committee contends that—in an industry that is tasked with caring for those who are highly vulnerable, and indeed, is heavily reliant on government subsidies to do so—such limited visibility is unacceptable to the public.

Further, the committee notes evidence from the ATO that it has some concerns over the financing arrangements used by certain entities in the aged care industry, particularly the conditions of their related party financing arrangements.

In light of this, the committee considers that greater investigation of the tax and financial structures of aged care providers is warranted.

Government, stakeholders and regulators should have full financial disclosure at their fingertips because, when a large leveraged nursing home empire collapses, taxpayers will find themselves on the hook for it. No government will leave nursing homes at the mercy of “the market” and insolvency firms.

A report by the Tax Justice Network Australia found six of the largest for-profit providers in Australia’s nursing home sector continue to grow rapidly and consolidate market share. These companies operate over 20 per cent of all residential aged care beds in Australia and get nearly $2.2 billion in annual government subsidies.

To be fair to the For-Profit providers, there was no evidence during the Senate hearings which went to whether the actual care of the elderly was superior at For Profit, or at church and government providers. Across the board, there are calls for nurse/patient ratios to be enforced, given the well publicised cases of elderly abuse and neglect.

Stories abound as to cost-cutting and the pursuit of profits damaging care. This from a podiatrist who worked for aged care podiatry company Dimple. Typical of the industry consolidation, Dimple was recently sold to Zenitas, a private equity-style player run by investment bankers, for $13.5 million.

“They service over 500 facilities in Australia. Unfortunately they unethically require podiatrists to treat minimum 30 to 60 residents a day. Complete exploitation for financial gain. A normal day is 15 a day with lunch break,” said the podiatrist.

“I have been disillusioned with the lack of governance of quality of care.”

Besides consolidation in For-Profit providers, there is the trend towards vertical integration, that is retirement villages (covered by State acts) and nursing home facilities controlled by large players. Often the lines between retirement villages and nursing homes are blurred.

http://michaelwest.com.au/retirement-villages-how-grandma-and-grandpa-become-corporate-financiers/