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A billion-dollar private aged-care company is set to transition to a non-profit structure, while still charging rent to the charity for use of its facilities. By Rick Morton.

Exclusive: How the TriCare empire spun off as a non-profit

A building with a Tri-Care sign beside it.
A TriCare aged-care home in Mermaid Beach on the Gold Coast.
Credit: AAP Image / David Hunt

A private aged-care company with $1.1 billion in assets, owned by one of the richest families in Queensland, is spinning off its entire operation to a new non-profit entity it says will “benefit” employees by giving them a “charitable employer” – at the same time charging this new charitable entity rent for operating in its facilities.

TriCare’s managing director, Peter O’Shea, told staff neither the aged-care provider nor its shareholders owned the new entity, Elderly Care. However, the charity is controlled by the same family.

Brothers Peter and John O’Shea are two directors of the private company TriCare, which made a $10 million profit after tax last year, and are also the key directors of Elderly Care Limited alongside their third sibling, Damien O’Shea.

In a May 12 letter to staff, Peter O’Shea blamed the Royal Commission into Aged Care Quality and Safety for the decision to hive off the operations to a separate entity.

“The TriCare group of companies recently undertook a review of its operations as a consequence of recommendations of the Aged Care Royal Commission and subsequent legislative reforms,” he wrote.

“An outcome of our review is that Elderly Care Limited will be appointed to provide aged care services to TriCare owned facilities from 1 July 2023.

“The services will include nursing and personal care, environmental, catering, management and maintenance.”

The arrangement between TriCare and Elderly Care means the charity will pay rent to TriCare or its other related companies that own the physical nursing homes and properties in which the aged-care services are provided.

Effectively, the company will shift its operations into a charitable structure but will draw revenue from the rent it will charge that charity.

The Saturday Paper is not suggesting there is anything unlawful about this arrangement.

In the course of its hearings, the royal commission ordered an analysis of the profitability and viability of providers in the aged-care sector by the tax advisory firm BDO. Its 2020 paper revealed a poorly regulated industry where complex corporate structures served to obscure the true financial status of providers.

“Providers are also allowed to utilise group structures to maximise their returns and minimise risks. This is a perfectly legitimate model, however it does reduce transparency over the financial transactions within the aged care sector,” it said.

“The group structures can also be leveraged to optimise operational activities within a group. In such instances, related entities may be used to provide services to the provider at a fee (e.g. management fees).

“We have not come across any information in relation to the governance of this process during the course of our work.”

TriCare operates as the head entity of a group of companies that are consolidated for income tax purposes. That is, the Australian Taxation Office treats them as a single entity. The ultimate controlling vehicle is Verthun Pty Limited. The three O’Shea brothers are listed as its only directors and the company is registered in Norfolk Island, where capital gains tax was not charged until 2016. The company says it did not exploit this arrangement and that its entities were treated as Australian residents for tax purposes.

TriCare’s consolidated accounts provide a glimpse of how it already uses loans and related party transactions, the legitimate model raised by BDO, to shore up elements of the business and move money around.

In the 2022 financial year, TriCare received more than $60 million in loans from related entities in the corporate group, at 7 per cent interest. It also received $32.125 million in director-related loans, charged at 8 per cent. The year before, more than $7 million of this total was charged at 9.5 per cent interest.

According to its constitution, Elderly Care has been established as a public benevolent institution.

“The Company is established and operated as a not-for-profit public benevolent institution solely to achieve [its] principal purpose,” the April document lodged with the corporate regulator says.

“[Elderly Care] will provide relief to those in need through the provision of aged care services to residents of aged care facilities operated by an Approved Provider in Australia.”

Australian tax law allows some non-profit companies to self-assess whether they are income tax exempt, but if a company establishes as a charity, then they are only granted tax concessions once registered with the Australian Charities and Not-for-profits Commission (ACNC).

Elderly Care Limited is not yet registered with the regulator, although the ACNC is unable to comment on applications that may have been lodged or that are currently being processed. The charity is not obliged to seek registration if it doesn’t seek those concessions, however.

BDO told the royal commission “the current model favours more sophisticated providers who have the necessary financial acumen to manage diverse portfolios and capital structures”.

“Theoretically, allowing providers the flexibility to utilise complex structures to maximise returns may imply that the Australian Government has to fund the sector less than it would otherwise have had to if such flexibility did not exist,” it says.

“On the other hand, a possible issue with this relatively complex model is that it arguably weakens the link between the drivers of return and the quality of aged care service provided by the provider.

“There are legitimate reasons to allow service providers the opportunity to own assets under a different entity including tax minimisation, portfolio risk management, and maximisation of returns generated (which in turn can benefit the aged care sector).

“The current approach of having no priority or obligations to report on the related entity, however, may influence the behaviour of service providers in unintended ways and lead to adverse outcomes for the taxpayer.”

From July 1, all staff at TriCare will transfer in their same positions “on the same or substantially similar terms and conditions”.

This weekend also marks the start of new wage rates for direct care workers and some senior food service employees in aged care, with the federal government funding a Fair Work Commission decision to boost pay by 15 per cent for these staff.

On June 13, Aged Care Minister Anika Wells wrote to providers advising them they are expected to pass on the full cost of $11.3 billion in additional funding to workers.

“To monitor providers passing on higher wages to workers, the Department will collect additional information on aged care wages and labour costs … through the Quarterly Financial Report (QFR),” she said.

“This includes additional data points on the minimum and maximum hourly wage rates paid to direct care workers. Providers will also need to attest to the use of the additional funding through the QFR for residential care and home care package providers and through the grant acquittal process for providers delivering services through grant programs.”

In addition to pay increases for staff, registered nurses will be required on site 24/7 at each nursing home from this weekend and, from October, the minimum number of care minutes delivered to each resident every day in facilities will become a mandatory 200 minutes across all levels of direct-care staff.

“There is no doubt in my mind that every day I draw heat striving for a higher standard is a day in office better spent than one at the margins, merely content to be avoiding neglect or scrutiny,” Wells told the National Press Club on June 7.

“For the first time in a decade, workers, residents, stakeholders have reason to feel optimistic.”

Reforms are making a “tangible difference to providers”, Wells told the audience, with the latest quarterly financial figures showing the proportion of organisations making a loss fell from 66 per cent to 54 per cent.

TriCare, which received almost $110 million in government subsidies last financial year, did not respond to detailed questions from The Saturday Paper about what its business review found that necessitated the creation of a charity business model.

Non-profit companies cannot be subsidiary members of an income tax consolidated entity but they can be the head entity. Elderly Care’s operations will be controlled by the O’Shea family but exist outside the TriCare group unless they make these arrangements.

TriCare’s management also did not respond to questions about staff conditions at the new charity and whether existing enterprise bargaining agreements at TriCare would be carried over. Nor did they respond to questions about whether the new arrangements left the O’Shea family in a better financial position than if they had not spun-out the aged-care operation from the property holdings.

The company has nine retirement villages and at least 15 residential aged-care facilities in Queensland and New South Wales. A new, $30 million, four-storey facility is due to open in Melbourne’s south-west next May.

Since July 2021, the Australian government has introduced two tranches of prudential regulation reform in the aged-care sector, largely focused on increased reporting, including the requirement for detailed income and expense statements at the facility level and consolidated parent entity segment reports.

A third and final tranche, which is meant to furnish the Commonwealth with “stronger regulatory powers”, is due for consultation now alongside work on the new Aged Care act, scheduled to be introduced next year.

A spokesperson for the Department of Health and Aged Care said in a statement that all approved aged-care providers are required to report certain financial and prudential information to the regulator.

“TriCare has provided assurances that there will be no continuity of care issues for residents, and no transfers or closures of residential aged care homes, as a result of its restructure,” the statement says.

This article was first published in the print edition of The Saturday Paper on July 1, 2023 as "Charity begins at care homes".

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