John Hewson
Corporate misincentives

Reports this week alleging that doctors had made false claims totalling as much as one third of Medicare’s annual budget has pointed to more than just potentially significant weaknesses in the Medicare system. It has again highlighted the impact of the profit motive among medical clinics run by private corporations that are not necessarily Australian owned.

The Medicare claims story – a joint investigation by The Sydney Morning Herald, The Age and the ABC – also drew attention to a company operating as Tweed Health For Everyone, one of our largest medical centres, which is alleged to have claimed more than $1 million for services it either didn’t perform or that weren’t eligible. It should be noted that many doctors reacted negatively to the story, questioning its veracity. One notable example was Dr Neela Janakiramanan, who tweeted  that it was a “shitty piece of investigation”.

In a separate piece, she pointed out that much of what the report included isn’t fraud, as it included “a suite of other offences contributing to this so-called ‘leakage’ – such as billing errors, perceived overservicing and low-value care”.

But it is most unfortunate, and should be a matter of much greater concern, that the provision of so many of our essential services – such as telecommunications, power, aged care, disability care and childcare and training services – are similarly tainted by bad corporate behaviour. To those who seek to exploit the system, these areas are like gravy trains. All that’s needed is a bucket of mostly government money and a set of rules and regulations that can be interpreted subjectively. It has been possible for such companies to move on from one area to the next, presumably when they consider that they have milked all they can from the original service. For example, some childcare providers  have subsequently applied to be aged home care package providers and also disability care providers.

This corporatised behaviour has been conspicuous in the provision of aged-care services. Many trace this back to the Howard government’s Aged Care Act 1997, which facilitated private sector, for-profit engagement – by way of private equity, new foreign investors and superannuation and property real estate investment trusts – in the ownership and operation of residential aged-care facilities. At the same time, a number of state governments, churches and charities and other non-profit organisations have also sold out of, or reduced their exposures in, nursing homes.

The Royal Commission into Aged Care Quality and Safety documented the alarming inadequacy of personal care and meals, as well as neglect and abuse in the homes, that could be attributable to a focus on the bottom line rather than the provision of quality services.

The most worrying failure of a majority of homes was the lack of an option for 24-hour nursing care.

The costs of residential aged-care services have gone through the roof, given the very large “accommodation bonds” – usually running into hundreds of thousands of dollars – required just to get a bed, with little security that those monies would be returned in full on the departure or death of the resident, plus the mounting daily fees for the services provided relative, for example, to the aged pension.

The alternative to residential aged care, pushed by successive governments, has been the concept of a home care package of support that allows people to stay longer in their homes before having to contemplate residential care. The setting and application of these packages has had to be a very thorough and detailed process to ensure that people are getting the services and care they need to stay in their homes, and to ensure that they are not overcharged or otherwise exploited. Clearly the program could be easily corrupted.

Another area of aged care that has been exploited is in retirement villages where a person buys a self-care unit. An earlier ABC investigation alleged rip-offs by a Malaysian-owned group related to the selling prices of the units, claiming that much of the capital gains were kept when the unit was finally onsold, along with excessive body-corporate fees.

There was most disturbing news this week that the aged-care sector is at “risk of collapse”, with two in three nursing homes operating at a loss in 2021-22.

Unfortunately, the National Disability Insurance Scheme has also been considered a pot of money to be exploited. NDIS minister Bill Shorten has this week admitted that the costs of the scheme have blown out by some $8.8 billion this year, to be declared in the coming budget, raising concerns about its sustainability.

As an example of potential exploitation, disability care providers can claim temporary transformation payment (TTP), which was established to assist new providers to enter the market by allowing them to charge 10 per cent more for services. Some providers who have been in the market for many years still charge TTP. Some will also swoop on the funds that are occasionally left over at the end of a plan for disabled care. And of course a provider may overservice – as has been alleged in the Medicare fraud coverage – or simply overcharge.

Turning to the provision of power services, much of the blowout in power costs owes to the costs of transmission – the poles and wires deployed at a Rolls-Royce standard that have ensured the installer a healthy return. Perhaps the worst consequence of the privatisation of the power companies, beyond the vendor governments’ concern to maximise sales revenue rather than worry about ensuring competition, was to allow the emergence of so-called gentailers – that is, companies that can operate in both the generation and the retailing of power supplies, allowing these operators to game both the wholesale and retail markets at the expense of households and businesses.

Then there is the national broadband network – a very costly exercise to deliver poor-quality internet services, at least by world standards.

All of these examples are clearly against the interests of the consumer and are important contributors to the current cost-of-living problem. Much of the thinking behind governments stepping back from the provision of essential services has been a desire for greater efficiency – a display of faith in so-called market forces to price and deliver, which is a fundamental tenet of neoliberal economics. It has been argued that, even if they can acquire the expertise, governments lack the discipline of markets and therefore government delivery can be expected to be less efficient.

Sometimes this lack of efficiency gets pinned on the inexperience of public-sector employees, at other times this gets attributed to political interference. Of course, you say the provision of such services should not just be a matter of economics – these are issues of concern for our overall society. But corporations have to accept that in many cases they operate under a social licence that carries considerable responsibilities.

It is not just a question of maximising profits but also delivering for all stakeholders, including clients, employees and the broader community. Markets can and do fail to deliver the desired social and political outcomes, which means governments can and must play an important role in some cases.

So the issue becomes, if governments are to re-engage, how should that be done to ensure affordable prices and quality of service?

At the very least, governments need to make some attempt to set the necessary regulatory framework against and within which market forces can be reasonably relied on to deliver against clearly specified objectives, and that regulatory framework needs to include clear and significant penalties for bad corporate behaviour.

These areas of potential abuse in the process of delivery of essential services are not just a challenge for the Labor budgets to come. Addressing these avenues for exploitation will require a careful rethink of competition policy as well.

This article was first published in the print edition of The Saturday Paper on October 22, 2022 as "Corporate misincentives".

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