Alastair Duncan works for the Service and Food Workers Union Nga Ringa Tota & is a long time CAFCA member.

If they’re not up then they’re down. While the commentators  focus on the vagaries of the international and local share market, amid the gloom and doom one of this country’s fastest growing businesses has been doing every nicely as the nation’s aged care village and retirement homes operators buy and sell. But if the locals are doing well, then the overseas investors are doing even better! I previously wrote about the Oceania group in Watchdog 126 (May 2011; “The Roger Award Finalist That Never Was!”, http://www.converge.org.nz/watchdog/26/08.htm).It is the nation’s largest rest home operator and, while not listed on the share market, is under the control of the grandiosely named Global Infrastructure Fund (GIF), an Australian equity fund.

At the time Oceania was at war with its staff after refusing to “pass on” the significant wage funding it and every other operator receives from the District Health Boards (DHBs). The workers won the fight but Oceania didn’t have to reach very far into its very deep pockets. Just like every other operator it relies on Government funding to cover most wages costs. In 2011 the Ministry of Health, through District Health Boards, handed around $1.4 billion to rest home operators to support 32,000 residents. No other private business gets this sort of Government support and it’s precisely because the State effectively underwrites the business that the operators are free to trade on the share market. With wages largely covered they can get on with the business of buying and selling. Like other equity funds GIF keeps its trading details secret but in recent months a number of its publicly listed competitors have been hitting the headlines.

Metlife Share Frenzy

In May 2012 retirement village and rest home operator Metlifecare announced its intentions to acquire two other village chains, Vision Senior Living and Private Life Care. Unlike Oceania, Metlifecare trades openly on the share market with share prices historically around the $2 mark. Both companies also share common owners with Retirement Village Group, a major stakeholder in Metlife and Oceania, and until recently Oceania Chief Executive Officer (CEO) Guy Eady also sat on the Board of Metlifecare.

Once the merger goes through, Metlifecare will overtake another listed operator, Ryman Healthcare, as the largest retirement village operators in the country with 3,902 retirement units, 817 more than Ryman. In June 2012 Metlife clinched the deal with minority shareholders forcing a $26 million reduction in the price paid, driving down the deal from a high of $113 million to just $87.3 million. That prompted a rise of four cents per share the same day. In October 2011 the third largest retirement village operator Summerset listed on the on the NZ stock exchange (NZX). At the launch NZX boss Neil Paviour Smith hailed the listing as a step to “reignite our equity markets” in advance of the 2012 State-Owned Enterprises sales! One time unionist turned corporate boss, Summerset Chair Rob Campbell, told the champagne crowd at the launch: “It’s not about the 1% ripping off the 99%” (the NZX building is just metres away from the site of the Occupy Wellington protest).Campbell praised the venture as local capital markets “doing their proper job, creating capital for the growth of the business...” As a result of the share float Summerset is now under significant Australian ownership.

There’s Megabucks To Be Made From Baby Boomers

By 2025 New Zealand’s baby boomers will have grown from a 2010 level of just over 400,000 to nearly one million. Around 6% of the population currently receives institutional residential care in 34,000 beds; by 2026 that could rise as high as 52,000. And, unlike previous generations perhaps resigned to a 20 inch black and white TV in the communal sitting area, the boomers will want a lot more. What Health Minister Tony Ryall rather tactlessly dubbed a “tsunami” of care is one of the sectors of the economy that isn’t in recession. And, with DHBs underwriting most of the staffing costs, it’s a sure fire business to be in. In 2010 accountancy firm Grant Thornton, in a report paid for by the Government, asked “what is a fair rate of return for running a care facility?“ The conclusion: “The Review Project team assessed a fair rate of return for an efficient and effective provider to be between 11.3% and 12.9%”. On the day Summerset floated at $1.40 a share moving in a few months to a high of $1.70. That’s a 17% “return on investment” in four months.

“Return on investments” is, after all, why corporations invest in aged care. Oceania figures suggest that even as the company claimed it couldn’t afford to pass on Government funding many of their rest homes were delivering returns well in excess of the Thornton report’s 12.9%. In 2012 Ngai Tahu has sold ten million of its 40 million shares in Ryman generating $31.7 million, which Ngai Tahu says it will invest in the Christchurch residential market. When Ngai Tahu first brought into Ryman the company was very much the “Kiwi owned and operated” business. Today Ryman’s overseas controlled shareholders include Citibank, ING, HSBC and Mutual Funds Ltd (Rymans has been a Roger Award finalist a couple of times, most recently in 2009. You can read the 2009 Roger Award Judges’ Report at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2009.pdf. Ed.).After trading at less than 50 cents a share from 1999 to 2005, Ryman’s share price took off hitting increasing fivefold to $2.50 by 2007.  During this time dividends climbed from just 1.5 cents per share in 2003 to seven cents per share in 2011.

The Thornton report quotes EBITDAR (earnings before interest, taxes, depreciation, amortisation and rent) per rest home resident of $5,068 from a care cost of $16,859 and in hospital level care a return of $9,647 against a care cost of $31,829. Returns of 30% - which even before tax, are extraordinary.  And, when Thornton compared “not for profit” rest home operators against the “for profits”, EBITDAR were 68% higher in “for profit” operators. Though not listed on the share market, New Zealand’s second largest operator BUPA is definitely controlled offshore.  Based in the UK with a core business as a health insurer in 190 countries BUPA operates runs rest homes in UK, Spain, and Australia & New Zealand. BUPA purchased NZ-based but Australian-owned Guardian Healthcare Group (GHG) in 2007, rebranding in 2009. GHG had already changed hands twice previously in its short life with an estimated $150 million going offshore in the process. Today BUPA operates 46 rest homes and retirement villages (BUPA was the runner up in the 2010 Roger Award. The Judges’ Report is online at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2010.pdf. Ed.).

So What Is To Be Done?

Though the sector is now dominated by the “for profit” operators, all providers run a very clear demarcation between their investment in “capital” and their “operating costs”. With staff wages largely met by District Health Board payments the corporates are free to use their leveraged wealth to develop more and more facilities knowing the taxpayer is footing the bill twice. Once as the taxpayer, and again as the resident. As Metlifecare’s Managing Director told the shareholders this it’s all about what “aligns with the interests of all of the shareholders”.

In June 2012 Equal Employment Opportunities (EEO) Commissioner Judy McGregor released a damning report “Caring Counts” on the sector. The report slammed the culture of low wages and undervaluing of staff. McGregor called for ten action points, among them mandatory training, a “five star” system of quality assurance comparing facilities and pay parity for health care assistants with their sisters working for DHBs. Parity would cost an estimated $100 million a year - a cost which Age Care Association CEO Martin Taylor says could be met by increasing the top tax rates by 0.9%.  Taylor, whose members are largely the “mum and dad” rest home operators, is no fan of mandatory training but like the two unions working in the sector, the Nurses’ Organisation and the Service and Food Workers’ Union, agrees the sector has been underfunded for decades.

Tragically the McGregor report made no comment on the ownership patterns in the sector. And while low pay is low pay regardless of whether the boss is a mum and dad operator or corporate, the EEO Commissioner missed a real opportunity to bring real scrutiny to the ownership model now dominating the sector. At the heart of the undervaluing of staff is the issue of gender. The vast majority of aged care workers are women and it’s precisely because of the entrenched undervaluing of female dominant occupations that wages in the sector are low. Add on the privatisation of care, the culture of “return on investment” and the commercial approach now demanded by the sector and the odds on the providers doing anything about low pay get longer and longer.

And, as the corporates have grown, labour costs have shrunk. Fifteen years ago, in the depths of the misery of the former Employment Contracts Act, wages cost typically around 70% of the operating costs of many not for profit homes. Today the wage cost is closer to 40% and, measured against cost of living, wages have remained static or fallen. The McGregor report is unlikely to find much favour with the current Government and it will take a change of Government to begin the process of righting the many wrongs. But some glimmers remain.  In action point seven McGregor calls for “transparency” and wants DHBs to disclose in their annual reports explicit expectations about “passing through” annual funding. It could be the first chink in the corporate armour. Once we know just what each and every operator is receiving by way of public money the next step would be to seek full disclosure about their costs and thus begin to undermine the rigid separation between “operational costs” and “capital development”.

McGregor gives the Government until 2016 to implement her recommendations. Just enough time for an incoming Government to add disclosure to its funding criteria. By 2016 the sector will have changed again. More and more local operators will have merged, gone out of business or been brought out by the corporates. The workface will also have changed with increasing number of migrant workers needed to meet the growing demand for labour. But short of a miracle the bosses won’t have changed. They’ll still want their return on investment and the focus will continue to be on the stock exchange rather than the care of the elderly.

Oceania Pays Up After Rogering!

In Watchdog 126 I reported on the dispute between care staff and the Oceania group of rest homes (May 2011; “The Roger Award Finalist That Never Was!”, http://www.converge.org.nz/watchdog/26/08.htm). Oceania was a finalist for the 2011 Roger Award and was one of three transnational corporations placed second equal by the judges (the Judges’ Report is online at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2011.pdf. Ed.).Readers will be pleased to know that after a nine month battle the 1,500 unionised care staff have secured a new collective agreement that passes on DHB funding as well as preventing cuts to overtime.

Sources

Grant Thornton Report, 2010

Dominion Post

“Carers Count” report, May 2012

Martin Taylor speech to Careerforce, June 2012