April 2009
A few months ago, this column regretted that not more co-ops and social enterprises operate residential care homes. In response, Bupa – the British United Provident Association – suggested I might be overlooking its role in the sector.
“You may not be aware that Bupa is one of the country’s largest operators of care homes with more than 300 in the UK, as well as care homes in Spain, New Zealand and Australia,” said Kevin Mochrie of Bupa’s communications department, a perhaps surprising reader of this magazine and this column. “We are the UK’s largest provider of care for people with dementia. Again, many people do not realise that 75% of our UK residents are state funded – so we care for people from a range of backgrounds.
“As for social enterprises, I also believe that we are close to this description. Bupa has no shareholders and pays no dividends. Any surpluses are reinvested to provide our customers and residents with better services; while our mission remains the same as when we were set up in 1947: to help people enjoy longer, healthier, happier lives. Our status allows us to invest for the long term, whether that is staff training, refurbishments or building new care homes. We also own our own freeholds so we are not subject to the market pressures affecting some other operators.”
I was aware of Bupa’s involvement in the sector because of work I do for a trade union in monitoring ownership of the social care sector. But the question of whether Bupa should be regarded as a social enterprise is an interesting one.
Bupa was formed through a merger of 17 provident associations when the NHS was established. Its origins were therefore parallel to the formation of the NHS and it was always intended as a means of providing additional health services to those provided by the state. Its legal status is rather peculiar. From the name it might be assumed to be an industrial and provident society – it is not. It is actually a company limited by guarantee and, one might assume, a company that could quite easily be demutualised, at least from a legal point of view.
Its chief executive, Ray King, is adamant this will not happen in the foreseeable future. “Why would we go public?,” he said in an interview with VnuNet, while finance director before becoming chief executive last year. After all, Bupa reinvests profits and is able to finance the borrowing it requires, he pointed out.
Yet Bupa is run as a profit-generating company, despite calling itself a not-for-profit business. In that same interview King explained: “Bupa has had phenomenal growth. We have grown profits by 30% each year, and have sales worldwide of £4bn a year with eight million customers. We run the company along PLC lines and we aim to make a profit and plough it back into the business.”
As part of that strategy, Bupa has sold its portfolio of hospitals to private equity house Cinven, concentrating on its more profitable health insurance and care homes businesses. It has also exited its residential care support service and its Irish health insurance business, after a contested legal judgement that required it to provide insurance on a common premium basis, that did not discriminate on the basis of age or pre-existing health conditions. (Ireland does not have a state-funded universal healthcare system, instead relying on health insurance.)
Bupa has also bought heavily into the care homes and health insurance markets elsewhere, in more profitable environments including Spain, Australia, New Zealand, Thailand, Hong Kong, Scandinavia, Latin America and Saudi Arabia. Within all these markets, Bupa is heavily focused on profit returns and profit targets. Academics in Australia have opposed its entry into the country, arguing that while the business is to be preferred over private equity investors in terms of ownership of healthcare infrastructure, it is not a suitable owner, because of its profit focus.
There are also complaints made in the UK by Bupa employees, who are unhappy about working conditions and pay rates. While these perhaps should not be given too much credence – many employees are unhappy with their employers – there are clearly problems with Bupa’s working practices. Last year, an inquest was told that an elderly short-term resident of a Bupa care home was forgotten about, left in a wheelchair overnight and strangled on a restraining strap as a result. In fairness, it must be added that there have been incidents at care homes run by other operators.
Bupa’s focus on profits were effective for many years. In 2003/4, Bupa recorded a profit of £134.5m on a turnover of £3.4bn. Its then chief executive, Val Gooding, was paid £2m, including bonuses and pension contribution.
More recently, profits have slid. For the 2008 year – figures for which have just been released – Bupa’s surplus before tax was down 53% to £187.1m. Bupa was damaged by the costs associated on its withdrawal from the Irish health insurance market. It also suffered a major writedown on the value of its ‘alternative assets’ – its hedge fund exposure – on which it lost nearly £100m in one year. It also made a large writedown for ‘goodwill impairment’- meaning that it paid too much for acquisitions whose value was damaged by the recession.
Bupa’s underlying revenues, though, were up by 39%. International insurance provides 44% of the Bupa group’s revenues. Within that, Australia’s demutualised MBF health insurance is proving increasingly profitable, where Bupa’s “integrated management team is in place and is focusing on achieving costs savings”. Some 15% of the group’s worldwide revenues are provided by the care homes business.
None of this, however, answers the question of whether Bupa should be described as a social enterprise. What it does make clear, though, is that, on the margins at least, the definition can be a subjective one. Many of these points would have been interesting to discuss with Bupa. However, having suggested that I wrote a column about Bupa, it failed to respond to my request to discuss the question of whether it genuinely is a social enterprise and its latest financial results.
It should be stressed, though, that readers who want to arrange health care provision outside the NHS can do so with a mutual. Several friendly societies offer various health insurance policies, including the Benenden Healthcare Society, the Health Shield Friendly Society, the National Deposit Friendly Society and the Exeter Friendly Society. Readers who are keen to support the mutual sector might wish to bear these societies in mind.
The original tile and charter of BUPA was British United Provident Association UK. The charter entrusts ownership to the policyholders. However uniquely the policyholders and owners have no say whatsoever in the management. There is no AGM, no forum no means of response, control or audit. Yes the ultimate in “Fat Cat” arrangements. The charter allows the management board to appoint (and dismiss) a board of 98 associate fellows. The management board annually presents its plans and remuneration to this associate board for approval. No-one dissents as they are hand-picked and the management can dismiss them at any time. Curious. Further: The associate board is made up of 50% past BUPA executives / pensioners and 50% hand-picked senior figures from the medical profession. When I looked it just happened to include three from the board of the BMA, chairman of the Medical Defence Union, representatives from the Royal Colleges etc. I once as a BUPA member managed with great difficulty to get a copy of the list which for obvious reasons is generally kept confidential as is the structure of the association.
The management board appoints its own remuneration committee and essentially pays itself whatever it wants. In 1992 the chief executive received £250,000 plus pension and bonuses of about £100,000. Since then the remuneration to doctors in respect of the fee schedule has to all intents and purposes not increased at all. It is therefore disappointing but not surprising that the remuneration of the Chief Executive has increased 800% since that time: Profiteering?
Worse the original charter is that the association is run entirely and exclusively “for the benefit of its members”. That is exclusively as the title suggests “UK”. BUPA has for 20 years used its excessive profits from its UK operations to purchase businesses abroad. This disadvantages its UK members in contravention of its own charter. Further do the foreign insured policyholders then become members and owners of the UK provident association? Is this legal within its charter? Has the board disinvested the members of their benefits (funds accumulated from premiums exclusively to be used for their treatment). Is this legal? Is BUPA in contravention of its own charter?
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