11 May 2019 — CorporateWatch
Last month, Priory Healthcare was fined £300,000 after 14 year-old Amy El-Keria died in one of its hospitals. Priory’s prosecution for health and safety violations was the first of its kind and the result of years of campaigning by Amy’s family.
Priory Healthcare is part of the Priory Group, one of the UK’s biggest mental healthcare providers. An investigation by Corporate Watch into the Priory Group’s finances over the last ten years, suggests the fine will hardly make a dent in the huge profits and payouts its owners and bosses enjoy:
- The fine represents less than two days profit for the Priory group, which made an operating profit of £62 million in 2017, the last year for which results are available. The vast majority of this came from the NHS and Social Services.
- The Priory group gave its boss at the time of Amy El-Keria’s death a £458,000 ‘golden goodbye’ when he left that year – more than half again what the company was fined.
- Priory has paid out £171 million in interest to its owners Acadia Healthcare in the two years since the US company bought it.
- Advent International, the US investment firm that previously owned Priory at the time of Amy’s death, made a £375 million profit when it sold the company in 2016.
- In the year Amy El-Keria died, Priory received a £1 million tax rebate back from the government, thanks in part to a Channel Islands tax avoidance scheme set up by Advent.
We put all these points to Priory. They did not dispute the figures but made a series of points, summarised below.
‘I will not stop fighting until this stops’
Amy El-Keria was found hanged in her room at the Priory’s Ticehurst hospital in East Sussex in November 2012.
Last month, the company was fined £300,000 after pleading guilty to a criminal charge brought by the Heath and Safety Executive for breaching the Health and Safety Act.
After the sentence was passed, Amy’s mother Tania El-Keria said:
“This was Amy’s first ever hospital admission. She was alone, far from her home and her family. By day two she had been restrained by staff. She went on to be restrained many more times including on the day before her death, with forced sedative injections applied against her will.
“The night Amy was found staff didn’t have a key to open her locked door. A healthcare assistant entered but didn’t have a radio and ran out leaving her hanging. Staff were not trained in basic life support and for 10 minutes she was left lying on the floor until the duty doctor arrived and started CPR.
“My 14 year old Amy was put alone, unconscious in an ambulance. No-one went with her to hospital and no-one bothered to tell her family what was going on until many hours later. This is not what care looks like.”
An inquest jury in 2016 had previously found neglect and failing by Priory contributed to Amy’s death. These included inadequate levels of staffing and training.
The charity INQUEST says it knows of at least six other young people who have died while receiving Priory mental health care. In an ITV documentary released after the sentence, an undercover reporter revealed “serious failures of care” in Ticehurst, including a teenager spending weeks wearing just a blanket.
Tania El-Keria called Priory “morally bankrupt” and said:
“They continue to take large sums of public money, allowing our children to suffer by placing profit over safety. This cannot be allowed to continue, and I will not stop fighting until this stops.”
Understanding the Priory group
The Priory prosecution was the achievement of six and a half years of hard work by Amy’s family and INQUEST. As is typical with prosecutions of companies, no individuals were charged, with the company itself being held accountable.
The fine decided on by the judge to punish the company, taking into account Priory’s guilty plea and steps made to improve the service, was £300,000.
What effect will this have on the company and the people who ultimately control it? First off, let’s be clear what we mean when we say the Priory group.
The company prosecuted was called Priory Healthcare Ltd. This company runs Ticehurst hospital, where Amy died, as well as another 11 hospitals facilities registered with the Care Quality Commission, plus six “wellbeing centres”.
However, the Priory group is a much bigger organisation. It runs a variety of services in addition to hospitals like Ticehurst, including residential schooling for children with autism, and nursing or residential care homes (through the Partnerships in Care brand). It cares for more than 30,000 people each year across 450 sites.
Ultimately, it’s the overall profitability of the group as a whole that Priory bosses and owner are most bothered about. And the £300,000 fine imposed by the judge, following appropriate law and regulation, hardly makes a dent in those overall profit figures.
Record fine, bumper profits
The fine was based on Priory Healthcare Ltd’s turnover of £133 million in 2017 (the latest year for which results are available).i
The overall accounts of the Priory group show its total revenue was almost six times higher: £797 million in the same year. The vast majority of this was from the public purse: £418m from the NHS and £302 million from Social Services.
After the costs of running its services were taken off, Priory was left with an operating profit of £62 million. That works out at around £170,000 a day.
The fine for Amy’s death therefore represents less than two days of profits.
The previous year was even more lucrative for Priory: revenues of £824 million and profits of £84 million.
Those at the top of the company have been made rich. Company accounts show the – unnamed – highest paid director was paid £502,000 in 2017 and £1.6 million the year before.
But the biggest beneficiary has been US company Acadia Healthcare, which bought Priory in early 2016. In just those two years, Acadia has received £171 million from Priory.
To see how that’s happened, we need to delve into another complicated financial web.
Acadia paid £1.5 billion to buy Priory from another US firm – Advent International (more on them below) – at the beginning of 2016.
Acadia put £500 million of its money into shares in Priory and lent the company the remaining £1 billion – at an interest rate of 7.4%, paid annually. As a result, Priory’s accounts show it has already paid out £171 million in interest to Acadia in the two years since the acquisition.ii
Not all of this is profit as Acadia is using some of this to pay interest to its own lenders. Acadia borrowed around two thirds of the money it needed to buy Priory in 2016 from banks and other lenders. The final third was raised by issuing new shares that it then sold to investors, in return for stakes in the company (and thus a share of future profits).
Acadia’s annual financial reports show the company is paying much lower rates of interest to its own lenders. Corporate Watch calculations – summarised belowiii – estimate Acadia pays out around £40 million a year on the money it borrowed to buy Priory.
In 2017, that may have left Acadia with around £45 million from its investment. That’s 150 times more than Priory was fined for the part it played in Amy El-Keria’s death – and money that could have been invested in the care its patients depend on.
Acadia runs over 200 addiction and mental healthcare facilities in the US and Puerto Rico. It was set up in 2005 by Waud Capital Partners, the investment firm of tycoon Reeve Waud, proud owner of a multimillion dollar mansion in estate in the state of Maine). The company is now owned by huge investment firms such as T. Rowe Price and Blackrock.
As described, Acadia bought Priory from Advent International, a US investment firm. Advent is a “private equity” firm that buys up businesses with the intention of running them for a few years then selling them for a profit. It has investments around the world, with Poundland and sofa retailer DFS two of the UK companies it has owned.
Advent owned Priory at the time of Amy’s death in 2012. It had bought the company in early 2011 for £925 million from the state-owned Royal Bank of Scotland and other investors including major Tory donor Lord Ashcroft.
As previously exposed by Corporate Watch, after buying Priory, Advent set up a tax avoidance scheme that saved Priory millions in UK corporation tax.
Advent is based in the US, but it owned Priory through different entities based in Jersey and Luxembourg, both of which have very low tax rates. When it acquired Priory, Advent lent its new purchase £130 million through the Channel Islands stock exchange, at a whopping 12% interest rate.
This interest was taken off Priory’s taxable profits each year, saving it millions in UK corporation tax. Thanks to a regulatory loophole called the Quoted Eurobond Exemption, the interest payments could be sent to the Advent companies that held the loan notes tax free.
Accounts filed at Companies House for 2012 show Priory racked up £24 million in interest to Advent in the year Amy El-Keria died. As that was taken off the company’s taxable profits, corporation tax of £6 million may have been avoided thanks to this scheme.
Priory’s tax bill was further cut under Advent by interest it had to pay on the almost £1 billion it had borrowed from banks and other lenders. This interest cost Priory £62 million in 2012.
The accounts for that year show it made an operating profit of £77 million. Yet once all of the interest to the lenders and Advent was taken off, Priory was able to declare a loss before tax of £11 million.
Instead of paying corporation tax that year, it actually received £1 million in tax back from the government. That same year Priory had received £395 million in public funding.
Company accounts for the five years from 2011 to the end of 2015 show Priory paid just £1.3 million in corporation tax during this period, after total operating profits of £245 million.iv
Advent bought Priory for £925 million and sold it in February 2016 for £1.5 billion. At the time, the Financial Times estimated Advent’s profits from the sale at over £500 million. However, Priory accounts show it took on an extra £200 million in third party debt during Advent’s time, which would have had to be paid back at sale. As a result, Advent appears to have made a – still very substantial – profit of around £375 million from its ownership of Priory.
The accounts show in 2012, the year of Amy El-Keria’s death, the highest paid director was paid £829,000. Of that, £458,000 is described as “compensation for loss of office”.
Although the accounts do not name him here, this must be CEO Phillip Scott as elsewhere they, plus other Companies House records, show he was the only director that left the group that year – on 28 November, sixteen days after Amy died. Scott had been in the news the year before as one of the private healthcare bosses who donated to David Cameron’s Conservative Party.
In response to this investigation, Deborah Coles, Director of INQUEST said:
“The marketisation of our mental health system enables companies to put profit over the safety of children in their care. The investigation by Corporate Watch raises serious questions about the Priory’s profits, a concerning level of which are gained from running NHS funded services.
“The lack of any independent system of investigation, allows the Priory to investigate their own actions. This meant it took six and a half years for their criminally unsafe practises to be exposed following Amy’s death. This dangerous and harmful situation continues to this day.
“We know there have been other child deaths involving the Priory. The damning evidence about systemic failings in care begs the question as to whether the Priory’s contract should be withdrawn and reinvested into specialist NHS services.”
A Priory spokesperson told Corporate Watch it is usual business practice for parent companies to make loans to subsidiaries on which commercial rates of interest are charged. They said all significant tax matters have been fully disclosed and approved by HMRC regulations and practices and that HMRC have awarded Priory a “low risk” rating as a corporate taxpayer. They also said Priory services receive above-average ratings from the Care Quality Commission.
A Priory Group statement said:
“We remain absolutely focused on patient safety and will continue to work closely with commissioners and regulators to learn lessons from incidents and inspections quickly and ensure all concerns are addressed in a timely and robust way.”
i When sentencing Priory, the judge in Amy El-Keria’s case appears to have used Priory Healthcare Ltd’s turnover to determine the level of the fine. However, he also quoted Priory Healthcare Ltd’s profits as being £2 million.
He took that figure from the accounts of that subsidiary company. However, Corporate Watch has found Priory Healthcare Ltd was paying rent to another Priory group company – Priory Finance Property LLP. Land Registry documents obtained by Corporate Watch show the latter owns the Ticehurst Hospital site, for example.
Priory Healthcare Ltd paid a total of £23 million in rent in 2017. We do not know how much of this rent went to other Priory group companies, as opposed to third party landlords. But it appears likely that the overall profits made by the Priory group as a whole from the 11 hospitals run by Priory Healthcare were significantly higher than £2 million.
ii The accounts show Priory racked up interest of £91.6 million in 2016 and £84.6 million in 2017. However £5.4 million was still owed to Acadia, so total paid out comes to £170.8 million.
iii Interest payments are not broken down in the Acadia annual report but it shows it borrowed $390 million at 6.5% a year and $955 million at 3% (the latter is actually between 2% and 3% but that’s not broken down so we’re being generous to Acadia using the higher figure). That works out at interest of around $25 million and $29 million respectively, coming to a total of $54 million. At foreign exchange rates at the end of December 2017 (when the accounts were drawn up) that amounts to just under £40 million. The annual report says it does not “anticipate paying any cash dividends in the foreseeable future” and there have been no share buybacks in the past three years, so we are only considering the interest payments here (shareholders will hope to make money from an increase in the share price rather than annual returns).
iv As we have seen, Acadia has also loaded the Priory up with debt (also through the Channel Islands). This has helped the Priory group pay just £6 million in corporation tax in the last two years (including a tax rebate of £1 million in 2017), after total operating profits of £147 million. But as the money has been lent by US-registered Acadia Healthcare Inc, the interest should be subject to corporation tax in the US