EY Tax Insights: Extreme Health Care
In an interview with EY Tax Insights, Aspen Medical’s Dr Andrew Walker and co-founder Glenn Keys, discuss what governments can do to foster growth and innovation including the design of tax systems.
Aspen Medical takes health care to extremes. That much is clear from the moment that Co-executive Chairman Dr Andrew Walker picks up the phone in Iraq, where the company has been contracted to help rebuild and run trauma and maternity units on the outskirts of the war-torn city of Mosul.
Iraq may represent one of the more extreme examples of Aspen Medical’s innovative health care outsourcing services, but it is not the only difficult case. In 2017, the company also remains on the frontline of efforts to fight Ebola in West Africa, adds co-founder Glenn Keys, joining the interview from company headquarters in Australia.
Aspen Medical was launched by the longtime friends in 2003, driven by a belief that businesses should use their expertise and capital to help bring about positive change.
The company provides high-quality health care in remote, challenging or under-resourced areas where there is high demand. That could be providing clinical staff in an indigenous Australian community, an ambulance service in West Texas or an aeromedical evacuation service supporting an oil rig.
Wherever it is, Aspen Medical provides complete health care solutions, including people, equipment, consumables, ambulances, pharmaceuticals — “whatever is required,” Keys says.
Aspen Medical’s performance as a company is not always measured in dollars.
In Mosul, for example, “children are being born with great success under the most amazingly difficult circumstances,” Walker says.
Nevertheless, Aspen Medical’s co-chairmen are extremely focused on the business side, as well.
“We’re a for-profit company; that allows us to deliver against what our purpose is, and it makes us very efficient at what we do,” Keys says. In Mosul, for instance, Aspen Medical is working under contracts from the World Health Organization and United Nations Population Fund.
When it comes to taxation, Keys and Walker stress the high cost of tax to any enterprise and the importance of managing it efficiently.
“The more money you can keep in your business, the more you have available for growth,” Walker says, whether for capital expenses, hiring or building technology platforms.
The alternatives include raising equity from investors, whose patience or vision may diverge, or taking on debt and all its covenants. Even a grant can carry with it red tape and compliance requirements that can distract a start-up.
Many entrepreneurs neglect tax strategy in the early days of their business, Walker says. One reason is the simple fact that they don’t yet turn a profit.
“The last thing on their minds is tax, and that’s a big trap.” Once successful, entrepreneurs may realize they have made errors and by then it may be too late.
Another reason some entrepreneurs put off tax strategy is that they may not see tax as a cost, because it is paid after profit is calculated.
“Tax is absolutely one of our biggest costs and needs to be carefully considered,” Walker says
When going into an international market, one of his first questions is about the local tax regime. For example, lacking a bilateral agreement between the government of any one country and Aspen Medical’s home base in Australia, “we could end up running a job at a loss, simply because we hadn’t thought about tax properly.”
Keep it simple
Aspen Medical’s co-founders’ advice to governments would be to keep tax policy simple. For most goods and services, they say, a lower overall tax rate would serve their country better than complicated tax incentives aimed at moving markets one way or another
“Having said that, taxes can be used by government to drive innovation that brings entirely new goods and services to market,” Walker says.
Examples include R&D (research and development) grants, tax breaks on wages paid to scientists or software developers and intellectual property regimes that assess a lower tax on the product of new patents.
Keys and Walker speak from experience. In its early years, Aspen Medical benefited greatly from an Australian export market development grant.
“That was absolutely critical to growing our business overseas,” Keys says. “It led to us getting very significant business as export and allowed us to take our innovative service model into a lot of different international settings.”
Aspen Medical also has a cautionary tale to tell. In an early engagement in a Pacific island nation, Aspen Medical left it up to its contractors to handle their own payroll taxes. When some of them neglected to follow through, Aspen Medical was presented two years into the job with a significant tax bill.
“It threatened to sink the company,” Keys says.
Aspen Medical negotiated payment and settled with the government, then dealt with every contractor to recoup the money. But the damage was already done in opportunity costs and other setbacks.
Aspen Medical kept that lesson in mind as it expanded across Australia, the Pacific, Africa, the Gulf region, the UK and the US. The company now employs more than 2,500 professionals.
Along the way, Aspen Medical has followed the advice it gives other entrepreneurs: seek to be tax effective — paying the correct amount of tax. After all, businesses also benefit from government spending that is derived from tax revenue.
“As entrepreneurs, we benefit from the infrastructure and business environment that governments, in the main, create: a stable workforce, laws, police, roads, electricity, water — the whole gamut,” says Walker.
Read the interview online by clicking here.