Seniors care shouldn’t be a private-equity money-maker
Late last year, a large transnational insurance company, Anbang, announced its intention to buy a majority interest in Retirement Concepts, a Canadian, for-profit, nursing-home chain.
Retirement Concepts currently receives funding from a number of provincial governments to provide nursing-home care and is the highest-billing provider of assisted-living and residential care services in B.C. The sale was approved by the federal government in mid-February and it’s concerning for several reasons.
First, the transaction appears to be part of a trend for private investment companies to purchase properties that generate profits by leasing the property back to a second private operator.
In this case, the likely scenario may be that Anbang will lease the property back to Retirement Concepts, the previous owner, who will continue to provide the services.
Why do this? Research shows that the typical business model for such arrangements is associated with offering a high return on capital and maximizing cash extraction. The properties owned by the equity firm are separated from the operations of providing care. The former builds in high shareholder returns through a number of strategies, including requiring the daily operating business to pay burdensome debt and rent payments.
Some companies have gone bankrupt, leaving residents and families in the lurch — and obscure relationships among multiple companies can make it difficult to pin down responsibility when things go wrong. In Britain, such a lease arrangement became so costly that when the government refused a request from the operator to help pay for increasing costs, the Southern Cross chain of 750 publicly funded, for-profit homes declared bankruptcy. This left residents and families with great uncertainty and governments facing public scandal.
Allowing the growth of a private-equity-service delivery model in Canada will undermine Ottawa’s stated priority of building high-quality, community based seniors care.
Secondly, under these corporate structures, it’s often difficult to identify the entity responsible for the care. If patients and families have complaints or governments have quality concerns, the lines of accountability in such large corporate structures are often poorly defined.
Thirdly, the size and complex corporate structure of these large corporations make it difficult to enforce financial accountability and reporting on how public resources are spent. It is also difficult to create and enforce regulations that require facilities to spend a defined amount of public funds on staffing or to limit spending on administration.
Fourth, once large companies own nursing-home property, governments become increasingly dependent on these chains for services and are less able to terminate contracts, remove residents from poorly performing facilities, ensure standards are maintained or control costs.
Fifth, when such ownership is transnational, the introduction of government regulations requiring facilities to spend a defined amount of public funds on staffing or to limit spending on administration may be contested under international trade agreements.
Finally, there is a substantial amount of research demonstrating that the quality of care contracted by governments to private nursing homes is inferior to care delivered in public and non-profit owned facilities. This is more often the case with large, for-profit-owned chains where there is even greater pressure to deliver a return on investment.
The pressure to make a profit often leads to cost-cutting, such as reduced staffing that undermines the quality of care. The 10 largest publicly funded, private nursing-home chains in the U.S. have been found to have lower nurse staffing hours, for example, compared with government facilities. The same is true of private facilities in Ontario.
The evidence is clear: Large-scale, private equity investments in nursing-home facilities too often jeopardize the quality of care and put seniors’ health at risk. So what can be done?
Navdeep Bains, minister of innovation, science and economic development, and Health Minister Jane Philpott should commission a panel on how governments can address the challenges of privatization of nursing homes. Seniors deserve no less.