The dangers of financialized long-term care

The question during a quarterly conference call was jarring: “How is the product being received by the market?”

To many, financial jargon seems out of place in the context of long-term care and retirement homes but it is the norm when it comes to publicly traded companies in the business of care. In this case, the “product” was a retirement residence and the “market” aging seniors in need of supportive housing.

COVID-19 has brought the failings of our long-term care system to the forefront of public attention. Long-term care homes have been hit disproportionately hard by the pandemic globally, suffering major outbreaks and thousands of resident deaths. In Canada, much of the criticism has been directed at for-profit homes that have fared significantly worse than those under municipal or non-profit ownership.

But not all for-profits are created equal. While some are independently owned and operated, others are “financialized,” meaning they are treated more like stock market commodities than care homes.

An analysis of COVID-19 mortality rates in Ontario’s long-term care homes from Jan. 15–July 14, 2020, conducted as part of my master’s thesis, showed that financialized homes had a death toll of 6.2 out of every 100 residents while other for-profit homes had an average mortality rate of 4 per cent. In contrast, non-profit homes had a mortality rate of 3.1 per cent while municipal homes did best at 1.1 per cent.

Activists and researchers have been sounding the alarm about the financial sector’s expansion into the housing market for years. Today, many of Canada’s largest rental landlords are private equity firms and publicly traded companies with a mandate to generate returns for investors. This has become cause for concern over potential predatory tactics like excessive rent hikes and renovictions to squeeze out profits.

In long-term care homes, these corporations are balancing two seemingly incompatible objectives: maximizing shareholder value and providing quality care to elderly residents.

Three of them – Chartwell, Extendicare and Sienna Senior Living – are publicly traded on the stock market. Investors, many of which are financial institutions managing money on behalf of clients, evaluate these companies according to factors like growth, profit and risk. This facilitates comparisons across asset types, enabling a long-term care provider to be evaluated according to the same standards as a chain of hotels or office buildings, for example. Because shares are easily bought and sold, the timescale for profit is accelerated.

While listening in on the quarterly conference calls for Chartwell, Extendicare and Sienna Senior Living investors during the pandemic, it became clear that management is driven by shareholder demand for optimal returns. Even as their existing homes struggled to cope with virus spread, investors inquired as to opportunities for expansion to achieve annual growth.

As the months wore on, the questions became increasingly centered on obtaining government funding and support. One probed the likelihood of securing protection from legal action related to COVID-19 outbreaks and deaths; another asked whether the company was allocating more staff to residents “than is required.”

Revera, one of the biggest long-term care providers in the country, was publicly traded until it was purchased by the Public Sector Pension Investment Board (PSPIB) in 2006. Pension funds are some of the world’s most powerful institutional investors and Canada’s are particularly massive (PSPIB has $169.8 billion in assets under management). Prior to COVID-19, Revera was already facing approximately 85 lawsuits across the country alleging that inadequate care and outright negligence contributed to premature deaths. According to an analysis by the CBC, Revera had some of the poorest outcomes in Ontario as of Dec. 13, with 6.3 deaths out of every 100 residents.

While Revera’s profit-generating capacity may be in the financial interest of pension fundholders, it poses significant ethical concerns. It is entirely likely, for example, that the retirement savings of federal civil servants are grown in part by extracting money from the company that houses and cares for their parents. As a result, there are now calls for the pension fund to divest its Revera stock and transfer ownership to the public sector.

Historically, most long-term care homes in Ontario were independently owned, often by a single individual or family. The explosion of big chains over the past several decades was aided by the competitive bidding process implemented by Premier Mike Harris’ government in the 1990s. This saw two-thirds of the 20,000 new long-term care beds awarded to for-profit chains, three of which evolved into the financialized corporations that now dominate the market (Sienna Senior Living, Revera and Extendicare). Harris is currently chair of the board at Chartwell, a part-time position that nets him $237,000 per year.

In Ontario, residents pay for room and board while the province covers care-related expenses at all homes, regardless of ownership type. Financialized long-term care companies rely on this funding, as well as construction subsidies for new development. They receive additional public support in the form of mortgage insurance from Canada Mortgage and Housing Corporation, which adds to the socialization of risk and privatization of rewards embedded in the sector.

Fees for room and board are set by the province, so long-term care companies cannot make money by increasing their rates. As a result, they have to generate profits by cutting costs. For-profit chains, many of which are financialized, provide fewer hours of direct care per resident than other ownership types. They also benefit from economies of scale, through centralizing operations and standardizing services across a large number of homes. In contrast, municipal and non-profit homes strive to offer customized programs to their residents.

These companies are also engaged in ancillary businesses, including retirement residences, home care services and management and consulting, allowing them to earn more money for shareholders while expanding their influence in the sector. Scarborough’s Tendercare Living Centre, for example, which experienced the highest number of COVID-19 deaths in the province, had contracted out its management to Extendicare. Operations have since been assumed by North York General Hospital.

Based on hours of care, pandemic deaths and much research indicating that for-profit long-term care homes have worse outcomes, it has become increasingly evident that the profit incentive compromises quality of care. So where do we go from here?

Some proposed changes seek to guarantee a baseline standard of care across all ownership types, for example, by enacting legislation requiring homes to provide a minimum number of direct hours per resident.

Others are aimed at curbing the power of financialized companies by pressuring the province to increase funding and licenses to municipalities and non-profits as opposed to concentrating public resources in a small number of for-profit chains. Municipal homes have fared particularly well during the pandemic; their relative success has been attributed to greater accountability and higher staffing levels, among other factors. Many non-profit providers are in high demand as evidenced by the disproportionately long wait for beds at homes with cultural and linguistic services tailored to the needs of their local communities. They do not have the property development expertise of financialized companies, however, so improving their capacity and access to capital should be a priority.

Long-term care homes are the dominant paradigm in terms of elder care in Canada. This does not have to be the case, however, and many seniors would thrive if given opportunities for “aging in place” through day programs, home care services and cohousing. More support for alternative models such as these allows for greater autonomy and sustained community life.

Long-term care has devolved into an investment class, subsidized by the government and backed by real estate assets. Our elders deserve to be cared for in a system that is devoted to their best interests, but for this to occur, we need to remove shareholder returns from the equation.