The problem with profits: As Ontario’s long-term-care homes stagger under a COVID death toll of more than 3,000, some say it’s time to shut down for-profit homes for good

Nick Hood, a 72-year-old corporate adviser and former CEO, CFO and Chairman of the Board, lives on the edge of the English countryside in a leafy suburb north of London that is almost comically British and upper middle class. (The badgers tore up his lawn recently and the foxes got into his compost.)

For most his professional life, which began in the mid 1970s, Hood has been proudly, and quite successfully, corporate. He worked in finance. He believes in private enterprise. When he ran away as a young man, it was to Ontario, to work as an accountant.

That may be why, when Hood talks about seniors’ care, he can surprise even himself with his fervour. “I sound like a socialist,” he said when I spoke to him over the phone. “I sound like Bernie Sanders.” (He pronounced it with a long ‘u,’ like “Saunders.”) “But nonetheless, that is where I have arrived.”

In 2012, Hood, who was then the chairman of a corporate restructuring firm, was asked to publish a report on the British care-home sector — a largely publicly-funded, privately-run space roughly equivalent to Ontario’s long-term-care industry. For Hood, it was, at the time, largely a PR exercise; a consultant thought the work might drum up business for his firm. But what he found when he dug into the sector appalled him. “It was horrifying,” he said.

British care homes for the elderly were largely privatized beginning in the 1980s under Margaret Thatcher. In the early 2000s, “dazzled by the demographics” of Britain’s aging population, property investors, private equity firms and hedge funds began investing heavily in the sector. They rolled up smaller operators into larger chains, split the property assets away from operations, larded the homes with debt and built out Byzantine webs of companies and subcompanies that made it difficult to know who the ultimate owners were and where the profits were going. “And this was all going swimmingly,” Hood said, “until we hit the global financial crisis in 2008-09.”

The industry investors had weighed the homes down so heavily with rents, debt payments and management fees that when the British government slashed care-home budgets, it thrust the industry into a massive cash flow crisis. One of the largest chains went bankrupt. Several others were forced to the brink of collapse. The investors — the ones who hadn’t already taken their profits and gone home — were still making their money, through interest payments and rents, but the homes themselves, where the elderly lived and received vital medical care, were barely hanging on.

Hood saw all this as a disaster waiting to happen. The government, he believed, had to do something, fast. “We published the research, did a press release and ran the distress signal up the flagpole,” he said. He met with top government officials. But nothing really changed. Eighteen months later, he published another report, released another press release, met with the government again. But again, nothing really happened. “I have been publishing that research about every year since,” Hood said. “And somewhere down this path, it stopped being a matter of financial analysis for me, and it’s become a campaign.”

Hood isn’t sure when it finally clicked for him. But at some point, his fundamental view of the industry changed. “I look at this, and I just say, philosophically, it’s wrong,” he said. “I mean I’m no rabid, extreme socialist,” he said. “I’ve made a very good living, and I’m comfortable in older age, as a result of being in business and the money I’ve made.” But after years of study and speaking out, he has come to believe the problem with the care home business is the fact that it is a business at all.

“The more you look at this, the more you see what’s going on, the more I say to myself, why is social care — which is a responsibility of society — being run for profit?” he said. “The government has to step in here.”

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The COVID-19 pandemic in Ontario has never really been one pandemic. It has played out instead in discreet boxes divided by impact and separated by income and postal code, by race, gender and especially age. That’s not to say it’s been easy, for anyone. But it hasn’t been fair either. People of colour, people with precarious work, people in certain industries and certain cities have borne the brunt of the infections, the job losses and the anguishing, lonely goodbyes.

But even given all that, on the morbid bar graph of pandemic tragedy one group stands alone, a bar so much higher than the others it looks like a design error instead of something real. COVID-19 has destroyed the lives of thousands who began the pandemic in an Ontario long-term-care home.

More than 3,000 long-term residents have officially died from COVID-19 in Ontario.An untold number of others have been lost to pandemic-induced neglect or a lack of care. "They might not have died because of COVID," said Dr. Samir Sinha, the director of geriatrics at Mount Sinai hospital in Toronto. "But they die because of starvation and dehydration."

More than 3,000 long-term residents have officially died from COVID-19 in Ontario. An untold number of others have been lost to pandemic-induced neglect or a lack of care.” They might not have died because of COVID,” said Dr. Samir Sinha, the director of geriatrics at Mount Sinai hospital in Toronto. “But they die because of starvation and dehydration.”

Death on that scale imposes duty. It creates a challenge for Ontario. It is it’s own kind of never again. The good news is no one credible seems to dispute that now. After years of systemic neglect, all sides of the political spectrum agree that the system needs change. It needs more money, more staff, and more beds. It needs newer buildings and better oversight. It needs sustained public attention and care.

But that broad agreement masks a fundamental dispute about the direction of that change. There are those, and they are not always the people you might expect, who say the long-term-care system can be reformed with money, regulation and enforcement. They believe that arguments about profit and structure — the arguments Hood is now pushing in the U.K. — are distracting, naïve or doomed.

“I don’t have a withering riposte for getting the private sector out,” said Tim Burns, who served as the director of the long-term-care branch of the Ontario ministry of health between 2003 and 2007. “I think that would be really idiotic, frankly. How can we possibly meet the demand without (them)? We need everybody we’ve got and more.”

But there are also those who believe, like Hood has come to believe, that for real change to happen, the bedrock structure of the long-term-care system needs to be overturned. They argue that the problem with long-term care is the profit, and that as long as the system is being run as a business in Ontario, the quality of that care will suffer.

“There’s clearly no need for long-term care to be operated where some random investors who we don’t know are making money from it. It’s just not necessary,” said Martine August, an assistant professor in the school of planning at Waterloo University and the author of a forthcoming paper on the financialization of the long-term-care sector. “They’re taking away money that can be put toward doing a better job with these homes.”

"There's clearly no need for long-term care to be operated where some random investors who we don't know are making money from it," said Martine August, an assistant professor in the school of planning at Waterloo University and the author of a forthcoming paper on the financialization of the long-term-care sector.

Those arguments aren’t new. Pat Armstrong, a professor of sociology at York University who is leading a massive global study on nursing home standards, has been making them for decades. She’s still making them now. “I don’t think it works with the for-profit model,” she said. “Some of the money is going to go for profits. And in order to get the profits, they have to cut back in some areas.” What is new is that after years on the fringe, the pandemic — during which studies have consistently shown higher death rates in for-profit compared to non-profit and municipal homes — has pushed those arguments into the mainstream.

For the first time in a generation, at least since Mike Harris massively expanded the for-profit sector as premier, the fundamental shape of long-term care in Ontario is on the table. Change is coming. But if that change is shallow, advocates worry a once-in-a-lifetime opportunity — a chance to make the system truly public — will have been lost.

“Every time there’s a scandal it gets investigated and we get new regulations,” Armstrong said. “And they’ve caused some improvement. But boy, we’ve still got all these problems and the regulations aren’t solving them.”

***

The argument against for-profit long-term care in Ontario is on one level philosophical. Nursing homes, as they were long known, have always provided a mix of medical care and residential services; they’re a liminal space between home and hospital for people who can’t stay in the one anymore and aren’t quite ready for the other. But the balance between those two poles has long been tilting more and more toward the medical.

Long-term-care home residents in Ontario are older on average now than they’ve ever been. They’re sicker, too. The complexity of their needs means every long-term-care home is also essentially an acute-care facility. And many Canadians are just uncomfortable with the idea of commerce being involved in that world.

That’s a perspective that Dr. Nathan Stall, a geriatrician and epidemiologist at Sinai Health in Toronto, understands, even if he doesn’t 100 per cent share it. “There are some people who totally bristle and, I think it’s a fair perspective, at having for-profit interests in a sector that houses and cares for such vulnerable individuals. I think that’s a very fair perspective,” he said. “But I have always cautioned, and I’ve been lambasted for this, against oversimplifying the issue, in terms of (saying) all for-profit is bad.”

Stall doesn’t think now is necessarily the right time to have a fight over for-profit status. We’re still in the middle of a pandemic. At the same time, he doesn’t shy away from some the medical or financial arguments against the sector.

There are three different models of long-term care in Ontario. For-profit companies run 58 per cent of the province’s 630 homes. Non-profits, including charities, community organizations and some hospitals run about 24 per cent and municipalities control the rest. All of those homes, regardless of owner, get the same kind of funding from the provincial government. But they don’t always produce the same level of care.

Academic studies in Ontario — and around the world for that matter — have consistently shown that for-profits homes, on average, have marginally and sometimes significantly worse outcomes for residents across a host of measures than do non-profit or publicly run homes. That was true before the pandemic, and it’s been true during the pandemic as well. “There have been countless studies that have showed fairly consistently that for profit homes have poorer outcomes,” said Dr. Peter Tanuseputro, a public health and preventative medicine specialist in Ottawa who conducts quantitative research on aging and the end of life at the Institute for Clinical Evaluative Sciences.

That doesn’t mean that all for-profit homes are awful, or that all non-profit or municipal ones are great. The aggregate differences in the research aren’t huge, said Andrew Costa, an assistant professor and the Schlegel chair in Clinical Epidemiology and Aging at McMaster University in Hamilton. “Underneath it, there is so much variation,” he said.

What’s more, “those small differences are oftentimes tilted by the extremes.” In other words, over time, the worst homes, the true outliers, have tended to be for-profit, and those truly poor performers have dragged down the overall sector. “The problem is a lot of the worst things said about the sector are true, at least somewhere,” said Burns, who is now the administrator of the City of Toronto’s Castleview Wychwood Long-Term Care Home. “But they’re not truly representative.”

Burns doesn’t think it’s practical to think about eliminating the for-profit sector. But he does think more could done to push out bad actors sooner. “The tools are there, the methods are there, you’ve just got to move fast,” he said. “Can we regulate our way to safety at least? If not happiness? I would say yes, absolutely.”

The for-profit companies themselves, meanwhile, have long disputed the research suggesting they do worse than non-profit homes. “You can take any data and come up with the answer you’re looking for. But we read a lot of those academic papers and the lack of knowledge and understanding of how the long-term-care sector operates is deeply concerning,” said John Scotland, the CEO of the Steeves and Rozema Group, a commercial real estate and senior’s care company based in Ontario. “If you take objective, quality indicators … the evidence is there that the quality of care delivered in for-profit homes is every bit as good as our non-profit counterparts.”

It is true that the results are not always 100 per cent uniform. But the signal, according to Stall and the other researchers interviewed for this story, is clear. “There is a broad — like decades and decades — line of inquiry into for-profit homes compared to non-profit homes across a number of outcomes. And it consistently shows that for profit homes tend to deliver inferior care,” he said.

On that level, the argument against the for-profit homes is simple: they get the same money, but they don’t, on an aggregate level, provide the same level of service. And the reasons why, according to some critics, are simple, too. For-profits, they argue, deliver inferior care because they need to make a profit. They have to take money out the system somewhere; that’s how the business works.

Non-profit and municipal homes, on the other hand, can take everything they get from the government and pump it into resident care and service. What’s more, they can also top up that funding — through charitable donations and volunteers, for the non-profits — or municipal tax dollars for the city-run homes. The for-profits, for obvious reasons, don’t do that. “What for-profit corporation,” Sinha said, “is going to invest more money than what it gets?”

For-profit owners, lobbyists and some independent researchers and stakeholders tend to push back on that point in a number ways. For one thing, the money the homes receive to pay medical staff comes from what’s known as a “reconciled” envelope. A for-profit home (and any other home, for that matter) has to spend every penny it gets from the government for medical staff on medical staff. That’s also true for raw food and programming and personal support services. At the end of every year, the homes have to submit detailed financial statements showing the government where that money has gone. Any surplus, in theory, goes back to the government. The idea “that we make profit on care is a myth,” said Scotland. “I see it as one of the most frustrating things we face … There is no profit in care.”

Where the profit does come from is what’s known as the “Other Accommodation” (OA) envelope. That’s the funding the government gives that doesn’t have to be reconciled. The homes use it for everything from laundry to kitchen staff to maintenance and upkeep. It’s also what homes can use to pay an outside management company — as many for-profit and non-profit homes do — and to take a profit. The homes can also make money on resident fees, which are strictly regulated by the government. “That’s why we say we’re in the business of accommodation,” said Scotland, “because we get paid for the accommodation.”

Some advocates claim that the for-profit homes find ways to leak money out of the staffing envelopes to pad their profit margins. That’s hard to verify. But what is certainly true is that the homes do lobby fiercely over what can and can’t be counted as a reconciled expense. “They’ll fight for anything to get any required expenditure out of OA into the care envelopes,” said Dan Buchanan, who was until October 2019 the director of seniors care funding at Advantage Ontario, a non-profit lobby group. “I’ve literally sat for half an afternoon with a lot of high-priced people from the for-profit sector, the not for-profit sector and provincial bureaucrats. And they argued about birthday cakes and where they ought to be paid for.”

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Those who work with and study the elderly, meanwhile, say that many expenses that aren’t strictly related to care can still be crucial to a resident’s well-being. Cutting back on food preparation or laundry service can have a massive impact on a senior’s health, said Armstrong. “We’ve written about how food is absolutely critical to care and not just in the sense of getting enough nutrition. It’s the main event of the day,” she said. As you age, your natural desire to eat tends to wane. “So you need your appetite even more stimulated by things like the smell of cooking,” Armstrong said. “For many old people, and we witnessed this over and over again, the food cooked off premises is like eating on an airplane. You get a tray full of food, and many old people look at that food and are just turned off.”

It’s also true that at least some homes have been looking to save money in the OA envelope — where food preparation and profit margins are found — even during the pandemic. Southbridge Care Homes, a private company that bills itself as Ontario’s sixth largest long-term-care home operator, has an investment agreement with a Toronto-based money management firm called Yorkville Asset Management. Among the homes in the Yorkville portfolio is Orchard Villa, in Pickering, where 71 residents died during the first wave of COVID-19. In a fund review for the quarter ending June 30, the quarter when more than 200 Orchard Villa residents were diagnosed with COVID-19, Yorkville wrote that Southbridge management was “continuing to reduce costs outside of care.” Three months later, in another update, Yorkville wrote that it was pushing “for a reduction in structural costs within the business model” at Southbridge. Neither update mentioned the death toll at Orchard Villa or any other Southbridge home.

Officials at Yorkville Asset Management did not respond to emails from the Toronto Star. Instead, Southbridge sent a statement attributed to CEO Ryan Bell.

“Our organization has not, nor ever intends to, cut spending on direct resident care services,” he wrote, in part. “Spending on resident care has increased year-over-year and will increase in 2021. We are constantly evaluating our head office expenditures to ensure that we are delivering better results for our residents and home.

“Lastly, our preliminary analysis of 2020 expenses shows that Southbridge’s operating costs were greater than its budget. These increased costs were directed to a variety of efforts to fight the virus including the acquisition of two new epidemiologists to lead our Infection Prevention and Control (IPAC) and supporting nine staff members in obtaining their IPAC certification.”

The one point that seemingly everyone, from every corner of the industry, agrees on is that the money the government provides now just isn’t enough, regardless of who owns the homes. That’s one reason why Andrew Costa believes that a battle over profit status now would be so counterproductive. “To me the conversation should be: We should be, across the board, investing in better staffing, more staffing, in facilities,” he said. “If we care about quality, and not just about philosophical differences around profit status, and we care about residents and their health, then that’s something we can all advocate for. And it’s not a marginal issue. It’s a huge issue. Because I think the issue of profit status is an intractable issue. And to me, if we’re going to be serious minded about it, then we shouldn’t focus ourselves on the intractable issues.”

There are also those who believe that better, if not necessarily more, regulation, and tougher enforcement can and will, continue to improve the for-profit system. “I don’t know who else is saying it, but we have a good floor in this system in this province,” said Burns. “If you look at some of the indicators, like antipsychotic prescribing, restraint use, egregious abuse, starving residents, they have been virtually thrown out over the last generation. So don’t compare us to some nirvana, like Denmark or something, which is constantly done. Look at the worst of the nursing home industry in Ontario in the 1990s. You don’t see that anymore. I don’t think that gets remarked upon enough.”

For Costa, what’s important to focus on is balance. Rather than look to eliminate for-profit homes he’d like to see the government make it easier and more attractive for new non-profit and municipal homes to open. “I think having options, policy wise, makes sense,” he said. “That would be wonderful. And in so doing, we’re not having to deal with the intractable issue, we’re just basically making sure that we maintain a good balance, and that the incentive structures don’t disadvantage them. And in the meantime, we can deal with the real obvious issues that everybody can agree around.”

For Armstrong, though, that’s a backwards way of looking at it. To her, the question shouldn’t be why should we get rid of for-profits, it should be: why do we have them at all? “And nobody’s explained that to me,” she said. “What’s the benefit of having for-profit long-term care, that is primarily funded by the government, primarily regulated by the government? What is the benefit? I don’t see the benefit.”

For his part, Burns thinks the for-profits bring much needed investment to the sector. They also tend to be faster at adopting new practices and new technologies, he said. But there are at least two commonly-cited benefits for partnering with the private sector that don’t exist in long-term care.

Ideally, in a market system, consumer choice acts to bring up standards and drive out the worst actors. But that doesn’t work in long-term care, because there is, effectively, no consumer choice. Before the pandemic, if you owned a long-term-care home in Ontario you were all but guaranteed that it would always be full. In February 2019, there were more than 34,000 people waiting for a long-term-care bed than there were beds to house them. Homes, in other words, had no market imperative to compete on standards or attract residents. “When you have a captive audience of thousands of extra people on the wait-list who are desperate to get into a bed there’s no reason for you to improve anything,” said Sinha.

What’s more, while residents are responsible for some of their fees, the government will top up anyone who can’t afford to pay their own way. “I mean, frankly, it’s the best game in town,” Sinha said. “You cannot lose money. It’s like you own a mall and whether the store is paying rent or not, it doesn’t matter, you’ll be made whole.”

In return for the opportunity to make a profit, the private sector is also supposed to assume some risk. But in long-term care, in Ontario, most of that risk stays public. At the end of last year, almost 14,000 long-term care beds in Ontario sat empty. Residents were quite simply dying faster than new residents could or would move in. In theory, that should have meant a serious revenue crunch for the homes. But by the end of the year, the Ontario government had agreed to pay out every long-term-care operator as if they had run 2020 at full capacity. “If our occupancy were to dip … we would still get 100 per cent funding,” Daniel Argiros, the CEO of Arch Corporation, which owns 11 homes, told investors before Christmas.

There were some undeniably legitimate reasons to do that. The government suspended new entries into older, C-class, and D-class homes with ward-style rooms, on June 10. That directive remains in place. They’ve also instructed some homes to set aside rooms for quarantining sick residents. But it also means that the worst performing homes, the homes where dozens and sometimes scores of residents died in often appalling conditions, are still being paid, with public money, as if those residents were still alive. “This is that classic line,” Sinha said, “where we say profits are privatized, losses are socialized.”

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Among those who believe that phasing out for-profit homes would be impossible, the most common argument might be this: if the private operators left the business, there would be no one there to pick up the slack. “Every government tries to put more not-for-profit homes into the ownership model,” said Dr. Bob Bell, who served as Ontario’s deputy minister for health and long-term care between 2014 and 2018. But when new licenses come up for tender, new not-for-profits hardly ever bid.

Why not? Well, “it’s a tough business,” Bell said. It’s hard to raise tens of millions of dollars. It’s arguably even harder to care for high-needs seniors in a tightly regulated environment like long-term care.

In the aftermath of the pandemic, meanwhile, Scotland believes the real risk is that for-profit owners will just sell out and leave. “I think companies that have been in the business for a long time are thinking about it,” he said. That’s what the news should be about, he believes, “that risk to the sector, because who else would step up?”

At the same time, there are at least some long-term-care companies that view the pandemic not as an exit event but as a business opportunity. How do we know that? Because that’s what they’re telling their investors.

***

Eight days before Christmas, Argiros and Michael Missaghie, the president of Arch Corporation, appeared on a webinar broadcast to investors in Singapore. The two were pitching what they sold as a rock-solid real estate investment opportunity: Ontario long-term-care homes. “We see demand at about 118,000 beds right now,” Argiros said. “We have a 30,000 to 32,000 person waiting list today with 77,000 beds. And we expect the age and the demographics and aging of society to double that demand.”

Argiros and Missaghie have been scooping up Ontario long-term-care beds for Arch since at least 2017. Through a series of related companies, they now control 11 homes in the province with somewhere in the range of 800 beds. Arch doesn’t always make it easy for the public to know who controls one of their homes. The Chateau Park Long Term Care Home in Windsor, for example, has no active website and is licensed by the province to Dtoc Long Term Care LP, By Its General Partner, Dtoc Long Term Care Mgp (A General Partnership) By Its Partners, Dtoc Long Term Care Gp Inc. and Arch Venture Holdings Inc.

If the webinar is any sign, the pandemic has done nothing to dampen Arch’s enthusiasm for the sector. Just the opposite, in fact. “Demand is constant,” Argiros said. “If we built a new facility, the day it opened, it would be full.”

Arch is one of several private investment firms currently reshaping Ontario’s long-term-care sector. Yorkville Asset Management backs Southbridge LP which owns at least 19 homes. Axium Infrastructure, based in Montreal, acquired a majority share of 16 Ontario homes in 2018 in a deal with Revera, one of Canada’s largest LTC operators. Abacus Private Equity, meanwhile, bought Omni, which owns and operates 10 Ontario LTCs in 2007, and was in turn acquired by the Hillcore Group, a Toronto-based private equity investment company, in 2012.

From a financial perspective, all that investment makes sense. Ontario is going to pay someone to redevelop all its older homes and build new ones, too. Many of the older generation of smaller, family-owned LTC operators either can’t or aren’t interested in acquiring the millions in financing required to conduct that work. So private and institutional capital is the logical place to turn.

“Ontario needs more high quality long-term-care space for seniors, and as investors we are helping to fill that need,” Missaghie wrote in an email. “We’re proud of the excellent, resident-centred care we provide through our current long-term-care homes as well.”

But for experts who have studied long-term care around the world, the entry of that kind of money into the sector, at that volume, is deeply concerning. Little peer-reviewed research has been done in Ontario on how private equity investment affects standards in long-term care. But in other jurisdictions, the numbers have been troubling.

One recent U.S. study found that private equity ownership increased short-term mortality in nursing homes by 10 per cent, leading to the loss of approximately 21,000 lives and 205,000 life years over a 17-year sample period. That study wasn’t an outlier, either, according to Charlene Harrington, a professor emeritus in the school of nursing at the University of California, San Francisco, and one of the world’s leading researchers on nursing home care. “There has been a lot of academic work on private equity investors and what impact (they have) on the company,” she said. “And I think it’s pretty clear that they have a very negative impact, because they put even more pressure on for higher profits than the traditional for-profit chains.”

It’s not just in the U.S., either. In the U.K., private equity ownership has been linked to a host of ills in the care home sector, including over-leveraged homes and substandard care. “If it plays out the same way in Canada,” said Nick Hood, “that’s where you’re going to be in about five years time.”

In a way, the argument over for-profit or non-profit care is already outdated in Ontario. The for-profit sector isn’t one sector. It never has been, really. Instead, it’s a wild mix of large chains, family-run companies and a new breed of equity-backed turnaround projects targeted for hefty returns.

The risk now, as Ontario locks in new 30-year deals with private operators for new homes, is that the industry is changing faster than regulators and government officials can keep up with. In its speed to build out, some worry, Ontario could end up creating a system that’s even worse than the one we had before.

“You see companies like these coming in and then trying to squeeze even more out of it,” said Martine August. “It’s coming at the expense of the people who live there. It’s coming at the expense of the workers.”

TORONTO STAR