Elder Care

Vindication for Ontario’s For-Profit Nursing Homes

Peter Shawn Taylor
May 5, 2021
Nearly all our food comes from privately-owned farms and businesses. The same goes for our clothes, homes and vehicles – all manufactured and sold with the expectation of a profit. So why the animosity shown entrepreneurs who choose to operate nursing homes and other care facilities? Peter Shawn Taylor reviews two recent Ontario government investigations into the performance of the province’s nursing home sector during Covid-19 and finds a surprising vote of confidence for the contribution made by the private sector in caring for the province’s seniors.
Elder Care

Vindication for Ontario’s For-Profit Nursing Homes

Peter Shawn Taylor
May 5, 2021
Nearly all our food comes from privately-owned farms and businesses. The same goes for our clothes, homes and vehicles – all manufactured and sold with the expectation of a profit. So why the animosity shown entrepreneurs who choose to operate nursing homes and other care facilities? Peter Shawn Taylor reviews two recent Ontario government investigations into the performance of the province’s nursing home sector during Covid-19 and finds a surprising vote of confidence for the contribution made by the private sector in caring for the province’s seniors.
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There’s plenty of heartbreak to be found in the performance of Ontario’s nursing homes during Covid-19. Nursing home residents account for about 0.5 percent of the province’s population, but during the first wave of the pandemic they comprised 20 percent of reported cases and nearly two-thirds of all deaths. Between March 2020 and March 2021, 3,881 Ontario nursing home residents and 11 staff members died of the disease. Compared to most other provinces, it’s a scandal of vast proportion.

But perhaps the worst news – at least for that legion of noisy activists, unions, politicians and media outlets that display extreme animosity towards for-profit nursing home operators – is that the private sector is not to blame for this regrettable outcome. Further, for entirely practical reasons entrepreneurs and investors will continue to play a large and vital role in this key area of care. Wherever supply is a problem and innovation a necessity, the private market remains the best solution.

A scandal of vast proportion: Despite accounting for just 0.5 percent of Ontario’s population, residents of long-term care homes comprised nearly two-thirds of all deaths in the first wave of Covid-19. (Source: The Canadian Press/Nathan Denette)

Last week saw the release of two major investigations into the performance of Ontario’s long-term care sector during the Covid-19 era. One, by provincial Auditor General Bonnie Lysyk, focused mostly on the Ontario government’s preparedness for the pandemic, and its subsequent response. The other, a provincial commission headed by former Ontario Superior Court judge Frank Marrocco, was given a broader mandate to investigate all aspects of the crisis and make recommendations for improving the entire sector in the future.

Significantly, both reports acknowledge the popular narrative that seeks to cast the for-profit sector as the chief villain of this story. TheToronto Star, for example, has relentlessly blamed profit-seeking companies for the provincial death toll. One (very long) recent headline included the claim: “It’s time to shut down for-profit homes for good.” A similar refrain can be heard from activists and unions promoting an entirely unionized, non-profit and/or government-run system. The provincial and federal NDP have both vowed to eliminate the entire for-profit nursing home business by fiat. “Profits should never be put ahead of the care of some of the most vulnerable people in our society,” federal NDP leader Jagmeet Singh intoned gravely earlier this year.

“Profits should never be put ahead of care”: Federal NDP leader Jagmeet Singh has vowed to eliminate all private sector nursing homes across Canada, a move that would do grave damage to the entire system. (Source: Obert Madondo, licensed under CC BY-NC-SA 2.0)

To the dismay of these many critics, however, both new reports make it clear the culprit was not individual operators or their ownership model, but rather government rules and lack of foresight. Neither study validates accusations the private sector was at fault for systemic failures. In fact, both reports provide new detail that largely supports the case of private operators. The Marrocco Commission not only declares the entire for-profit/non-profit debate to be “not helpful” in understanding what went wrong, but emphasizes that any future growth in the long-term care system will be heavily dependent on continued participation by the private sector. Because of its ability to attract capital and talented management, the profit motive remains crucial to the health of the entire system.

The two reports are by their nature concerned solely with events in Ontario. But given the fact the for-profit sector delivers a substantial share of long-term care capacity in many other provinces – and that the same ‘unhelpful’ debate over ownership is being carried out on the national stage – many of the reports’ findings and key proposals regarding how the sector should be built, owned and operated can be considered relevant to the entire country.

The Auditor General’s report focuses on several key government mistakes that directly led to the provincial nursing home disaster, particularly during Covid-19’s first wave. One of the most significant was a directive that encouraged hospitals to discharge elderly patients to long-term care homes in order to free up acute care beds for other patients. “At the onset of the pandemic, decision-makers were concerned about the risk that hospitals could be overrun by an overwhelming influx of patients,” Lysyk’s report states, before drily noting: “this did not transpire.”

While there is always a steady flow of elderly patients from hospitals to nursing homes as care needs change, in March 2020 Ontario hospitals discharged 50 percent more seniors to nursing homes than was normal. This high rate continued into April, until the practice – which the health care sector rather chillingly calls “load shedding” – was discontinued. While provincial acute care rooms were never overrun with new patients, the policy exacerbated over-crowding problems in recipient nursing homes and possibly inserted infected (but non-symptomatic) patients directly into these vulnerable situations.

In other jurisdictions where similar orders were issued and carried out on a vastly greater scale, New York being the most notorious example, load shedding resulted in thousands of needless deaths and serious political scandal. In Canada, by contrast, it is the nursing homes themselves that took the blame, rather than the politicians and bureaucrats who called the shots.

Making a bad situation worse: Ontario Auditor General Bonnie Lysyk’s recent report explains how government load-shedding directives during the first wave of Covid-19 exacerbated problems at the province’s nursing homes.

As for complaints that the for-profit sector – which operates 58 percent of Ontario’s approximately 79,000 nursing home beds – was responsible for a greater share of Covid-19 deaths, the Auditor General’s report notes this is due to the fact a preponderance of private sector buildings were built to earlier government standards that permitted multi-bed wards, a complicating factor in the spread of communicable diseases such as Covid-19. Given the enhanced vulnerability of these older, government-regulated buildings, it is perhaps more relevant to focus on the number of outbreaks rather than deaths when determining culpability. And by this standard, there is almost no difference. As Lysyk’s report points out, between March and August 2020, 66.2 percent of for-profit homes and 67.5 percent of non-profit homes reported no cases of Covid-19. Further academic and government research has shown that after controlling for age and design features, there is no statistical difference in performance between for-profit and non-profit nursing homes.

The Marrocco Commission also tackled the issue of ownership head-on. “Throughout its investigation, the Commission repeatedly heard that Covid-19 has seriously undermined the reputation of for-profit homes,” the final report states, summarizing the hue and cry from ideological opponents of the private sector. The Commission chose to adopt a far more pragmatic approach to the issue.

“The characterization of homes based on their tax status is not helpful,” the report states bluntly, noting that private sector nursing home operators include everything from large corporate chains to small family-run businesses. “The Commission accepts that there are owners of ‘for-profit’ homes, mostly those that are mission-driven, who provide good care for their residents. Ensuring consistent high-quality care across all homes for all residents must be the prevailing goal for this crucial government health care program.” To summarize: the ownership structure of any particular nursing home is not relevant; what matters is whether it is focused on serving its customers well. The Commission calls this being “mission-driven”; surely it is the mark of any successful business.

“Not helpful”: Ontario’s Long-Term Care COVID-19 Commission chair and former judge Frank Marrocco’s final report says fixating on the tax status of nursing homes is irrelevant to understanding performance, and a hinderance to the search for innovative solutions.

Where there are noticeable differences between for-profit and not-for-profit operations, the gap is often the result of deliberate government policies. The Marrocco report notes that, for example, some municipalities provide substantial “top-up” funding to nursing homes they operate on a non-profit basis. But such treatment, it notes, is “clearly an inequity between homes.” If taxpayers are subsidizing residents of local long-term care facilities, such generosity ought to be shared equally, regardless of the home’s ownership model. It is manifestly unfair to penalize, for political reasons, elderly residents who choose to live in for-profit nursing homes. Non-profits are also excused from paying taxes, another budgetary advantage beyond the reach of for-profit corporations.

With respect to claims that for-profit operators make a living by shortchanging their elderly clients on care, the Marrocco Commission report patiently explains how this is simply impossible. Provincial nursing home funding is provided to all facilities in four separate “envelopes.” Only the portion designated for administration can be booked as profit by a private operator. All other amounts, for food, nursing care and programming, are strictly audited and any surplus must be returned directly to government. (The broader issue of for-profit vs. non-profit nursing homes is explored in greater detail in this earlier C2C Journal article.)

The Marrocco Commission does offer criticism of one aspect of for-profit care: the Real Estate Investment Trust (REIT) model for nursing homes. In this scenario, a publicly-traded REIT owns the nursing home building, but contracts out care delivery to a third party. This arrangement “[may] not create the right incentives,” the report observes, as it obscures who is ultimately responsible for residents’ well-being and distracts from the goal of being “mission-driven.” Then again, the not-for-profit sector has its flaws as well.

The Commission estimates the province will need to build an additional 100,000 or more new long-term care beds by 2041, due to changing demographics and the need to update existing buildings to eliminate ward beds. Who can best deliver on this scale of new development? It’s certainly not going to be the non-profit sector – the province’s 38,000 name-long waiting list is ample proof of its inability to meet even existing demand. “Not-for-profit homes currently face a major barrier to development, which is that they lack expertise in capital development,” the report observes. Raising money and getting things built is the domain of entrepreneurs. Banishing the for-profit sector from the entire nursing home business, as the NDP, unions and Toronto Star have repeatedly demanded, will doom the entire system to a perpetual lack of capacity. “It is not easy to see how the multi-billion dollar need for tens of thousands of new and redeveloped beds can be satisfied without private capital funding,” the report concludes.

Who builds best? With an additional 100,000 or more new long-term care beds required in Ontario by 2041, the Marrocco Commission says such a task is far beyond the expertise or capacity of the non-profit sector; only for-profit operators can get this job done.

The solution proposed by the Marrocco Commission is to split the long-term care industry into two distinct parts: development and care. The creation of all new capacity would be handed over to the private sector; multi-year leases with the province would provide firms with a fixed rate of return, similar to how some hospital construction is currently funded. The care component, on the other hand, would be delivered by a mix of non-profit, for-profit and municipal operators who are focused on providing top-quality service to their residents. Again, the report stresses it doesn’t matter who owns these care-delivering entities or whether they make a profit or not, just so as long as they are dedicated to serving their customers well. Oddly enough, this two-part solution appears rather similar to the REIT model the Commission critiques as being too complicated and diffuse. Regardless, its recommendations are a clear and forceful statement on the necessity for continued private sector involvement in both the development and service delivery aspects of nursing homes.

This call for a large and sustained presence of profit in the long-term care sector reflects the sheer impracticality of shifting a system that is mostly privately owned to exclusively non-profit or public ownership at a time of massive government debt and deficits. It also ensures the entire sector will continue to benefit from the advantages that the private sector, with its greater access to capital and talent, can provide.

Does Canada needs more for-profit_nursing_homes
State-of-the-art care from the private sector: Ontario’s family-owned Schlegel Villages (CEO James Schlegel standing at left; founder Ron Schlegel seated at left) provides residents with innovative “campus of care” facilities that include amenities designed around a village square to promote social interaction and a sense of community.

Among the many witnesses to appear before the Marrocco Commission was James Schlegel, CEO of Schlegel Villages, a chain of long-term care homes based in southwestern Ontario. Asked to describe his company, Schlegel said: “It’s a private, for-profit organization family-owned, so our family owns it 100 percent.” He then explained his firm’s unique vision for elder care. All his complexes involve a village template that includes a central town square and patio areas meant to encourage social interaction, as well as a “Main Street” with doctors’ offices and other regular destinations where residents might bump into one another as they go about their daily routines. Such features are meant to build a sense of community so often lacking in traditional nursing homes. This “campus of care” model is widely acknowledged as being state-of-the-art, and Schlegel said it fits perfectly with his corporate goal to “drive innovation in the sector and improve quality of life” for all seniors. The results of his trail-blazing efforts benefit all other long-term care operators, however they might be owned.

Banning the private sector from long-term care, as its many critics demand, would rob the system of innovators such as Schlegel, and the new capacity they bring. Profits and outstanding care should not be considered mutually exclusive concepts, but rather mutually supportive ones. By necessity, each has a crucial role to play in the future of Canada’s nursing homes.  

Peter Shawn Taylor is senior features editor of C2C Journal. He lives in Waterloo, Ontario.

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