Road sign with pictogram for the nursing home, against yellow background.

Business management beats concern for seniors

by Solv­eig Bach, 11.02.2022, 08:41 Uhr,

By 2030, the num­ber of peo­p­le in Ger­ma­ny who will need care will rise to around six mil­li­on. Many of them will live in nur­sing homes and many of the­se homes will be owned by finan­cial inves­tors. But do you get along with stri­ving for pro­fit and good care?

Resi­dents with pres­su­re sores, redu­ced meals, lack of bed­ding or care sup­pli­es, and so litt­le staff that the­re is litt­le time to care for the elder­ly. The­se are the con­di­ti­ons that RTL repor­ters from “Team Wall­raff” some­ti­mes obser­ve in old peo­p­le’s homes, whe­re they hire them to do inves­ti­ga­ti­ve rese­arch as interns.

The ope­ra­tors of the­se care faci­li­ties are Sere­ni Oriz­zon­ti, Emvia Living and Allo­heim. They are all acti­ve as inter­na­tio­nal cor­po­ra­ti­ons and finan­cial inves­tors in the Ger­man health­ca­re sys­tem. Such pro­vi­ders now ope­ra­te almost 45 per­cent of nur­sing homes in Ger­ma­ny. Ano­ther 50 per­cent are accoun­ted for by non-pro­fit orga­niza­ti­ons, i.e. churches, but also DRK, AWO and other wel­fa­re orga­niza­ti­ons. Only five per­cent of old peo­p­le’s and nur­sing homes are still muni­ci­pal­ly owned.

But abo­ve all the pro­vi­ders, behind whom the­re are only finan­cial inves­tors, worry the care experts. About 40 per­cent of the 28 lar­gest nur­sing home groups on the Euro­pean mar­ket are in the hands of pri­va­te equi­ty com­pa­nies, which use the nur­sing indus­try to accu­mu­la­te wealth. Many of them are also incre­asing­ly acti­ve in Ger­ma­ny. The­re are seve­ral reasons why finan­cial inves­tors are so pro­ble­ma­tic in the care sec­tor. The cor­po­ra­te goal of pri­va­te equi­ty inves­tors is maxi­mum returns in the shor­test pos­si­ble time. Small nur­sing home ope­ra­tors nor­mal­ly achie­ve sur­plu­s­es of two to three per­cent, with lis­ted nur­sing care groups four or five per­cent are also pos­si­ble. “But ten per­cent or more, tha­t’s only pos­si­ble on the bones of the employees or the resi­dents,” says the social sci­en­tist Ste­fan Sell

Efficiency has limits

The finan­cial inves­tors often argue that they work more eco­no­mic­al­ly than other pro­vi­ders by mer­ging insti­tu­ti­ons in the same disci­pli­ne and their inter­na­tio­nal posi­tio­ning. Sell does not accept the objec­tion. You have to rea­li­ze that 70 per­cent of the cos­ts in care are per­son­nel cos­ts. “So if a pro­vi­der has per­son­nel cost rati­os of 50 or 55 per­cent, this can­not be explai­ned by effi­ci­en­cy, but by the fact that employees are paid less or that the per­son­nel rati­os have chan­ged for the worse.” This means that fewer or less well-trai­ned staff are deploy­ed. Often both are the case.

The shorta­ge of nur­sing staff hits elder­ly care par­ti­cu­lar­ly hard. The com­pe­tence cen­ter for secu­ring skil­led workers (Kofa) of the employ­er-rela­ted Insti­tu­te of Ger­man Busi­ness (IW) con­firm­ed in its annu­al review 2021 that the shorta­ge of skil­led workers in ger­ia­tric care is par­ti­cu­lar­ly pro­no­un­ced. One of the reasons for this is that wages and sala­ries in old peo­p­le’s and nur­sing homes are still below tho­se in other health areas.

The shorta­ge of skil­led workers also results in an enorm­ous workload for many care­gi­vers. “At night, one nur­se takes care of 50 resi­dents, many of whom suf­fer from demen­tia,” reports nur­sing expert Sell. Peo­p­le with demen­tia are often par­ti­cu­lar­ly acti­ve at night and some­ti­mes aggres­si­ve. The high level of use of unskil­led and semi-skil­led workers places an addi­tio­nal bur­den on the spe­cia­lists. Becau­se only the regis­tered nur­ses are allo­wed to car­ry out cer­tain work, such as put­ting tog­e­ther and admi­nis­te­ring medi­ca­ti­on. If the team con­sists of only a few spe­cia­lists, they must also ensu­re that semi-skil­led and unskil­led workers do not make any mista­kes and are given the right instructions.

The nur­sing homes whe­re the RTL repor­ters were deny that they cut back on qua­li­ty aspects to maxi­mi­ze pro­fits. Howe­ver, the high returns of pri­va­te equi­ty com­pa­nies can only be achie­ved with savings on all expen­ses. The red pen­cil is con­sis­t­ent­ly appli­ed to the staff, but also to the food or care pro­ducts. “You save on the food sup­p­ly and don’t ful­fill expen­si­ve ‘spe­cial requests’ like fruit,” Sell con­firms the obser­va­tions of the RTL repor­ters. “You chan­ge your laun­dry less often, you buy dia­pers that have a capa­ci­ty of 20 liters so that you only have to chan­ge them every 24 hours.”

No long term interest

Ano­ther source of returns is real estate. The care com­pa­nies, which are in the hands of finan­cial inves­tors, often con­sist of two com­pa­nies: an ope­ra­ting com­pa­ny for the care com­pa­ny and a real estate com­pa­ny. The ope­ra­ting com­pa­ny pays the real estate com­pa­ny rent, which can be free­ly deter­mi­ned and must also be gene­ra­ted from the ope­ra­ti­on of the nur­sing home. The real estate com­pa­ny then has “signi­fi­cant ren­tal inco­me, in prin­ci­ple, to its­elf,” as Sell descri­bes it. The resi­dents bear the­se cos­ts for accom­mo­da­ti­on, meals and also the invest­ment cos­ts for the nur­sing home.

But it is not only about the amount of pro­fits, but also about their use. Accor­ding to the tax ordi­nan­ce, non-pro­fit orga­niza­ti­ons such as church or other wel­fa­re orga­niza­ti­ons are obli­ged to prompt­ly reinvest the sur­plu­s­es in the same place. Pri­va­te care pro­vi­ders do not have the­se tax requi­re­ments. You can put some or all of the pro­fit back into the nur­sing home, but you don’t have to. The lar­ge yield-ori­en­ted nur­sing care groups pass on their pro­fits to the share­hol­ders, among others, while the share­hol­ders of the lis­ted com­pa­nies then recei­ve dividends.

Howe­ver, the pri­va­te equi­ty com­pa­nies have finan­cial inves­tors as share­hol­ders and they have a gre­at inte­rest in fast and high pro­fits. Howe­ver, the long-term deve­lo­p­ment of a busi­ness area is not the focus. Within a few years, the com­pa­nies, which were often bought with loans, are trim­med for effi­ci­en­cy and then resold with hef­ty pro­fits — the so-cal­led “buy-and-build stra­tegy”. Debt repay­ments are usual­ly left to the acqui­red com­pa­nies. The­re is hard­ly any­thing left for the nur­sing homes, their equip­ment and struc­tu­ral sub­s­tance, the nur­sing staff and the residents.

Relationship between yield orientation and care quality

“It makes good busi­ness sen­se,” says care rese­ar­cher Ste­fan Sell. The gro­wing wealth of insti­tu­tio­nal inves­tors world­wi­de speaks for its­elf. But this finan­cial suc­cess has a down­si­de. Sell warns against the blan­ket assess­ment that pri­va­te, for-pro­fit nur­sing home ope­ra­tors are bad and not pri­va­te good. “We know from the care scan­dals that scan­da­lous con­di­ti­ons were also repea­ted­ly found in non-pro­fit faci­li­ties.” Howe­ver, more recent stu­dies from the USA, Cana­da and France show a con­nec­tion bet­ween yield ori­en­ta­ti­on and worse qua­li­ty than in com­pa­ra­ble hou­ses. “Nur­sing homes that are owned by a pri­va­te equi­ty firm offer a lower qua­li­ty of long-term care with a hig­her total Medi­ca­re cost per care­gi­ver,” wri­te Robert Tyler Brown and his team at New Yor­k’s Weill Cor­nell Medi­cal Col­lege in their stu­dy of Octo­ber 2021.

“Nur­sing homes as a return oppor­tu­ni­ty and as a busi­ness, tha­t’s the rea­li­ty,” empha­si­zes Sell. Howe­ver, peo­p­le for­get that par­ents and rela­ti­ves live in the­se old peo­p­le’s and nur­sing homes, whom they love and want to know they are well taken care of. “And actual­ly, we also talk about our­sel­ves.” Becau­se the num­ber of peo­p­le in Ger­ma­ny who will need care in the coming years will increase — accor­ding to an updated expert pro­jec­tion for the Bar­mer care report by 2030 to around six mil­li­on peo­p­le. If you lea­ve this mar­ket exclu­si­ve­ly to con­side­ra­ti­ons of return, the care expert draws a gloo­my visi­on: “The­re will be basic care for poor old peo­p­le at an under­ground level. Then we talk about shared rooms and the lowe­ring of care and nut­ri­tio­nal stan­dards. In addi­ti­on, the­re will be reti­re­ment homes for the wealt­hy, whe­re for­eign nur­sing staff will ensu­re around-the-clock care. They cost seve­ral thousand euros a month.”



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