Business management beats concern for seniors

by Solveig Bach, 11.02.2022, 08:41 Uhr, ntv.de

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 ntv.de.

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.”