Why is Ontario embracing private health care? The Scandinavian experience shows it hurts both the quality and choice of care

Posted on February 20, 2024 in Health Delivery System

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TheStar.com – Business/Opinion
February 20, 2024.   By Armine Yalnizyan, Contributing Columnist

We need to prevent the further erosion of access to care while public funds enrich — and embolden — private investors, Armine Yalnizyan writes.

In Norway, the term bendelormøkonomi, coined to describe the profitization of care, has a certain ring to it, but its English translation is downright genius: the tapeworm economy.

A tapeworm economy emerges when governments finance profit-seeking corporations in systems of publicly funded care as they create chains, often backed by private equity. It is just like introducing a parasite that slowly robs the body of nutrients and destroys its organs.

A new report examines trends in Sweden, Norway, the United States, France and Great Britain, where the pursuit of profit by financial capital is systematically devouring public funding, eroding quality of care and degrading working conditions.

Sound familiar? It should: The tapeworm economy has arrived in Ontario, and we need to control it.

Private equity: What’s the deal?

Since the 1990s, huge amounts of money have gravitated to transactions through private equity, where deals take place behind closed doors. Private equity broke records in both number and size of deals in 2021. Inflation and war in 2022 and 2023 slowed the spending spree, allowing the war chest to grow.

As of late last year, private equity investors had amassed an estimated $2.6 trillion (U.S., with a T) of “dry powder”: ready cash for making business deals. That’s up 60 per cent from the end of 2021. Industry watchers say 2024 could be a big comeback year.

These days private equity invests less in new ventures than in taking existing firms and making them more profitable before reselling them for a premium, much like house-flipping.

The traditional play involves buying owner-operated businesses, one by one, and creating chains that generate efficiencies through economies of scale and vertical integration.

In Europe, the U.S. and increasingly here, this corporate consolidation is playing out across many sectors, including the care economy — health care, long-term care and child care. Real estate values can be stripped out and sold or leased back to the operations themselves through another arm of the owners’ corporate structure.

Whether you’re bulk-buying supplies, or streamlining and standardizing business practices to maximize sales and minimize costs, bigger scale increases profit margins; but because private equity is not required to report what — or who — they’re buying and selling, or how they are reducing costs or raising prices, we know only what they want us to know.

Canadian private equity is dominated by the pension funds of Canadian workers, representing approximately $3 trillion in assets, one of the biggest pools of investment savings in the world. In 2000, about 28 per cent of these funds were invested in Canadian equities. It’s now below four per cent.

The federal finance minister has expressed interest in bringing our money home to invest in our future; but we should avoid including our care economy in the mix, based on how some players have produced profit in the care sector of other nations.

Trading in care

Rule one: Private equity loves predictable cash flow. There’s nothing closer to a guaranteed monthly cheque than services that support a population’s welfare: physical infrastructure such as utilities (water and electricity) roads and ports; and social infrastructure like health care, child care and long-term care.

Demographics all but guarantees that the care economy will grow. The backing of the public purse makes it a dream investment.

Since the pandemic, private equity bought out a lot of Canadian veterinariansdentists and pharmacists, and nursing homes. Now it’s moving into more deeply publicly subsidized territory: primary care clinicsday surgeriesdiagnostic facilities, home care and child care.

In Ontario, these investors will see growing profitability and less scrutiny, by policy design.

Two other factors explain a likely surge in deals. With demand soaring and staff stretched to the limit, small operators that require licensing and have heavy-duty compliance paperwork, extensive bookkeeping and purchasing requirements may be sold on the advantages of another entity taking care of the backroom side of things.

Then there’s the wave of older owner-operators aiming to retire. Succession planning is rare, often an afterthought; usually selling the business is the owner’s retirement plan.

Short-term thinking, long-term change

Reminder: private equity is not about the long haul. The life cycle of an investment is usually four to seven years, enough time to create a small, profitable chain and sell it to a bigger player who merges operations into bigger entities with even more profitability.

In a labour-intensive sector like care, common ways to generate profit is to cut payroll costs or mark up the value of the care you provide.

Luxury and up-market sales exist in every sector of the economy and may be expanding for care as more people, appalled by breakdowns in public systems, are increasingly willing to pay out of pocket. But down-market is the biggest market, and it gets a singular type of makeover — fewer and less qualified workers to serve the people who are too young, too sick or too old to take care of themselves.

Lower pay, fewer benefits and more precarious hours make for higher turnover and worsening care. As Canadian academics Pat and Hugh Armstrong say: “the conditions of work are the conditions of care.”

Care in the crosshairs

Tired of seemingly daily stories about how Ontario squanders public funding on private, for-profit providers by paying higher rates for temporary staffing, telemedicine, diagnostic services, day surgeries, even floor space in stores? Buckle up. There’s more to come.

In 2022, Ontario announced it would create more for-profit diagnostics and surgeries in 2022, making good on the promise in 2023 with a new legislative framework, Bill 60.

More for-profit child-care chains pop up in malls every day. A few months ago the province watered down rules for those who care for children (“greater flexibility in staffing” and “broadening qualified staff requirements”). Weeks ago it demanded “value for money” audits in publicly delivered facilities (where wages and benefits are best) to see if they could be offered by a “third party.” Coincidentally for-profit providers are lobbying for more money.

But it’s not yet time to despair. We have some runway to push for change, and good examples of where to start.

The solutions

Scandinavians have long been the North Star for public provisions; but when they struggled with deficits in the 1990s governments became more open to “help” from the private sector. Since then, evidence shows privatization has worsened, not solved, problems of funding, quality or choice of care.

The Norwegian government became so concerned about the trends it set up a commission to study how to phase out commercial operation in the care economy.

Dr. Marta Szebehely, Swedish expert on eldercare and member of that commission, recently addressed a Canadian discussion about the profitization in health care and bluntly said: “A lot of things we take for granted we should be careful not to lose … Never start the journey (of profitization).” She named three ways to limit the tapeworm economy.

First: Keep it publicly funded and publicly managed. Raise the regulatory threshold for corporations to enter and stay in the sector. Ensure strict background checks. (Sweden has seen a rise in fraud and criminal actors in the field.) Don’t sell publicly owned real estate to the private sector. After all, if it’s so good for investors, why isn’t it good for taxpayers? Buy back operations from providers who fall short of regulated requirements and forbid their re-entry.

If that last bit sounds ludicrous, consider that this is exactly what a Conservative government in Saskatchewan did in 2022. The purchase of five Extendicare long-term facilities seemed the only sane thing to do, so atrocious was the level of care during COVID. The Ontario government simply renewed lapsed contracts for the worst providers.

Second: The private sector includes non-profits. They need clear rules. Restrict how much management can make. Publicize staffing requirements for both quantity and quality of care. Ensure public subsidies for training, wages and benefits that attract and retain needed workers. Enforce the rules.

Finally, sectors heavily reliant on for-profit providers (as we are in Ontario for long-term care) require more results-based regulations, which depend on staffing levels and qualifications. Corporations accepting public funding must open their books with regard to sources of revenue and where profits go. Public funds should not be used for dividends, stock options/bonuses and other non-care related expenditures. Remove funding from corporations that break the rules.

Getting there from here

Start with greater conditionality of federal transfers to provinces, and tougher, more visible enforcement when there is provincial non-compliance with the terms of agreement for funding. The Canada Health Act provides no restrictions on public funds flowing to care by corporations, so regulations need to do the heavy lifting until new legislative thinking arrives.

The late Monique Bégin pushed the Canada Health Act through a fractious Parliament in 1984 to stop user fees on publicly insured medical services. Today’s privatization challenge presents a bigger dare: falling access to care while more public funds flow to investors.

Every day, the tapeworm economy grows. The escalating profitization of care gobbles up funds that could improve care. If our appetite for care doesn’t eclipse corporate appetite for profit, we’ll become a very weak society indeed.

We need legislative reform that prevents the further erosion of access to care while public funds enrich — and embolden — private investors. We need a modern-day Monique Bégin, and we need her now. Who’s up for the fight?


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