'An attractive investment:' As private equity scoops up Ontario nursing homes, there are concerns about whether profit-driven facilities can best care for fragile seniors – Toronto Star

At the Bay Street private equity firm, it’s known as the Ontario-focused investment fund.

Inspired by a powerful demographic trend, Arch Corporation’s current venture aims to “generate stable long-term cash returns.”

The fund has already attracted $7.5 million from a Canadian “ultra high net worth family office” and another $25 million from “one of the largest, independent family-owned multinationals in the GCC” — an apparent reference to an economic alliance of Middle Eastern nations including the United Arab Emirates and Saudi Arabia.

What provincial industry is captivating exclusive investors?

Long-term care.

Earlier this year, as the pandemic began its global surge, Arch Venture Holdings and its partner, DTOC II Long Term Care, won Ontario government approvals to buy ministry bed licences for seven nursing homes they had previously invested in.

“The Ontario government has embarked on an aggressive redevelopment of 30,000 beds over the next 8 years, in which Arch intends to participate,” Arch Corporation’s website said, referring to the Ministry of Long-Term Care expansion of the nursing home sector.

While companies such as Chartwell or Revera have for years dominated the private sector of long-term care in Ontario, owning and operating dozens of homes, a new type of corporate ownership has emerged: private companies, like Arch, that buy homes and hire outside management firms to provide the day-to-day care of medically fragile seniors.

Seniors’ housing — retirement homes, assisted-living apartments and long-term care — has long held an allure for investors who see opportunity in demographics.

The first wave of the massive boomer generation turns 75 next year and the number of Canadians over 85 is expected to triple in roughly 20 years.

As private investment in nursing homes continues, seniors’ advocates argue against the generation of profit from residents with serious health problems, saying that business-focused homes cut costs by using part-time staff, rationing products or scrimping on laundry services.

Two for-profit insiders say the pandemic has forced a reckoning for some private long-term-care companies, with immense pressure to focus on care instead of the bottom line.

“The issue that we have to grapple with is, what are we designing long-term care to achieve?” said Laura Tamblyn Watts, CEO of national seniors’ organization CanAge.

“You can’t blame private equity for doing what private equity does, which is squeeze every single dollar out of what they invest. But that is not what we want for residents in long-term care. And that is the critical problem.”

Michael Missaghie, Arch Corporation president, told the Star his company will provide “resident-centred” care and uphold government regulations in the homes it bought this year, which include locations in Windsor, Leamington and Niagara-on-the-Lake. They range in size from roughly 55 to 124 residents.

“We see the sector as an attractive investment for many reasons, including … growth potential based on the needs of an aging population,” Missaghie said in an email.

“We want to be a meaningful and net positive part of the many communities where we currently have and intend to develop long-term-care facilities in the province.”

Arch Corporation did not seek government development money for new construction, although its home purchases come at a time of great expansion in Ontario, with the long-term-care ministry offering $1.75 billion to help operators renovate old buildings or build anew.

On Nov. 3, Ontario announced the sale of 23 “developable” acres of surplus government land in Oakville, Vaughan and Aurora for long-term-care homes that would care for 896 residents.

In its call for bids, CBRE, the broker-of-record working with Infrastructure Ontario, called the sale “a rare opportunity to acquire a premier portfolio of three separate development land parcels located across the Greater Toronto Area.”

It’s also a time of uncertainty.

Some insurance companies are refusing to provide long-term-care homes with liability coverage against COVID-19 and a long list of infectious illnesses such as Legionnaires Disease or certain strains of flu. Ontario’s legislative attempt to protect homes from lawsuits related to COVID doesn’t include the other infectious diseases, said Lisa Levin, CEO of Advantage Ontario, which represents not-for-profit and municipal homes.

Non-profit and for-profit homes need liability insurance to operate, Levin said.

Levin said the insurance is also needed to qualify for loans from lenders to fund construction, as provincial subsidies arrive only after the first resident moves into the home.

“It’s an existential issue,” added Donna Duncan, CEO of the Ontario Long Term Care Association. “The message we are hearing is that long-term care is uninsurable.”

Arch won approval to buy bed licences for three homes in January and four more in April after passing government eligibility requirements, including the “Minister’s Public Interest Tests,” which can look at a region’s balance between for-profit and not-for-profit homes, a ministry spokesperson said.

The homes Arch purchased, including Regency Park in Windsor, reported limited, if any, COVID cases and so far, according to the Ministry of Health, no resident deaths.

The company’s proposals to buy those 299 bed licences from four Chartwell homes and 251 beds from three homes owned by Meritas Care Corporation were posted on Ontario’s long-term-care licensing public consultation registry.

After selling licences for four of its homes to Arch, Chartwell said it now owns 19 nursing homes and manages four, with the majority of its business in private-paid retirement homes.

Arch’s website describes its “Senior Care Co-ownership Fund,” as a “direct investment opportunity” to develop nursing homes and privately paid retirement homes. The fund is “solely focused on the province of Ontario.”

Arch has plans for $100 million of equity in the fund, and at its “initial closing — as of June 30, 2018 — (had) $58 million committed,” the website said. That figure includes the $25 million from the family-owned multinational in the GCC. The GCC is known among investors as the Gulf Cooperation Council. Missaghie would not confirm this, citing private company information. The GCC represents six countries in the Arab Peninsula.

Arch has a plan to acquire roughly 850 to 1,000 long-term-care beds, the website said.

Until Ontario’s recent announcement of $1.75 billion for renovations and new builds, there hadn’t been any significant government funding for new long-term-care construction since the late 1990s.

The majority of current proposals for bed licence acquisitions (sometimes existing home licences are transferred between companies under the same corporate umbrella) and redevelopment money are from private owners, many of whom still operate old, small homes where infection is tough to control.

Dr. Nathan Stall, a geriatrician with Mount Sinai hospital, worked on a study published in the summer that found for-profit homes, often within larger chains, had more COVID infections and deaths.

He also worked on a recent study that examined reasons for the spread. It concluded that crowded homes (with shared rooms, narrow hallways and old ventilation) “were more likely to experience larger and deadlier COVID-19 outbreaks.

“It’s not as simple as saying all for-profit is bad and all non-profit is good,” he said.

Arch did not say how it plans to run its homes moving forward, but Health Ministry inspection reports show it currently uses companies such as Responsive Group or Universal Care to manage its homes.

Privately held firm Southbridge Care Homes has long used Extendicare Assist to manage its 27 nursing homes, though Candace Chartier, the company’s newly appointed “chief seniors’ advocate and strategic partnerships officer,” said its management style is changing.

At Southbridge’s Pickering home, Orchard Villa, where 70 residents died of COVID in the first wave, the company in September started a new model of “direct oversight of front-line care and services,” Chartier said. Timing on installing the model in its other homes hasn’t been determined, she said.

Extendicare Assist said it has “provided a number of administrative and consulting services to Southbridge Care Homes for many years, including at Orchard Villa, and we continue to do so.”

Southbridge recently won ministry approval for 300 additional beds to be added to existing homes in London, Owen Sound, Cornwall, Thunder Bay and Kemptville, near Ottawa, all of which will be redeveloped.

“It is our goal to ensure that seniors in Ontario have modern long-term-care spaces that support high standards of care,” said Chartier. That includes renovating old homes to add private and two-person rooms, she said.

Since the first wave of COVID, Chartier said Southbridge has hired an epidemiologist, sent nine staff for board-certified infection control training and hired another nine infection prevention and control experts.

As the Ontario Long-Term Care Commission into COVID-19 has heard from companies, unions, doctors and the military over the last few months, some have singled out the private sector.

On Oct. 15, Sharleen Stewart, president of the Service Employees International Union, told the three commissioners that the nursing home industry has long suffered from staffing shortages.

“Our union fought back against the system largely run by for-profit corporations that prioritized shareholder dividends over staff and resident well-being,” she said.

In her list of immediate “actions” needed to fix the system, she included: “No new builds awarded to for-profit nursing homes or operators.”

Commission members have asked pointed questions about ownership.

The future of corporate investment in the sector was the first question asked by commission chair, Associate Chief Justice Frank Marrocco, during a meeting with the Association of Municipalities of Ontario (AMO), which represents municipally operated homes.

“Do you see a role for the private sector … in the provision of long-term-care services?” Marrocco asked.

The responses were politely inconclusive although one AMO spokesperson noted that in 2016, municipalities provided an extra $350 million “over and above” the regular provincial funding for homes.

Commissioner Dr. Jack Kitts noted Ontario’s three nursing home models — not-for-profit, municipal and for-profit — and asked:

“Do we need three different types of homes? And is there an ideal model?”

The commission is to submit its final report by April 30, 2021.

“We want long-term care to be a place where seniors get the health, social and integrated care they need to live vibrant and purposeful lives,” said CanAge’s Tamblyn Watts. “We know emotion-focused models work best. And it’s hard to imagine private equity making the investments that are necessary to change the model, because that is not what private equity was set up to do.”

But Tamblyn Watts said it is possible that investment companies could recognize the business opportunity that comes from excellent care.

“There is a more enlightened argument where private equity could certainly decide that it is in the best interests of its investors to run the market in person-centred care and make homes a place where people want to go.”

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