After a year in which Covid-19 has cruelly exposed the frailties of Britain’s social care system, what’s striking is how little investors’ interest in the business of nursing and curing has dimmed.

Forget all those shaming death statistics that came out of care homes, their hand-to-mouth funding, and the fact that some large chains were struggling to find buyers even before the pandemic. Buyers are still willing to stump up, even if they are paying less.

Last month, the Dutch private equity firm Waterland sealed the £1.1bn purchase of the Priory Group from a US multinational, Acadia Healthcare. Best known for its luxury rehab clinic in London, which once treated the model Kate Moss, Priory is actually one of Britain’s largest private care chains, helping everyone from children with autism to dementia sufferers. 

Nor is Britain the only place where healthcare buyouts are back on the agenda. While Covid-19 slowed the pace of private equity investment in the US market, this came after a 20-fold increase between 2000 and 2018. A report by the consultancy Bain & Co expects an upsurge in consolidation as the sector emerges from the pandemic this year. 

On one level, the reasoning is obvious. If coronavirus has exposed anything, it is the need for elevated investment in healthcare infrastructure. But as talk turns to the idea of “building back better”, it’s worth asking also whether all this private equity involvement is a good thing — or whether, perversely, it might be making health outcomes worse.

A striking study led by Atul Gupta of the University of Pennsylvania and Sabrina Howell of NYU Stern School of Business suggests it is the latter. They looked at 119 US deals involving 1,667 care homes between 2000 and 2017. The logic behind the buyouts was to consolidate a fragmented, largely publicly-funded industry, leading to heightened financial and operational efficiencies.

The authors found that while there was evidence of these gains occurring, they came at the expense of patients. US care homes are ranked by the Centers for Medicare & Medicaid Services based on various measures of patient care, health outcomes and compliance. These ratings fell noticeably after buyout deals relative to other care home companies.

The reason? Buyout groups cut front-line staffing levels while pushing up bed occupancy. There was also evidence that nursing cuts were structured in ways to reduce costs to the owners while maximising reimbursements from public health systems. The results are similar to work by Ms Howell looking at “for profit” higher education institutions in the US — another subsidised sector that is a big private equity target. This found that “buyouts lead to expanded enrolment and increased profits”, but also to “lower graduation rates, higher student borrowing, lower repayment rates, and lower wage earnings”.

It’s worth asking why these poor outcomes did not lead to patients and students deserting private-equity owned providers. Ms Howell and her fellow authors note that, despite efforts to unpick opaque outcomes, there is no evidence that these affect demand.

Private equity proponents highlight the importance of efficiency in maximising the amount of care delivered from stretched healthcare budgets. But the elevated returns these owners demand should not be extracted from vulnerable patients in the form of less attentive (and sometimes shoddy) care. 

A decade ago, Southern Cross, an overleveraged UK care home chain, failed a few years after being floated by the private equity firm Blackstone. Jon Moulton, a British buyout boss, said the case showed that unfettered private equity ownership was unsuitable for the sector.

Care homes, he said, were “about doing good, caring for people” and while “profitmaking may be helpful in getting some people to do it”, pushing too hard for returns would “clearly be downplaying the caring requirements”.

Mr Moulton’s solution was to say we should treat care homes as regulated utilities and cap their return. Maybe that’s right but another, more rigorous, approach would be simply to restrict sectors such as healthcare provision and education to non-profit entities (as the UK has always done for secondary education). Either would be preferable to pure capitalism on steroids. Before building back better, we must ensure the foundations are sound.

jonathan.ford@ft.com



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