Nursing homes reliant on profit-driven operators

Ireland’s nursing home sector is increasingly reliant on a small number of profit-driven international operators.

That’s one of the main findings from a new report carried out by the Economic and Social Research Institute.

The report, which looks at developments in the sector since the Covid-19 pandemic, shows that 38% of all long-term residential care (LTRC) beds are now operated by 15 medium to large operators, 14 of which are private equity funded.

It said that operators with at least five nursing care homes now provide more beds than the often family run, independently owned care homes that dominated the sector up until recently, and who now supply just 35% of the long-term residential care beds in the country.

The report found that the larger operators now “dominate” supply and have transitioned from being “passive price acceptors to strong negotiators, potentially driving up prices” and have said more stringent oversight on private equity ownership in the sector may be warranted.

The report’s authors also predict that based on current trends the number of beds supplied by medium and large operators looks set to increase, and with it regional inequalities.

“Driven by profit motives, private providers are likely to establish homes in high-demand areas and where NHSS (Nursing Home Support Scheme) payments are highest, thereby exacerbating existing inequalities in LTRC supply,” the report said.

The report noted that there were 336 fewer LTRC beds available in Ireland after the Covid-19 pandemic (down from 32,064 in February 2020 to 31,728 in December 2022).

“While this equates to only a 1% reduction, the decline occurred disproportionately in rural counties that have a relatively low supply of beds” it said.

It noted that while the decline was “partly due to the closure of smaller private LTRC homes in rural areas” which received extensive media attention, “the predominant factor” was “the closure of 693 beds” in public care homes.

And yet while this was happening Dublin, Kildare, Louth, Meath and Waterford saw bed numbers increase “driven by the opening of large (>150 beds) LTRC homes by private equity funded owners and operators”.

As a result the report said that “Dublin and commuter belt counties…now have the highest LTRC bed supply per 1,000 population aged 65+” while “more rural counties such as Laois, Sligo, Donegal, Monaghan, Kerry and Leitrim have the lowest”.

At 53.3 beds per 1,000 population aged 65+ Kildare now has the highest per capita supply in the country, while neighbouring Laois has just 28.5.

And the report predicts that “regional inequalities are likely to increase further” with planning data indicating that by the end of 2024 “private equity funded owners and operators are set to open several other large facilities”, all in counties that already boast a relatively high supply.

The report said that there has been a “marked shift towards a consolidation of LTRC homes under larger operator groups” and identified that “many” of the medium and large operators” are recent entrants to the Irish market, financed by international private equity”

It noted that this means that the sector “is now closely linked to international economic conditions”.

It cited by way of example that the largest LTRC operator in Ireland, Orpea, is effectively owned by the French state.

This came about after it was brought under the control of the French State’s investment fund in 2023 “following revelations about care quality issues for residents”.

The report also noted the increased presence of Real Estate Investment Trust (REITs) in the sector.

Highlighted was a “new landscape” where ownership and care provision are being separated, something that it said did not happen in “more traditional” independently run and owned homes or in public homes.

It described how arrangements separating ownership (the real estate owner ‘PropCo’) and care provision (the operator ‘OpCo’) “result in operators (OpCo) paying rent to REITs who do not pay corporation tax on property rental income” and “allowed for distance between ownership and resident care, regulations, hiring etc.”

“The general modus operandi of REITs and private equity was to invest in, and to take ownership of, companies with the goal of enhancing their value and subsequently selling the company in a relatively short amount of time” it noted.

As REITs were “relatively new” players in this sector the report’s authors said it was “difficult to know” the impact their involvement would have, but noted that “evidence from other countries has shown some negative effects of REITs and private equity in healthcare and LTRC, especially during the Covid-19.”

The report has called for “a robust regulatory framework that centres on resident care and operator transparency”.

“It is crucial to the sustainability of the sector that a balance between the financial viability of providers, compliance with regulations and covering health and social care needs, and the strategic planning of supply to meet demand across the country occurs” the authors wrote.

The report noted that the 2021 – 2030 National Development plan proposed a shift from a 20:80 public-private split in the LTRC provision, but instead “the dominance of private provision has increased to 83%” (by December 2022 the voluntary/private sector supplied 83% of all LTRC beds).

And while it noted that “planned CNUs (Community Nursing Units) and 530 beds that will be built will help increase public supply” it said that this will “fail to turn the tide from private provision”.

Minister for Mental Health and Older People Mary Butler has welcomed the report.

A spokesperson for the Minister said that it brought “into focus the challenges facing the long-term residential care sector in Ireland which the Government continues to address to provide short-term stability and long-term growth to this sector.”

“Minister Butler is fully aware of the important role smaller and voluntary nursing homes play in their communities and conscious that they may not have access to the same economies of scale as larger homes or groups,” they said.

“The Government is committed to seeing greater public sector involvement in the residential care of older people in Ireland and to move over time towards a needs-based model of funding and pricing for the nursing home sector. This will bring clarity to prices more generally across the sector, with the expectation that those nursing homes catering for residents with greater needs are reimbursed accordingly.”

In examining the impact of Covid-19 on the LTRC sector the ESRI report noted that 65% of all homes had at least one outbreak.

It found that “no difference was observed between public and voluntary/private homes in the probability of experiencing an outbreak”.

However the report found that larger homes were 3.5 times more likely to have an outbreak compared to smaller ones.

It also found that being located in a county with high community Covid-19 rates was “the largest determinant” of having a Covid-19 outbreak in a LTRC home.