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Ottawa (11 May 2022) — A report from Public Services International (PSI) released this week shows why ending financialization of long-term care is essential if we want to fix the problems caused by underfunding. The report Care Givers and Takers, How finance extracts wealth from the care sector and harms us all shows how the involvement of private equity firms in long-term care dramatically increases the problem of money that should be used to pay for care instead being diverted into the pockets of the very wealthy.
When private equity firms are involved in long-term care, increasing public funding for long-term care is unlikely to be enough to fix the under-funding crisis. There will always be a danger that private equity firms will find way to syphon off a significant portion of the funds to inflate their profits.
Financialization makes privatization even worse
The problems caused by privatization of long-term care are well-documented. Residents receive less care. There are more likely to be issues with services like food or laundry. Facilities are less likely to be upgraded to meet current standards. All this happens because any profit companies make comes from the funds that, in public or non-profit facilities, would be used to help pay for patient care.
What separates financialization from privatization is that when private equity firms or hedge funds take over a company, the focus becomes “extracting wealth” rather than merely making a profit. Some of the methods private equity firms and hedge funds use to extract wealth from companies they own have been compared to having tapeworms. These methods don’t just cut corners to increase profits, they actually harm the long-term viability of the business.
Long-term care companies forced to borrow money to boost private equity fund profits
The ways that private equity firms are syphoning money out of long-term care providers are explained in Ten Tricks: A Short Handbook of Financial Engineering by PSI.
Among the methods private equity funds and hedge funds use is having companies they own borrow money to pay special dividends to the owners. This boosts the short-term profits for private equity funds and hedge funds, but leaves companies laden with debt.
What the methods used by private equity funds and hedge funds have in common is they allow company owners to take far more money out of the company as profits than the company can actually afford. This means there is less money for care and both long-term care facility residents and staff suffer as a result.
As the report outlines, the impact of financialization on long-term care is part of a larger problem with the financial sector. In many countries, including Canada, the financial sector has grown to the point where it is damaging other sectors of the economy, including public services.
The same methods used to syphon money out of for-profit long-term care companies are being used in other sectors of the economy. This is occurring with both privatized services and companies that have always been part of the private sector.
Ending privatization is the most effective way to deal with financialization
There is an effective way to deal with the problem of the financialization of long-term care and other publicly funded services — end privatization. When services are publicly delivered it is no longer possible for private equity firms and hedge funds to syphon money out of them. And when we need to increase funding for long-term care and other services to make sure the problems we saw during the COVID-19 pandemic aren’t repeated, making sure that all of the additional funding is spent improving care is more important than ever.