Grandstand. Victor Castanet’s book-investigation, The Gravediggers (Fayard, 400 pages, 22.90 euros), on the private group of Ehpad Orpea, aroused a rapid reaction from the public authorities: an investigation by the general inspection of social affairs was announced; the group’s managing director was summoned and, since, dismissed by its board of directors. Coming after the crisis due to Covid-19, which had already thrown a violent light on nursing homes, these revelations, beyond the facts cited in the book, challenge the public authorities on the regulation of private commercial nursing homes, in particular in view of certain pricing practices.
These commercial nursing homes now accommodate 150,000 elderly people. A global change in management mode would therefore not be realistic in the short term, and it would be unfair to cast shame on the entire sector. However, the financialization of the commercial sector over the past ten years is impressive. It took the public authorities by surprise, as they were unable to anticipate either its power or its consequences.
To consider what a new regulation could be, it is necessary to understand the origin of this financialization. The nursing home business groups have benefited from a combination of favorable elements: protective barriers to entry, linked to operating permits; positive demographic fundamentals, due to aging and significant public grants which are stabilizing their turnover.
Without authorization, no profit
These assets have made these groups very attractive targets for financial investors. While, since the financial crisis of 2008, the accommodative policy of the European Central Bank has flooded the market with liquidity, the valuation of these companies has exploded. In 2014, a private nursing home group bought around 9.5 times its operating profit. In 2019, this multiple reached 14.5. In five years, the value of a nursing home group was thus able to increase by more than 50%. Fueled mainly by investment funds attracted by the sector’s prospects, this financialization has led managers to make financial management the central criterion of their action.
Is it normal for private commercial nursing homes to generate such high returns when they benefit from public solidarity schemes? No. Is it possible to rethink the regulation of this sector with a fair, equitable and easy-to-implement mechanism? Yes.
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