BUSINESS/ECONOMY

Profits in health care

THERESA TEDESCO June 8 1987
BUSINESS/ECONOMY

Profits in health care

THERESA TEDESCO June 8 1987

Profits in health care

BUSINESS/ECONOMY

Pink wicker chairs and Chinese lacquer cabinets line the narrow hallways. The suites are decorated in muted pastels reminiscent of the popular television show Miami Vice. Indeed, the retirement home in downtown Toronto, showpiece of the North American Central Park Lodges chain, looks in many ways like a luxury hotel. But for the 116 residents, who pay between $1,600 and $2,700 a month for a private room, laundry service and three meals a day, the decor is a vital part of their healthier lifestyle. Currently being renovated at a cost of $400,000, the Spadina Avenue lodge is typical of the strategy of the chain’s owner, Calgary-based Trizec Corp. Ltd., to attract a more active, more affluent clientele from the burgeoning ranks of Canada’s senior citizens. And it symbolizes a rapidly growing interest in the business of caring for the elderly. Said Ira Katzin, an analyst at Toronto-based Prudential-Bache Securities Canada Ltd.: “Companies realize that there will be a significant market out there.”

There are currently 2.7 million Canadians aged 65 and over, and Statistics Canada predicts that the number will increase to four million by the year 2000. The potential for serving that market has led several large conglomerates interested in the healthcare industry to buy out small nursing and retirement home operators in both Canada and the United States. Other entrepreneurs are establishing walk-in clinics in shopping centres throughout the country to provide on-the-spot medical and dental care. Many of the large companies focusing on the businesses of health and retirement already have interests that can profit from a captive market of aging but prosperous and health-conscious customers. Financial companies that sell trust, insurance and investment services have targeted the needs of the elderly as a compatible growth industry for their existing services. As well, many of those Canadian companies are focusing their expansion away from the highly regulated health-care industry in Canada and into the less restrictive United States.

Trizec, a real estate company with $7.5 billion in Canadian and U.S. assets, is among the heaviest investors in the health market. The company entered the retirement-home business in 1969, when it purchased the 17-home Central Park Lodges chain. Last year Trizec was one of several Canadian companies to penetrate the U.S. market when it purchased eight Florida-

based retirement and nursing homes for $81 million. The retirement business added $110 million to Trizec’s revenues last year, and company officials estimate that revenue will rise to $140 million in 1987. Said William Jappy, president of Central Park Lodges: “A lot of people can afford to pay $2,000 to $3,000 a month for a retirement facility.”

Certainly, an elderly population is not necessarily an unhealthy one. Numerous privately operated retirement homes have surfaced across the country, serving the elderly who do not require medical attention but want a communal atmosphere. One major participant in that field is the London Life Insurance Co. of London, Ont., which is part of Trilon Financial Corp., a Toronto-based trust, investment and insurance conglomerate. In March, London Life purchased a 50per-cent interest for $4.2 million in a Vancouver-based company which currently has one retirement complex un-

der construction and plans to build 14 more over the next five years—including nine in the United States. Said Charles Kimball, London Life’s vicepresident of group insurance: “We see a growing market for seniors.”

But strict government regulations have made it difficult for some companies to expand in Canada. Both private and public nursing homes receive government subsidies totalling $49.16 a day for each of their residents, regardless of the services provided. In Ontario, the provincial government contributes $29 in subsidies, and the remaining $20.16 is paid by the resident. Other provinces have similar arrangements. Of Ontario’s 29,976 licensed beds, the private sector accounts for 28,977, while 999 are operated by such nonprofit organizations as municipalities, hospitals and charitable institutions.

Last week the Ontario government passed an amendment to the Nursing Home Act that requires all privately held nursing homes to provide an annual financial statement. An official

in the health ministry said that the changes simply make privately operated nursing homes financially accountable for their government subsidies. But industry spokesmen said that they detected other motivations. Said Harvey Nightingale, president of the Ontario Nursing Home Association, representing 304 nursing homes: “The regulation implies that somehow they don’t trust us.”

Indeed, many Canadian operators are turning to the less regulated market in the United States. Toronto-based financial conglomerate Crownx Inc., for one, provided part of a Canadian surge of investment, amounting to $125 million, in U.S. health-related businesses in the past six months. Through its nursinghome subsidiary, Extendicare Health Services Inc., the company paid $25 million for seven nursing homes in Washington state, increasing its U.S. presence to 140 homes. The company, which has 5,000 licensed nursing home beds in Ontario alone, is the fourthlargest operator of nursing-care centres in North America.

A strong U.S. presence has contributed to Extendicare’s financial health, accounting for more than 60 per cent of the company’s annual revenues. The company posted a 10.6-per-cent increase in revenues for the first quarter of 1987 over the same period last year. Said Extendicare’s president, Frederick Ladly: “The demographics ensure that the place will always be full.”

But some of the fastest-growing businesses are franchised storefront health clinics. Last year Toronto-based Tridont Health Care Inc. opened 23 dental centres, bringing the total to 92. As well, it operates 12 multidiscipline health-care centres, five chiropractic clinics, 12 optical outlets and one podiatry clinic, Feet First Footcare Inc. Future expansion, funded in part by a $600,000 investment by Toronto-based cinema chain Cineplex Odeon Corp., will also include the United States. Company executives said that their own market study had revealed that elderly customers would be attracted to retail health-care services. They said that they are also appealing to a

younger client who is sports-oriented but prone to injuries. Said Brian Price, Tridont’s dentist president and chief executive officer: “It’s not a marketplace we can ignore.”

Price said that the company is also considering using its clinics to offer a range of medical services to nursing homes. For its part, London Life’s Kimball said that his company plans to launch similar storefront businesses, including pharmaceutical, optical care and nursing assistance operations.

Some industry analysts say that the larger companies are attracted to the health-care industry in part by the captive market that the residents in the homes provide for their main business— financial services. Indeed, Charles C. Black, vice-president for insurance operations of the 109-member Canadian Life and Health Insurance Association, says that overlapping services is one way large conglomerates can cut costs. As well, Black said that insurance companies can effectively manage health-care companies because they can use infor-

mation gained from their experience in the life insurance industry. Said Black: “The driving force is the rising cost of health care.”

Indeed, the increasing costs of health-care services have sparked a debate among practitioners, governments and the public on the role of the private sector. While most Canadians support state-funded social welfare, many oppose tax increases to fund the expanding need for services. At the same time, there is widespread criticism when governments curtail health services to pare down their budgets. As a result, many cash-rich companies are faced with the dilemma of operating within a system that is tightly regulated by governments. Said Central Park Lodges’ Jappy: “Private entrepreneur-based health care is accepted in the United States. You do not have the disdain for [private care] that you do in Canada.”

But critics of private nursinghome operators question their claim that the business is overregulated and underfunded. Said David Cooke, the Ontario New Democratic Party’s health critic: “If it is so unprofitable, why are these companies grabbing at the beds?” Others have expressed concern about the ethics of profit-motivated companies assuming a larger role in the provision of health care, particularly for the elderly.

his part, Extendicare’s Ladly says that as the population continues to age and the burden on the public health-care system grows, provincial governments will eventually turn to the private sector to provide some of the services. That will create even more business opportunities—but only if governments are willing to transfer some of the control as well. For Canadians, the privatization of health services will be a leap of faith—and until then many Canadian companies will be diverting ready funds into acquisitions south of the border.

THERESA TEDESCO

with

ANN WALMSLEY

in Toronto