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The four leading companies in the European market for care homes all come from France. How can this be explained?
The law which allowed the private sector to enter the market was decided in the 1970s. And liberalisation in most other European countries started later, around the year 2000.
So you had what economists call the advantage of the first mover?
Care for the elderly is a social task for society and the state in general. What makes it so attractive for commercial investors?
It is kind of a common good, especially in European countries where we have strong systems of social security. This a comparative advantage of Europe — care is a common treasury we have to protect. We are happy to contribute to this, and for this reason, we invest a lot here in Europe, and not in Latin America or China as others do. It is this mission that makes it attractive. In addition, Korian has strong assets, like our digital approach or real estate investment (ca. €500 million alone last year). To fund further innovation, grow investment in our employees, and to face the complex health and care situation, we need investors. Of course, we have to be profitable, but we think these profits must be reinvested in the system. Being a private operator, we go beyond just applying the regulation the states want, but also aiming at additional quality standards (like reaching DIN ISO 9001 certification for our entire network by end of 2021). And being responsible for a public mission, we always balance the financial and the non-financial performance. And we foster innovation by always best serving the residents. And by doing this, we attract private capital.
Experts all over Europe are warning that there are too few staff in care homes for the elderly. How does this staff shortage affect your company?
That is true and it affects all operators in the same way. We try to overcome the lack of personnel by recruiting differently and invest in the loyalty of our employees in order to reduce the fluctuation. First and foremost, that means hiring and training apprentices. In Germany, they represent 10 per cent of our workforce, because there, you have this good system of vocational training. In this way, you get the young people who want to work in the profession. It’s curious that in France there was no such system for the care sector. But now we also have 500 apprentices in France who study in our training centres. We will increase this in order to avoid the staff shortage. Additionally, we hire people with other kinds of education and retrain them for care work according to the official rules for the diploma.
Experienced care home managers told us that for sufficient care service, around 70 per cent of the revenue needs to be spent on personnel. According to Korian’s balance sheet, the company spends only 53 per cent on staff costs. Do you save on the cost of your employees and the residents?
That’s a matter of the past. The costs for staff are increasing, now they are around 58 per cent and growing. However, it is very difficult to compare figures from one country to another and between different care services. In-home care, wages (and fleet management) naturally rank among the largest expenses. Thus, care personnel also represents a higher percentage of revenue than in nursing homes. That said, we noticed that all states where we operate have increased the basic salary for nurses and caregivers.
We took the figure from your annual report for the shareholders from 2020.
Overall, our salaries increased by 10 per cent last year. In addition, many caregivers received a Corona premium last year. I think the states are aware that if they want a high-quality health and care system, they have to increase the base salary of caregivers. In addition, companies can add additional wages or bonuses on their own. This is what we do, trying to align with the situation in each country. In Germany, for example, we now have a kind of a reference table for the wages in each region when hiring new nurses — and can thus be consistent with competitors from the public and non-profit sector. There is a general awareness that the wages must increase, not least because we have to adapt to a labour market where demand is higher than supply.
You have addressed the wages, but what is more important for the caregivers is the lack of a sufficient number of colleagues needed to actually deliver good service and do the job correctly. That is why there have been reports of serious mistreatment of residents in Korian care homes, for example in Augsburg, Potsdam or Hamburg.
I can assure you, we stick to the rules regarding the number of caregivers. Otherwise, we would run the risk of being forced to close the respective facilities in Germany where such a system exists.
Still, in a large network, quality incidents can occur. The most important question is always: How well do we respond? How fast can we be in sincerely listening to our residents and families and translating this feedback into sustainable consequences? For that, we have set up quality monitoring, improved our complaint management, and are about to establish a system of resident mediators to communicate directly with families (as a kind of early warning system).
As for the specific cases that you were mentioning: These were not the result of lacking staff, but indeed of poor leadership (leading to insufficient planning and overtaxing of team leads, for instance). All cases were reacted on with zero-tolerance from our side.
Do you think the German standard is sufficient for good quality of care?
Yes, not least because the German care system is better funded compared to other countries. Moreover, the staff quota is related to the care grade of the residents, not to the number of beds available in a facility. At Korian, we have currently 0.68 Full-Time Equivalents per bed, which is quite good.
A caregiver in a Korian facility said, “We regularly have absenteeism rates of almost 30 per cent. The employer only calculates with 20 per cent. There is a huge hole in staffing. The usual vicious circle begins. We are understaffed. Colleagues are overworked. They have to work more shifts. These are catastrophically stressful, both mentally and physically. The colleagues get sick and are absent from work. Then the situation repeats itself.” Don’t you care about your staff?
Of course, we do! People are at the core of our business. It is they who deliver the quality of care. There is no other option. We handle all these issues transparently. The average rate of absenteeism at Korian is 13 per cent and the rate of fluctuation of staff is around 20 per cent. Last year, due to the Covid pandemic, it was higher in some places, but that is not a proper reference. But believe me, we do all we can to improve it, for instance, we work hard to reduce the frequency of accidents. And above all, we take care to improve the management. Bad management styles are the main reason why caregivers become ill or quit the job. Good managers listen to their people, understand their needs, and prepare staff rosters accordingly. That is why we have launched a large program for the training of all site managers, called S’Keys
We also spoke to relatives of people in Korian homes. One shared the following story with us: “My husband has swallowing paralysis. He is not capable to eat alone. I came to the home one afternoon in 2019. My husband was lying in bed. There was a bowl of soup on the bedside cabinet next to my husband. My husband had poured all the soup over himself. I threw back the covers. My husband had diarrhoea and he was lying in his own faeces. I went and got a nurse. She said she hadn’t got around to looking after my husband yet. The nurse came into the room and fetched a terry cloth towel. My husband had the raw meat lying between his legs. The nurse rubbed it with the towel. My husband was lying in bed and shivering.” Are you endangering the health of your residents with the lack of staff?
Of course not, such things do not happen on purpose. I don’t contest what has been told to you. But I assure, each time we hear such complaints we engage with the people. We call them and talk to them to find out what happened and how. We really try to be open to any complaint and solve these problems each time. It’s a continuous process. For example, one of our ESG actions is to establish an independent mediator in each country to facilitate the dialogue between us and families when such situations happen. This mediator has just been appointed in France; other countries will follow soon.
According to our sources, German supervisory authorities have repeatedly imposed occupancy stops in Korian facilities. Why is this happening?
I was not aware of that. I only know that two out of the 260 facilities we have are currently affected by such a stop, and this is [closely] monitored by the head of operations in Germany. I am not saying that it can’t happen sometimes. For instance, in some federal states, this is an automatism. But in most cases, we do impose a stop on our own as part of our responsibility to ensure the safety of our residents and to protect our staff. Given the scarcity of skilled personnel, it can take a long time to fill vacant positions. To ensure high-quality care, we therefore sometimes wait for new staff before taking on new residents. Of course, we are cooperating closely with authorities in such cases. We know that the faster we openly address such an incident, the better residents and their relatives will talk about us. So, it is in our own interest to solve those issues.
According to experts, the German system alone lacks about 4 to €5 billion a year for sufficiently good care. Europe-wide, the funding gap is supposed to be a multiple of that. If so, much money is needed. How is that compatible with private companies extracting profits from the sector?
Yes, we believe we are complementary to the public funding. I don’t want to debate public versus private. This is not our story. We are very much dependent on public funding. But we are also part of the care chain, of the common mission.
To put it more concretely: Korian reports an annual operating profit of 10 per cent of the turnover. Wouldn’t it be better to spend this money on more caregivers?
One must be careful with this ratio: The net profit in our sector is very small. We pay less in dividends than in taxes. Of course, our investors want their money to be invested in value. But close to 40 per cent of our capital is owned by long-term investors. These investors want to support the consolidation of the public health system, to make it financially sustainable. In this way, you have to see our margin is an incentive for increasing efficiency (which is a prerequisite for keeping care affordable for a broad public). And we are a strong local investor. When we build new houses and renovate old ones, we spend around €500 million per year, which creates jobs in construction also. Thus, we produce added value for the common good.
The German federal government has decided to mandate all care companies to pay wages that are collectively agreed upon with trade unions. Do you support this law?
Yes, we support it. It will harmonise the wages across all regions…
…so did you leave the employers’ association BPA? They are against it and have even threatened to file a complaint with the constitutional court…
This is politics, we keep out of that. We find it positive that we will have the same level of playing field for all operators who compete for the same personnel, be they non-profit or private. But we prefer to close agreements with trade unions on the local level, which mirror the regional differences in prices and standards of living. In this way, we can better structure the social dialogue and organise the works council bodies to negotiate locally what has to be done locally. We want to push the social dialogue not only in Germany but in all countries we operate.
Besides strategic investors like Korian, many private equity firms are active in the sector, realising very high profits and burdening the purchased companies with high debts. How do you assess this development?
This is not our business model. We even think that this model is downgrading the approach we want to pursue. We do not blame others for making money in this sector. But there are some firms that have no long-term strategy and want to make big money fast. Thinking only short-term is never good for such a sector.