The NY Times had an incredible article explaining why the nursing home industry’s emphasis of profits over people caused thousands to die. No nursing home could be completely prepared for a pandemic as devastating as Covid-19, but some for-profit homes were particularly ill equipped and understaffed, which undercut their ability to contain the spread of the coronavirus, according to interviews with more than a dozen nursing home workers and elder-care lawyers. The article explains how private equity firms and REITs have siphoned funds away from the facility causing many nursing homes to look unprofitable, falling into disrepair, and struggling to attract new occupants. Their troubled state was years in the making.
Ownership by private equity and other private investment firms left nursing homes with large mortgage debt and razor-thin margins. Even so, many of their owners still found creative ways to wring profits out of them, according to an analysis of federal and state data by The New York Times. In many cases, investors created new companies to hold the real estate assets because the buildings were more valuable than the businesses themselves, especially with fewer nursing homes being built. Sometimes, investors would buy a nursing home from an operator only to lease back the building and charge the operator hefty management and consulting fees. Investors also pushed nursing homes to buy ambulance transports, drugs, ventilators and other products or services at above-market rates from other companies they owned.
The pandemic “has brought a lot of these issues to the forefront,” said David Grabowski, professor of health care policy at Harvard Medical School. “With this huge health crisis and economic downturn, we are all of a sudden seeing how risky it is to have the ownership split between the real estate side that has the most valuable asset and the operator, who is left with much less.”
Controlling the real estate gives investors, including real estate investment trusts, leverage to raise rents. Separating the real estate from the operating business can also help limit liability in wrongful-death lawsuits, because the latter typically has little cash and few assets.
“The structure is designed to keep liability on the company that has the fewest assets and the most debt,” said William Murray, a plaintiffs lawyer who specializes in suing nursing homes.
Private equity firms and other investors first gravitated to nursing homes more than a decade ago, betting that aging baby boomers would create demand irrespective of economic cycles and counting on a steady stream of Medicare and Medicaid reimbursements.
A recent report on private equity buyouts of nursing homes, which studied 119 transactions from 2000 to 2017, said private equity owners tended to put “high-powered profit maximizing incentives” first. The researchers found that after private equity stepped in, nursing staff hours per patient fell 2.4 percent, and staff quality as measured by federal regulators fell 3.6 percent.
“The quality of care declines after the private equity buyout, which seems to reflect staffing cuts,” said one of the report’s authors, Sabrina T. Howell, assistant professor of finance at New York University’s Stern School of Business.
“A lot of these nursing homes are trying to get immunity because of Covid, and that is really scary because some of these companies are so negligent,” said Charlene Harrington, a professor emerita of nursing at the University of California, San Francisco. Many for-profit nursing home operators report meager profits only because income is “drained off in their management contracts,” she said.
Not all nursing home buyouts have worked well for private equity firms. In 2018, HCR ManorCare, which was the nation’s second-largest nursing home operator, filed for bankruptcy protection — a decade after the Carlyle Group, a big private equity firm, acquired it. When it filed, ManorCare had $7.1 billion in debt, and its facilities had racked up numerous citations for failure to treat infections and properly monitor residents’ medications, records show.
Years before ManorCare declared bankruptcy, Carlyle sold the homes for $6.1 billion to a real estate investment trust, a move that largely wiped out the debt of the nursing homes. ManorCare then rented many of those facilities.