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Private-equity firms have been prime targets in long-term-care reform proposals emerging during the COVID-19 crisis. But efforts to overhaul the industry are hitting a snag: that it’s tough to regulate nursing-home owners, operators and related parties when many of them remain in the shadows.
A report set to be released Friday by the Roosevelt Institute, a New York think tank, underscores the problem. Arguing that private-equity firms focus on extracting profits to the detriment of patient care, the report calls on Congress to ban these firms from buying nursing homes and to require those that currently operate facilities to divest from them within five years. While the report points out that the government’s data on nursing-home ownership are incomplete, it doesn’t describe exactly how private-equity firms are to be banned from the industry when no one has a full picture of how many facilities the firms own or the corporate webs that link them with property, management and related companies.
As nursing-home ownership structures have grown more complex in recent years, rules designed to cast sunlight on ownership have gone unenforced, and changes in facility ownership have received little scrutiny, researchers say. The Centers for Medicare and Medicaid Services, for example, hasn’t fully enforced parts of the Affordable Care Act requiring nursing homes to disclose certain ownership details, says Anne Montgomery, who helped draft the ACA’s nursing-home provisions and is currently director of eldercare improvement at the nonprofit research organization Altarum.
That leaves room for debate over just how big a role private equity plays in the nursing-home industry and what, if anything, should be done to limit its influence.
Under pressure from lawmakers and academics questioning the quality of care in private-equity-owned nursing homes, private-equity industry group the American Investment Council has described that role as “limited,” saying that “only 9% of nursing home facilities are owned by private equity sponsors.”
The 9% figure is drawn from a study by researchers at New York University, the University of Pennsylvania and the University of Chicago — but it’s far from a hard-and-fast statistic, says Sabrina Howell, assistant professor of finance at NYU and co-author of the study.
The researchers spent about a year painstakingly matching the targets of private-equity buyouts — often holding companies or chains — with individual facilities, Howell says, but some deals couldn’t be matched with facilities, and the researchers didn’t analyze deals from 2016 to 2020, a period in which the number of deals surged. In other words, “we don’t know what the real number is,” she says, but it’s almost certainly higher than 9%.
The study’s value, she says, is not in pinpointing the percentage of private-equity-owned facilities but in analyzing the effects of that ownership. The researchers found that private-equity ownership of nursing homes increased the short-term mortality of Medicare patients by 10% — implying more than 20,000 lives lost over the 12-year sample period — while increasing taxpayer spending per patient episode by 11%.
Private-equity investment in U.S. healthcare totaled more than $100 billion in 2019, up from less than $5 billion in 2000, Howell told the House Ways and Means oversight subcommittee last month. The subcommittee’s hearing on private equity’s role in healthcare came weeks after nursing-home giant Genesis HealthCare
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announced a private-equity-backed capital infusion as part of a major restructuring.
The ownership structures employed by private equity and other for-profit nursing-home owners, combined with the cloudy facility-ownership data, raise questions about what sort of bang the government is getting for taxpayers’ buck, researchers say. Medicare and Medicaid spent nearly $90 billion on nursing-facility care in 2019, an amount that’s projected to grow to more than $150 billion by 2028, according to CMS.
About 70% of nursing homes have for-profit ownership. Private equity and other nursing-home owners often carve up the business into separate operating and property companies in ways that can insulate the parent companies from legal liability as well as regulatory oversight, and they can profit when their facilities buy services from related parties — a practice that critics say can divert taxpayer money away from direct patient care and other essentials.
The nursing-home industry says the focus should be on what it describes as chronic Medicaid underfunding rather than ownership structures. “If policymakers would take action to adequately reimburse providers, you would not see nursing homes on the verge of collapse and sometimes searching for private investment to stay afloat,” nursing-home industry group the American Health Care Association/National Center for Assisted Living said in a statement.
American Investment Council CEO Drew Maloney said in a statement last month that “the private equity industry is having an overwhelmingly positive impact on health care across America,” including lowering costs, improving access and delivering more effective treatments.
Some states are trying to get a better grip on facility owners and their related parties as they grapple with fallout from the pandemic, which has killed more than 130,000 nursing-home residents. The California legislature, for example, is considering a bill that would require nursing homes and related entities to file annual consolidated financial reports.
The Maryland legislature, meanwhile, recently passed a bill requiring more frequent inspections of facilities recently purchased by entities not already operating in the state. In introducing the bill, Pamela Beidle, a state senator, cited a string of recent Maryland nursing-home acquisitions and regulatory violations involving Englewood Cliffs, N.J.–based Portopiccolo Group, whose nursing-home buying spree was reported by Barron’s last summer. Portopiccolo, which declined to comment, last year described itself as a “family owned private equity and investment management firm” but has since removed the “private equity” label from its website and now says it’s a family office.
While states create patchwork solutions, action is needed at the federal level to shine light on nursing-home owners, researchers say. Montgomery and other researchers say that CMS should enforce the ACA rules and require reporting of all property, management and related companies; issue new rules that bar operators with poor patient-care track records from taking over more facilities; and require nursing homes to file annual financial reports including data from all entities under common ownership. CMS did not respond to a request for comment.
Even while ownership data remain murky, Melea Atkins, a public health consultant and author of the Roosevelt report, says that “we do know enough to take decisive action to ban private-equity ownership of nursing homes.”
But many other researchers say the aim should not be to banish private equity or any other type of nursing-home owner but to hold all industry players to the same, high standards. To tackle concerns about operators putting profits over patients, regulators could make nursing homes less attractive to investors that aim to make a quick buck by skimping on staffing and patient care. That could mean mandating a certain number of staffing hours per resident day and requiring that facilities spend a threshold percentage of federal funds on resident care, says Nina Kohn, a professor at the Syracuse University College of Law.
With those changes, “you’re not simply limiting your focus to private equity,” Kohn says. “You’re really trying to get at the underlying problem, which is that nursing-home owners can make a profit — substantial profit — by deliberately deciding to engage in systemic neglect.”
