Many Nursing Homes Being Acquired By Wall Street Investment Firms

Main Category: Seniors / Aging
Also Included In: Caregivers / Homecare
Article Date: 26 Sep 2007 - 6:00 PDT

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As Wall Street investment firms in recent years have acquired thousands of U.S. nursing homes, they have "often reduced costs, increased profits and quickly resold facilities for significant gains," but by "many regulatory benchmarks, residents at those nursing homes are worse off, on average, than they were under previous owners," the New York Times reports. In an analysis of data collected by CMS from 2000 to 2006, the Times found large private investors who have purchased nursing homes have increased their profits by cutting expenses and staff, sometimes below minimum legal requirements.

The analysis includes information from more than 1,200 nursing homes purchased by large private investment groups since 2000 and more than 14,000 other homes. In recent years, large private investment groups have agreed to purchase six of the nation's 10 largest nursing home chains, containing over 141,000 beds -- 9% of the nation's total -- in addition to owning at least another 60,000 beds at smaller chains. The Times reports that chains owned by private investment companies were 41% more profitable than the average facility in 2005, with privately owned homes earning $1,700 per resident, according to reports filed by the facilities.

The Times analysis shows that many nursing homes acquired by private investment groups before 2006 scored worse than national average rates for 12 of 14 indicators of care, including bedsores and preventable infections. Before they were taken over, those same facilities often scored at or above national averages.

According to the Times, the complexity of the corporate structures that are established when an investment firm acquires nursing home properties makes it difficult for family members to sue. About 70% of attorneys who once pursued lawsuits against nursing homes have stopped doing so because the cases have become too expensive or difficult, according to estimates from Nathan Carter, a Florida plaintiffs' lawyer. Corporate complexity also makes it harder for regulators to know when one company controls several properties and to collect on fines levied. Advocates for industry reform say that "anyone who profits from a facility should be held accountable for its care," the Times reports.

Comments
Ronald Silva, president and CEO of Fillmore Capital Partners -- which paid $1.8 billion last year to buy one of the nation's largest nursing home chains -- said nursing homes are "essentially unlimited consumer demand as the baby boomers age," adding, "I've never seen a surer bet."

Jack MacDonald, an executive with a company owned by Fillmore, said the Times analysis was incomplete, adding, "We are focused on becoming a better organization today than we were 18 months ago. We are confident that we will be an even better organization in the future."

In addition, investment groups say that they "deserve credit for rebuilding an industry on the edge of widespread insolvency," the Times reports. Arnold Whitman -- a principal with Formation Properties I, a fund that has bought nursing home properties -- said, "Legal and regulatory costs were killing this industry," adding, "We should be recognized for supporting this industry when almost everyone else was running away."

However, Charlene Harrington, a professor at the University of California-San Francisco who studies nursing homes, said, "The first thing owners do is lay off nurses and other staff that are essential to keeping patients safe." She added that the chains "have made a lot of money by cutting nurses, but it's at the cost of human lives."

Toby Edelman, a nursing home expert with the Center for Medicare Advocacy -- a not-for-profit group that counsels people on Medicare -- said, "Private equity is buying up this industry and then hiding the assets. ... And now residents are dying, and there is little the courts or regulators can do" (Duhigg, New York Times, 9/23).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation© 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.

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