If you or a loved one will be living in a nursing home, you want to pick the one you trust the most. Though every facility is unique, nonprofit nursing homes generally provide better care than those run by businesses. This is especially true when the owner is a private equity investment firm, according to a study released in 2021.
- Resident care declined
- The number of employees who cared for residents went down
- Short-term mortality increased sharply
- Nursing homes charged more for their services
The data they looked at covered 18,485 nursing homes (1,647 bought by PE) from 2000 to 2017, caring for about 7.4 million Medicare patients.
What is Private Equity?
Private equity firms buy companies, medical practices, and nursing homes. They make changes so they’re more profitable and usually sell them in a short time frame. The money to make the purchases comes from outside investors and loans.
What Costs Do PE Firms Add to Nursing Homes?
Nursing homes have low profit margins, high fixed costs, and are tightly regulated. These issues typically make them unattractive to investors, but that’s not the case. After PE buys a nursing home, the income and overall costs generally stay the same, but the costs are different. Less money is spent on nursing staff (their salaries and benefits are about half of a facility’s expenses), and more money is spent in ways that benefit investors.
Organizations bought by PE are usually sold a few years later, so the emphasis is on quick and deep cost-cutting, and increasing profitability, to make it attractive to potential buyers.
There are three added costs related to PE profits and tax-limiting strategies:
- Monitoring fees: The PE firm charges the entity owning the nursing home fees for managing the operation. These fees rise dramatically after a PE purchase
- Lease payments after a nursing home’s real estate are sold to generate cash, often to a business entity related to the PE firm: A nursing home often has multiple assets, including the building and the land it’s on. The new owner can sell these assets to generate cash that goes to investors, but the nursing home has new costs – lease payments to other entities who own the building and land. If the nursing home operation fails, the company still owns the real estate, which it can sell or lease to the building’s next tenant
- Interest payments on debt: On average, post-purchase interest payments triple after PE takes over a nursing home. Nursing homes are generally bought through a leveraged buyout. The investment firm gets a loan, buys the facility, then puts the loan on the nursing home’s financial accounts, making it responsible for the payments. These payments decrease the facility’s cash flow and limit its ability to cover costs or invest in improvements
Due to these new costs, cash on hand declines by about 38% after a buyout. The amount of cash a nursing home has increases right after it’s purchased but eventually turns negative. As a result, a nursing home is less equipped to manage unexpected costs, like buying personal protective equipment during the COVID-19 pandemic.
How Are These Costs Covered?
Cutting payroll provides the most money. Though overall income is the same before and after PE buys the operation, payments from Medicaid and Medicare generally increase by 19.5%. This frees up cash but results in residents getting worse care.
The study found PE ownership leads to a 3% decline in hours by frontline nursing assistants per patient-day and an overall staffing cut of 1.4%. The number of registered nurses increase slightly.
“The increase in RN staff hours does not compensate for the decline in lower-skilled nurse hours because RNs account for a small fraction of all staff hours,” according to the report.
Nursing assistants provide the vast majority of time and effort spent on residents, including mobility assistance, personal interaction, personal hygiene, and cleaning to minimize infection risk and ensure sanitary conditions.
How Do These Actions Harm Residents?
Researchers estimate that PE ownership will increase the short-term mortality of Medicare patients by 10%. The report states, “In the context of the health economics literature, this is a very large effect.” For the 12 years under study, that comes to about 20,150 premature deaths caused by management changes due to PE ownership.
They found these increased deaths were among older patients who were relatively healthy with low disease burdens. A small fraction of residents, those younger but with more healthcare problems, lived longer.
Some of the other impacts of these staffing decisions include:
- The use of antipsychotic medications increases by about 50%. This is consistent with insufficient staff because these drugs can be used as a chemical restraint. If residents are heavily medicated, they do less and require less supervision. The use of these drugs by nursing home residents is discouraged because it increases their mortality rate
- Resident mobility declines as fewer staff push wheelchairs or supervise people who have difficulty walking safely
- Pain intensity increases as injuries increase, and fewer people provide pain medication
When private equity takes over a business, if the quality of the products or services declines or the prices go up, typically, consumers have other options, so they’ll spend their money elsewhere. With limited nursing home options, if PE management makes a nursing home unsafe, few residents can quickly leave for another facility. This makes mismanagement all the more deadly.
Speak To A Nursing Home Injury Attorney Today
Our lawyers will fight for your loved one to obtain the respectful, competent nursing home care they deserve and compensation for their injuries. To reach our Louisville office to set up a free initial consultation with an experienced lawyer at our firm, call 855-385-9532 or contact us online.