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Blog Post | May 11, 2020

Private Equity is Making COVID-19 in Nursing Homes Even Worse. A President Biden Could do Something About it.

2020 Election/TransitionPrivate Equity

Private equity (PE) owned nursing homes have a bad reputation. The industry’s, by now infamous, cost-cutting strategies have been shown to lead to measurable declines in patients’ health, safety, and wellbeing when undertaken in the nursing home context. The Carlyle Group’s acquisition of HCR ManorCare in 2011, for example, left patients with “overdoses, bedsores, [and] broken bones” before driving the company into financial ruin. 

Private equity-owned or not, for-profit nursing homes are generally failing to meet federal standards as the drive for profit clashes with facilities’ ability to provide adequate care for their patients. Within the world of for-profit nursing homes, private equity’s model of giving “outsized returns” to investors means portfolio managers must squeeze even more from facilities than usual.

This profit-maximizing approach to nursing care is responsible for significant casualties under normal circumstances but it has been particularly dangerous amidst the coronavirus pandemic. Nursing homes are being hard hit, with one in six facilities nationwide reporting infections among residents or staff. In some states the virus has struck a majority of facilities. In for-profit and private equity-backed facilities, a lethal combination of privatization and inadequate oversight is accelerating the rampant spread of COVID-19.  

To stem the crisis raging through nursing homes, the federal government will need to increase its regulation and oversight of facilities and curb the influence of the private equity industry. While the Trump administration has been all too eager to do the opposite, a hypothetical Joe Biden administration would have considerable leeway to accomplish these goals. Unfortunately, in light of the substantial support he has received from private equity executives, many at firms tied to nursing facilities, there is reason to doubt that a Biden administration would seize these opportunities. It is incumbent upon him to allay these serious concerns. 

The Rise of Private Equity Backed Nursing Homes 

Nursing homes faced health and safety issues before the pandemic, and even before private equity saw the sector as a worthwhile investment. By the early 2000’s nursing care was already highly privatized with many facilities organized into corporate-owned chains. Private equity was quick to enter the market, buying up some of the less lucrative holdings early entrants had begun selling off. Some PE firms bought individual facilities and began rolling them up under new management firms while others bought entire nursing home chains from other corporations. As of 2017, 70% of U.S. nursing homes are for-profit entities and several of the nation’s largest chains have had periods of private equity ownership. Today, 11% of nursing homes nationwide are private equity-backed. 

While many for-profit chains had already decreased nursing staff, private equity-backed facilities routinely cut staff numbers even more drastically. Simultaneously, PE firms went after higher reimbursement rates by- bringing in more patients in need of extensive and intensive care (and thus, more, not less, well-trained nurses).  As PE profits from nursing facilities soared, however,, the quality of care and compliance with federal health and safety standards plummeted

An aggregate study of over 150 reports confirmed that maintaining a consistent staff of well-trained and well-managed nurses is key to meeting the Centers for Medicaid and Medicare Services’ (CMS) health and safety guidelines. Consumer and patient advocacy groups like the American Nurses Association, the Coalition of Geriatric Nursing Organizations, and the National Consumer Voice for Quality Long-Term Care have all endorsed a staffing minimum of 4.1 nurse hours per day per resident

Despite expert advice, half of nursing homes suffer from low staffing. Private equity’s particularly draconian staffing cuts have led to decreased compliance with all federal standards for quality of care in PE-backed facilities. Low marks in facility infrastructure, managerial quality, patient rights, nurse staffing compliance, patient health outcomes, and re-hospitalization following CMS inspection of these facilities indicate that uneven staffing ratios are leading to low quality nursing homes. 

Similar to private equity’s takeover of hospitals, nursing homes are also real estate deals as much as they are an investment in the healthcare sector. Some PE firms have broken up nursing home operations with separate finance firms managing real estate assets, forcing operating tenants to pay rent to a third party. While private equity firms walk away with extra assets to finance more deals, nursing homes are left with debt, rent they might not have paid before the buyout, and a more complex management system. 

The latter is exacerbating oversight issues as these complex management systems obscure responsibility for patient well-being.

“From Bad to Worse:” private equity exacerbates COVID-19 toll on nursing homes

Private equity’s severe cuts to nursing staff and its pervasive violations of federal guidelines have made these facilities extremely vulnerable in the midst of the coronavirus pandemic. Even before COVID-19 reached the US, infections in nursing homes were responsible for  nearly 380,000 deaths just last year. Now under a pandemic, the death tolls will be much higher.

Accordius Health, a private equity-backed company, is responsible for the uncontrollable spread of COVID-19 in several nursing homes in Virginia and North Carolina. Even before PE’s leveraged buyout of Accordius Health in 2019, at least one of its facilities in Virginia already suffered from numerous health and safety deficiencies. Once the Portopiccolo Group took over, residents say the facility went from “bad to worse”. Patients’ nutrition and quality of life deteriorated as cost cutting efforts “work[ed] the staff to death.”  Insufficient nursing staff left the facility woefully unprepared for the coronavirus, resulting in 21 deaths (so far), with 81 residents and 12 staff testing positive. 

In North Carolina one family is suing The Citadel, another Accordius Health nursing home, after their loved one contracted COVID-19. The complainants cite the corporation’s chronic neglect of the facility and inadequate staff for The Citadel’s mishandling of the pandemic. Attorney Mona Lisa Wallace, a joint partner in the complaint wrote, “The public records regarding this nursing home facility reflect that unsanitary and unsafe conditions existed even before the virus came to our area.” 102 people at the facility have now tested positive for coronavirus and some patients have died at the hospital. ProPublica’s nursing home tracker has reported an accumulated 563 deficiencies in North Carolina’s Accordius Health facilities from 2016 to 2019.

Accordius Health is not unique in its calamitous effects on patients and staff. It is just one example of numerous PE-backed nursing home chains that are failing to contain the virus. The industry’s restructuring of nursing homes, particularly cuts to nurse staff, are exacerbating the death toll among elders in nursing homes around the country.

Biden’s Ties to Private Equity-Backed Nursing Homes

The Blackstone Group and Warburg Pincus — two private equity firms helping bankroll the Biden campaign — have nursing home holdings. Blackstone’s Vice President of Government Relations is a Biden bundler and an additional 38 of the firm’s employees have donated to the campaign. 

Through a real estate deal with the healthcare REIT HCP, the Blackstone Group entered into a joint venture with Brookdale Senior Living, the largest senior living provider in the country. The nursing home operator is currently facing a potential class action lawsuit as patients in North Carolina and California allege that chronic understaffing has resulted in negligence and a “failure to provide promised services.”The senior living company is scrambling to hire about 4,500 employees to respond to the pressures of the coronavirus, a number likely inflated by chronic understaffing. 

Two employees at Warburg Pincus, an early player in PE nursing home buyouts, have also donated to Biden’s campaign. Warbug Pincus’s nursing homes were the target of several lawsuits in the mid-2000’s as patients alleged cost cutting measures led to fatally negligent conditions. A complainant described one of the firm’s nursing homes in Florida as a “hellhole” after her mother died from feces infected bedsores.  This private equity firm was among several others included in last year’s Senate probe aimed at for-profit nursing homes. 

Federal oversight needed 

As President, Joe Biden would have significant power to improve conditions in nursing homes across the country, thereby reducing everyday risks and ensuring that they are better prepared for future public health crises. The Centers for Medicare and Medicaid (CMS) are the primary federal regulators of nursing homes. This executive agency could do three things to improve the quality and safety of nursing homes across the U.S.:

  1. Increase the Federal Nurse Staff Minimum 

Experts say legislative attempts haven’t gone far enough to alleviate understaffing in nursing homes. A higher federal minimum coupled with vigorous enforcement could immediately address the most fundamental cause of nursing homes’ decline of quality and care. 

  1. Improve Federal Oversight

Lawmakers like Senators Elizabeth Warren and Edward J Markey have issued statements stressing “transparency and accountability” at these facilities as essential to saving lives. Indeed, a lack of specific auditing procedures and underidentified violations are making it more difficult for the CMS and state regulators to take timely action against low quality nursing homes. 

Improved data collection that captures all quality deficiencies and variation across states will yield a more accurate picture of the national state of nursing homes. Flagging private equity-backed facilities could help regulators keep an accurate count of the industry’s growing investment in the sector. 

  1. Increase penalties for noncompliant nursing homes

CMS’s threat to terminate Medicaid and Medicare participation for a Seattle area nursing home linked to 37 coronavirus deaths signals a step in the right direction. Before the virus, many facilities either did not receive penalties for serious violations, or suffered consequences so minimal they did little to ensure enforcement. Increased penalties for chronically underperforming nursing homes could help push these facilities toward meeting federal standards.  

Increased Regulation Will Save Lives  

Nursing home operators are sounding the alarm on private-equity backed facilities as the coronavirus continues to spread behind their walls. Deregulation, lack of oversight, and privatization had already created a dangerous situation for elders. Now as the coronavirus spreads, the fragility of the nation’s largely for-profit nursing home sector has been exposed. Private equity’s growing influence has exacerbated chronic understaffing, turning some nursing homes into “killing machines” for the elderly. 

Private equity’s aggressive courting of Medicaid and Medicare recipients also raises questions of race and class inequality as patients on federally subsidized healthcare are overrepresented in nursing home facilities. 

In an industry where the highest profit margins are associated with the poorest quality ratings, federal oversight is sorely needed. Biden’s ties to private equity firms that have nursing home holdings are a troubling sign that he won’t step in without outside pressure. As the key to regulating nursing homes lies within the executive branch, the nation needs CMS personnel that will fight for public health, not Wall Street.

Now more than ever the federal government must take action to regulate and improve the quality of our nation’s nursing homes. Lives depend on it.

2020 Election/TransitionPrivate Equity

More articles by Mariama Eversley

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