As Profits Rise and Care Gets Worse, Nursing Home Owners Say We Should Be Grateful

Many Americans don’t realize that the overwhelming majority of nursing homes are owned by for profit corporations. The mission of these nursing home companies is not to provide high quality, compassionate care for their residents. Their mission is to return a profit to their investors.

Only a few short years ago, the nursing home industry was considered to be on the decline. Investors Business Daily predicted that large numbers of nursing homes would close due to cuts in Medicare and Medicaid. (profit margins in the nursing homes, though privately owned, are dependent on public funds for most of their income.) Nursing homes in 2003 were returning barely 4% to investors. Assisted living facilities, which require most of their residents to pay privately, and only accept public funds for a small percentage of their beds, were providing investors with an 8.7 percent return.

When the Deficit Reduction Act of 2005 (DRA)made it much tougher for the middle class to be eligible for publicly funded nursing home care, the nursing home industry howled and claimed that the demise of the American nursing home was imminent. The American Health Care Association,a group representing nearly 11,000 long-term care providers, said the DRA "leaves the nursing facility (not the state) to collect from individuals who have no funds to pay privately and are not Medicaid eligible during their penalty phase." As a result, some are referred to the new law as the “The Nursing Home Bankruptcy Act of 2005.”

An attorney with the Springfield, MA based law firm Bacon & Wilson asked, “Who’s going to pay those bills? A lot of times, they simply won’t be paid, and the nursing homes will really suffer.”

But some of America’s largest investment banks thought otherwise. The solution was simple really. If public funds are cut,just reduce the amount and quality of the care provided and huge profits can be made. They were right.

A front page article in yesterdays New York Sunday Times(9/23/07) reports that prominent private equity firms like Warburg Pincus and the Carlyle Group, better known for buying companies like Dunkin’ Donuts, have bought or agreed to acquire thousands of US nursing homes in recent years.

“As such investors have acquired 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, according to an analysis by The New York Times of data collected by government agencies from 2000 to 2006.”

The Times article claims that recent data compiled by nursing home regulators show that residents of for profit homes on average have fared more poorly than occupants of other homes in such common problems as depression, loss of mobility and loss of ability to dress and bathe themselves.

"According to data collected by the Centers for Medicare and Medicaid Services...
The typical nursing home acquired by a large investment company before 2006 scored worse than national rates in 12 of 14 indicators that regulators use to track ailments of long-term residents. Those ailments include bedsores and easily preventable infections, as well as the need to be restrained. Before they were acquired by private investors, many of those homes scored at or above national averages in similar measurements."

"In the past, residents’ families often responded to such declines in care by suing, and regulators levied heavy fines against nursing home chains where understaffing led to lapses in care. But private investment companies have made it very difficult for plaintiffs to succeed in court and for regulators to levy chainwide fines by creating complex corporate structures that obscure who controls their nursing homes."

"... the structures help managers bypass rules that require them to report when they, in effect, pay themselves from programs like Medicare and Medicaid.
Demand for Nursing Homes"

"The graying of America has presented financial opportunities for all kinds of businesses." according to the Times article. Contrary to the predictions of financial disaster made just a few years ago "Nursing homes, which received more than $75 billion last year from taxpayer programs like Medicare and Medicaid, offer some of the biggest rewards."

“There’s essentially unlimited consumer demand as the baby boomers age,” said Ronald E. Silva, president and chief executive of Fillmore Capital Partners, which paid $1.8 billion last year to buy one of the nation’s largest nursing home chains. “I’ve never seen a surer bet.” "...in recent years, large private investment groups have agreed to buy 6 of the nation’s 10 largest nursing home chains, containing over 141,000 beds, or 9 percent of the nation’s total. Private investment groups own at least another 60,000 beds at smaller chains and are expected to acquire many more companies as firms come under shareholder pressure to sell."

The article states that "The typical large chain owned by an investment company in 2005 earned $1,700 a resident, according to reports filed by the facilities. Those homes, on average, were 41 percent more profitable than the average facility."

“The first thing owner’s do is lay off nurses and other staff that are essential to keeping patients safe,” said Charlene Harrington, a professor at the University of California in San Francisco who studies nursing homes. In her opinion, she added, “chains have made a lot of money by cutting nurses, but it’s at the cost of human lives.”

"The Time’s analysis of records collected by the Centers for Medicare and Medicaid Services reveals that at 60 percent of homes bought by large private equity groups from 2000 to 2006, managers have cut the number of clinical registered nurses, sometimes far below levels required by law...During that period, staffing at many of the nation’s other homes has fallen much less or grown."

BE SURE TO SAY THANKS TO THE OWNERS WHO PROFIT FROM PROVIDING GROSSLY NEGLECTFUL CARE

"Investors in these homes say such structures are common in other businesses" the Times reports, "and have helped them revive an industry that was on the brink of widespread bankruptcy." “Lawyers were convincing nursing home residents to sue over almost anything,” said Arnold M. Whitman, a principal with Formation Properties I."

"Homes were closing because of ballooning litigation costs, he said. So investors like Mr. Whitman created corporate structures that insulated them from costly lawsuits, according to his company."

“We should be recognized for supporting this industry when almost everyone else was running away,” Mr. Whitman said in an interview.

You can read this latest horror story about US nursing homes at the following link:
http://www.nytimes.com/2007/09/23/business/23nursing.html?pagewanted=2&_r=1&ref=us