Private Equity and Nursing Homes: What the Research Actually Found

Private equity firms and real estate investment trusts have increasingly acquired nursing homes over the years. This trend has sparked a slew of academic studies and congressional scrutiny, largely due to the perceived impact these acquisitions have on care quality. The research points to a concerning pattern: reductions in staffing and worsening resident outcomes at private equity-owned nursing homes. However, this does not apply to every case. Understanding how these acquisitions might affect a facility requires careful examination of specific ownership structures and transactions.

Leveraged Buyouts and Sale-Leaseback Transactions

A key factor in many nursing home acquisitions by private equity firms and real estate investment trusts is the leveraged buyout. This involves borrowing heavily to acquire the nursing home so the operating company, post-acquisition, carries significant debt. Coupled with this, a sale-and-leaseback of the nursing home's property is common. The operating company then leases back the property, creating a new financial burden it did not have before.

This financial arrangement can strain the facilities' resources as rent and debt service must be prioritized, potentially over direct patient care expenses such as staffing. Such prioritization often raises concerns about whether financial returns are placed above the quality of care provided in these facilities. It’s crucial for families to be aware of these dynamics when evaluating a nursing home, as it can significantly influence the quality of life for residents.

Decreased Staffing and Implications on Care

Peer-reviewed studies often highlight a trend of reduced staffing levels following private equity acquisitions of nursing homes. The national average for total nursing staff is 3.86 hours per resident per day, with registered nurse staffing at 0.69 hours. Facilities affected by such acquisitions might not meet even these averages, impacting the quality of care.

Lower staffing levels mean fewer hands to tend to the needs of residents, which can contribute to poorer health outcomes. This reality is troubling, given the already challenging environment in many nursing homes. Reduced staffing can manifest in various ways, such as delayed response times to call buttons, inadequate hygiene maintenance, and insufficient resident engagement. These factors collectively degrade the quality of life for residents. You can compare staffing levels and other critical factors across facilities using our tool to compare homes side by side.

Resident Outcomes Under Scrutiny

Research into private equity acquisitions has consistently found that resident outcomes at some affected facilities are worse than those not involved in such transactions. Outcome measures include factors like health inspection results and resident satisfaction levels. Our database has recorded over 418,344 health-inspection citations; a facility's track record in inspections can be an indicator of the care quality it provides.

A total of 1,435 facilities carry a CMS abuse icon, highlighting the importance of scrutinizing these findings when selecting a facility. For up-to-date information on any nursing home you're concerned about, consult the watchlist of flagged homes. Recognizing patterns in inspection citations and abuse reports can provide deep insight into potential risks. Noticing trends such as repeated violations or systemic issues flagged in health inspections can be particularly telling.

Understanding Complex Ownership Structures

The complex ownership structures often used in these transactions make it difficult to see the whole picture. It is common for the property, the nursing home license, management, therapy, and staffing to be owned by separate entities. Despite their separate identities, these entities may all operate under common ownership. This setup allows money, sometimes substantial sums, to exit the operating company under different guises – such as rent or management fees.

To navigate this complexity, you may want to use the CMS ownership file. Our Ownership tracker can help you trace these arrangements, providing clarity on who controls what in the nursing home you're considering. This understanding enables you to distinguish between operational capabilities and financial pressures, as financial arrangements often impact day-to-day care.

Questions to Ask When Choosing a Facility

Considering private equity's role in nursing home operations, you should be thorough in your assessment of a potential facility. Key questions to ask include:

• What are the staffing levels, and how do they compare to national averages?
• Who owns the facility, and are there any complex ownership structures that might affect funding for resident care?
• What is the facility's history with health inspections, and have there been any significant citations?
• Does the facility have any financial obligations, like sale-leaseback arrangements, that could impact care quality?
• How is resident satisfaction measured and reported?

These questions are instrumental in garnering a realistic picture of a facility’s operational priorities. Think about asking for specific examples of staff-to-resident ratios, especially during night shifts and weekends. Also, consider inquiring about resident turnover rates, as stabilization often indicates better care environments.

The Most Common Mistake: Overlooking Ownership Details

A frequent mistake people make is not delving into the ownership details of a nursing home. This oversight can lead to misunderstandings about how financial pressures might impact care quality. Scrutinizing the ownership and financial arrangements will provide insights beyond surface-level presentations. To better understand these dynamics, consult our guide on who owns nursing homes.

Understanding ownership is crucial, as it impacts every level of operation and accountability. Ownership structures can obscure who is responsible for decision-making within a nursing home, which complicates accountability and can influence care practices. Without this knowledge, you risk selecting a facility based on glossy promotional material, missing the underlying financial stresses that could impede care.

The bottom line

Private equity ownership in nursing homes brings a complex set of challenges and considerations. By investigating ownership structure, staffing levels, and resident outcomes, you can make a more informed decision. Use our tools and resources to guide your choice effectively.

Where these figures come from

Every number in this article that describes American nursing homes comes from the CMS Provider Data Catalog, the same public federal files behind Medicare's Care Compare. You can see exactly which datasets we use, and how current they are, on our data sources page. Nothing here is medical, legal or financial advice — rules differ by state and change over time, so verify anything that affects a decision with the facility, your state survey agency, your Long-Term Care Ombudsman, or a qualified professional.