Private Equity, Nursing Homes, and Decline in Care: The Connection

Private Equity, Nursing Homes, and Decline in Care: The ConnectionThe stated goal of nursing home and long-term care facilities is to provide attentive care for our senior loved ones and provide them a comfortable place to live in their elder years. Many nursing homes have wonderful reputation for providing this expert care. However, in recent years, as more and more private equity companies acquire these types of facilities, cost-cutting and changes in management style are causing harmful results.

The New Yorker recently highlighted a disturbing example of what can happen when a private equity firm takes over a nursing home, and it’s happening right here in Richmond. The Portopiccolo Group is a private equity firm that’s acquired several nursing homes, one of which includes the St. Joseph’s Home for the Aged. Historically operated by kind nuns with the Little Sisters of the Poor, the waiting list for the nursing home at the time of its sale was three years long.

Says the New Yorker, “For a hundred and forty-seven years, the nuns had lived at St. Joseph’s with their residents, embodying a philosophy that defined their service: treat older people as family, in facilities that feel like a home.”

However, from the moment that the Portopiccolo Group brought in its management company to operate the nursing home, there were problems. It started with reduction in the quality of food served to the residents and special amenities, like the aquarium and special products from the gift shop. The kitchen quickly became so short-staffed that at times residents had to eat meals alone in their rooms.

Worse, within two weeks, the management company cut back on nurse staffing, causing havoc with residents’ health and care. Per the article:

The attentiveness of the nursing staff plummeted. Mary Cummings, a ninety-seven-year-old resident who had lived at St. Joseph’s for six years, went seven days without a bath. Betty Zane Wingo, a ninety-four-year-old resident, went several months without having her hair washed. A resident who suffered from a severe lung disease told me that, one evening, her oxygen tube slipped out, and it took an hour and a half and a call to 911 to get it plugged back in. Several family members told me they called the nursing station to express concerns but that no one picked up. On morning shifts, the home’s nurse aides now changed briefs so saturated with urine they’d turned brown.

Bertha Cumber, a longtime resident, developed bedsores and weight loss due to lack of proper care. She later died after staff gave her four milligrams of morphine, even though it was well documented in her chart she was not to be administered that specific painkiller. These types of communication errors, again, can be considered outright negligence.

When private companies take over nursing homes, who really pays?

Per a study from Weill Cornell Medicine, private equity investment in nursing homes is rising, with a $750 billion increase in acquisitions from 2010 to 2019. These takeovers, reports Weill Cornell, have resulted in increased emergency room visits, hospitalizations, and Medicare costs. Said Dr. Mark Unruh, an associate professor of population health science at Weill Cornell Medicine:

Our findings indicate that private equity firm-owned facilities offer lower quality long-term care. These residents are among the most vulnerable in our health care system and a lack of transparency in ownership makes it difficult to identify facilities with private equity ownership, which consumers may be interested in knowing.

To determine the results of their study, researchers compared nursing home resident outcomes at private equity-owned facilities with outcomes at other for-profit nursing homes. They found residents at private equity-owned nursing homes:

  • Were 11% more likely to have ambulatory care sensitive emergency room visits
  • Were 8.7% more likely to be hospitalized
  • Had 3.9% higher Medicare costs ($1,080 more annually)

Decline in staff equals decline in care

One of the most significant changes that happens when a private equity firm takes over is staff reduction, which is one of the worst things that can happen in a nursing home. Lack of adequate staff can easily lead to both unintentional and intentional nursing home neglect and abuse.

With fewer workers available for the nursing home residents, staff may be forced to cut corners and ignore the very important care that each resident needs.

And, incredibly, as the New Yorker points out, there is no law against it [emphasis ours]:

Federal standards—which currently hold nursing homes to a minimum of one registered nurse in the daytime and one licensed practical nurse in the evening, regardless of the number of beds in a facility—haven’t changed since 1987. For a time, a minimum staffing requirement was included in President Joe Biden’s Build Back Better Act. But the nation’s largest nursing-home lobbying group, the American Health Care Association, came out strongly against the measure, saying that nursing homes, amid a staffing shortage, couldn’t afford it without more federal funding. Minimum staffing was subsequently dropped from the bill.

The magazine also notes that some debate whether private equity-owned firms cause nursing home decline, or if private equity-owned firms tend to buy nursing homes that are already on the way to decline. But the federal government believes it is worth finding out: the Government Accountability Office (GAO) “is investigating the ownership of nursing homes, including by private equity firms,” to see how ownership corresponds with declining care.

A quick note about COVID-19

What happened at St. Joseph’s Home for the Aged – indeed, to nursing homes throughout the country – during the COVID pandemic cannot be ignored.

Before the sale of the nursing home in June 2021, St. Joseph reported only four infections and zero deaths from COVID. Within the first four months of management under Portopiccolo, COVID infections in the nursing home jumped to 17 infections and six deaths.

Putting profits ahead of patients

A review of the data shows an alarming trend of private equity companies being more interested in increasing efficiency than increasing the resident’s comfort and care. The Roosevelt Institute, a think tank based in Washington, DC, lists three specific ways that private equity firms increase their profits at the expense of their residents and patients:

  1. “They shield their deep pockets from liability for patient outcomes through complex legal restructuring.” This results in shell companies – Private Equity Firm A creates Company B, LLC to purchase Nursing Home C, LLC, which in turn purchases Company D, LLC, and so forth. This long line of new “companies” exists solely to shield the original private equity firm from liability.
  2. “They finance their purchases with debt and sell off valuable real estate assets, putting nursing homes in precarious financial positions that cause them to cut corners when it comes to patient care.” Private Equity Firm A sells the land under the home to a real estate agent, who then leases that land back to Company B, LLC. The investors get a quick return on their investment, but the nursing home is stuck with an additional lease payment. Per the Institute, “lease payments increase by about 75 percent and interest payments increase by about 325 percent after private equity acquisitions.”
  3. “They vertically integrate in order to reap even further profits from the large amount of Medicare and Medicaid dollars that flow to nursing home patients, creating a system that can dangerously incentivize certain treatment options over others.” This allows the private equity firms to start creating additional related companies to serve a specific facility or group of facilities – like pharmacies or hospices – which, in turn, “squeeze[s] even more taxpayer dollars out of public health care programs into their own pockets” [emphasis ours].

In short, private equity firms create an entire ecosystem out of residential care that manages to make owners and investors quite rich. What they don’t do, however, is help patients and residents. The Roosevelt Institute reports that these facilities provide a lower quality of care and have higher mortality rates – about 10% higher for short-term mortality, according to a study they cited by the National Bureau of Economic Research.

If your loved one has experienced negligent care in a nursing home, the attorneys at Phelan Petty want to help. We know how to demonstrate all the ways understaffing and improper care leads to neglect, injury, and even death. You and your family deserve justice and compensation for your losses, and our senior citizens deserve better. To talk to one of our attorneys, call our office at 804-980-7100, or fill out our contact form. We serve clients and families in Richmond and throughout the state.

Related Content: