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EMS medics from the Houston Fire Department try to save the life of a nursing home resident in cardiac arrest on August 12, 2020 in Houston, Texas. Heart failure, especially in seniors, is a common result of COVID-19, and medics treat most such cases as if they are COVID-positive. (John Moore/Getty Images)
In Pursuit of Profit

Part 2: Hotspots for COVID Deaths, Nursing Homes Have Long Been Targeted — and Gutted — by Private Equity

Pre-pandemic, private equity-owned long-term care facilities were short-staffed and provided a lower quality of care. The disproportionate toll of the coronavirus on U.S. long-term care facilities exposes the need for better policies to care for individuals with complex care needs.

In the early days of the novel coronavirus’ arrival in the United States, nursing homes quickly became epicenters for the pandemic. Short on staffing and with limited personal protective equipment, the virus spread like wildfire between elderly and at-risk residents. By mid-July, 51,000 residents of long-term care facilities had died, representing approximately one-quarter of the total deaths in the United States.

The impact on nursing homes has led to fresh scrutiny from federal and state policymakers on both sides of the aisle. Congressional hearings have been held in recent months, and states like New Jersey are conducting detailed assessments of their nursing home policy and practices. The role of private equity in these facilities has largely been absent from this inquiry. Evolving evidence, though, tells a potentially more concerning story, linking private equity investments in nursing homes to thinly stretched staff and lower quality of care pre-pandemic. 

There’s no official source that tallies all of private equity’s investments in nursing homes — however, it’s estimated that more than 1 in 10 of all U.S. nursing homes are owned in some form by private equity, according to Atul Gupta, Assistant Professor of Health Care Management at the Wharton School, and colleagues from a study released earlier this year. 

These facilities receive approximately 85% of their revenue from Medicare and Medicaid — the taxpayer-funded health insurance programs that cover people over the age of 65, disabled individuals, and low-income individuals. Prices and coverage rules are therefore set by state and federal laws and regulations, unlike the commercial sector where prices can be manipulated and noncompetitive strategies are pursued. As a result, private equity’s strategy for maximizing profits using nursing homes differs from the way other private equity-backed health care operations appear to work, extracting revenue by cutting staff, masking profits, and likely exploiting inefficiencies in the way our government pays for care provided in these facilities.

Fewer Staff and More Patients

A study of nursing homes from 2000 – 17 by Gupta and colleagues found robust evidence that private equity investors cut staff while increasing patient volume by admitting more people and increasing how long they stay. The total nursing and staff hours fell by 1.4 and 2.4 percent respectively, mostly driven by cuts to those providing front line” care like certified nursing assistants (CNAs) and licensed practical nurses (LPNs).


Decline in hours of nursing home staff between 2000 and 2017

Private equity-backed facilities were also found to have higher rates of hospital readmissions, a measure of care quality because it indicates how often patients return to the hospital within 30 days of being discharged. According to Gupta’s research, hospital readmissions among nursing home residents increased by 0.5 percent following private-equity buyouts, and the increases persisted for at least five years.

Unsurprisingly, these nursing homes had significantly lower quality of care” as seen in declining ratings by the U.S. Centers for Medicare and Medicaid Services (CMS) post private equity acquisitions, according to Gupta’s research. These ratings measure nursing homes on non-compliance with federal quality guidelines, infrastructure, nursing staff compliance with guidelines, and patient health outcomes.

Masking Profits

Another way private equity creates profits is through spinning a complex web of business structures and contracts around the nursing home itself — for example, buying the real estate that the nursing home uses and then renting it to the nursing homes at exorbitant prices. This practice shields the nursing home’s assets from broader liability and allows the nursing home or private equity firm to siphon off money to other goods and services for companies in which it has a financial interest.

The research done by Gupta and colleagues estimated that investments by private equity increased revenues on average by $770,000 per nursing home each year. But with the strategies these firms deploy, it is hard to decipher the true profit” generated from taxpayer dollars.

Leveraging Inefficiencies

Even in the absence of private equity, the evidence demonstrates that the way Medicare and Medicaid pay for nursing home coverage leads to a game of hot potato between the nursing home and hospitals for the almost 9 million patients they serve who are eligible for the full range of services under both programs, the so-called dual eligible”.

Rather than treating as many residents as they can on-site, nursing homes are financially motivated to transfer their sick, long-term stay patients to the hospital. If that transfer results in a three-day hospital stay, nursing homes then get paid a higher Medicare rate when the resident returns to the nursing home.

Private equity exploits these kinds of payment inefficiencies in other markets, and it’s suspected that they may be doing the same here, potentially bouncing patients from facility to facility, during which lapses in care or medical errors can occur.

It’s alarming how little we know private equity’s investment approaches today with so many taxpayer dollars going toward the industry.
Arielle Mir Vice President of Complex Care at Arnold Ventures

Where Do We Go From Here?

As policymakers begin to debrief and deconstruct the shortcomings in nursing homes that are fueling COVID-19 deaths and infections, private equity’s nursing home business strategy — and its role in amplifying the vulnerabilities of nursing homes during public health crises — should not be ignored.

More evidence is necessary to understand the ways that private equity is operating in this market. While some of their tactics may improve administrative functions and care delivery, other tactics, such as cutting staff-to-patient ratios, are concerning. Not only is transparency necessary, but policymakers and lawmakers also need a better understanding of the impact of these investments on quality and costs.

It’s alarming how little we know private equity’s investment approaches today with so many taxpayer dollars going toward the industry and in light of the early evidence about the impacts,” said Arielle Mir, Vice President of Complex Care at Arnold Ventures. Ideally, we want to help low-income people stay out of these facilities and in their communities for as long as possible, but some people are going to need this level of care. COVID should serve as a wake-up call — we can no longer delay in shining a spotlight on these facilities and these investment strategies.”