Private Equity Ownership of Nursing Homes Might Have Made Everything Worse
Most nursing homes already had no room for error before COVID-19. Years of private equity ownership and competition with other elder-care services dealt a one-two punch to the cash-strapped facilities’ ability to react to the pandemic crisis, says The New York Times in a troubling analysis. In particular, private equity firms’ relentless quest for profits, miniscule margins, and regular cash-draining exacerbate the vulnerabilities. While these firms may run from legal liability by spinning a “passive investor” narrative or transferring valuable real-estate assets, they can’t always hide.
A staggering one-third of coronavirus deaths in the U.S. are workers or residents of nursing homes. Some 70% of the country’s 15,000+ nursing homes are for-profit, with many of them owned by private equity investors. Private equity firms often have an oversight role in managing their investments, typically maximizing profits incentives and exerting influence over operations. In the case of nursing homes, reported tactics to squeeze revenues include:
- Spinning off the real estate into separate companies to take advantage of tax benefits (g., via REITs) and/or to attempt to shield the most valuable assets from liability
- Hefty leasebacks and other related charges to home operators for occupying and using the real estate
- Forcing the nursing home business to buy – sometimes above fair value — products or services from companies owned by the investors, such as management services, transportation, pharmaceuticals, medical equipment, and payroll services
- Active or direct involvement in operations, for example: claims for payment, power to hire and fire, board membership, and other efforts based on a firm’s industry expertise
- Maintaining staggeringly high debt while distributing to investors the cash needed for operations reserves or to satisfy liabilities
When the valuable real estate and key vendor relationships of nursing homes reside with the private equity investors, they enjoy undue leverage and influence over operations. Simply by leaving little cash for operations or otherwise holding the purse-strings, the businesses have little choice but to cut costs, including staff and staff hours, reduce key infection controls, and skimp on other practices that are foundational to protecting workers and residents from COVID-19.
In some cases, the private equity investors are hopelessly conflicted because of their financial interests in related services. For example, the NY Times article tells the story of investor William Rothner, who owns nursing homes in Illinois and also sells ventilators, drugs, and multiple services to them. Mr. Rothner also owns the real-estate of nursing-homes, including the facility in Sussex County NJ where over 60 residents have died of COVID-19. The article also notes that Atlanta private equity firm Formation Capital led a buyout of the nation’s largest nursing home operator, Genesis Healthcare, but also sells services to Genesis in which it has a financial interest.
With its history of razor-thin operations and shifting valuable assets to leverage control and shield owners from liability, the nursing home industry now seeks broad immunity for COVID-19 care. This bold initiative comes on the heels of the March 2020 suspension of routine nursing home inspections. This strategy would allow investor profit-taking at the expense of nursing home workers and residents, and the near-elimination of accountability.
The harm wrought by COVID-19 on vulnerable nursing-home residents is in some respects unstoppable. But private equity owners of nursing homes with a responsible hand in exacerbating the problem should not profit from fraud with impunity. Profit-making tactics in nursing home operations, including unlawful kickbacks, knowing failures in medical care, and fraudulent billing can run afoul of the False Claims Act (FCA). Whistleblowers with information about private equity involvement in nursing-home fraud might be able to file a case and ask the government to investigate.
Private equity firms already have been swept into FCA charges for their active roles in fraudulent company operations, particularly in highly regulated healthcare enterprises. Their duty to manage and oversee their investments means the firms are not merely passive investors; they can and sometimes should be in the crosshairs for legal liability. This is particularly just where actively involved private equity squeezes every “excess” penny from operations in an attempt to avoid accountability. Similarly, where fraudulent profit-takers attempt to shield valuable assets from foreseeable liabilities, a court may apply the alter-ego doctrine or pierce the corporate shield to reach the assets and make fraud victims whole.
- Increased Federal Funds, Incentives, and Requirements for Nursing Homes Brings Worrisome Opportunities for Fraud
- Let’s Talk about Nursing Homes – Who Will Raise the Red Flag Now That Routine Inspections Are Halted?
- Whistleblower Case Results in FCA Settlement by Private Equity Firm
- Trend Alert: Nursing Homes Profit at the Expense of Vulnerable Patients
- Healthcare and Pharmaceutical Fraud
- COVID-19 Fraud
- Financial and Investment Fraud
- I Might Have a Whistleblower Case
- Whistleblower FAQs
- The COVID-19 Crisis, Whistleblowers, and the Constantine Cannon Whistleblower Team