President Joe Biden pledged in his first State of the Union address Tuesday night that his administration would do its part to boost nursing home quality, specifically calling out private equity-owned facilities.
“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch,” Biden said during his speech.
The president also called on the Centers for Medicare & Medicaid Services (CMS) to heighten its nursing home standards.
His brief comments on the industry during his address before Congress and the American people were on the heels of a comprehensive set of proposed reforms released Monday intended to “crack down on bad actors.”
The proposed reforms, developed by the Department of Health and Human Services (HHS) through CMS, would set minimum staffing requirements and dig deeper into private equity ownership of nursing homes, among several other priorities and provisions.
The White House specifically pointed to private equity firms buying up health care property, a trend that has “ballooned” from $5 billion in 2000 to more than $100 billion in 2018, according to a fact sheet on its proposed plans.
But only 5% of all nursing homes are owned by private equity firms, according to an October 2020 JAMA Network Open study – also cited by the White House in its fact sheet outlining the administration’s proposed reforms.
The industry has seen larger private equity investors already moving away from the skilled nursing space, which leaves some wondering whether the Biden administration should instead be focusing its efforts on more pertinent issues like staffing and reimbursement.
Private equity may not be ‘rushing’ to the skilled nursing space
Beth Martino, senior vice president of public affairs at the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), said in a statement that the federal government should focus more of its efforts on “chronically underfunded” Medicaid, instead of setting its sights on private equity.
“Private equity firms only own a small percentage of nursing homes, and in fact, deals are overwhelmingly focused on other aspects of the health care system,” Martino said in an emailed statement Tuesday evening. “The real issue is that Medicaid has chronically underfunded nursing homes for years, leaving facilities on the brink of closure. More will close soon if they don’t receive proper government support coming out of this pandemic.”
Stifel analyst Tao Qiu told Skilled Nursing News before the speech that the reform package’s focus on private equity does not reflect the market patterns seen in skilled nursing today.
“We haven’t seen any big major deals involving those larger private equity players in the skilled nursing space for quite some time,” he said. “So I don’t think private equity is rushing to the space.”
Qiu felt that the profit profile in the skilled nursing space for private equity buyers is much different than what was depicted in the package.
“If you are making arguments against making profits in the skilled nursing space, look at the real estate owners in the space. Is anybody doing really well? Aside from one or two companies everyone is struggling,” he said.
Alan Schabes, a partner at Benesch, Friedlander, Coplan & Aronoff LLP, echoed Qiu’s sentiments.
“The vast majority of private equity funds that I represent don’t want to own nursing home operations,” he said. “Now there are REITs and there are other financial owners that own the real estate, but very, very few and far between can I think of any private equity funds that own the operating entities, the licensed entities.”
Schabes represents both health care private equity and venture capital investment firms and post-acute care providers, among others in the space.
When the dust settles
As the industry comes out of Covid-19 and the omicron surge subsides, skilled nursing operators continue to battle occupancy and staffing challenges.
And as the federal government’s support has largely dried up, some providers may struggle to meet the proposed requirements – especially those related to staffing.
“We’re coming out of COVID, which is great, and the omicron surge seems to have subsided, but occupancy levels are still in a lot of markets and for a lot of facilities well below where they were pre-pandemic. The provider relief funds have all dried up there are obviously no new appropriations there,” Fred Bentley, managing director at ATI Advisory, said before the speech.
“So I already think there was going to be a bit of a reckoning in the industry, and this just intensifies that,” he added.
The government intends to conduct a study to determine adequate staffing minimums, which will then be proposed one year later.
Juan Sanabria, an analyst with BMO Capital Markets, also felt the proposal may make Covid-19 recovery even harder for operators.
“Increased oversight, while well intentioned, could add extra costs to an industry struggling to come back from COVID. Regulatory visibility remains low with question marks remaining on PDPM revenue neutral claw-backs,” he wrote in an email to Skilled Nursing News before the speech.
Reporters Alex Zorn and Amy Stulick contributed to the article.
Companies featured in this article:
American Health Care Association, ATI Advisory, Benesch Friedlander Coplan & Aronoff, BMO Capital Markets, Centers for Medicare & Medicaid Services, CMS, Department of Health and Human Services, HHS, Stifel
