Solution in Search of a Problem: CMS’ Latest Nursing Home Ownership Proposals Raise Industry Concerns

For the last year, federal regulators have taken steps to increase nursing home ownership transparency, as part of the White House’s reform agenda. The most recent actions have centered on more clearly defining different types of ownership groups and making information more consumer-friendly – and have drawn concern and criticism from within the sector.

About one month ago, the Centers for Medicare & Medicaid Services (CMS) proposed a rule requiring more ownership disclosures and floating definitions of private equity and real estate investment trusts. Providers are pushing back on elements of this proposal, saying that they add another “redundant” layer to bureaucracy and downplay the troubles facing the sector. Moreover, the proposed policy’s definitions of different ownership structures is still too vague, critics say.

In addition to the recent CMS proposal, the Government Accountability Office (GAO) last month issued a report calling for nursing home ownership data to be shared in a more consumer-friendly manner. And also last month, the journal Health Affairs published a study that raised concerns about the quality of care in nursing homes owned by real estate investment trusts (REITs).


While industry professionals and advocates say they are in favor of greater transparency, they also have registered concerns that REITs are being unfairly tarnished and that operators — still struggling to recover from the challenges of Covid-19 and grappling with a severe staffing crisis — are being saddled with yet more burdens rather than getting needed support.

Defining ownership groups

After the Biden Administration targeted ownership transparency as a key pillar of its nursing home reform push, unveiled last year, nursing home leaders took issue with the lack of distinction between different types of ownership structures and entities. For instance, President Biden used the broad term “Wall Street firms” when criticizing private ownership of nursing homes in his 2022 State of the Union address.

“I don’t like having all this lumped together because they’re all entirely different,” said Rick Matros, CEO of California-based Sabra Health Care REIT (Nasdaq: SBRA). “In last year’s State of the Union, when we got that famous, or infamous 19 seconds, it was clear to me that whoever wrote that speech, really didn’t know the difference between all these entities. And it’s kind of gotten perpetuated since then.”


CMS has taken steps to clarify definitions.

In announcing the proposed rule recently, CMS stated that a “private equity” company would mean “a publicly traded or non-publicly traded company that collects capital investments from individuals or entities and purchases an ownership share of a provider.” And CMS offered this definition of a REIT: “A real estate investment trust be defined as a publicly traded or non-publicly traded company that owns part or all of the buildings or real estate in or on which a provider operates.”

At issue, in particular, is the agency’s lack of distinction between private equity, private capital and REIT ownership – the three major forms of ownership within the sector.

Under current CMS rules, facilities are only required to report 5% or greater of indirect ownership in the facility. But the new rule would force operators to specifically identify whether a disclosed party is a “private equity company” or a real estate investment trust (REIT). CMS will also request additional disclosure of ownership and managerial information as well as the organizational structure from providers.

The simplistic definition of ownership models within the nursing home industry can cause trouble, experts said.

For Sabra, Matros said the CMS proposal’s financial impact will likely be negligible. However, without clear definitions, the initiative and the resulting confusion has the potential to unjustly taint the image of large, publicly traded REITs such as his own, which are already subject to disclosure rules and identify many of their operating partners publicly.

“It doesn’t impact us in a tangible way because it doesn’t impact us financially or anything like that. But for the public…I think it creates a negative image. So that impacts us; it’s just not tangible,” Matros said.

Matros supports transparency, but not if the result is confusion.

“I think that transparency is important. So I don’t think anybody should really fight transparency. Anyone that is not interested in having transparency, you know, begs the question, ‘why?’” he said.

And Matros isn’t the only one who thinks the boundaries between these forms of ownership need more nuanced guidance from the CMS.

CMS itself acknowledges that the distinctions don’t necessarily align with the nursing home industry’s own definitions.

After a request by Skilled Nursing News (SNN) for more clarity, a spokesperson for the agency told SNN, “As we noted in the proposed rule, we recognize that these definitions may be modestly different from definitions of the same terms used in other settings. We solicited comment on the propriety of our proposed definitions and welcome any suggested revisions … We are particularly interested in comments on whether our proposed definition of private equity company should include publicly traded private equity companies. We also welcome public feedback regarding any other types of private ownership besides private equity companies and REITs about which CMS should consider collecting information from skilled nursing facilities as part of the enrollment process.”

Comments on the proposed rule and the proposed definitions are due April 14, 2023, the spokesperson said.

Legislators, who back the move for transparency in nursing home ownership, are also urging CMS to issue the proposed rule sooner rather than later. Regarding the different types of ownership, Sen. Chuck Grassley (R-Iowa), who has pushed for years for ownership transparency, told SNN in an emailed statement: “CMS’s delay in issuing a private equity ownership ruling is unacceptable and should be finalized as soon as possible. Any final rule should cover not just private equity ownership, but private capital ownership as well as REITs.”

Moreover, even researchers who have been critical of the role played by REITs and who support greater disclosure of ownership behind individual skilled nursing facilities (SNFs), including information on ancillary businesses, call for a more user-friendly system. The GAO envisions a system that correlates data of individual facilities with the larger ownership organization and its star ratings.

And certainly, advocates for nursing homes, especially in those states hardest hit with closures, question the timing of the CMS move as well as the necessity when such rules are already in place.

Brent Willett, president and CEO of Iowa Health Care Association (IHCA), told SNN, “There’s a level of concern that in a period of extraordinarily heavy regulation from the federal government, this is another one that providers who are under an enormous amount of financial strain and staffing shortages are going to struggle to comply with, and the question is going to be really for what reason are we being redundant here.”

A more user-friendly system to improve quality

Underpinning efforts by policymakers to increase transparency in ownership of nursing homes is research that suggests there may be a decline in quality of care when organizations backing individual facilities aren’t named. And although REITs do disclose their operators, Care Compare, the consumer tool used by residents to gauge quality at nursing homes, doesn’t make it easy for consumers to identify a particular nursing home’s owner.

Meanwhile, recent studies point to a declining quality of care associated with (REIT) investment. The Health Affairs study published last month pointed to a decrease in more trained staff when a REIT took over. The findings show that the quality of staffing at nursing homes declined two to three years after a REIT took over, resulting in a 6% decrease in the employment of registered nurses (RNs). Researchers further found that a decline in registered nurse staffing levels was supplemented with an increase in licensed practical nurses (LPNs) and certified nursing assistants (CNAs).

Robert Tyler Braun, assistant professor of population health sciences at Weill Cornell Medical College, who co-authored the study, said that REIT involvement may pressure operators to be more cost effective, leading to such steps as replacing more trained staff with less expensive options.

However, CMS’ move for greater ownership transparency won’t have an impact on quality of care unless CMS also improves its consumer platform for comparing nursing homes, these researchers believe.

Braun said that the proposed disclosure rules will not provide value to users of Care Compare unless policy makers also call for a system that more easily allows consumers to make nursing home choices.

There needs to be a centralized system to access ownership data.

“Researchers, policymakers are not going to individual…publicly traded real estate investment trust websites, downloading [their] portfolios. There needs to be a systematic and consolidated database, which tracks these [data] longitudinally over time,” Braun said.

Providers push back data on quality of staffing

Industry leaders who spoke with SNN disputed the idea that REIT ownership causes a decline in quality of staffing.

“With the operating companies and operators that are managing facilities owned by REITs, we certainly don’t detect a different approach – operationally and from a quality standpoint – than other ownership categories that I’m aware of,” said IHCA’s Willett, adding as a caveat that he doesn’t have a direct line of sight given that his association deals with individual operators and not the larger organizations.

Meanwhile, Sabra’s Matros said neither his company nor other REITs in the space influence the facilities that rent from them on such decisions as staffing quality. Moreover, the declining quality of staffing likely stems from labor shortages rather than a REIT influencing a facility to hire cheap, less qualified staff, Matros said.

“I question the validity of some of [these studies],” Matros said.

For REITs, he said, “None of us would ever ask or tell an operator to reduce their staffing. We just don’t do anything like that. Most operators staff based on the acuity of the patient that they’re providing care for, and to the extent that they don’t meet their own standards, it’s usually because of nursing shortages and things like that.”

CMS ownership move ‘misses the point’

Matros is careful to distinguish between REIT ownership and other forms of ownership, because often consumers — and it seems even policy makers — have overlooked key differences between the various financial arrangements prominent in the nursing home sector.

“All three groups, private capital, private equity and REITs are distinctly different,” Matros said.

Today, it is estimated that about 12% of nursing homes have REIT investments with very few private-equity investments, at least from large firms, equating to about 1,870 facilities, according to JAMA Health.

Financial relationships between private equity firms and nursing home operators greatly reduced by the early 2000s, Matros said. The period of significant PE investment ended with the 2018 bankruptcy of ManorCare, which at the time was under the ownership of one of the largest and richest private-equity groups, the Carlyle Group Inc. (Nasdaq: CG). The Carlyle Group, which manages assets upwards of $373 billion, held ManorCare for a decade, during which time the nursing home operator struggled financially amid reports of neglect and poor conditions at its facilities. And today, private equity groups such as BlackRock Inc. (NYSE: BLK), which manages $10 trillion in assets, and TPG Inc. (Nasdaq: TPG), which controls $135 billion, and were also once present in the sector, have all left.

“(Private equity groups) don’t like nursing homes because of all the government regulation and reimbursement issues that we have,” Matros said. Instead, private equity favors senior housing assets because these are private pay, he explained.

Nursing homes require more attention for a gradual but steady rate of return on investment, which doesn’t fit the typical PE model on quickly driving profits, Matros said..

With private equity largely having exited the sector, the other category of ownership within the nursing home sector remains private capital. Private capital management functions similar to private equity in exerting control and, moreover, also functions below the radar.

“For private capital, the ownership structures tend to be opaque, so you don’t really know how many facilities a private capital entity may own,” Matros said. “Private capital can come in different forms. A lot of times it’s a family office. And their criteria for investing, how long they hold (the facility), is very different depending on who they are. But like private equity, when they buy companies they have a lot of control and impact.”

Moreover, very often when private capital buys facilities, they may have an affiliated operating company operating for them.

So those are very distinct kinds of entities with many differences that can in turn impact the quality of and condition of the facility.

Meanwhile, publicly traded REITs have an entirely different structure. They always disclose their facilities – something that researchers of the Health Affairs’ staffing study even acknowledged.

“In the skilled nursing sector, we have all triple net leases, so by definition, and so that we don’t violate the REIT rules and tax laws, we don’t get involved in the operations of operators. We don’t run them,” Matros said. “Now, that doesn’t mean we won’t give feedback or we don’t act as a sounding board if an operator is struggling, and we have other operators that are in our portfolio, we may want to share best practices or connect them.”

During the pandemic, when small, independently owned nursing homes were closing their doors, REITs helped reduce facility closures by providing capital, Matros said.

“The REITs, over the last three-plus years, stepped up and restructured leases to help operators out, gave rent relief, rent deferrals, working capital loans, where we were the capital partners,” he said.

And this resourceful presence of REITs in the space is what is getting missed, he said, reiterating, “And that’s why I don’t like having all this lumped together.”

Compliance with CMS’ new rules difficult

IHCA’ Willett said while transparency is important, as a blanket rule, the proposed disclosure will only add more bureaucratic layers to a process that will not have a wide reaching influence given that less than 5% of Iowa homes are owned by “private equity” firms, and most providers are complying with disclosing such information already.

“We’re skeptical that the CMS proposal is going to achieve what it purports to achieve. That’s because providers are already required to report fairly extensively, at least in Iowa, including ownership and financing through a series of requirements that, I believe, are Medicare and Medicaid cost reports,” Willett said. “We are asking the vast majority of the space to comply with the new regulations [but] it feels to us like a solution in search of a problem.”

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