Private equity ownership in the nursing home sector, currently estimated at between 5% and 13%, may be higher and growing – a development that raises consumer concerns about resident harm and quality of care, especially in light of several high-profile bankruptcies in recent years involving PE-owned facilities.

PE-driven bankruptcies have impacted residents, workers, and the broader nursing home care ecosystem, according to a new report issued by the consumer advocacy group, Private Equity Stakeholder Project (PESP). However, sector advocates disagree with its analysis, calling the focus a distraction from the real issues facing the sector.

All said, one of the report’s main concerns is the trend of bankruptcies among private equity-owned nursing homes. Notably, LaVie Care Centers/Consulate Health Care, which was backed by Formation Capital, Goldner Capital Management, and Gulf Coast Health Care, which was backed by Barrow Street Capital, have all filed for bankruptcy in recent years, the PESP report notes.

“Private equity firms are continuing to buy up nursing homes, and use profit-seeking strategies that can put residents at increased risk,” said Michael Fenne, PESP’s senior research and campaign coordinator of health care. “In nursing homes and health care more broadly, private equity firms often make risky financial decisions that put care quality at risk, and sometimes lead to bankruptcy.”

These financial collapses have exposed disturbing conditions within some facilities. In LaVie’s case, bankruptcy court documents revealed significant deficiencies in patient care, the report states.

Titled “Private Equity Is Continuing to Acquire – and Bankrupt – Nursing Homes,” the report updates PESP’s 2021 analysis of private equity’s role in the long-term care industry, highlighting how private equity firms continue to acquire nursing homes using opaque ownership structures, profit-driven strategies, and high-risk financial arrangements that undermine care quality and endanger residents and staff.

The report also states that private equity firms’ true level of ownership may be higher due to widespread underreporting and complex ownership arrangements. Despite public assurances from the industry that private equity plays a minimal role, PESP said it identified at least six private equity-backed nursing home acquisitions in the past three years alone.

The report shows how private equity ownership often leads to financial instability through excessive leverage and risky transactions. Many nursing homes have been saddled with private credit from equity-affiliated lenders, such as MidCap Financial, compounding their debt burdens and reducing funds available for staffing and care, the report states.

Focus on private equity a ‘distraction’

President Joe Biden made private equity involvement a cornerstone of his policy on nursing homes, after famously calling out the role of PE in the sector in a State of the Union address in 2022.

However, the nursing home sector along with sector advocacy groups pushed back against that focus as well as taking issue with the lack of clarity on the definition of PE.

The American Health Care Association and the Center for Assisted Living (AHCA/NCAL) issued a comment in the summer of 2024, stating that PE in fact currently played a minimal role in the nursing home sector, owning less than 5% of facilities, with most investments occurring over a decade ago and largely proving unsuccessful. Since 2015, AHCA noted, nursing homes represented under 10% of PE health care deals. Ownership was now dominated by small, independent operators, with nearly half running 10 or fewer facilities and over a third operating a single property. Meanwhile, the largest 10 operators accounted for just 10.7% of beds, AHCA/NCAL’s analysis stated.

In an emailed statement to Skilled Nursing News, AHCA/NCAL called the ongoing focus on PE ownership, a “distraction.”

“It’s important to recognize that private equity ownership is not the norm in long term care,” the statement read. “The reality is that owners of long term care facilities are extremely diverse and are often run by Main Street, not Wall Street.  Focusing on private equity in long-term care has become a distraction from the real issues that impact the majority of providers, like reductions to Medicaid and persistent workforce shortages — these are the real threats. Neither ownership nor line items on a budget sheet prove whether a long term care provider is committed to its residents.”  

As for LeadingAge, the largest association of nonprofit nursing homes and other long-term care, it said in an emailed statement that its members have always supported transparency of ownership, citing support for the Centers for Medicare and Medicaid Services’ (CMS) nursing home ownership disclosure and transparency final rule that was released in November of last year.

“Our nonprofit mission-driven members disclose ownership and management information through Internal Revenue Service filings that are freely available to the public and we recognize the value of transparency and accountability of nursing home ownership in promoting nursing home excellence,” Katie Smith Sloan president and CEO, LeadingAge at the time.

Lack of transparency remains a barrier

However, PESP’s report suggests that the industry’s lack of transparency still remains a major barrier to accountability. The use of layered corporate entities and shell companies makes it difficult for regulators, workers, and families to trace ownership or assess responsibility when things go wrong, the report notes.

“These buyouts often result in unnecessary debt and reduced operating budgets for the nursing homes, and a shift away from a focus on well-being for residents,” said Fenne. “But a lack of transparency, along with complex ownership structures, make it difficult for the public to know the true scope of the problem.”

The report offers a range of policy recommendations aimed at alleviating the damage caused by PE ownership. These include enhanced review of mergers and acquisitions to evaluate the impact on care quality and competition, and stronger disclosure requirements including mandatory audited financial statements. The report also calls for “anti-looting measures,” such as limits on dividend payouts and sale-leaseback transactions, to reduce financial extraction.

Moreover, the report advocates for joint liability rules to hold private equity firms accountable for the actions of the nursing homes they control, and for mandatory reporting of management fees paid to investors.

To address workforce issues, the PESP report recommends boosting wages for direct care staff and enforcing minimum staffing standards.