By Steve Moran

This is the second article in a series about the claim that private equity is destroying senior living. See part 1 here. If you’re not already a Foresight subscriber, you can subscribe here to get the rest of the series when it comes out.

Over the past few years, the senior living industry has seen the sale of around 400 nursing homes by not-for-profits to for-profit entities. This has led to charges that staffing levels and quality of care in at least some of those communities had decreased.

What is missing is any quantifiable data that supports this assertion. Is it true for every single nursing home? For half of them? For a handful of them? We simply don’t have anything other than anecdotes. Making it worse is that from the perspective of the news media, the pundits, if the quality of care stays the same or GETS BETTER, no one is interested in writing about that.

The Big Why

The big question is why they are selling? I have seen the press releases that talk about reassessing core values and aligning with the central mission, but I promise you that in every single case, it is because they are losing money on their nursing home operations and want to stop the bleed.

Who can blame them for doing this? It is the right thing to do to preserve the parent organization and ultimately to protect the residents and the staff in the remaining organization and in the communities being sold.

They are losing money for two reasons, and in most cases, it is both reasons, not one or the other:

  1. The amount of income they can generate from the operation of the community is not sufficient to cover costs. It’s that simple. There are not enough private payors; the Medicare system is not generating enough income; the state Medicaid system provides insufficient funding. In word wars, everyone says they want better care; in the checkbook war, no one wants to pay for it — particularly government entities.
  2. Most not-for-profits are not very good at running nursing homes. Their staffing levels are too high, their pay rates too high to break even, let alone make a profit. At some point, the smart not-for-profits are letting go.

It turns out that in general, for-profit operators are simply better at operating nursing homes in a cost-effective fashion. (I know there are exceptions to this.) It is why more than 70% of nursing homes are owned and operated by for-profit entities. The not-for-profits mostly want to operate in the private-pay world, leaving it up to the for-profit world to provide the bulk of the care for the most frail poor older people in this country, and …

THEY NEVER GET ANY CREDIT FOR THAT!

This all comes back to my final premise in the first article: that the nursing home reimbursement and regulatory system needs a complete overhaul.

Rather than blaming these owners, how about the government fixing the problem?

This is the second article in a series about the claim that private equity is destroying senior living. See part 1 here. If you’re not already a Foresight subscriber, you can subscribe here to get the rest of the series when it comes out.