This is the third article in a series about the claim that private equity is destroying senior living. See part 1 here. See part 2 here. If you’re not already a Foresight subscriber, you can subscribe here to get the rest of the series when it comes out.

By Steve Moran

Is ownership of related companies that sell services to the nursing homes really a bad thing?

So much has been written about how ownership of related companies like therapy, pharmacy, X-ray, and staffing is an evil way to rip off senior living residents and the government while compromising care.

Running a nursing home successfully is not for the faint of heart. It takes paying careful attention to everything: quality of care, payor mix, staffing ratios, overtime, staff turnover, marketing, food costs, all costs. It’s possible to run a nursing home badly and make a lot of money, at least until the regulators catch up with you or your staff quits or people quit using your services.

But to do it well and be successful in the long run, it means running a tight ship and thin margins.

A Network of Services

  • Medical supplies and equipment
  • Laboratory services
  • Radiology services
  • Laundry services
  • IT and software services
  • Housekeeping and janitorial services
  • Hospice and palliative care services
  • Dining services

Each of those vendor companies only exists because they are also making a profit margin when they provide their services to senior living communities. So far this all makes sense right?

It also means that each of those companies is taking on a certain amount of risk and cost and investing in capital, something the senior community might otherwise need to do.

More Services, More Margin

It only makes sense for some nursing home/senior living operators to expand their business into these other areas that are oftentimes contracted for. It allows them to increase their margins, which ultimately means they can provide their services for residents and team members.

It is unfortunate that this methodology to improve margins, which in turn improves care for residents, has received a bad rap.

Transparency and Complexity

One of the legitimate complaints is that nursing home companies are not very transparent about the various entities and companies involved in the process of caring for older people. It is a legitimate complaint, and if a company is doing a good job and there are legitimate reasons (which is most often the case), then companies should make available org charts and descriptions of how things work.

When the industry is not transparent, it feels like companies are trying to hide bad behavior.

This is the third article in a series about the claim that private equity is destroying senior living. See part 1 here. See part 2 here. If you’re not already a Foresight subscriber, you can subscribe here to get the rest of the series when it comes out.