No Way To Sugarcoat This

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John O'Connor, Editorial Director
John O'Connor, Editorial Director

As bombshells go, this one is pretty bad. The New York Times recently ran a front-page story detailing the unseemly ways many private equity firms appear to treat newly purchased nursing homes.

Among the most serious charges: staff cuts and other funding cutbacks that result in poorer care for residents. The story further suggested that quality-of-care deficiencies — like moldy food and the restraining of residents for long periods or the administration of wrong medications — rose at every large nursing home chain that was acquired by a private investment group from 2000 to 2006.

Many of the new owners also have put Byzantine corporate structures in place, apparently in an effort to derail those who might pursue legal retribution, or government agencies seeking accountability.

The story further noted that private equity firms "have often reduced costs, increased profits and quickly resold facilities for significant gains ... Those homes, on average, were 41 percent more profitable than the average facility."

The industry has challenged some of the figures in the story, but the response has been about as believable as Barry Bonds denying steroid use. It's pretty obvious that this was an inside job. In other words, a union, lawyers or possibly even disgruntled employees leaked a lot of sensitive information to the press. And while specific figures have been and will continue to be derided, the overall picture that emerges is fairly damning.

In the wake of this development, the Service Employees International Union has asked for – and will probably receive – congressional hearings. In addition, two senators so far have called on the Government Accountability Office to examine care at nursing homes under private equity ownership.

Sen. Hillary Clinton (D-NY) and Sen. Charles Grassley (R-IA) have asked the investigative arm of Congress to review whether private equity ownership of nursing homes leads to shoddier care.

Specifically, Grassley asked the GAO to analyze the number of private equity deals involving nursing homes, and quality and safety issues before and after changes in ownership. Clinton asked for an assessment of 63 firms in particular that the GAO cited in March as having a troubled history.

Many of the firms involved are more than likely going to find themselves appearing at House and Senate hearings shortly. It's entirely possible that once the firms get to tell their side of the story, a more sympathetic picture of reality will emerge. But that might be wishful thinking.

Things look bad now. Yet by the time this unfortunate episode plays out, they might look even worse.