A brutal takedown of private nursing home ownership published last week included both pointed and widespread attacks on the role of for-profit companies in the sector, adding to stakeholders’ fears that negative characterizations will stymie much-needed future investment.
The analysis co-authored by nursing home staffing and quality expert Charlene Harrington, RN, PhD, revealed little new about the for-profit sector. But it highlighted practices of individual ownership groups and combined them with others’ to paint a dark picture of operations nationwide.
“The investigation revealed an industry that places a premium on cost cutting and big profits, with low staffing and poor quality, often to the detriment of patient well-being,” Harrington and investigative journalist Sean Campbell wrote Thursday in The Conversation, a public interest online forum that pairs academic scholars with journalists to report in-depth stories.
“Operating under weak and poorly enforced regulations with financially insignificant penalties, the for-profit sector fosters an environment where corners are frequently cut, compromising the quality of care and endangering patient health,” they continued. “Meanwhile, owners make the facilities look less profitable by siphoning money from the homes through byzantine networks of interconnected corporations. Federal regulators have neglected the problem as each year likely billions of dollars are funneled out of nursing homes through related parties and into owners’ pockets.”
The nearly 6,500-word piece hit private equity investors as well as some typically well-regarded industry players for having “swooped in to purchase underperforming homes” since 2016. It also slammed the growing class of midsized operators (those holding between 11 and 100 facilities), which the analysis found had higher than average fines per home, lower quality ratings, and a higher likelihood of being cited for resident abuse.
However, what the article failed to highlight, providers and their representatives pointed out to McKnight’s Long-Term Care News Friday, are the investments many for-profits providers are pouring into quality and innovation efforts in a field with historically low margins — margins that they said dried up during the pandemic’s crisis days.
Private ownership details overlooked
About three-quarters of the nation’s nursing homes are privately owned today, a fact that was also called out in a separate Fortune magazine article last week. But what both articles largely brushed aside is that the share of nonprofit and government-run nursing homes is shrinking as those mission-driven providers find it harder to provide high-quality care given reimbursement challenges.
The Conversation’s article reported that some 900 not-for-profit nursing homes and senior living communities nationwide have changed hands since 2015. More than half were acquired by for-profit operators, according to Ziegler. The investment banking firm and its clients have previously reported that when listing skilled nursing assets, they increasingly see only offers coming only from the for-profit side.
The other option is closure of former not-for-profit facilities, which Ziegler has also reported to be happening at an increasing clip between 2020 and 2023.
Meanwhile, nearly half of US nursing homes remain independently owned, by those with 10 or fewer facilities. In addition, 34% are standalone, single-site facilities — a group that has been hard hit by the economic conditions of the last four years and went uncited in The Conversation article.
REITs and related parties targeted
Among the topics Harrington scrutinized was the use of related-party transactions, a practice that has come under more intense fire from consumer advocates and the Biden administration in recent years.
Dragged into that conversation was PruittHealth, a second-generation family-owned operator based in Georgia. The report insinuated Pruitt was using a secret system to hide millions in profits, while simultaneously claiming losses.
Instead, CEO Neil Pruitt Jr. told McKnight’s Friday, the company has built a network of ancillary companies that allow it to better serve customers — through pharmacy and other care lines — and meet lending obligations.
“It doesn’t take a genius to figure out how we’re structured because it’s all called PruittHealth,” he said. “We have property companies that are separate from operations, and a lot of that is due to lending requirements. It’s all disclosed. … You can add all these things up and come up with these wild conspiracy theories, but you can also go to our website which lists all of our locations. We’re proud of what we do. It’s my last name on the building, and we’re going to keep it that way.”
Pruitt took exception to the idea that providers had money to hide, given that occupancy levels for many, including PruittHealth, remain below historic break-even levels. And he also questioned the attack on motives of for-profit operators and their partners, who often dug into their own pockets to keep residents safe during the pandemic.
“When COVID hit, the regulators were nowhere to be found. They basically left it up to private enterprise, meaning capitalists, to work and solve the problem. I’m very proud of how we responded. All of our money was invested back in the facilities,” he said. “If you really wanted to get the data, a lot of times it would prove companies such as ours are more innovative, more creative.”
Money sources defended
And without cash from private entities, Pruitt said, nursing home improvement projects and new construction would be nearly non-existent. In the pandemic’s second year, PruittHealth teamed with LTC Properties on a joint venture to operate three newer buildings in Florida.
Pruitt defended REITs and said they had not stripped cash out of his organization as characterized by Harrington’s piece.
“REITs allowed us to get capital at a time when COVID was hitting extremely hard,” he said, noting that those Florida buildings and its Florida SNFs in general consistently outperform peers on quality metrics. Working with LTC Properties also provided the capital PruittHealth needed to build additional nursing homes with private rooms in Florida.
“If it wasn’t for capital, for REIT partners, for whatever financing mechanisms you utilize, we wouldn’t have any innovation or new buildings,” he said.
Even considering the report’s allegations against REITs, industry experts noted that about 90% of nursing homes have no REIT involvement, and just 5% are owned by private equity firms.
Snapshots don’t reflect true quality
The Conversation report also rehashed familiar cries against private equity, naming two owners associated with the Portopiccolo Group to the top of a list of nursing home operators with the most fines.
Portopiccolo spokesman John Collins told Harrington and her co-author the owners hire local healthcare teams to manage and make “all on-the-ground decisions.” Portopiccolo told McKnight’s previously that CMS ownership numbers for the firm are incorrect; he and others raised similar concerns about the accuracy of data in the agency’s ownership database again this week.
Meanwhile, several providers cautioned against broadly painting the use of private capital as bad for the skilled nursing sector.
“Private investment into long-term care is critical – especially in the current environment,” Collins told McKnight’s. “Not only does it deliver necessary capital for improvements and innovation, but it is essential for turning around facilities that have been failing patients for years.”
Often, properties up for sale have been struggling to maintain quality. A turnaround can take years to complete, as noted by Pruitt on Friday and by the larger PACS Group in recent documents related to its new public offering. It might take even longer before those results are captured in the Five-Star rating system so heavily relied upon by researchers.
Cherry-picking stats?
Allegations about private investors’ intentions around quality also raised concerns among providers. Several said data shared in the Conversation report could be based on years-old survey data or mislead when used as a one-time snapshot out of context.
Harrington ripped PruittHealth for having nearly $2 million in fines; Pruitt said a single incident can easily inflate costs and explained that how high the fine goes may be directly connected to a presidential administration’s approach to regulation.
In five of the six states where it operates, PruittHealth beats state averages for quality when weighted for scope and severity, the chain’s CEO noted. And nearly all of the PruittHealth skilled nursing facilities are voluntarily certified by the Joint Commission.
“It’s a shame when you take certain pieces of data and parse them together to try to make a case,” Pruitt said.
In response to the report in The Conversation, the American Health Care Association/National Center for Assisted Living told McKnight’s Long-Term Care News that it supports greater financial transparency and reporting and that delivering high-quality care remains “the biggest priority of nursing home providers.”
“We also know that no single model or line item on a budget captures whether a provider is committed to its residents,” President and CEO Mark Parkinson added, echoing comments he supplied to The Conversation. “We must remain focused on incentivizing all nursing homes to improve on the metrics that drive quality and foster culture change.”
