Poor business decisions, not the source of investment, have been the bigger problem behind some recent scrutinized nursing home purchases, according to the president and CEO of the country’s largest nursing home association.
Critics put nursing homes in their target with a rising drumbeat that started during spring congressional hearings and continued through a summer of discontent. Much of that has been wrongly aimed, said Mark Parkinson, top executive for the American Health Care Association / National Center for Assisted Living.
“We have no concerns about any legislation about disclosing who owns the buildings,” Parkinson told McKnight’s Long-Term Care News on Friday. “The private equity issue is more complicated because it doesn’t matter whether the money comes from a bank or a REIT or from private equity. If you overpay for a facility, you’re going to have difficulty running it well.”
He called it “perplexing that some folks have focused on private equity” when the “real” problem is “bad business decisions.”
“They’ve paid too much for nursing homes and then they’re either stuck with either leases or bank payments or private equity payments that make providing care difficult. It’s hard to regulate against stupidity. It’s hard to regulate against people paying too much for an asset.”
Previous studies have indicated that residing in a for-profit nursing home increases the risk of COVID-19 infection or death, while another tied PE ownership to a roughly 10% increase in the short-term probability of death — even outside the pandemic. It has also raised questions about staffing reductions and increased turnover.
But only about 10% of U.S. nursing homes are owned by private equity, so the emphasis on it is “probably misguided,” Parkinson explained.
“If your mortgage payment is too high to a bank, your lease payment too high to a REIT, if the returns you have to give to PE are so high that you can’t afford to have adequate staff, that’s a real problem. But there is nothing inherent about private equity that creates that. Over leverage is the problem.”
He said the biggest question about some investors paying extremely high prices is “what are they seeing that other folks aren’t seeing? Only time will tell if the more recent high-price transactions will succeed or not.”
One recently announced purchase of note involved Diversicare getting scooped up for more than three times its recent common stock price by a private acquisition group. The pending sale has raised concerns about the operations of more than 60 skilled nursing facilities being largely shielded from public scrutiny. The belief is that as pandemic conditions continue to threaten more facilities financially, more merger and acquisition activity will heat up.
Parkinson added, however, that in aggregate the average price per bed has “come down pretty significantly over the last few years. There are some outlier purchases that are notable, but the average price has come down, likely because of the pandemic.”