Close-up of American Dollar banknotes with stethoscope

Greater insight into potential buyers is just one possible benefit of rules that would make publicly available more information about private equity and real estate investment trust ownership of nursing homes.

That was the take Monday from two academics who have spent the last several years researching investment activity in nursing homes and other aging services sectors. Professors David Stevenson of the Vanderbilt University School of Medicine and Tyler Brau of Weill Cornell Medical College, co-authors of the first paper examining REIT influence on staffing, joined the LeadingAge Policy Update call Monday.

They echoed the Biden administration; the 2022 National Academies of Sciences, Engineering and Medicine nursing home report; and the Moving Forward Coalition in calling for increased transparency.

The Centers for Medicare & Medicaid Services in February proposed a new ownership rule that would lead to required reporting of private equity and real estate investment trust ownership and make it clearer when companies are related.

The agency said its proposed rule also would require information about entities that lease or sublease property to nursing homes since the facilities and property owners may be set up 

as different corporate entities even though they work under the same umbrella.

The rule is now in a public comment-gathering period. One legal expert projected that a final rule could be issued this summer.

“There should be more detailed and audited information about finances, operation and ownership of nursing homes,” Stevenson said in support of the proposed rule. “Real estate investment trust investment, we feel, should be part of that in addition to private equity ownership.

“It’s not only about transparency for the sake of transparency. It helps to see where payments are going. It helps to understand planning better. In addition, it also helps to understand accountability and to be able to look at trends.”

The duo’s Health Affairs paper was the first to examine how REIT ownership was tied to changes in staffing, finding that per-day registered nurse staffing can decline by as much as 6.25% in two to three years after initial investment in a skilled nursing facility.

The authors called that process labor-intensive, noting that they had to cull figures from multiple sources and tie them back to specific nursing homes in other data sources.

Seeking greater context

But having more clarity into ownership wouldn’t be just for academics and regulators, they insisted. There could be clear payoffs for operators considering a sale or consumers who feel they or their loved one was wronged by an investor-owned facility.

“Having greater context for these investments [would be helpful] because access to capital is important obviously. That’s one of the elements that real estate investment trusts can ostensibly offer,” Stevenson noted. “But having some sense of the policy and also practice landscape to know which REITs are involved in which types of deals, which could be facilitated with data, could be valuable.”

Brau noted that working with some REITs can put operators at risk. They need to be able to understand how the investors they may get involved with have handled triple-net lease and RIDEA arrangements in the past, for example.

“There are disadvantages that put operators at risk,” he said, specifying rent escalators used frequently by REITs. “As staffing costs and inflation increases, and so does the price of rent, you might have to make some pretty hard decisions. It can make it really hard to make rent payments.

“Triple-net lease agreement structures minimize the risk to the REIT because lease revenue remains consistent, regardless of the operator’s performance and inflation. Under the RIDEA structure, where they align the financial incentives, they may not align with the resident care provided.”

On the consumer side, Brau added, complex ownership structures might limit REIT liability. That’s because they’re typically putting real estate holdings under a separate corporate shell than their operations.

“You’re putting your most valuable asset into a separate entity,” he said. “Let’s say there’s a malpractice lawsuit or wrongful death lawsuit, it may look like the operator does not appear to be profitable…. You can’t pierce the corporate veil per se in trying to get specific retribution based on a wrongful death lawsuit or liability.”

Provider dissent

The largest nursing home association in the US, the American Health Care Association / National Center for Assisted Living, assailed the proposed rule’s issuance as a misdirected offensive.

“We support transparency and appreciate the Administration’s efforts to assist families in making more informed decisions. However, focusing on ownership and private equity is a red herring,” AHCA/NCAL President and CEO Mark Parkinson said in a statement when the rule was announced. “Less than 5% of nursing homes are owned by private equity firms and roughly 12% are owned by a REIT, an entity that typically has no influence on daily operations. This has become a distraction from the real issues that impact the majority of providers, like Medicaid underfunding and workforce shortages.”