Executives share a handshake

Last year, real estate investment trusts owned an estimated 12% of all skilled nursing facilities, a level that Harvard researchers say should push policymakers to “ensure that the REIT business model is compatible with” healthcare goals.

REIT ownership of skilled nursing outstripped that of hospitals (3% nationally), medical office buildings (9%) and senior housing and assisted living (9%). 

Researchers behind a new JAMA Health Forum study told McKnight’s Monday they weren’t necessarily surprised by the results of their analysis, which looked at publicly available data, because of the “major influence of private equity and other financial investment in SNFs.”

But the findings underscore the need to understand how financial pressures might drive REITs to act, and whether their self-interests and interests of investors align with patient health outcomes.

“There is concern that REIT ownership of healthcare facilities may divert capital away from investments in clinical care delivery toward generating high returns for investors instead,” reported the researchers, led by Joseph Dov Bruch, Ph.D., a visiting research scholar in Harvard Medical School’s Department of Health Care Policy. 

”To our knowledge, there is no research quantifying the association of REITs with quality of care, costs to patients, and the financial security of healthcare operators. Policy makers and healthcare operators should ensure that the REIT business model is compatible with long-term priorities in healthcare delivery.”

Data for SNFs lacking

While the team found that REIT ownership of hospitals increased for 15 years before falling off during COVID, but researchers did not have the same data for SNFs. Still, in comments to McKnight’s, Bruch called on policymakers to evaluate whether REIT acquisitions affect staffing levels; financial outcomes such as margins, debt and patient charges; and quality metrics. 

The researchers also noted an association between REIT investment and for-profit operations and skilled nursing facilities in urban settings; and pointed a critical finger at the potential financial stress linked to the triple net sale leaseback mechanism. In addition, the team illustrated how financial pressures on REIT-owned SNFs could result in access issues, drawing attention to the 2018 shuttering of HCR Manor Care after that company sold all of its massive real estate assets to a REIT.

But the American Health Care Association pushed back Monday, telling McKnight’s that case studies show “high-quality nursing home companies formed fruitful relationships with REITs with management lease payments.” During the pandemic, some REITs delayed or modified lease payment as nursing home occupancy bottomed out.

“REITs can also open doors for certain long-term care professionals who want to run their own buildings, but who do not have the capital to purchase the real estate,”  AHCA noted in an email. “REITs are not inherently bad, and as the study found, they have an extremely small footprint in the skilled nursing industry. … We believe the bigger issue is the need for state and federal officials to properly and consistently fund long-term care, so that providers do not feel pressured to look for other investments to keep their facilities afloat. Policymakers can also ensure everyone is focused on doing the right thing by building on incentive programs that encourage providers and investors to create great outcomes for patients.”

Those comments were echoed this week in a fresh New England Journal of Medicine perspective authored by Rachel Werner, MD, PH.D., of the Leonard Davis Institute of Health Economics, and fellow health policy experts David Grabowski, Ph.D., R. Tamara Konetzka, Ph.D., and David G. Stevenson, Ph.D.

Reiterating their contributions to The National Imperative to Improve Nursing Home Quality, the researchers called for a combination of improved long-term care financing, a new approach to nursing home payments, and transparency and accountability that push providers to do more than focus on compliance with minimum standards.

“Data on nursing homes’ ownership and financing, including how much facilities spend on direct care, remain incomplete and difficult to use,” they wrote. 

“The challenges of monitoring spending are exacerbated by the increasing complexity of nursing home ownership practices, which makes it all but impossible to understand where and how facilities spend their resources, including whether they are paying marked-up services such as rent, management, nursing, or therapy by contracting with related-party organizations,” they added.