Nursing Homes Owned by Private Equity Firms Worse in Quality?

Implications: Recently there has been a rash of takeover of publicly owned nursing homes by private equity firms flush with cash. There is a concomitant suspicion now that quality is being compromised systematically in these institutions in order to maximize profits. It's important to ascertain if this is so. If it is, there could be a whole new rash of regulations geared towards acquisitions and/or the nursing home industry.

Analysis: Skilled nursing facilities (SNFs) are a growth industry -as the population ages, more and more beds are needed. The model of the SNF is quite different from the hospital. There are certainly short term residents being treated for wounds, receiving IV medications, being given physical rehabilitation etc. But for the most part resident conditions are chronic and long term. Patrients are basically stable and are in the institution for extended periods. Visits by doctors are less frequent and nurse patient ratios are much lower (1 nurse has more patients than in a hospital). Much of the routine care is delivered by less skilled, lower paid assistive personnel.

Medicare reimbursement to SNFs has decreased in recent years so operators often claim "where hospitals look at margins in dollars, we look at cents!". Successful operators have certainly learned some tricks of the trade to stay viable, but they are always looking for opportunities such as that offered by equity firms. Recently equity firms have made some profitable takeovers; sometimes in all-cash transactions. The shareholders of publicly traded SNFs often receive premiums of 15-20% on their stocks in a takeover.

The equity firms on the other hand see a growth industry with great census, the possibility to realize healthy margins by putting into place operational efficiencies. Sounds like a good investment. Sounds like a real win/win situation.

How lean are these operational "efficiencies" though?  There have been a rash of complaints directed at nursing homes acquired by private equity firms that have been accused of reducing staff to a dangerous level, removing basic safety/quality measures to save money and so on. This article about Habana health Care in Tampa, FL is a classic example