A 5% ownership block in the commercial real estate sector would rarely be a blip on the government’s radar.
But that’s not the case in America’s nursing homes and senior care facilities. After initially threatening to do so in February 2022, the Biden administration is proposing rules requiring more transparency about owners, managers and contractors at nursing homes. And the consensus is that the small private equity ownership bloc is its prime target.
In the new proposal, nursing homes enrolled in Medicare or Medicaid must disclose whether a facility’s direct or indirect owners are private equity firms or real estate investment trusts.
If you want to be part of Medicare and possibly Medicaid, you must comply with requests for information, Health and Human Services Secretary Xavier Becerra said.
The move comes amid growing criticism of private equity investment, small or not, in the nation’s nursing homes. Atul Gupta of the University of Pennsylvania, Sabrina T. Howell of New York University (NYU), Constantine Yannelis of the University of Chicago, and NYU Ph.D. candidate Abhinav Gupta concluded that the short-term mortality rate of residents increased by 10% following the acquisition of a nursing home by a private equity firm. The study was conducted by analyzing Medicare and Medicaid data covering more than 18,000 nursing homes in the United States between 2004 and 2019. During those 15 years, 1,700 properties were acquired by private equity firms.
Earlier this year, National Public Radio (NPR) accused some nursing home owners of siphoning money from their facilities through corporate arrangements they claimed were widespread and legal. NPR found that most do not own their own buildings and outsource essential services such as nursing staff, administration and medical supplies to related companies, called “related parties.”
NPR reported that while nursing homes pay out more than $12 billion a year to related parties, federal regulators don’t know how much is over the cost of services to owners and how much money ends up in owners’ bank accounts. New rules proposed by the Biden administration would eliminate a secretive process for each nursing home to open the books on how money is spent.
Real Estate Investment Trust (REIT) Welltower Inc. The purveyor of high-end healthcare facilities (NYSE: WELL ) is using Americans’ retirement dollars to fund the acquisition in Meadville, Pennsylvania, according to Jacobin magazine.
Known as “the leading voice of the American left,” Jacobin, who offers socialist perspectives on politics, economics and culture, said in a magazine review that Welltower had “doubled down on underpriced senior housing and displaced residents on fixed incomes.” regulatory documents of the company.
See also: Medical Properties Trust (MPW) Up 8% in One Day: What in the World Happened?
At an HLTH forum in November, Adaeze Enekwechi, an operating partner at health-focused private equity firm Welsh, Carson, Anderson & Stowe and former head of health programs for the Obama administration’s Office of Management and Budget, responded to the criticism. While acknowledging that failures do occur among companies backed or owned by private equity, the “Gordon Gekko-like” focus on dismantling businesses for immediate profit is not done in the dark, signaling the end of any firm’s “solid reputation.”
“With a sharp focus on price-to-earnings PE, any pattern (of failure) is magnified. However, we don’t sit in our roles and look for businesses that we can tear apart,” Enekwechi said. “I think a lot of that comes from people who don’t have a deep understanding of how we think about motivations, incentives, asset (actually) identification and ultimately investment.”
The Biden administration, which hopes to implement the new rules by this summer, argues that by making facility ownership and oversight more transparent, nursing home residents and their families will be empowered to make informed decisions about care.
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