Private Equity in the Industry

Ownership Matters

Vox reported on a new working paper published by the National Bureau of Economic Research that proves greed kills. The new study shows nursing home residents die more often when private equity firms acquire nursing homes. As a nursing home attorney, I have seen how large national for-profit chains cut corners, maintain unsafe staffing, and neglect residents.

Private equity exploitation of nursing homes exploded in the last 20 years. The profitable industry went from $5 billion in 2000 to more than $100 billion in 2018. Private equity firms leverage assets to take on debt on the newly acquired company’s books. This prevents the nursing homes from operating with enough resources to maintain the health and safety of the residents. Quality of care suffers.

The researchers found that going to a private equity-owned nursing home increased mortality for patients by 10 percent against the overall average. 20,150 Medicare lives lost due to private equity ownership of nursing homes. More than 1,000 deaths every year, on average.

Why?

The combination of short-staffing, overmedication, and siphoning of taxpayer funds to related entities explain why the mortality effect occurs.

Short-staffing.  The vast majority of systemic issues at nursing homes are caused by unsafe staffing. A reduction in staffing is the most important factor in quality of care. Overall staffing shrinks including cuts to front-line caregivers. The researchers wrote:

“The loss of front-line staff is most problematic for older but relatively less sick patients, who drive the mortality result.” 

Chemical Restraints. The study discovered a 50 percent increase in the use of antipsychotic drugs under private equity ownership. Antipsychotics are known to be associated with higher mortality in elderly people.

Private equity firms were also found to divert money on things not related to patient care such as management fees, rental payments, and debt refinancing. The authors concluded:

“These results, along with the decline in nurse availability, suggest a systematic shift in operating costs away from patient care.”

The researchers warn private equity ownership is dangerous in health care. The profit motive of private firms and the welfare of patients are not aligned:

For example, patients cannot accurately assess provider quality, they typically do not pay for services directly, and a web of government agencies act as both payers and regulators. These features weaken the natural ability of a market to align firm incentives with consumer welfare and could mean that high-powered incentives to maximize profits have detrimental implications for consumer welfare.