Don't Buy My Senior Care: Private Equity Investment In Nursing Homes Draws New Watchdogs and New Criticism

Private equity (PE) firms have scooped up residential homes in a real estate market that has shut out a lot of buyers because interest rates are now over 7%. 

Unlike the resources of most American families in the market today, PE firms have shown that cash remains king by grabbing homes in depressed markets and those showing a decline in value. Their more recent target, however, is drawing national scrutiny, with some saying the PE investment opportunities in home healthcare, including nursing homes, are a potential problem for the healthcare industry in general.

In 2021, according to Kaiser Group Holdings Inc.’s KGHI healthcare arm, PE firms spent $206 billion on healthcare, including eye care clinics, dental management companies, doctors' offices and hospices. But the entry into nursing homes has drawn the most attention. 

In February, President Joe Biden said the practice of Wall Street firms buying up nursing homes would end on his watch. According to a report in Skilled Nursing Homes, studies have linked private equity involvement to a decline in the quality of care in long-term care settings, though admits that further research is needed to understand the broader implications for the sector. A Kaiser Health News (KHN) investigation found that organizations owned or managed by PE firms have paid more than $500 million in fines since 2014 to settle at least 34 lawsuits under the False Claims Act. 

According to U.S. Rep Jan Schakowsky (D-Illinois), private equity is trying to put money into something where it sees earrings rather than being concerned about quality healthcare. 

“The issue of investing when you’re a private equity firm is to make more money,” she told Skilled Nursing News. “This is about money. When you talk about private equity, they’re all over the economy and the goal there is to increase profits, not increase care, necessarily.” 

The U.S. Department of Health and Human Services recently released ownership data on 15,000 Medicare-certified nursing homes to basically out PE owners they say are trading profits for quality. The Federal Trade Commission and Department of Justice have also vowed to tighten their oversight of PE healthcare investment.

Bain Capital Managing Director Devin O’Reilly told Axios that there is a misnomer regarding PE involvement in healthcare and nursing homes. 

“Most of the innovation and new business models that have been developed have been about trying to keep people out of long-term-care facilities,” he said. 

News coverage of the PE investment strategy hasn’t helped their reputations. Marketplace.org led with, “A financial arms race is forming in senior care as private capital pours into the reshaping of elder care. The perceived dangers of private equity entering senior care have largely focused on nursing homes, but the truth is, the dollars are flowing elsewhere.”

At USA Today, the headline read “Sick profits: Private equity’s stealthy takeover of healthcare in multiple cities, specialties.” The article pointed to the belief that PE investment in senior care is “hidden from regulators,” with the result being higher prices, lawsuits and complaints about care.

Private Market Real Estate Insights on Benzinga:

• Private Equity Investment Offering For Senior Housing Development Near Atlanta Is Targeting a 19.8% IRR
• This High-Yield Real Estate Fund Is Targeting A 15%-19% Annualized Return

Photo by Dominik Lange on Unsplash