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Nursing Home Abuse, Neglect More Common in Facilities Owned by Private Investment Firms

Sep 24, 2007 | Parker Waichman Alonso LLP

Nursing homes are big business, and some private Wall Street investment firms have taken notice.  In recent years, large groups have been gobbling up nursing homes, which they use to rake in millions of dollars in profits.   But often, those profits come at a devastating price to nursing home residents, who must bear the brunt of an investment firm’s cost-cutting efforts.

According to a report published in Monday’s New York Times, private equity firms like the Carlyle Group and Warburg Pincus, have been buying nursing homes by the hundreds.  Once they have acquired a home, these private companies often employ aggressive cost cutting measures to increase profits.   Often, this means reducing nursing staff, and cutting budgets for supplies, activities and even meals.   As a result, an environment is created that is ripe for nursing home neglect.

Take the case of Habana Health Care, a 150-bed facility in Tampa, Florida.   According to the New York Times, Habana was struggling to make ends meet when it was purchased by a group of private investment firms.   Immediately after taking it over, the new management  cut costs, including reducing Habana’s staff of registered nurses by half.   Soon, the new investors were reaping large financial rewards.

But Habana’s residents weren’t doing nearly as well.   The New York Times reports that over three years, 15 Habana nursing home residents died from what their families termed negligent care.   During inspections, regulators found staffing below minimum levels, as well as malfunctioning fire doors, unhygienic kitchens and one resident forced to use a broken leg brace.  

Unfortunately, Habana is not an isolated incident.   According to the New York Times, facilities owned by private investment firms score worse than national rates in 12 of 14 indicators regulators used to track ailments of nursing home residents.   And the Centers for Medicare and Medicaid Services says that residents of such nursing homes suffer more from depression, loss of mobility and the loss of the ability to dress and bath themselves.   And both federal and state regulators told the New York Times that citations for quality-of-care deficiencies, like moldy food and restraining residents for long periods of time, rose at every large nursing home chain that was acquired by a private investment group.

Normally, the family of a nursing home resident suffering from substandard care might sue the home’s owners, and regulators could impose stiff fines if conditions weren’t up to standard.   But private investment firms have created complex corporate structures that obscure exactly who own a nursing home, making lawsuits more difficult.  And the complex ownership structure also means that sometimes managers can legally bypass Medicare and Medicaid reporting requirements.

Several groups are pushing to make such complex corporate structures illegal, but private equity firms are lobbying hard against such laws.   Meanwhile, these companies continue to see huge profits from their nursing home acquisitions, even as the nursing home residents suffer from neglect.  According to the New York Times, the investment group that purchased the Habana Health Care Center recently sold it, along with 185 other facilities, for a whopping $1.4 billion.