Nursing Home Fines Skyrocket After Private Equity Buyouts, Studies Find

The debate over private equity's role in healthcare has intensified in recent years, with critics arguing that the profit-driven model of these investment firms is incompatible with high-quality patient care and safety. Recent developments have added fuel to this ongoing discussion as private equity (PE) firms have been increasingly acquiring healthcare services, including nursing homes, hospitals, and physician practices.

Do Nursing Home Acquisitions by PE Firms Decrease Quality and Increase Fines?

PE firms often bring significant capital and management expertise to the healthcare companies they acquire. This influx of resources potentially leads to operational improvements and enhanced efficiency. However, PE’s laser-like focus on profitability has raised concerns about potential compromises in care standards. 

Furthermore, the emphasis on cost-cutting and revenue growth may result in reduced staffing levels, the use of less experienced personnel, and other measures that could negatively impact patient care. And although PE acquisitions are subject to FTC scrutiny, the FTC primarily focuses on market competition rather than direct quality of care or fines.

A recent report by KCRG-TV9 found a troubling trend: nursing home fines have been on the rise following private equity buyouts. This increase in regulatory penalties suggests that the quality of care in these facilities may be declining under private equity ownership. The correlation between private equity takeovers and increased fines raises questions about whether the pursuit of profits is coming at the expense of resident well-being and safety.

KCRG-TV9 found that one PE firm, Cascade Capital Group, acquired nearly 30 Iowa nursing homes last year and fines increased substantially. CMS data showed that one facility purchased by Cascade (and its affiliate, Legacy Health Care) named Harmony House Health Care Center had seventeen times more fines than the previous owner.

Several other studies have examined PE ownership of nursing homes and found concerning trends:

• Quality of Care Decline: residents in PE-owned nursing homes are 11% more likely to have emergency room visits, 8.7% more likely to be hospitalized for preventable conditions, and short-term mortality rates increased by 10% during and 90 days after stays in PE-owned facilities. In addition, PE ownership is associated with a 50% higher likelihood of residents being placed on antipsychotic medications, often used to sedate rather than provide proper care.
• Staffing Reductions: PE acquisitions led to an average 1.4% reduction in overall staffing, with frontline caregiver hours (CNAs and LPNs) decreasing 3% compared to industry averages.
• Regulatory Issues: PE-owned nursing homes perform significantly worse in terms of deficiencies compared to other facilities, including a decline in Medicare's Five Star ratings.
• Financial Implications: Medicare costs per resident increased by 3.9% ($1,080 annually) in PE-owned facilities with overall patient bills more than 10% higher than in other facilities.

nber.org

Other studies suggest potential improvements in care quality after PE acquisitions, but the majority of evidence points to decreased quality and increased regulatory issues following PE takeovers of nursing homes.

Do Hospital Acquisitions by PE Firms Decrease Quality?

A national study of hospitals acquired by PE firms showed a worsening of fall and infection risks, as well as other declining measures of quality and safety. Specifically:

• 27% increase in patient falls
• 38% increase in central line-associated infections
• Approximately double the rate of surgical site infections

These adverse events increased by 25% within three years of PE acquisition compared to control hospitals. This occurred despite PE-acquired hospitals tending to admit lower-risk patients who were younger and less often eligible for both Medicare and Medicaid.

The decline in quality is likely due to cost-cutting measures implemented by PE firms, particularly reductions in staffing and adjustments to clinician labor mix. A review of studies from 2000 to 2023 found that PE ownership generally results in:

• Higher costs to patients and payers (9 out of 12 studies)
• Negative impacts on quality of care (12 out of 27 studies)

Nursing homes seem to be particularly affected, with the majority of studies suggesting care degradation following PE acquisition.

While some studies have found improvements in certain quality metrics after PE acquisition, these findings are inconsistent and often limited to specific hospital systems or time periods. The overall body of evidence points to PE ownership being associated with declining quality and rising costs in healthcare.

The Profit Motive vs. Patient Care

At the heart of the debate is the fundamental question of whether the profit-driven model of private equity is compatible with the ethical obligations of healthcare providers. Critics argue that the pressure to generate returns for investors can lead to cost-cutting measures that compromise patient care. The rising fines in nursing homes owned by private equity firms seem to lend credence to these concerns.

As the involvement of private equity in healthcare continues to grow, so too does the need for careful scrutiny and potential reform. The rising fines in nursing homes and the broader ethical concerns all point to a need for a reevaluation of how private equity operates within the healthcare sector.

Policymakers, healthcare professionals, and community leaders must work together to ensure that the pursuit of profits does not come at the expense of patient care and community health. As the debate continues, it's clear that finding a balance between financial sustainability and quality healthcare delivery will be crucial for the future of the American healthcare system.