As profits grow, so does neglect

Private equity investors have found a way to make a profit on nursing homes by cutting costs and limiting their own liability for neglect. The result is a growing moral scandal. Thanks to an ambitious investigation by the New York Times into private equity's practices in the nursing home business, at least people seeking a safe and caring place for vulnerable loved ones are forewarned.

Vivian Hewitt found out the hard way. She placed her mother, who was suffering from Alzheimer's disease, in the care of Habana Health Care Center in Tampa. Little did Hewitt know that under new ownership whose financing traced back to prominent investment firm Warburg Pincus, Habana had begun boosting profits by accepting more patients and cutting nursing and administrative staff by a third. Within a few months, Hewitt's mother developed a bedsore that went untreated until it became infected with her own waste. She was finally rushed to a hospital where she died.

"I feel so guilty," said Hewitt, who filed a lawsuit against Habana. "The only way I can send a message is to hit them in their pocketbook, to make it too expensive to let people like my mother suffer."

That's when Hewitt discovered the other secret about Habana's ownership. The key business entities involved in the nursing home argued they were immune from liability. In a corporate structure that resembles a rat's maze, the company that held the nursing home license owned none of the assets. It leased the property from a second company and had a management contract with a third. Warburg Pincus was several layers removed from the nursing home.

Such complex corporate structures discourage lawsuits, even in cases of outrageous neglect. And they are becoming an increasingly common strategy.

In recent years, private equity investors have bought up six of the 10 largest nursing home chains and many smaller ones as well, the New York Times reported. There are some disturbing trends that follow those purchases.

"The first thing owners do is lay off nurses and other staff that are essential to keeping patients safe," Charlene Harrington, a nursing home researcher at the University of California in San Francisco, told the New York Times. The next thing new owners do is restructure the business so that the assets are difficult to reach.

Profits have grown by double-digit percentages at those nursing homes, but performance measures have declined. There are 13 nursing home residents per clinical registered nurse at the average nursing home, but the ratio climbs to 20 patients per nurse at investor-owned homes. Regulators find more health deficiencies in the investor-owned homes as well.

In Florida, a number of nursing homes, including Habana, that were affiliated with Warburg Pincus got low ratings for quality of care. When contacted by the New York Times, state regulators said they didn't know there was common ownership of those homes. (Some of those facilities have since been sold to corporate giant General Electric.)

Reversing this slide in quality of care and owner responsibility will take a concerted effort by both national and state lawmakers and regulators. Medicare should require better staffing ratios in nursing homes seeking reimbursement. Likewise, Florida's Agency for Health Care Administration should identify the investor-owned nursing homes and give them closer scrutiny. Both Congress and the Legislature should consider new laws that would require a company that holds a nursing home license to also own the property. That way, something is at stake when the homes are sued for gross negligence, as in the Hewitt case.

In the meantime, those looking for a quality nursing home are on their own. In Florida, the state has a useful rating system that assigns from one to five stars (with five being the highest rating) to nursing homes in a variety of categories. You can find the information on the Web at http://ahcaxnet.fdhc.state.fl.us/nhcguide/ or order a copy by phone at 1-888-419-3456.

Private equity investors could provide a needed financial boost to the nursing home industry as it tries to meet a growing need. But when such investments are made without a moral compass guiding the way, government regulators need to step in forcefully to protect the vulnerable from unnecessary suffering.

[Last modified September 28, 2007, 00:49:04]