Ownership society and taking responsibility for performance
This NYT article reports on new structuring of ownership of nursing home chains by private equity funds.
Habana is one of thousands of nursing homes across the nation that large Wall Street investment companies have bought or agreed to acquire in recent years.
Those investors include prominent private equity firms like Warburg Pincus and the Carlyle Group, better known for buying companies like Dunkin’ Donuts.
As such investors have acquired nursing homes, they have often reduced costs, increased profits and quickly resold facilities for significant gains.
But by many regulatory benchmarks, residents at those nursing homes are worse off, on average, than they were under previous owners, according to an analysis by The New York Times of data collected by government agencies from 2000 to 2006.
For instance, Florida’s Agency for Health Care Administration has named Habana and 34 other homes owned by Formation and operated by affiliates of Warburg Pincus as among the state’s worst in categories like “nutrition and hydration,” “restraints and abuse” and “quality of care.” Those homes have been individually cited for violations of safety codes, but there have been no chainwide investigations or fines, because regulators were unaware that all the facilities were owned and operated by a common group, said Molly McKinstry, bureau chief for long-term-care services at Florida’s Agency for Health Care Administration.
And even when regulators do issue fines to investor-owned homes, they have found penalties difficult to collect.
“These companies leave the nursing home licensee with no assets, and so there is nothing to take,” said Scott Johnson, special assistant attorney general of Mississippi.
Government authorities are also frequently unaware when nursing homes pay large fees to affiliates.
For example, Habana, operated by a Warburg Pincus affiliate, paid other Warburg Pincus affiliates an estimated $558,000 for management advice and other services last year, according to reports the home filed.
Government programs require nursing homes to reveal when they pay affiliates so that such disbursements can be scrutinized to make sure they are not artificially inflated.
However, advocates for nursing home reforms say investors exaggerate the industry’s precariousness. Last year, Formation sold Habana and 185 other facilities to General Electric for $1.4 billion. A prominent nursing home industry analyst, Steve Monroe, estimates that Formation’s and its co-investors’ gains from that sale were more than $500 million in just four years. Formation declined to comment on that figure.
One nursing home had 22 companies/affiliates with its operation. The intent is to make the nursing home licensee asset poor, and skim off cash flow at probably 20% (MY GUESS) return since this is the favored ‘new economy’ rate.
Clients and regulators cannot sort out who does what for and to whom. Seems to be the way ownership of mortgages was divided into 3 or 4 different bundles that constricted any reasonable response by companies to the mortgage hullaboo.
I still have a primitive need to know where to throw my bricks in times of a company needing to take responsibility. Hopefully we can find a better way to spend all this sloshing around liquidity. Reminds me of a financial laundry at the moment.