Buying and Selling Nursing Homes: Who’s Looking Out for the Residents?

In recent months, the buying and selling of nursing facilities and the transfers of licenses to new managers have raised questions about who the new owners/managers/lessees are and whether there are sufficient state and federal laws, regulations, and practices in place, meaningfully implemented and enforced, to protect residents.

The issue came vividly into public consciousness when Skyline/Cottonwood, a New Jersey-based company, imploded.  Since 2015, Skyline had assumed management of more than 100 nursing facilities in between six and eight states, primarily facilities owned by the nursing home chain Golden Living.  Between late March and late April 2018, Skyline/Cottonwood, which had stopped paying many of its workers and vendors, collapsed.  The states sought court-approved receiverships or otherwise took over the facilities in order to assure that residents would continue to receive food and medicine and care.[1] 

The Philadelphia Inquirer describes the issue with Skyline in stark terms: “The nursing home industry in recent years has been engulfed in wholesale changes in operators as Golden Living and other large companies, often under regulatory and financial pressures, abandon the business and lease bunches of facilities over to firms that emerge from nowhere.”[2]

Some sales of nursing facilities involve purchasers with poor records.  Avante, a Florida-based nursing home chain, announced the sale of all six of its North Carolina nursing facilities[3] to SentosaCare, New York’s largest for-profit nursing home company.  SentosaCare was the subject of an investigative article in ProPublica in 2015 that found that the company had a record of poor care in New York, with 11 of the 25 facilities “exceed[ing] the state average of 24 violations over the past three years,” and three of the facilities having double that number of deficiencies.[4] 

In some sales, ownership of nursing facilities is being transferred to real estate investment trusts.  Genesis announced plans to sell 23 of its 24 Texas nursing facilities to Regency REIT, LLC by July 1, 2018.[5]  HCR ManorCare was forced into bankruptcy and bought by its landlord Quality Care Properties, which, in turn, sold the company to ProMedica and Welltower, a real estate investment trust.[6]

Problems of questionable ownership and management are not new.  In May 2015, Utah-based Deseret Health Group (founded in 2006) abruptly stopped paying for food, medical supplies, and workers’ wages and benefits at various nursing facilities it owned, leading several states to pursue court receiverships or otherwise take control of the facilities and protect residents.[7]   Twenty years earlier, the founder of Deseret Health Group had been involved in similar problems at other chains of nursing facilities he owned – poor care for residents, bankruptcy, and abrupt closings of facilities.[8]  After checking into rehabilitation for a cocaine addiction and also serving time in prison,[9] Robertson was able to start a new company – Deseret – and get licenses in multiple states.

Skyline/Cottonwood collapsed.  Private equity firms and other owners are selling nursing facilities or transferring their operating licenses to companies with poor records.  Owners with a seriously troubled history are able to start a new company and repeat the history.  These practices raise questions about how states and the Federal Government are assuring that residents are protected when facilities, licenses, and management responsibilities are bought and sold or otherwise transferred.

Specifically, what processes do states use to review applicants for nursing home licenses?  How do they assure that new managers are qualified and competent to receive licenses to operate the facilities?  Are states simply rubber-stamping the new managers that the owners choose?  Do state laws set adequate criteria for licensure to fulfill states’ police power duty of protecting public health and safety?[10]   Do states adequately implement the authority they have?[11]

Similar questions are raised about the federal role.  How is the Federal Government assuring that new managers are qualified and competent to receive certification to participate in the Medicare and Medicaid programs?  Are federal tools sufficient?  Does the Federal Government effectively implement the authority it has?

As nursing home owners buy and sell facilities or transfer management responsibilities to others and as owners with poor records continue to accumulate additional facilities, who is protecting the residents? 

May 23, 2018 – T. Edelman