“Private equity and nursing homes are a match made in hell,” a June 14, 2024 Editorial in the Pittsburgh Post-Gazette, blames private equity for more than 20 bankruptcy filings by local facilities over the previous few weeks. An earlier news story, “Without approval of sale, four Pittsburgh-area nursing homes will close, owners say,” described a pending bankruptcy case that requires the court to decide whether to keep 450+ nursing home beds available in the Pittsburgh area or to void two court cases against the company.
The Editorial describes private equity’s “‘sale-leaseback’” process by which nursing homes’ property is sold and then facilities “are suddenly forced to pay rent or ‘management fees’ to occupy facilities they once owned.” One result has been the subsequent bankruptcy of the nursing home company.
The Pittsburgh Post-Gazette describes the first private equity purchase of long-term care facilities in 2007. The Carlyle Group’s purchase of ManorCare included 46 facilities in Pennsylvania that provided care for more than 7,000 residents. Although the Carlyle Group assured state officials that quality of care would be maintained in the nursing facilities, 11 years later, ManorCare filed for bankruptcy, defaulting on $380 million in loans. The history of Carlyle’s involvement with ManorCare is described in detail in The Washington Post (2018) in “Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable.”
Now, the Pittsburgh Post-Gazette reports, multiple nursing facilities in the Pittsburgh area that are owned by private equity firms are following the ManorCare model and filing for bankruptcy. LME Family Holdings and Ephram Mordy Lahasky filed for bankruptcy for 13 of their 21 Pennsylvania nursing facilities. The sale of four facilities to a New York company is contingent of the facilities’ being “‘free and clear of all liens, claims, encumbrances and interests’ before the sale.” LME and Lahasky have asked the bankruptcy court to set aside two lawsuits against these facilities so that the sale can go through. One lawsuit by the U.S. Department of Labor “concerns $20 million in unpaid overtime wages to healthcare staff, and the other alleges the facilities falsified documents relating to Medicaid and Medicare investigations.” One of the four facilities was criminally convicted of Medicare fraud and record falsification. The four facilities also owe back rent ($15.7 million) and state fees ($15 million). The Editorial describes the choices before the bankruptcy court:
[T]he choices are either to force irresponsible companies to pay their debts and lose hundreds of needed nursing beds, or to dismiss millions in debts and lawsuits to ensure care for these vulnerable people continues — at least for a time. The current operators are trying to outrun the clock and find new owners, betting on the dire need to keep skilled nursing facilities open to save the business in bankruptcy court.
The Editorial describes a final rule published by the Biden Administration in November 2023 to require greater disclosure of nursing home ownership information, including private equity owners. It concludes, “And hopefully it will shift incentives against vulture capitalists, and toward operators that put their patients, not profits, first.”
June 20, 2024 – T. Edelman