Equity firm purchase of Manor Care nursing homes raises issue of profits vs. care

Four days before Christmas, global private equity firm Carlyle Group got the gift it asked for in July – the $6.3 billion purchase of nursing home giant Manor Care. Despite obstacles and objections in multiple states, Carlyle’s team closed the stock transfer deal in time for the holidays and before the end of the fiscal year.

According to patient advocates, this purchase of a corporate giant by a private equity behemoth may jeopardize health and safety of Manor Care residents in Michigan and 31 other states. “If they have to pull more profit out of the homes in Michigan by cutting staff one percent, that’s going to hurt residents. Nursing homes already operate at a close margin,” said Sarah Slocum, Michigan’s long-term care ombudsman.

Manor Care, based in Toledo, Ohio, is the largest nursing home operator in Michigan with 28 facilities and over 3,300 resident beds.

State Rep. Kathy Angerer says that investment firms eying nursing homes “come shopping for profits.” “The trend we’ve seen in other places, and we don’t want to see in Michigan, is cutting staffing. What that means right away is there are less services, and seniors are put at risk. Whether or not that is the written intent, it’s what we’ve seen in other places, and it’s time to get in the middle of that,” she told Michigan Messenger.

Continued -Angerer is chair of the House Health Policy Committee that will soon hold hearings to examine nursing home ownership and regulation in Michigan.

Patient advocates argue that private equity ownership of nursing homes often trades away quality care for higher profits. They say that investors can influence the quality of patient care without legal liability – hidden behind complex layers of corporate structure.

“Ownership does matter,” said Angerer, who is seeking tighter regulation of nursing home ownership and ownership transfers in Michigan.  Specifically, she wants to broaden the legal definition of ownership and make it transparent to patients and their families.

“It ought to be as simple as a patient being able to see a certificate hanging on the wall and know what that means,” she said.

In addition, services are often provided by a patchwork of vendors and contractors. “Right now the owners of long-term nursing care facilities are nameless and faceless. The building is owned by one entity, the property by another, the staffing comes from a service, the food service comes from another company. And when a patient’s family has a concern they don’t know who to go to,” Angerer said.

As Michigan’s long-term care ombudsman, Slocum helps nursing home residents resolve disputes with nursing home owners and operators. Unfazed by the scale of the recent deal, Slocum said, “It is not like we’re going from a small mom and pop to a big corporation. It’s already a big corporation.”

Her concern is that Carlyle is not a health care company – they are an investment firm whose first priority is delivering profits to investors, not quality health care to patients.

About Manor Care’s new relationship to Carlyle, Slocum said, “They already answer to shareholders; now they have to answer to this large equity firm.”

“Who is really going to be pulling the shots if their only concern is profit?” Slocum asked.

A recent New York Times investigation revealed declining quality of patient care after homes were purchased by investment firms.

Mike Dankert director of the Michigan Bureau of Health Systems (BHS), shares concerns about the profit motive compromising operation of nursing homes: “What we don’t want is somebody who operates a nursing home, takes all the money out of it and leaves it for Michigan to take over and put state money into a facility to keep it going.” The BHS licenses and regulates Michigan’s nursing homes.

In December, the Service Employees International Union tried to delay the Carlyle purchase in the Michigan court system. Their attempt failed because the transaction consisted of a stock transfer, which did not fit Michigan’s legal definition of a change of ownership.

“Stock purchases are not considered to be change of ownership under federal regulation or state policy,” Dankert said. As part of the deal, new limited liability corporations were set up to run each of the 28 facilities in Michigan.

So the Carlyle purchase of Manor Care did involve a legally recognized change in ownership at the level of new limited liability corporations directly running each of the 28 facilities. Dankert says that license reviews did occur for those transactions to new LLCs.

Even when there is a change of ownership, Michigan nursing home owners are not required to notify patients of such changes. Angerer wants to change that.

She seeks to require 30-day advance notice to patients and families of changes of ownership; conspicuous posting in nursing homes of the state license; and posting of contact information for the principle officers, or other responsible parties, for a nursing home. Angerer also wants applicants for nursing home licenses to prove “financial capacity” to own and operate a nursing home.