The plague that ravaged Europe in the mid-1300s was especially deadly for the inhabitants of monasteries, depleting the ranks of the Catholic Church. The COVID-19 pandemic in the United States was especially deadly for the inhabitants of nursing homes; this 0.5% of our population suffered one-third of total COVID-19 deaths.
Fourteenth century Europeans did not understand the germ theory of disease and did not act to limit deaths in the crowded monasteries. The same cannot be said for the operators of nursing homes. They did understand the germ theory, but the drive for profit prevented actions to limit nursing home deaths.
Much of both the revenues and the business model of the nursing home industry is attributable to private equity (PE) penetration of the industry. PE investment in nursing homes skyrocketed from $5 billion in 2000 to over $100 billion today, with PE firms acquiring four of the top ten nursing home operators. The most extensive study of the industry found that, after being acquired by a PE firm, the home’s performance declined on patient care measures, but the enterprise brought in more occupants and increased revenue.
At the onset of the COVID-19 pandemic, Genesis Health Care (GEN) was the largest operator of nursing homes in the United States. I say operator because GEN, like many other nursing home chains, was stripped of its ownership stake in its more than 400 facilities when the company was taken over by PE firms Formation Capital and JER Partners in 2007. Under the new management, GEN sold its considerable real estate assets to Health Care Real Estate Investment Trust (REIT) in 2011. GEN then agreed to rent its formerly owned facilities from REIT – itself a creature of Formation and JER.
The separation of real estate (PropCo) from operating company (OpCo) has several advantages for the owners of nursing homes, less so for the residents. Perhaps most obviously, it places the most valuable asset, real estate, beyond the reach of patients and their families who might undertake legal action against the nursing home.
But the benefits go further. OpCo generates profits by providing health care services, but much of the profits flow though OpCo into the hands of PropCo, via lease payments and management services contracts. Further, the PropCo/OpCo structure reduces corporate income taxes that would be owed by a combined company, because REITs are subject to a lower corporate tax rate. Finally, this structure allows the operating company to take on additional debt, often necessary because of the cash drain into the property company owned by the private equity firms. The OpCo/PropCo business model facilitates the asset stripping common to PE firms when they take over a company.
GEN’s rapid growth to become the largest nursing home operator included aggressive expansion into the Northeast where the reimbursement rates from Medicare and Medicaid are above the national average. The result was higher revenue/bed.
Increased revenue/bed through rapid growth did entail some costs – to residents. For example, in 2017 GEN agreed to pay $53.6 million to the Department of Justice for “upcoding” treatments provided to Medicare. Upcoding is assigning an incorrect billing code for a medical service provided to increase the reimbursement rate.
Among the facilities that GEN acquired was Burlington Health and Rehab in Burlington, Vermont. The facility was often referred to as “the nursing home of last resort” even before the pandemic. Beginning in March 2020, COVID-19 raced through GEN’s Burlington facility. By year-end 2020, one in six COVID-19 deaths in Vermont had occurred at GEN’s Burlington’s facility. Family members reported a lack of personal protective equipment (PPE) at the facility, with staff members walking around with neither masks nor gloves. GEN denied the claims, but the record suggests otherwise. In 2019 the facility was labeled by the Centers for Medicare and Medicaid Services as one of Vermont’s worst. Unfortunately, neither Burlington nor Vermont were the only victims of GEN. New Hampshire reported that one in five COVID-19 deaths occurred in GEN facilities, and GEN facilities were heavily implicated in Connecticut and New Jersey nursing home deaths.
GEN, and the nursing industry broadly, responded to the COVID-19 pandemic by seeking financial aid from Congress and a liability shield against possible COVID-19 lawsuits. Genesis was particularly successful in obtaining financial assistance. Through the first three-quarters of 2020, GEN received the following: $254 million from the federal government, $85 million from state governments, $157 million in Medicare prepayments, and $90 million in deferred or forgiven taxes.[i] While Congress has not – to date – enacted a national nursing home liability shield, 27 states have, including the New England and Southeast states where GEN has many of its facilities.
The plague of the Middle Ages had significant impacts on European society. The authority of the Catholic Church was called into question. The huge death toll in monasteries seemed to many to be God’s judgment on the Church. The death of over 30% of the population of Europe also dealt a significant blow to feudalism and gave laboring people more power for many decades.
The COVID-19 fatality rate is much less than that of the “Black Death,” but the world is more interconnected. We don’t yet know what the long-term impact of COVID-19 will be on single-source global supply chains, but some change is likely. Nor do we know how much of the change in the geographic distribution of jobs – shifts out of central cities to smaller, less dense and lower cost areas – will remain. There is also the question of how much the work-from-home pattern will carry forward.
But we do know some things about the nursing home industry. The industry is organized on the for-profit provision of care labor. And we know that such a model may be good for the bottom line but is not good for patients. We also know that, even as many reach the point where they cannot fully care for themselves, most have a strong desire to stay in their own homes. And we know that it’s possible to make that happen.
For instance, Denmark, with a higher percentage of over-65 residents than the United States, has implemented policies to keep older people in their homes. This is accomplished through a combination of people power (visiting nurses) and technology, such as digital medicine boxes.
A socialized system of elder care, such as Denmark’s, transforms care from a privately purchased exchange value – our current system – into care as a socially provided use value. It opens the path to better care while closing the door to private equity.
A longer version of this article appeared in Dollars & Sense (March/April 2021).
Photo: Maryland Governor Hogan Visits Genesis Nursing Home as They Receive Their Covid-19 Vaccinations by Patrick Siebert at 9200 Franklin Square Dr, Rosedale, MD 21237. Via Wikimedia Commons.