The Centers for Medicare and Medicaid Services (CMS) is the largest payor for nursing homes in the United States. Due to persistent problems involving systemic nursing home abuse and neglect, CMS announced recent policy changes aimed at bettering nursing home care.

One of these changes involves making nursing home ownership more transparent. By publicly unraveling the complicated web of shell companies, CMS hopes to disclose who really owns and operates America’s skilled nursing facilities. Increased transparency in nursing home ownership will, in theory, expose bad actors in the space and prevent those groups from obtaining nursing home licenses under different shell company names.

This change comes as part of the Biden Administration’s broader attempts to improve our understanding of what contributes to a safer nursing home system in the US.

REITs vs. Private Equity vs. Private Owners – Who Provides Better Nursing Home Care?

Nursing homes changed ownership almost three times as often as hospitals between 2016 and 2021. Current data indicates that more than 60% of nursing homes are purchased by a single owner, and 70% of American nursing facilities are for-profit.

As private mid-sized owners¹ continue to buy up facilities, private equity and REIT owners are becoming more sparse in the industry.

Recently released data suggests that REITs and private equity groups might provide better resident outcomes, when compared to long term mid-sized private owners.

Private equity and REITs have a checkered past in the nursing home industry. However, the logic behind this recent study is that real estate investors have a vested interest in ensuring that the properties they own are valuable. There is a financial motive to keep facilities functioning smoothly, out of regulatory trouble, in good repair, and with a favorable public opinion. In exchange, the overall value of the property when sold remains high.

In contrast, according to the recently released data, mid-sized private investors are not motivated by these elements. Instead, the rise of the “owner/operator” follows a trend of allowing individuals to borrow significant amounts of debt with low-cost capital. Private owner/operators can access a lower than 3% HUD debt and take out as much non-recourse money as possible, bleeding the facility of much needed capital that should have been used to care for residents.

In other words, nursing homes become investments in and of themselves that are used to leverage financial borrowing power for greater gain. To maximize profits, owner/operators attempt to fill the facility with as many “heads in beds” as possible, while keeping staff numbers dangerously low.

Ultimately, while marginally better than mid-size investors, private equity-owned facilities and REIT controlled nursing homes continue to perform poorly². Claiming that they outperform owner/operator nursing homes is akin to celebrating a sports team that ranks next-to-last in its division.

The Effects of an Undercapitalized Nursing Home are Lethal

It should come as no surprise that overpopulation and understaffing of a nursing facility will lead to a reduced quality of life for residents. In this environment, neglect of residents is pervasive and bedsores, falls, and resident death abound.

This is precisely when mistakes occur as staff are stretched thin and forced to spend only minutes per shift with each resident. The best rated facilities—and those with the fewest health inspection citations—remain, on average, those with fewer beds and a robust, rested staff who are not hurried from room to room.

True Transparency in Nursing Home Ownership Can be a Catalyst for Better Care

The White House’s efforts to make ownership information transparent can potentially effect positive change in this troubled industry. With this data, drawing a stronger correlation between privately owned and operated facilities and their resultant health outcomes becomes possible. Adjustments can be made to disincentivize nursing homes from becoming a mere real estate loan vehicle at the expense of the residents who live (and die) there.

The distinction between REITs, private equity, and owner/operator facilities are blurred. What matters is the owners’ performance and track record.

Exploitation of human life should never be the means of making a profit. However, this is exactly what is happening in nursing homes across the country. The curtailing of HUD loans for owners and a greater incentive for rewarding successful nursing home operators could lead to a dramatic increase in quality of care. If executed properly, transparency in ownership could link to facility performance, and state licensure boards can reject licenses to operators with poor performance records.

Regulatory compliance is not ingrained in nursing home industry culture. While the Biden administration’s proposed changes are well intentioned, nursing home owners should be held to account if they do not follow the new regulations. Further, exploitative operators should be banned from facility ownership, regardless of their ownership model, whether it is a REIT, private equity group, or owner/operator.

There is no need to tolerate widespread death and injury inside America’s nursing homes.

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Michael Brevda is a nursing home litigator and the managing partner of Senior Justice Law Firm.