Nursing homes and corporate raiders don’t seem like they’d have much in common at first blush, but nursing home management is coming under the microscope after Senators Elizabeth Warren (D-VT), Sherrod Brown (D-OH) and Representative Mark Pocan (D-WI) directed a pointed letter to the CEOs of The Carlyle Group, a global investment firm specializing in corporate private equity.

Sent on November 15, 2019, the letter questioned the business’ private equity investments in nursing homes and long-term care and requested detailed information about their investments over the past 20 years in this sector, what services their care facilities offer, and details pertaining to revenue sources.

This letter comes on the heels of the Stop Wall Street Looting Act, which Warren and Pocan introduced in July 2019. Although not specifically pertaining to nursing homes, the act addresses the purchasing and resale of assets by private equity firms and aims to hold private funds and shareholders broadly liable for debt incurred following a takeover and prohibit distribution of capital for 24 months after a buyout.

What are private equity firms and why does this matter?

Private equity firms rely on private equity fund operations tend to follow a particular model: acquire controlling interest in an organization, implement drastic cost-cutting measures while loading them with debt, then strip them of their assets and extract huge fees. Finally, the organization is sold at a profit.

Private equity investments are found in a range of industries but have been noted as a cause for concern in sectors funded by taxpayer dollars and serving vulnerable populations. Nursing homes are a prime example of this; both not-for-profit and for-profit receive significant funds from Medicare and Medicaid. These sales result in private firms profiting off of taxpayer dollars.

Moreover, the quality of care in nursing homes following private equity acquisition is alarming. Nursing homes are an essential service sector in the United States, providing care for 1.3 million (and growing) residents in more than 15,000 facilities. Poor care and living conditions have long been prevalent in both not-for and for-profit facilities.

However, it is especially troubling in for-profit and chain-affiliated facilities acquired by private equity firms. As cost-cutting measures are implemented, medical care, staffing, social support, and facility conditions frequently show a precipitous decline.

As Warren, Brown, and Pocan write, “The majority of nursing facilities – almost 70%- are for-profit, and over half are chain affiliated. The overwhelming majority of research conducted over the last two decades shows that for-profit and chain affiliated companies provide a lower quality of care and experience more serious health and safety deficiencies when compared to non-profit facilities.” (citing The International Journal of Health Services)