Nursing home companies run a high-liability business. Fragile seniors need round-the-clock care, and when nursing homes fail, they hurt real people and their families and may need to provide redress.
Now, as private equity firms take over more nursing homes, they may be making it difficult for family members to recover damages by engaging in complex corporate restructuring which separates the company’s valuable real estate holdings from its day-to-day operations.
This is one of our concerns about the Carlyle Group’s buyout of Manor Care nursing homes.
To minimize the risk of high-dollar lawsuits, the nursing home industry is trending towards separating the real estate and the operations components of nursing homes, which can impact the quality of care.
As the Journal of Health Law describes, "Dividing the nursing home business into real-estate investment and real estate operations will reduce the nursing home company’s exposure to risks associated with owning and operating one or more nursing homes. The degree to which this reduction of risk can be maximized will be a function of how elaborate a corporate structure the particular company is willing to create. The ultimate structure would consist of forming a real property SPE [single-purpose entity] to hold each piece of real estate, as well as a separate operating SPE for each nursing home business."
The net effect is less accountability for care problems and could result in companies becoming complacent to problems with quality of care.
Public documents indicate the Carlyle Group is planning similar changes to the corporate structure of the nursing home chain HCR Manor Care, as part of its pending $6.6 billion takeover deal. Manor Care’s own SEC filings reveal that it plans a significant "restructuring" as part of the deal.
The company’s "restructuring" will send each nursing home’s operations to an entirely new corporate entity and will separate real estate and operations into two completely separate companies. It is clear from the filings that the restructuring comes at Carlyle’s request, as the merger agreement provides for "unwinding" the structure if the deal does not go through.
The changes could limit Carlyle’s legal liability in the case of poor patient care and make it difficult for regulators and plaintiffs’ attorneys to hold the buyout firm responsible for what happens to residents inside the homes. If these companies insist on separating their real estate assets from their operations, experts recommend that regulators require either insurance or bonding to make sure assets are available to families whom the company may injure.
This trend has attracted the attention of both the Senate Special Committee on Aging and the House Ways and Means Aging Subcommittee on Capitol Hill. And our own State Senate Committee on Public Health, Senior Issues, Long-Term Care and Privacy is looking at this issue as it relates to Carlyle’s buyout of Manor Care.
Before we give the nod to Carlyle to operate these nursing homes, we need to make sure individuals who are harmed in Manor Care facilities can receive some redress. We call on regulators and lawmakers to work together to make sure that patients in Manor Care facilities are protected even after these nursing homes are bought out by the Carlyle Group, and indeed that patients in all private equity-owned nursing homes are protected.
Carrie Budahn is vice president of the Service Employees International Union (SEIU) Local 150, the largest labor union in the nation. Local 150 represents more than 9,000 people in Wisconsin.
