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Private equity bought a nursing home, leading to staff cuts and a decline in care

David Brancaccio and Jarrett Dang Sep 8, 2022
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A new investigation published in The New Yorker detailed what happened at St. Joseph's Home for the Aged, a nursing home in Richmond, Virginia, after it was acquired by a private equity firm in 2021. Scott Olson/Getty Images

Private equity bought a nursing home, leading to staff cuts and a decline in care

David Brancaccio and Jarrett Dang Sep 8, 2022
Heard on:
A new investigation published in The New Yorker detailed what happened at St. Joseph's Home for the Aged, a nursing home in Richmond, Virginia, after it was acquired by a private equity firm in 2021. Scott Olson/Getty Images
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When a private equity firm acquired St. Joseph’s Home for the Aged, a nursing home in Richmond, Virginia, subsequent staffing cuts caused the quality of the facility’s care to nosedive, according to a new investigation titled “When Private Equity Takes Over a Nursing Home,” published in The New Yorker.

The home, which changed hands from nonprofit to for-profit owners in 2021, serves as an example of the wider trend of investment groups delving into the health care space. A study from the University of Pennsylvania found that the value of private equity deals in the sector is nearly 20 times higher than it was in 2000 — rising from just $5 billion to $100 billion.

As private equity companies’ involvement in the industry has increased, so has the negative impact on residents. The UPenn study also found that the death rate in nursing homes rose by 10% when they were acquired by PE firms. Costs similarly rose, with Medicare having to pay around 11% more, while quality and staffing decreased.

“The company reduced staff, they cut certain amenities and the acquisition set the stage for a deadly outbreak of COVID that increased the mortality rate at the home,” said Yasmin Rafiei, the reporter behind the story. She told “Marketplace Morning Report” host David Brancaccio about her investigation in the months after St. Joseph’s changed ownership.

The following is an edited transcript of their conversation.

David Brancaccio: Sometimes the profit motive gets in the way of care. Your reporting suggests this was the case with the private equity firm Portopiccolo that was in the nursing home business.

Yasmin Rafiei: Yeah. So I did an investigation over the last 18 months which found that when the Portopiccolo Group acquired this nursing home in Richmond, Virginia — St. Joseph’s Home for the Aged — that a number of things happened. The company reduced staff, they cut certain amenities and the acquisition set the stage for a deadly outbreak of COVID that increased the mortality rate at the home.

Brancaccio: I see. Now, you talked to the company as well. What’s their view of the situation?

Rafiei: The research shows that staffing is the kind of largest predictor of resident care outcomes. And so a number of the care outcomes that I saw at this home were a result of staffing cuts. And when I reached the company, they said that they had never made any staffing cuts during the ownership change. But in my reporting, it was clear from speaking to various staff, various nurses, various residents, that staffing had decreased.

Brancaccio: Now a study shows this goes beyond Portopiccolo and this nursing home. The study found a 10% higher rate of death at nursing homes after an acquisition, after purchase by private equity. That’s striking.

Rafiei: Yeah, correct. There was a fairly robust paper, it includes about 10 years of data. And it’s a nationwide study. Now what the paper didn’t do is look at why the deaths go up. And that was the thing that I was curious about. So in my investigation, I followed one home in what you might call a longitudinal study to see exactly what happens to cause that mortality rate to increase.

Brancaccio: Yeah, so you’re tracking this over time, and you found a strong suggestion that it’s about staffing levels.

Rafiei: Yeah, absolutely. One expert that I spoke to, Charlene Harrington, she told me that when staffing levels decrease, all kinds of problems that could be prevented happen. You know, at homes with fewer direct care nurses, residents are bathed less, they’re showered less, they fall more. And at my home, what happened when the staffing rate decreased was that one resident went without a bath for a week, one resident went several months without having her hair washed. Another resident, her oxygen was unplugged and she rang her call bell asking for help to get a nurse to plug her oxygen back in. But no one heard the call bell seemingly, and she went an hour and a half as her oxygen saturation decreased before someone eventually plugged it back in.

Brancaccio: Now, there are successful examples of for-profit health care companies that don’t have these kinds of outcomes. What do you think the dynamic was here? You know, because it can work to make a profit and run one of these homes.

Rafiei: Absolutely. And I think, you know, there’s a wider case to be made for private equity and for for-profit nursing homes to say that there are benefits to this model. You know, some of these models improve the [tech] services that a home uses. Some of them improve the management services that nursing homes have access to. For many nursing homes, especially compared to the nonprofit model, having for-profit or chain ownership improves the amount of capital that the home has access to for renovation, say. But the difficulty with nursing homes is that staffing, as I said, is the largest predictor of nursing home outcomes. And yet it’s also, for many nursing homes, the largest operational cost. And so in this scenario, what happened was the firm came in and within two weeks, staffing had dramatically decreased.

Brancaccio: Now, your reporting mentioned something that’s quite interesting, that part of the legal difficulty in providing more accountability when these investment groups acquire a nursing home is the complex corporate structure?

Rafiei: Yes. So there are a number of challenges that present themselves if a resident might want to file a lawsuit against the nursing home. One of them is that nursing homes for a very long time when they’re acquired are set up in a series of small LLCs, limited liability companies. There’s often one LLC for the property, a prop-co. Another one for the operations called an op-co. Then there’s a management company between the private equity firm and the nursing home. And at my nursing home, there were about two layers, two corporate layers between a resident and the private equity firm where you might expect that a resident could sue for assets. In some companies, there are as many as five corporate layers between a resident and the eventual firm.

Brancaccio: That’s a complex legal thicket to negotiate if it came to a lawsuit.

Rafiei: Yeah. And there are other aspects to it too. Oftentimes when these firms come in, they’ll outsource certain elements of care. So at St. Joseph’s, many aspects of care were run in-house, the restorative therapy was run in-house, housekeeping and dining were run in-house, and the employees were part of this one nursing home. But when the firm came in, they outsourced these services to other companies. And again, should you be concerned about liability, now it’s diffusely spread across multiple different players.

Brancaccio: The Biden administration wanted to increase the requirements for staffing, increase staffing ratios. I think it was part of that Build Back Better bill, which did not get into law. You see much movement on that front at the federal level since then?

Rafiei: Well, minimum staffing requirements have come into play at various points in the past, and we haven’t seen them passed successfully. As you said, they were included for a time in Joe Biden’s Build Back Better Act. But the nation’s largest nursing home lobbying group, the American Health Care Association, actually came out quite strongly against the measure. They said that nursing homes, amid a staffing shortage, couldn’t afford this minimum staffing without more federal funding. So without federal funding, that minimum staffing requirement was dropped from the bill. But we have seen that the president has taken this issue under his wing. In his State of the Union earlier this year, he said, “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.” And a day prior, the White House had released a fact sheet detailing new reforms that they were requesting, including adequate staffing at nursing homes. So it remains to be seen whether they can put this requirement into place. The devil is going to be in the details.

Brancaccio: So 18 months keeping an eye on this place. I mean, you couldn’t have gotten in too often. How did you get the information?

Rafiei: Yeah. Well, when I started my investigation, I wanted to get a baseline of what this nursing home looked like before it was acquired. And so on a lark, I flew there and met with staff and I met with residents. And I met some of the few initial sources that would expand into a far larger set of sources that I would follow up with over the course of this investigation. I had certainly over 100 phone calls and interviews with staffers, residents and other professionals who were related to the home. And over the course of the 18 months, I kept up with them to see what had changed.

Brancaccio: So before they did the acquisition, before it was actually carried out, you were over there.

Rafiei: Yeah, I mean, to get into the kind of reporting aspect of this, exactly how this happened is I was a medical student at Stanford, I came across this paper in the National Bureau of Economic Research, and I wanted to understand why these deaths increased. So I got in touch with several of my classmates who were at the business school at Stanford who had worked in private equity. And what I got them to do was to help me comb through databases looking at nursing home acquisitions. I went through S&P Capital IQ, which is one database. I went through PitchBook, another database. And I found St. Joseph’s Home for the Aged in one cell in one spreadsheet. And when I researched it, it seemed like a place that people really enjoyed being at. There was one resident who had in the comment section of a listing for St. Joseph’s, who had written, “The Little Sisters treated the residents with such love and dignity. I’ve carried that experience with me all my life.” And that got me thinking that this was a place that people really appreciated. So I wanted to understand why they appreciated it. Now, no one would pick up my phone calls with two weeks until acquisition. And even my supervisor, who’s a four-time Pulitzer Prize-winning journalist, when he asked me if I had any sources, I said no. And he said, “You might want to start thinking about another story.” And so after that, I flew to Richmond. I just told him, I said, “You know, you don’t have to cover this. I’m going to fly to Richmond and find the story.” And I went door to door, knocking on doors, speaking to former employees. At one point, someone helped me get into the home as a visitor, as a guest of someone who was there. And I got my first chance to see what the home looked like. And I got another subsequent chance after that.

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