[Congressional Record Volume 153, Number 149 (Wednesday, October 3, 2007)]
[Senate]
[Pages S12525-S12528]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
NURSING HOMES
Mr. GRASSLEY. Mr. President, for 10 years, I have advocated for
stronger measures to ensure that America's nursing home residents
receive the quality of care they deserve. Currently, over 1.7 million
Americans live in nursing homes. This number will grow by leaps and
bounds as the baby boomer
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generation ages. Therefore, there has never been a more critical time
to make sure that the Federal Government does all it can to protect the
most vulnerable among us from substandard care.
In late September, an article on the front page of the New York Times
underscored this issue and brought to light some troubling data. The
article, entitled ``At Many Homes, More Profit and Less Nursing,''
studied the quality of care at investor-owned nursing homes. The
findings were alarming, to say the least.
Using numbers from the Centers for Medicare and Medicaid Services,
the article compared several investor-owned nursing home chains to
industry-wide averages for several indicators. Here is what was found.
The investor-owned homes, on average, had fewer clinical registered
nurses per resident and higher numbers of serious health deficiencies.
The article also reported that, in some cases, long-stay residents in
these investor-owned homes suffered from higher rates of deterioration
in their condition.
I would like to highlight one case in particular. Following its
purchase by a large investment firm, one nursing home cut its number of
clinical registered nurses in half. Budgets for nursing supplies,
resident activities, and other services were also cut. Investor profits
soared and resident care plummeted. Indeed, visits by regulators found
fire exits that didn't work, dirty kitchens, and other health and
safety violations. Fifteen residents died in 3 years due to negligent
care, according to their families.
Our elderly and disabled nursing home residents our own grandparents,
mothers, fathers, and other loved ones deserve better.
Is this a case of profits before care? Well, I am not sure. But I
certainly intend to look into it. I intend to investigate allegations
that some large investment firms are buying up nursing homes across the
country and are hurting quality of care. And as a result, achieving, as
the New York Times said, ``More profit and less nursing.''
And let's not forget that the Centers for Medicare and Medicaid
Services shoulder some responsibility for these problems too CMS needs
to do a better job of protecting seniors in our Nation's nursing homes
and I am going follow up with them to see what they have to say.
So I say to my fellow Senators, we must do what is necessary to
protect America's nursing home residents. We need to closely examine
this matter. I plan to take a very active role in looking at this issue
and will be speaking with nursing homes, equity firms, and to CMS. We
owe it to America's nursing home residents and we owe it to their
families.
Mr. President, I ask unanimous consent to have printed in the Record
the article to which I referrd earlier.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the New York Times, Sept. 23, 2007]
At Many Homes, More Profit and Less Nursing
(By Charles Duhigg)
Habana Health Care Center, a 150-bed nursing home in Tampa,
Fla., was struggling when a group of large private investment
firms purchased it and 48 other nursing homes in 2002.
The facility's managers quickly cut costs. Within months,
the number of clinical registered nurses at the home was half
what it had been a year earlier, records collected by the
Centers for Medicare and Medicaid Services indicate. Budgets
for nursing supplies, resident activities and other services
also fell, according to Florida's Agency for Health Care
Administration.
The investors and operators were soon earning millions of
dollars a year from their 49 homes.
Residents fared less well. Over three years, 15 at Habana
died from what their families contend was negligent care in
lawsuits filed in state court. Regulators repeatedly warned
the home that staff levels were below mandatory minimums.
When regulators visited, they found malfunctioning fire
doors, unhygienic kitchens and a resident using a leg brace
that was broken.
``They've created a hellhole,'' said Vivian Hewitt, who
sued Habana in 2004 when her mother died after a large
bedsore became infected by feces.
Habana is one of thousands of nursing homes across the
nation that large Wall Street investment companies have
bought or agreed to acquire in recent years.
Those investors include prominent private equity firms like
Warburg Pincus and the Carlyle Group, better known for buying
companies like Dunkin' Donuts.
As such investors have acquired nursing homes, they have
often reduced costs, increased profits and quickly resold
facilities for significant gains.
But by many regulatory benchmarks, residents at those
nursing homes are worse off, on average, than they were under
previous owners, according to an analysis by The New York
Times of data collected by government agencies from 2000 to
2006.
The Times analysis shows that, as at Habana, managers at
many other nursing homes acquired by large private investors
have cut expenses and staff, sometimes below minimum legal
requirements.
Regulators say residents at these homes have suffered. At
facilities owned by private investment firms, residents on
average have fared more poorly than occupants of other homes
in common problems like depression, loss of mobility and loss
of ability to dress and bathe themselves, according to data
collected by the Centers for Medicare and Medicaid Services.
The typical nursing home acquired by a large investment
company before 2006 scored worse than national rates in 12 of
14 indicators that regulators use to track ailments of long-
term residents. Those ailments include bedsores and easily
preventable infections, as well as the need to be
restrained. Before they were acquired by private
investors, many of those homes scored at or above national
averages in similar measurements.
In the past, residents' families often responded to such
declines in care by suing, and regulators levied heavy fines
against nursing home chains where understaffing led to lapses
in care.
But private investment companies have made it very
difficult for plaintiffs to succeed in court and for
regulators to levy chainwide fines by creating complex
corporate structures that obscure who controls their nursing
homes.
By contrast, publicly owned nursing home chains are
essentially required to disclose who controls their
facilities in securities filings and other regulatory
documents.
The Byzantine structures established at homes owned by
private investment firms also make it harder for regulators
to know if one company is responsible for multiple centers.
And the structures help managers bypass rules that require
them to report when they, in effect, pay themselves from
programs like Medicare and Medicaid.
Investors in these homes say such structures are common in
other businesses and have helped them revive an industry that
was on the brink of widespread bankruptcy.
``Lawyers were convincing nursing home residents to sue
over almost anything,'' said Arnold M. Whitman, a principal
with the fund that bought Habana in 2002, Formation
Properties I.
Homes were closing because of ballooning litigation costs,
he said. So investors like Mr. Whitman created corporate
structures that insulated them from costly lawsuits,
according to his company.
``We should be recognized for supporting this industry when
almost everyone else was running away,'' Mr. Whitman said in
an interview.
Some families of residents say those structures unjustly
protect investors who profit while care declines.
When Mrs. Hewitt sued Habana over her mother's death, for
example, she found that its owners and managers had spread
control of Habana among 15 companies and five layers of
firms.
As a result, Mrs. Hewitt's lawyer, like many others
confronting privately owned homes, has been unable to
establish definitively who was responsible for her mother's
care.
Current staff members at Habana declined to comment.
Formation Properties I said it owned only Habana's real
estate and leased it to an independent company, and thus bore
no responsibility for resident care.
That independent company--Florida Health Care Properties,
which eventually became Epsilon Health Care Properties and
subleased the home's operation to Tampa Health Care
Associates--is affiliated with Warburg Pincus, one of the
world's largest private equity firms. Warburg Pincus, Florida
Health Care, Epsilon and Tampa Health Care all declined to
comment.
Demand for Nursing Homes
The graying of America has presented financial
opportunities for all kinds of businesses. Nursing homes,
which received more than $75 billion last year from taxpayer
programs like Medicare and Medicaid, offer some of the
biggest rewards.
``There's essentially unlimited consumer demand as the baby
boomers age,'' said Ronald E. Silva, president and chief
executive of Fillmore Capital Partners, which paid $1.8
billion last year to buy one of the nation's largest nursing
home chains. ``I've never seen a surer bet.''
For years, investors shunned nursing home companies as the
industry was battered by bankruptcies, expensive lawsuits and
regulatory investigations.
But in recent years, large private investment groups have
agreed to buy 6 of the nation's 10 largest nursing home
chains, containing over 141,000 beds, or 9 percent of the
nation's total. Private investment groups own at least
another 60,000 beds at smaller chains and are expected to
acquire many more companies as firms come under shareholder
pressure to sell.
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The typical large chain owned by an investment company in
2005 earned $1,700 a resident, according to reports filed by
the facilities. Those homes, on average, were 41 percent more
profitable than the average facility.
But, as in the case of Habana, cutting costs has become an
issue at homes owned by large investment groups.
``The first thing owners do is lay off nurses and other
staff that are essential to keeping patients safe,'' said
Charlene Harrington, a professor at the University of
California in San Francisco who studies nursing homes. In her
opinion, she added, ``chains have made a lot of money by
cutting nurses, but it's at the cost of human lives.''
The Times's analysis of records collected by the Centers
for Medicare and Medicaid Services reveals that at 60 percent
of homes bought by large private equity groups from 2000 to
2006, managers have cut the number of clinical registered
nurses, sometimes far below levels required by law. (At 19
percent of those homes, staffing has remained relatively
constant, though often below national averages. At 21
percent, staffing rose significantly, though even those homes
were typically below national averages.) During that period,
staffing at many of the nation's other homes has fallen much
less or grown.
Nurses are often residents' primary medical providers. In
2002, the Department of Health and Human Services said most
nursing home residents needed at least 1.3 hours of care a
day from a registered or licensed practical nurse. The
average home was close to meeting that standard last year,
according to data.
But homes owned by large investment companies typically
provided only one hour of care a day, according to The
Times's analysis of records collected by the Centers for
Medicare and Medicaid Services.
For the most highly trained nurses, staffing was
particularly low: Homes owned by large private investment
firms provided one clinical registered nurse for every 20
residents, 35 percent below the national average, the
analysis showed.
Regulators with state and federal health care agencies have
cited those staffing deficiencies alongside some cases where
residents died from accidental suffocation, injuries or
other medical emergencies.
Federal and state regulators also said in interviews that
such cuts help explain why serious quality-of-care
deficiencies--like moldy food and the restraining of
residents for long periods or the administration of wrong
medications--rose at every large nursing home chain after it
was acquired by a private investment group from 2000 to 2006,
even as citations declined at many other homes and chains.
The typical number of serious health deficiencies cited by
regulators last year was almost 19 percent higher at homes
owned by large investment companies than the national
average, according to analysis of Centers for Medicare and
Medicaid Services records.
(The Times's analysis of trends did not include Genesis
HealthCare, which was acquired earlier this year, or HCR
Manor Care, which the Carlyle Group is buying, because
sufficient data were not available.)
Representatives of all the investment groups that bought
nursing home chains since 2000--Warburg Pincus, Formation,
National Senior Care, Fillmore Capital Partners and the
Carlyle Group--were offered the data and findings from the
Times analysis. All but one declined to comment.
An executive with a company owned by Fillmore Capital,
which acquired 342 homes last year, said that because some
data regarding the company were missing or collected before
its acquisition, The Times's analysis was not a complete
portrayal of current conditions. That executive, Jack
MacDonald, also said that it was too early to evaluate the
new management, that the staff numbers at homes over all was
rising and that quality had improved by some measures.
``We are focused on becoming a better organization today
than we were 18 months ago,'' he said. ``We are confident
that we will be an even better organization in the future.''
A Web of Responsibility
Vivian Hewitt's mother, Alice Garcia, was 81 and suffering
from Alzheimer's disease when, in late 2002, she moved into
Habana.
``I couldn't take care of her properly anymore, and Habana
seemed like a really nice place,'' Mrs. Hewitt said.
Earlier that year, Formation bought Habana, 48 other
nursing homes and four assisted living centers from Beverly
Enterprises, one of the nation's largest chains, for $165
million.
Formation immediately leased many of the homes, including
Habana, to an affiliate of Warburg Pincus. That firm spread
management of the homes among dozens of other corporations,
according to documents filed with Florida agencies and
depositions from lawsuits.
Each home was operated by a separate company. Other
companies helped choose staff, keep the books and negotiate
for equipment and supplies. Some companies had no employees
or offices, which let executives file regulatory documents
without revealing their other corporate affiliations.
Habana's managers increased occupancy, and cut expenses by
laying off about 10 of 30 clinical administrators and nurses,
Medicare filings reveal. (After regulators complained, some
positions were refilled and other spending increased.) Soon,
Medicare regulators cited Habana for malfunctioning fire
doors and moldy air vents.
Throughout that period, Formation and the Warburg Pincus
affiliate received rent and fees that were directly tied to
Habana's revenues, interviews and regulatory filings show. As
the home's fiscal health improved, those payments grew. In
total, they exceeded $3.5 million by last year. The companies
also profited from the other 48 homes.
Though spending cuts improved the home's bottom line, they
raised concerns among regulators and staff.
``Those owners wouldn't let us hire people,'' said Annie
Thornton, who became interim director of nursing around the
time Habana was acquired, and who left about a year later.
``We told the higher-ups we needed more staffing, but they
said we should make do.''
Regulators typically visit nursing homes about once a year.
But in the 12 months after Formation's acquisition of Habana,
they visited an average of once a month, often in response to
residents' complaints. The home was cited for failing to
follow doctors' orders, cutting staff below legal minimums,
blocking emergency exits, storing food in unhygienic areas
and other health violations.
Soon after, nursing home inspectors wrote in Centers for
Medicare and Medicaid Services documents that Habana was at
fault when a resident suffocated because his tracheotomy tube
became clogged. Although he had complained of shortness of
breath, there were no records showing that staff had checked
on him for almost two days.
Those citations never mentioned Formation, Warburg Pincus
or its affiliates. Warburg Pincus and its affiliates declined
to discuss the citations. Formation said it was merely a
landlord.
``Formation Properties owns real estate and leases it to an
unaffiliated third party that obtains a license to operate it
as a health care facility,'' Formation said. ``No citation
would mention Formation Properties since it has no
involvement or control over the operations at the facility or
any entity that is involved in such operations.''
For Mrs. Hewitt's mother, problems began within months of
moving in as she suffered repeated falls.
``I would call and call and call them to come to her room
to change her diaper or help me move her, but they would
never come,'' Mrs. Hewitt recalled.
Five months later, Mrs. Hewitt discovered that her mother
had a large bedsore on her back that was oozing pus. Mrs.
Garcia was rushed to the hospital. A physician later said the
wound should have been detected much earlier, according to
medical records submitted as part of a lawsuit Mrs. Hewitt
filed in a Florida Circuit Court.
Three weeks later, Mrs. Garcia died.
``I feel so guilty,'' Mrs. Hewitt said. ``But there was no
way for me to find out how bad that place really was.''
death and a lawsuit
Within a few months, Mrs. Hewitt decided to sue the nursing
home.
``The only way I can send a message is to hit them in their
pocketbook, to make it too expensive to let people like my
mother suffer,'' she said.
But when Mrs. Hewitt's lawyer, Sumeet Kaul, began
investigating Habana's corporate structure, he discovered
that its complexity meant that even if she prevailed in
court, the investors' wallets would likely be out of reach.
Others had tried and failed. In response to dozens of
lawsuits, Formation and affiliates of Warburg Pincus had
successfully argued in court that they were not nursing home
operators, and thus not liable for deficiencies in care.
Formation said in a statement that it was not reasonable to
hold the company responsible for residents, ``any more, say,
than it would be reasonable for a landlord who owns a
building, one of whose tenants is Starbucks, to be held
liable if a Starbucks customer is scalded by a cup of hot
coffee.''
Formation, Warburg Pincus and its affiliates all declined
to answer questions regarding Mrs. Hewitt's lawsuit.
Advocates for nursing home reforms say anyone who profits
from a facility should be held accountable for its care.
``Private equity is buying up this industry and then hiding
the assets,'' said Toby S. Edelman, a nursing home expert
with the Center for Medicare Advocacy, a nonprofit group that
counsels people on Medicare. ``And now residents are dying,
and there is little the courts or regulators can do.''
Mrs. Hewitt's lawyer has spent three years and $30,000
trying to prove that an affiliate of Warburg Pincus might be
responsible for Mrs. Garcia's care. He has not named
Formation or Warburg Pincus as defendants. A judge is
expected to rule on some of his arguments this year.
Complex corporate structures have dissuaded scores of other
lawyers from suing nursing homes.
About 70 percent of lawyers who once sued homes have
stopped because the cases became too expensive or difficult,
estimates Nathan P. Carter, a plaintiffs' lawyer in Florida.
``In one case, I had to sue 22 different companies,'' he
said. ``In another, I got a $400,000 verdict and ended up
collecting only $25,000.''
Regulators have also been stymied.
For instance, Florida's Agency for Health Care
Administration has named Habana and
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34 other homes owned by Formation and operated by affiliates
of Warburg Pincus as among the state's worst in categories
like ``nutrition and hydration,'' ``restraints and abuse''
and ``quality of care.'' Those homes have been individually
cited for violations of safety codes, but there have been no
chainwide investigations or fines, because regulators were
unaware that all the facilities were owned and operated by a
common group, said Molly McKinstry, bureau chief for long-
term-care services at Florida's Agency for Health Care
Administration.
And even when regulators do issue fines to investor-owned
homes, they have found penalties difficult to collect.
``These companies leave the nursing home licensee with no
assets, and so there is nothing to take,'' said Scott
Johnson, special assistant attorney general of
Mississippi.
Government authorities are also frequently unaware when
nursing homes pay large fees to affiliates.
For example, Habana, operated by a Warburg Pincus
affiliate, paid other Warburg Pincus affiliates an estimated
$558,000 for management advice and other services last year,
according to reports the home filed.
Government programs require nursing homes to reveal when
they pay affiliates so that such disbursements can be
scrutinized to make sure they are not artificially inflated.
However, complex corporate structures make such scrutiny
difficult. Regulators did not know that so many of Habana's
payments went to companies affiliated with Warburg Pincus.
``The government tries to make sure homes are paying a fair
market value for things like rent and consulting and
supplies,'' said John Villegas-Grubbs, a Medicaid expert who
has developed payment systems for several states. ``But when
home owners pay themselves without revealing it, they can pad
their bills. It's not feasible to expect regulators to catch
that unless they have transparency on ownership structures.''
Formation and Warburg Pincus both declined to discuss
disclosure issues.
Groups lobbying to increase transparency at nursing homes
say complicated corporate structures should be outlawed. One
idea popular among organizations like the National Citizens'
Coalition for Nursing Home Reform is requiring the company
that owns a home's most valuable assets, its land and
building, to manage it. That would put owners at risk if care
declines.
But owners say that tying a home's property to its
operation would make it impossible to operate in leased
facilities, and exacerbate a growing nationwide nursing home
shortage.
Moreover, investors say, they deserve credit for rebuilding
an industry on the edge of widespread insolvency.
``Legal and regulatory costs were killing this industry,''
said Mr. Whitman, the Formation executive.
For instance, Beverly Enterprises, which also had a history
of regulatory problems, sold Habana and the rest of its
Florida centers to Formation because, it said at the time, of
rising litigation costs. AON Risk Consultants, a research
company, says the average cost of nursing home litigation in
Florida during that period had increased 270 percent in five
years.
``Lawyers were suing nursing homes because they knew the
companies were worth billions of dollars, so we made the
companies smaller and poorer, and the lawsuits have
diminished,'' Mr. Whitman said. This year, another fund
affiliated with Mr. Whitman and other investors acquired the
nation's third-largest nursing home chain, Genesis
HealthCare, for $1.5 billion.
If investors are barred from setting up complex structures,
``this industry makes no economic sense,'' Mr. Whitman said.
``If nursing home owners are forced to operate at a loss, the
entire industry will disappear.''
However, advocates for nursing home reforms say investors
exaggerate the industry's precariousness. Last year,
Formation sold Habana and 185 other facilities to General
Electric for $1.4 billion. A prominent nursing home industry
analyst, Steve Monroe, estimates that Formation's and its co-
investors' gains from that sale were more than $500 million
in just four years. Formation declined to comment on that
figure.
Analyzing the Data
For this article, The New York Times analyzed trends at
nursing homes purchased by private investment groups by
examining data available from the Centers for Medicare and
Medicaid Services, a division of the Department of Health and
Human Services.
The Times examined more than 1,200 nursing homes purchased
by large private investment groups since 2000, and more than
14,000 other homes. The analysis compared investor-owned
homes against national averages in multiple categories,
including complaints received by regulators, health and
safety violations cited by regulators, fines levied by state
and federal authorities, the performance of homes as reported
in a national database known as the Minimum Data Set
Repository and the performance of homes as reported in the
Online Survey, Certification and Reporting database.
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