[Congressional Record (Bound Edition), Volume 153 (2007), Part 19]
[Senate]
[Pages 26440-26443]
[From the U.S. 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 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:

[[Page 26441]]



               [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.
       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

[[Page 26442]]

     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 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

[[Page 26443]]

     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.

                          ____________________