Poor business decisions, not the source of investment, have been the biggest problem behind some recent nursing home purchases, according to the president and CEO of the nation’s largest nursing home association.
Critics have targeted nursing homes with an increasing drumbeat that began during the spring congressional hearings and continued through a summer of discontent. Much of that was mis-targeted, said Mark Parkinson, senior executive of the American Health Care Association / National Center for Assisted Living.
“We have no concerns about the legislation regarding the disclosure of the owner of buildings,” Parkinson said. McKnight Long Term Care News Friday. âThe issue of private equity is more complicated because it doesn’t matter whether the money comes from a bank, a REIT or private equity. If you pay too much for an installation, you will have a hard time managing it.
He called it “puzzled that some people have focused on private equity” when the “real” problem is “bad business decisions”.
âThey’ve paid too much for nursing homes and then they’re either stuck with leases or bank payments or private equity payments that make it difficult to provide care. It is difficult to regulate against stupidity. It is difficult to regulate against people paying too much for an asset.
Previous studies have indicated that living in a for-profit nursing home increases the risk of infection or death from COVID-19, while another has linked PE ownership to an increase of around 10% the likelihood of death in the short term, even outside of the pandemic. It also raised questions about staff reductions and increased turnover.
But only about 10% of nursing homes in the United States are privately owned, so the focus on this is “probably misguided,” Parkinson explained.
“If your mortgage payment is too high for a bank, your lease payment too high for a REIT, if the returns you have to give PE are so high that you cannot afford to have adequate staff, it is is a real problem. But there’s nothing inherent in private equity that creates this. The excess leverage is the problem.
He said the biggest question about some investors paying extremely high prices is “what do they see that others don’t see?” Only time will tell whether the most recent high priced trades will succeed or not. “
A recently announced purchase of a ticket involved Diversicare gets picked up for more than three times its recent stock price by a private acquisition group. The pending sale has raised concerns about the operations of more than 60 qualified nursing facilities which are largely immune from public scrutiny. The belief is that as pandemic conditions continue to financially threaten more facilities, more M&A activity will intensify.
Parkinson added, however, that overall, the average price per bed has âfallen quite significantly over the past few years. There are a few outliers that are notable, but the average price has come down, possibly due to the pandemic. “