The Department of Health and Human Services has released a comprehensive report on private equity ownership in the nursing home sector, recommending expanded federal and state authority to review acquisitions and new disclosure requirements for complex ownership structures. The report, mandated by Congress in 2023, arrives amid growing concerns that private equity investment strategies may prioritize financial returns over resident care.

Key Findings

The HHS report estimates that private equity firms own between 5% and 13% of the nation’s approximately 15,000 nursing homes, though the exact figure is difficult to determine due to “widespread underreporting and complex ownership arrangements.” The wide range reflects the opacity that characterizes PE ownership in the sector.

Analysis of available data found that PE-owned facilities had, on average, 11% lower staffing levels and 15% higher rates of serious deficiency citations compared to non-PE facilities. However, the report acknowledges methodological limitations and notes that some PE-backed operators outperform industry averages.

The report identifies several concerning financial practices common among PE-backed facilities: sale-leaseback transactions that transfer real estate to affiliated REITs while increasing facility operating costs; management agreements with related parties that extract fees regardless of facility financial performance; and high leverage ratios that leave facilities vulnerable to financial distress.

Policy Recommendations

HHS recommends that federal and state agencies be granted authority to approve or deny nursing home acquisitions based on their potential impact on care quality and market competition. Currently, most nursing home transactions require only state licensure approval, with limited review of buyer qualifications or acquisition financing structures.

Additional recommendations include: mandatory disclosure of all entities with 5% or greater ownership interest (down from current 25% threshold); required audited financial statements for all facilities; limits on dividend distributions and sale-leaseback transactions during the first five years of ownership; and joint liability provisions that would hold PE firms accountable for facility obligations.

Industry Response

The American Health Care Association cautioned against “painting all private equity investment with a broad brush,” noting that PE capital has funded facility improvements and operational turnarounds that would not have occurred otherwise. AHCA supports “reasonable transparency” but opposes measures that could discourage investment in an undercapitalized sector.

The American Investment Council, representing PE firms, called the report’s methodology “fundamentally flawed” and argued that its recommendations would create “regulatory barriers that ultimately harm residents by deterring investment and innovation.”

Legislative Implications

The report provides ammunition for lawmakers pursuing nursing home ownership reform. The Nursing Home Ownership Transparency Act, introduced with bipartisan support, incorporates several of the report’s recommendations and could gain momentum following the HHS findings. State legislatures in California, New York, and Massachusetts are also considering PE-focused oversight bills.