Nursing Home Bankruptcies
(9/17/20)- As a follow up to our item 1/8/20, Rabbi Zvi Feiner, and his business partner Erez Baver have been indicted by federal prosecutors on charges of bilking millions of dollars from investors in the bankrupt Rosewood Care Centers, which are located mainly in Illinois.
Rosewood defaulted on $146 million in mortgages that the government had guaranteed. The mortgage guarantees are administrated by the federal government’s Department of Housing and Urban Development.
The Rosewood chain was part of a network of nursing homes that Rabbi Feiner and Mr. Baver bought after raising money from investors in the orthodox Jewish community around Chicago and New York. The Securities and Exchange Commission has also brought fraud charges against the rabbi and Mr. Baver.
(5/11/20)-The business model for most nursing homes usual consists of separating the real estate portion for where the home is located from the operating business of a nursing home. In the May 8th edition of the New York Times, Matthew Goldstein, Jessica Silver-Greenberg and Robert Gebeloff in their article “Profit Push Takes a Toll In Elder Care” wrote about the precarious financial position of most nursing homes even before the pandemic struck.
They quote David Grabowski, a professor of health care policy at Harvard Medical School, “With this huge health care crisis and economic downturn, we are all of a sudden seeing how risky it is to have the ownership split between the real estate side that has the most valuable asset and the operator, who is left with much less. Controlling the real estate give investors, including real estate investment trusts leverage to raise rents. Separating the real estate from the operating business can also help limit lability in wrongful death lawsuits, because the latter typically has little cash and few assets.”
“A recent report on private equity buyouts of nursing homes, which studied 119 transactions from 2000 to 2017, said private equity owners tended to put “high powered profit maximizing incentives first. The researchers found that after private equity stepped in, nursing home staff per patient fell 2.4% and staff quality as measured by federal regulators fell 3.6%”
(5/3/20)-During this pandemic crisis, most hospitals throughout the country have deferred elective surgeries because of the crush of CORVID-19 patients that required the full attention and usage of their facilities. Only now are most hospitals in New York City resuming elective surgeries.
These surgeries, such as knee, hip and shoulder operations, are one of the highest profit centers for our medical system
Almost 80% of respondents to an Oppenheimer & Co. survey of U. S. hospitals chief financial officers said elective surgeries had been on hold in their hospitals. More than half of the officers reported staffing cuts, while nearly 80% have halted capital expenditures.
(1/8/20)- As a follow up to our item dated 8/18/19 below, the agreement referred to therein was between, the Department of Housing and Development (HUD) and Greystone, a New York real estate finance firm for the chain elder care facilities owned by the bankrupt Rosewood Care Centers. Rosewood had defaulted on $146 million in government guaranteed mortgages.
That government insured guaranteed program covers about 15% of the nation’s nursing homes. Greystone is a major lender in the nursing home industry, and was the one servicing the Rosewood mortgages when the default occurred. HUD has valued the Rosewood facilities at $95 million
HUD has spent about $30 million since August 2018 to make up for the shortfall in funding at the Rosewood facilities. Greystone will own and operate the facilities through a series of limited liability companies, but the court appointed receiver the Long Hill Company would continue to operate the properties during a transition period.
(8/18/19)- As a follow-up to our item dated 6/4/19 below, the Department of Housing and Development (HUD) officials have picked a prospective buyer of the assets of Rosewood Care Centers, and an administrative law judge has approved a settlement requiring Zvi Weiner, who led the ownership group a $965,678 civil penalty for failing to file three years of audited financial results required under the mortgage program
Rosewood consists of a dozen nursing homes and assisted living facilities had defaulted on $146 million of HUD guaranteed loans for the facilities located in in Illinois and St. Louis.
Last month, lawyers for HUD told the federal judge overseeing the receivership that it had selected a firm to buy the facility, but because the sale had not been completed it would not identify the winning bidder. The program insures over $20 billion in mortgages for more than 2,300 nursing homes across the country.
About 15% of the country’s nursing homes are supported by the program which backs over 1,000 assisted living facilities. HUD appointed a receiver to manage the facilities at a cost of about $18 million while it sought a buyer. Lawyers for the Securities and Exchange Commission and the F.B.I continue to investigate the case.
(6/26/19)- Seventy-four nursing homes are among the 478 homes whose mortgages are insured by the Department of Housing and Development (HUD) that have been named by two U. S. senators as “having serious deficiencies”. The 74 homes are eligible for the designation and admission in a program under which the Centers for Medicare and Medicaid Services (CMS) is charged with intensive oversight, even though these 74 homes have been documented for a “pattern of poor care”.
This program is open to only 88 of the nation’s 15,500 nursing homes at a time. A home that has been designated as a “special focus facility can’t qualify for a new mortgage guarantee. These 74 homes have been named as having a “documented pattern of poor care” by the CMS.
The property inspections by HUD have been dropped by the agency since 2012. It guarantees just over $20 billion in mortgages at 2,368 homes, or just about 15% of the industry. Because of the HUD guarantees these homes under a program known as Section 232. Last month the Chairman of the House Ways and Means Committee asked the agency to reinstitute the property inspections.
Genesis Healthcare, a publically traded company that manages 400 nursing homes across the country had 9 of its homes included in the 74 that were deemed worst homes on the list.
Rosewood Care Centers was unable to make payments on $146 Million of its HUD guaranteed mortgages and defaulted on its loans last August.
(6/4/19)- In his article in the Financial Section of Monday’s New York Times entitled “A Nursing Home Debacle with a $146. Million Bill”, Matthew Goldstein discusses how the Department of Housing and Urban Development (HUD) may be stuck for multi millions of dollars under its loan guarantee for nursing homes and assisted residency sites at low interest rates.
HUD, by its own admission has not properly overseen these institutions. The program has guaranteed $20 billion in mortgages to more than 2,300 homes (about 15% of total homes) in this country. Once a default on the mortgage occurs, HUD takes over operation of the facility.
Once again, HUD, and thus the taxpayer is stuck with the bill.
(3/14/18)- HCR Manor Inc., a subsidiary of HCR Management Inc. filed a prepackaged plan of reorganization in the U.S. Bankruptcy Court in Wilmington Delaware as part of a deal in which its landlord Quality Care Properties Inc.(QCP), will take control of the company. It than tries to auction off the facility.
The private- equity firm Carlyle Group controls QCP, which is a publicly traded real-estate investment trust. HCR Manor had not paid its rent for the last year.
The operating business will stay out of the bankruptcy, and Carlyle’s equity stake will be wiped out. Under the chapter 11 plan, creditors, vendors and suppliers, other than QCP are expected to be paid in full.
(2/20/15)- North American Health Care, which operates more than 30 nursing homes in California, and other western states, filed a petition for bankruptcy, as the number of homes filing for bankruptcy protection continues to increase in the last few years. Filing for bankruptcy petitions by nursing homes were up by 38% between 2010 and 2014, according to an index maintained by the law firm Frost, Brown and Todd, which tracks such data.
On the other hand, overall filings for chapter 11 bankruptcy protection fell by about 60% over the same period. This drop in filings occurred mainly because the country was coming out of the 2008-09 economic recession.
North American recently had been fined by California for substandard care, and was facing multiple lawsuits by residents of its homes and their families for the poor care at its facilities. In its petition, North American stated it was “cash-flow” positive, but risked going out of business as a result of the many lawsuits pending against the company.
Attorneys who are suing the company said the bankruptcy filing was done in order to avoid making payments to plaintiffs in the pending lawsuits. One of their homes being sued, Rosewood Post-Acute Rehab in Carmichael, Calif., holds a five-star rating from the federal government
(10/13/14)- Canadian owned Extendicare Health Services Inc. said it would lease its 22 skilled-nursing homes in Pennsylvania, Delaware and West Virginia to a third-party operator. It cited a fourfold increase in liability claims in those states.
The suits against nursing homes are alleging neglect and abuse of the residents, and also lack of sufficient and qualified staffing that has caused patients injuries and even death in many of these facilities. Some states have caps on the amount that can recovered in these situations, so these suits are being concentrated in states like Pennsylvania where there are no caps on the amount that can be recovered.
(5/2/12)- The private equity firm Terra Firma has agreed to buy the British nursing home operator Four Seasons Health Care for up to 825 million pounds, or $1.3 billion.
Four Seasons operate 445 nursing homes and health care facilities in England.
Terra Firma is headed by the British financier Guy Hands.
(2/28/12)- The number of nursing homes in New York declined to 634 this year from 649 in October, 2007, and the number of beds declined to 116,514 from 119,691.
Cardinal Timothy M. Dolan announced that the Archdiocese of New York would sell two of its 7nursing homes, and opening or planning to open 7 new adult day-care centers over the next three years.
Reimbursement rates to nursing homes will be affected by the cuts to Medicare and Medicaid payments under President Barack O'bama's deficit reduction plan.
(9/21/11)- In our item dated 8/22/11 below, we wrote about the closing of the Bialystoker Center for Nursing and Rehabilitation on the lower East Side of New York City. In a much more positive vein, we can now report that one of New York City's largest municipal health care centers is going to be renovating its facilities and increasing its nursing home space and ambulatory-care pavilion.
Gouverneur Healthcare Services, which is located in the lower east side of the city made it official with its announcement on Monday, at a cost of over $200 million. Some patients will be able to move in a few weeks later.
It will add 85 nursing-home beds to its current number of 210 beds. The renovation will add about 120,000 square-feet of new space to its already existing 330,000 square feet, which was built in the 1970s. Renovation of the older portion of the health center is slated to begin in the coming months and is scheduled to be completed in two years.
Its new health-care facility will be able to serve 400,000 outpatient visits a year, about a 15% increase over its present capacity.
(8/22/11)- New York City real estate has not been hit as hard as real estate has been hit in the present economic hard times that most of this country has been going through recently. This is especially true for the Lower East Side section of the city, where real estate values has continued to escalate in value.
The combination of higher real estate values along with the cutbacks that have taken place in governmental payments for Medicaid residents of nursing homes are the reasons behind an announcement from the Bialystoker Center & Bikur Cholim Inc. that it would be closing its Bialystoker Center for Nursing and Rehabilitation on the lower East Side of the city.
The home currently has 90 residents, and they and their families and caretakers must find new places to live in even though there really are no places available for them to move to that are close to this place of residency. This means not only displacement for the residents, but it also will mean it adds an added burden to their loved ones trying to visit them.
Under the current law, the home can not close until a placement has been found for all its current residents. There are about 140 employees at the establishment who will have an extremely difficult time finding a job to replace the one they will lose, since most nursing home facilities are cutting back on their own staffing.
New York State Department of Health officials said that the Bialystoker Center is the first New York City nursing home to close this year. About 30 nursing homes have closed in the state since 2007, mainly from financial difficulties stemming from Medicaid cuts according to Richard Herrick, president of the New York State Health Facilities Association.
About 75% of nursing home revenues come from Medicaid, according to Mr. Herrick.
According to the real estate brokerage firm representing the sellers of the facility's website, the building "is the perfect canvas for a multi-family condominium or rental development".
(3/12/11)- Ventas Inc., has agreed to acquire Nationwide Health Properties for $5.8 billion. Nationwide's assets include 134 medical-office buildings and 298 senior-living facilities as of December 31.
Ventas, which is the largest U.S. owner of senior housing and assisted-living facilities, will have more than 1,300 properties in 47 states, the District of Columbia, and two Canadian provinces after the deal is completed.
This deal comes on top of Ventas' $3.1 billion acquisition of the real estate assets of Atria Senior Living Group, which is expected to close in April
(12/24/10)- Back on 10/26/10 our item below discussed the fact that Congress was investigating the deterioration in care in nursing homes that occurs when private equity firms take over the operation of nursing homes. The item discussed the fact that Toledo Ohio based HCR, which took over ManorCare was in turn owned by the private equity firm The Carlyle Group. The price for the takeover of ManorCare was $6.3 billion.
The Carlyle Group just announced that it was selling the real estate of its big nursing home operator ManorCare to the real estate investment firm of HCP, which is based in Long Beach, Calif.
Under the terms of the deal, Carlyle will sell HCR Manor Care's real estate to HCP for $3.5 billion in cash, and HCP stock worth $847 million. Another $1.72 billion will come from the reinvestment of HCP's existing debt investments in HCR.
HCR will lease back the 338 properties involved in the deal, and continue to operate them. HCP will gain the right to buy a 9.9% stake in the nursing home operator for $95 million.
Most of the properties involved in the deal are located in Ohio, Pennsylvania, Florida, Illinois and Michigan.
HCP owns about 670 properties in sectors like senior housing, life sciences and medical offices, and it also owned about $2 billion in real estate loans.
(7/24/10)- The Senate Special Committee on Aging recently held a hearing dealing with the concern being raised because of the financial distress of many of the continuing-care retirement communities (CCRC)
The Government Accountability Office (GAO) released its special report recently that urged state regulators of the CCRCs to be vigilant in their oversight of these communities.
The CCRCs often charge large fees to seniors in exchange for the promise of lifetime care. These fees include a large upfront fee to enter the facility and monthly maintenance charges. Overbuilding took place during the buoyant years between 2004 and 2007, so that an oversupply of these type facilities resulted in many vacancies when the recession hit
This caused many of these over-leveraged facilities into financial distress from which many still have not been able to recover. This resulted in increased monthly fees and the loss of refundable deposits
The GAO report found that there are 12 states that do not even regulate the CCRCs. The biggest senior-housing collapse of the recession was the CCRC developer Erickson Retirement Communities LLC last October. Please see our items dated 12/8/09 and 11/23/7 below.
(8/11/09)- As a follow-up to our item dated 5/5/09 below, the Centers for Medicare and Medicaid Services (CMS) published the final fiscal year 2010 Medicare reimbursement rates for skilled nursing facilities. The proposed rate reduction for the industry was 120 basis points, and the final proposal called for a rate reduction of 110 basis points..
(5/5/09)- The Centers for Medicare and Medicaid Services (CMS) announced on Friday, May 1 its 2010 reimbursement proposal for nursing homes for Medicare and Medicaid residents.The public now has 90 days to respond to the proposals, which means the cutoff date for public comments is August 1.
According to IBISWorld, a medical research firm, about $99.2 billion in nursing home revenue comes for Medicare and Medicaid payments. The stimulus package that was recently passed by Congress provides about $87 billion in additional funding to the states to cover Medicaid services.
For the fiscal year that started on October 1, 2008 nursing homes received a 3.4% "market basket" or inflationary cost increase.
(12/5/08)- The difficult economic environment that we are in right now is taking its toll on almost all industries including the nursing home and assisted living companies. Sunrise Senior Living and Brookdale Senior Living, two of the largest companies in the assisted living industry are having difficult times nowadays.
Brookdale manages 51,847 housing units and Sunrise has 50,235 of them. Brookdale owns or leases most of its homes, while Sunrise is primarily a management company that develops and then sells the facility while maintaining a minority position in it.
According to the most recent financial reports from these companies, the occupancy rate for a Sunrise facility averages 92%, while it is 89.7% at a Brookdale facility.
Sunrise has until January 31, 2009 to restructure its debt load, and had to cope with the fact that Health Care REIT, backed out of a $643.5 million deal to acquire a 90% stake in 29 properties in which Sunrise has a minority ownership.
With the economy being the way it is, it does not take an expert to predict that there are going to be nursing home and assisted-living facilities that will be going bankrupt. The big question is what the federal government and also what the state government will do to protect those seniors who are living in these facilities?
With seniors being unable to sell their present homes, where will the money come from to enable them to make downpayments to enter assisted living facilities?
(11/23/07)- Haven Healthcare, the Middletown, Connecticut company that is the second largest operator of nursing homes in the state filed a petition for Chapter 11 bankruptcy at the federal courthouse in New Haven this week. The company manages 15 nursing homes in the state and several others in New England. It operates nearly 1,900 beds in the state, which accounts for about 7% of the beds licensed to operate in Connecticut.
Under Chapter 11 proceedings, the present management of the debtor seeks to continue to run the company while it tries to settle its obligations to its creditors.
Connecticut Attorney General Richard Blumenthal has charged that the company lent nearly $9 million to Category 5 Records, the label for the country singing star Travis Tritt at a time when it was not paying its obligations to the suppliers to its nursing homes. Category 5 Records was founded by Ray Termini, the chief executive officer of Haven Healthcare.
Governor Jodi Rell of Connecticut stated that: "The company is concerned about its creditors, but I am concerned about the patients."
Mr. Blumenthal said he would urge the bankruptcy court to appoint an independent trustee to run Haven's business while it is operating under bankruptcy. He also charged the company with failure to properly use the state's Medicaid payments to the homes' suppliers before using those funds for the "benefit of insiders".
Both the House Ways and Means Subcommittee and the Senate Special Committee on Aging held hearings and are proposing legislation to require nursing homes to disclose ownership and to require regulators to release information about poorly managed homes.
Kerry N. Weems, the acting administrator of the Centers of Medicare and Medicaid Services, which regulates nursing homes, offered several initiatives to improve oversight. His suggestions included releasing the so-called special focus facility list, which identifies homes that regulators consider among the nation's worst.
Both House and Senate lawmakers indicated that they expect further hearings and bills. These were the first major hearing on nursing homes since the late 1980's. Those hearings led to the Nursing Home Reform Act of 1987.
Two other congressional committees have announced plans for hearings when the legislature re-convenes later this month. They are the House Energy and Commerce Committed and the House Financial Services Committee.
Lawmakers also discussed requiring nursing homes to have insurance or bonds to pay fines or court verdicts. Some nursing home operators have left the facilities undercapitalized or created legal entities to circumvent being obligated to pay up when there have been large judgments awarded them.
Many multiple home operators have divorced the land holding where the home is located from the operational side of the home, just in case a large jury award is rendered against the home.
(10/26/07)- State legislators in Florida, Pennsylvania, Michigan, Illinois and Washington have asked regulators to investigate the acquisition by the Carlyle Group, a private investment firm of the nation's largest nursing home chain, HCR Manor Care for $6.3 billion. In response to those requests two congressional committees announced that they would investigate business practices at nursing homes owned by private investment groups.
In the House the investigation and hearing will be held by the Energy and Commerce Committee which is chaired by Representative John D. Dingell of Michigan and the Financial Services Committee, which is chaired by Representative Barney Frank of Mass.
Last week, Senators Max Baucus, Dem. of Montana, and chairman of the Finance Committee, and Charles E. Grassley, Rep. of Iowa, and its ranking minority member, sent letters to five private investment firms seeking information on their ownership of nursing home chains. The senators also asked the Centers for Medicare and Medicaid Services, about its oversight of these homes.
"There are serious concerns that private equity firms are reducing the care at nursing homes by decreasing the number of employees," said Mr. Dingell.
The New York Times reported last month that private investment firms had purchased thousands of nursing homes, and subsequently cut expenses and staff, so as to increase the homes profitability. The cut in employees left the nursing homes understaffed and therefore left the residents with substandard care.
Documents filed with the Maryland regulators indicate that Carlyle plans to reorganize Manor Care to make each nursing home a stand alone company, and to separate ownership of the homes' real estate and operations. It is alleged that the main purpose of the breakup is to avoid liability and to insulate the various homes from lawsuit liability..
(5/16/06)- Health Care Property Investors Inc., a real-estate investment trust headquartered at Long Beach, Calif., that owns medical-related properties, agreed to acquire CNL Retirement Properties Inc. for $3.6 billion.
Once the deal is completed the combined companies will own the most retirement, assisted-living and nursing homes, health-care facilities and medical office buildings in the U.S. Health Care will then own nearly 800 properties in 44 states.
Some of the companies' properties are now being managed by a variety of health-care operators, including American Retirement Corp., Horizon Bay and Sunrise Senior Living Inc.
(11/29/05)- Beverly Enterprises (Ft. Smith, Ark.) which operates about 350 skilled-nursing facilities in the U.S. has agreed to be acquired by Fillmore Strategic Investors LLC for a lower price than it had previously agreed to when North American Senior Care offered to buy them out. North American had offered $13 per share for Beverly, but had failed to provide the proper financing for the deal by the time of its deadline of November 23.
Fillmore will pay $12.50 per share, which would value Beverly at about $1.59 billion, based on its shares outstanding as of September 30. Under the new agreement Beverly has until December 12 to solicit other offers. Beverly had put itself up for sale in March after it rejected a takeover bid from an investor group led by Formation Capital, of Alpharetta, Ga. Fillmore Strategic Investors is an affiliate of Fillmore Capital Partners, a San Francisco private-equity firm.
(8/24/05)- North American Senior Care, an entity specifically created to bid for Beverly Enterprises Inc has prevailed in the auction against 10 other bidders with its bid of $1.63 billion. Beverly, which operates345 nursing homes as well as assisted living and hospice centers across the U.S. put itself up for auction after an investor group led by Formation Capital LLC entered a hostile takeover offer of $1.45 billion.
North American's sponsors, who were not identified, have acquired over 400 nursing homes in more than 35 states in recent years, including last year's buyout of Mariner Health Care.
The purchase is expected to close some time next year. If a higher offer is entered before the closing date Beverly would be free to accept the higher bid.
(5/6/05)-The crisis in the nursing home industry caused by the rising cost of malpractice insurance premiums seems to be abating according to the results of a study conducted by Aon Corp., a large Chicago insurance-brokerage company. The study surveyed 76 long-term care providers and was funded by the American Health Care Association, a trade group for the long-term care industry.
The cost for malpractice insurance increased an average of 18% in 2004, down from the average increase of 51% in 2003. Liability costs per bed increased by 1.8% to $2,310 in 2004, from $2,270 in 2003. Liability costs include the cost of malpractice insurance and litigation. Some states such as Florida and Texas have passed new laws that limit the amount of damages in the lawsuits.
The average claim size fell to $176,000 in 2004, from $180,000 in 2003.
(3/30/05)-The Board of Directors of Beverly Enterprises Inc. has voted to put the company up for auction. Beverly, based in Fort Smith, Ark., operates 347 nursing homes, 18 assisted-living centers, and 56 hospices and home health centers.
We are trying to obtain information about the number of homes that have gone bankrupt in the last few years and will report back to you shortly on this matter. We know that the nursing homes claim that Medicaid does not reimburse them adaquetely for the cost of the stay of long term residents of the home. We are also aware of the fact that liability insurance premiums have risen dramatically in the last few years. There are lawsuits now pending in which the assertion is made that because of the underpayment by Medicaid, the other residents of the nursing homes are paying more than what they should be paying if the formula was increased.
(7/10/00)-It has been estimated that 22 % of the nursing homes in the state of Texas, with an estimated 23,000 beds are in bankruptcy. The Texas legislature had increased nursing home reimbursements by 3.7 % earlier this year but the industry claims that this increase is too little, too late. The industry feels that because of a combination of rising labor costs and increasing liability premium rates a minimum increase of 7 % is required. The reimbursement rate for Medicaid patients is $78 per day on average and the industry officials say that this does not even cover their costs. Liability premium rates tripled from 1998 to 1999 in going from $650 per bed to $1,800 per bed.
Nine of the countries top nursing home companies have filed for Chapter 11 bankruptcy protection in the last 2 years. The latest company to file for protection from its creditors under Chapter 11 of the Bankruptcy Code is Genesis Health Ventures Inc., a company based in Kennett Square, Pa. The company has 34,000 employees, and they in turn own 43% of Multicare Companies, which has also filed for bankruptcy protection under Chapter 11. Multicare and Genesis operate 340 nursing homes as partners in 17 states. Multicare owns 197 units of skilled managed care facilities. Genesis is seeking approval from a federal bankruptcy judge in Wilmington, Del. for $250 million in loans to continue operations while it reworks its finances. Many nursing homes advocates have insisted that the federal cuts in Medicare reimbursements to the homes imposed under the Balanced Budget Act of 1997 are causing them to go bankrupt. As proof of this claim they refer to the fact that 3 other large nursing home chains have gone bankrupt in the last 9 months. Mariner Post-Acute Networks, the 2nd largest nursing home chain in the U.S., which runs more than 400 nursing homes nationwide, joined Vencor, based in Louisville, Ky., and Sun Healthcare Group, based in Albuquerque, N.M. in under going bankruptcy proceedings. The American Health Care Association, a lobbying group for the industry, claims that 1700 nursing homes, or about 10%of the industry has been forced into bankruptcy. Is there any truth to their claims? Another question that arises in these situations is what affect does bankruptcy have on the residents of the homes in question?
President Bill Clinton is expected to propose boosting payments to hospitals, nursing homes and other health-care providers by about $21 billion over a 5 year period of time. Under the president's new proposal $9 billion of the $21 billion would go to rescind or delay policies that would further reduce provider payments beginning Oct. 1, 2000. The 15% cut that is supposed to go into effect this year for home-health agencies would be delayed for 1 year. Hospitals would be allowed a full inflation adjustment instead of no inflation adjustment as called for under the present system. Of the $9 billion in delays and rescissions $5 billion would be for hospitals; $2 billion would be for nursing homes, and $2 billion would be for home-health agencies. Changes are also expected in regards to payments to HMOs to encourage them to accept sicker patients than they are now accepting. This $21 billion will be coming out of the $40 billion that has been set aside, as we discuss below for changes in Medicare and the possible prescription drug benefit cost. His Medicare drug proposal would direct $25 billion to HMOs over 5-years and $75 billion to them over 10-years. Under the GOP House passed prescription drug plan $3.5 billion would go to restore some reimbursement cuts to Medicare HMOs over a 5 year period of time.
The budget blue print approved by Congress in April set aside up to $40 billion over 5 years for drug benefits and other changes in Medicare without exactly stating how the money was to be spent. This has become the money at stake in the battle between the industry and those who are advocating prescription drug coverage for Medicare beneficiaries.
We would like to point out that a company named Hampstead Group of Dallas is the landlord, or holds the mortgage on the properties of many of these bankrupt nursing homes. Omega owns or has mortgages on over 270 nursing homes and assisted-living facilities in 29 states. Hampstead has offered to make a $200 million equity infusion into Omega. Under the terms of the agreement between the 2 companies Hampstead would initially pay $100 million for a 44% stake in Omega at $6.25 a share. Omega is recommending to its shareholders that they approve the deal so as to be able to insure that they can make debt payments coming due in the next 7 months. Many vulture investors are now looking at these bankrupt companies, because most nursing homes operate at close to capacity levels.
In another vulture deal, an E.M. Warburg, Pincus & Co. affiliate recently acquired a majority stake in Centennial HealthCare Corp., for $50 million which was about one-third the price offered in late1997. Will the nursing home industry be the major next target of the vulture investors?
A recently released report from the General Accounting Office highlighted the fact that Medicare beneficiaries are having greater and greater difficulty in getting accepted into nursing homes. The nursing home industry alleges that the main reason for the more restrictive policy is a direct result of the changes made for payments to them under the Balanced Budget Act of 1997. The industry claims that the changes in payment that went into effect in mid-1998 did not show up in their balance sheets until 1999. Thus the problem is coming to the forefront at this time.
The new system of payment to nursing homes is called "prospective payments" wherein the home is paid a fixed rate for each patient, depending on the condition of the prospective patient. Under the old system a nursing home was reimbursed based on the actual cost for caring for a Medicare beneficiary resident. Under the old system Medicare would be billed for each and every service afforded the Medicare resident. Congress felt that this system led to "over-servicing" of Medicare residents. The nursing home industry claims that it does not pay for them to admit "high-cost servicing" residents. As a result they are going over the medical records of prospective Medicare beneficiary residents with the proverbial fine tooth- comb. They are even visiting the prospective resident in the hospital to see the applicant in person in the hospital before they are willing to admit that individual to the home.
The GAO report concluded that because of the payment policy changes, nursing homes are being far more selective in accepting new residents. The GAO report went on to further disprove the claim of the industry that the new payment system is causing the increase in the number of bankruptcies amongst nursing homes. The report also went on to state that it is poor operating management by the homes that have filed for bankruptcy, and not the Balanced Budget Act of 1997 that caused the ensuing bankruptcies. The report points to the overstaffing on the administrative side, and poor managerial decisions that ultimately caused the bankruptcies.
Let us further point out to you, that bankruptcy on the part of a nursing home does not give the home the right to evict a resident. The home is not released from contractual obligations in the event of bankruptcy. Medicare and Medicaid beneficiaries who are residents of nursing homes have their rights protected in these situations.
In our own informal surveys we have found that many nursing homes are increasing the number of spots that they allocate for the care of sub-acute residents while cutting back on the number of spots allocated for long term care residents. The reason for this change is quite simple; i.e. there is more money to be made for caring for a sub-acute patient than there is to be made on a long-term care resident. The problem is only worsened by the fact that more and more of us are living longer lives. Thus the pool of supply of prospective residents increases while the number of slots available for them in the nursing home is decreasing. Although we are seeing a substantial increase in the number of facilities being built for assisted living residents, we are actually seeing a decrease in the percentage of facilities being built for long-term care residents.
The only way that we can see this situation being altered is if some type of tax inducement is given to developers to encourage them to build and operate more facilities for long-term residents. Even though this solution has near term negatives it will benefit all of us over the longer haul. In this era of budgetary surpluses we can deal with this problem now rather than waiting for later when we may not have the ability to give tax inducements for social policy reasons.
FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"
updated September 17, 2020