A new federal rule requiring nursing homes to disclose ownership could pressure more investors to sell skilled nursing facilities.
The regulation announced last week by the Centers for Medicare and Medicaid Services aims to make the nursing home industry more transparent by better informing consumers about the role private equity investors and real estate investment trusts play in the sector. In addtiion to disclosing ownership, any nursing home owner accepting Medicare or Medicaid would be required to list trustees and companies that provide administrative, clinical and financial services. The rule will take effect in mid-January.
Here's what to know about the regulation and its potential effects.
Why is the nursing home ownership rule necessary?
It is the latest effort by the Biden administration to crack down on the nation’s 15,000 nursing homes in an effort to improve care and comes a little more than two months after CMS announced a minimum staffing requirement for the industry. Federal regulators have ratcheted up scrutiny of nursing homes and their owners after the COVID-19 pandemic swept through long-term care facilities. Approximately 3.2 million residents and staff were infected by the virus and nearly 170,000 died from it.
Studies have linked private equity and REIT ownership to lower staffing levels and care quality. A report released last week by the Health and Human Services Department found registered nurse staffing levels declined 12% at nursing homes owned by private equity firms and 7% for REITs between 2013 and 2020. It also linked poorer care to nursing homes owned by private equity firms and REITs compared with those owned by other for-profit companies.
How will private equity firms and REITs respond to the nursing home ownership rule?
It could prompt more of those owners to divest of assets, according to analysts. The two ownership groups have been selling off nursing homes over the last seven years due to lower Medicare reimbursements, rising labor costs and lower occupancy rates. Private equity firms own about 5% of the nursing home market, while REITs own approximately 12%, according to the HHS report.
Private equity accounted for only one nursing home transaction this year, according to Rebecca Singer, lead healthcare analyst at PitchBook, which tracks transactions. Singer said she thinks the rule could encourage private equity firms to continue to shift their focus to less regulated elder care sectors, such as home care, skilled nursing staffing and technology.
Will the rule create more instability for REITs?
Healthcare REITs have been selling properties that house nursing homes for the past few years as lower occupancies, due to fallout from the pandemic, made it harder for nursing home operators to pay rent, said Kevin Brown, a healthcare REIT analyst at Morningstar.
In August, Ventas announced the sale of $60 million in skilled nursing facilities. Earlier this month, Sabra Health Care announced the sale of 13 nursing homes. In an email, CEO Rick Matros said the REIT remains bullish on the nursing home industry and supports ownership transparency.
Still, Brown said he thinks uncertainty over what the rule will mean to consumers shopping for skilled nursing care could prompt more REITs to shed nursing home properties.
What could happen next?
Consumer advocacy groups call the rule a step in the right direction for ownership transparency. One group, the National Consumer Voice for Quality Long-Term Care, said it will pressure CMS to toughen the rule by requiring nursing homes owners to also disclose how they spend Medicare and Medicaid funds.
“We want to know where that money goes, how much of it is going towards patient care and what is reasonable overhead for these companies,” said Sam Brooks, the organization's director of policy.