"Inquiries at Investor–Owned Nursing Homes"
The New York Times
October 24, 2007
By CHARLES DUHIGG
Two Congressional committees announced yesterday that they would
investigate business practices at nursing homes owned by private
The scope of the inquiries by Representatives John D. Dingell of
Michigan, chairman of the Energy and Commerce Committee, and
Barney Frank of Massachusetts, head of the Financial Services
Committee, are still being determined, but will probably include
hearings and proposed legislation, a committee spokeswoman said.
The investigations are the latest scrutiny of private equity
investments in nursing homes.
Last week, Senators Max Baucus, Democrat of Montana and
chairman of the Finance Committee, and Charles E. Grassley,
Republican of Iowa and its ranking minority member, sent letters to
five private investment firms seeking information on their ownership
and management of nursing home chains. The senators also asked the
agency responsible for many payments to nursing homes, the Centers
for Medicare and Medicaid Services, about its oversight of such
This month, officials in five states expressed concern about the
Carlyle Group’s $6.3 billion acquisition of the nation’s largest nursing
home chain, HCR Manor Care. State legislators in Florida, Illinois,
Pennsylvania, Michigan and Washington have asked regulators to
investigate the acquisition by Carlyle, a private equity giant, or
withhold approval pending greater scrutiny.
"There are serious concerns that private equity firms are reducing the
care at nursing homes by decreasing the number of employees," Mr.
Dingell said. "We’ve been made aware that nursing home residents
are losing their ability to use lawsuits to fight poor care, and that
people may be suffering."
A report last month in The New York Times said that private
investment firms had bought thousands of nursing homes and often
cut expenses and staff, sometimes below minimum legal
requirements, to increase their profit. The article, which was cited by
federal and state legislators as impetus for their investigations,
described how investment groups used complicated corporate
structures to avoid liability when residents suffered from neglect.
Representatives of the Carlyle Group and other private equity firms
said their companies intended to cooperate with all inquiries. Carlyle
said it was committed to maintaining high standards at the 552
Manor Care facilities after the deal closes, which is expected late this
The Manor Care deal was approved last week by shareholders but has
drawn public protests, many coordinated by the Service Employees
International Union, which represents some of Manor Care’s workers.
"We’ve spent the last five years trying to improve long–term care for
working Americans, and now private equity wants to come in and
pocket as much as they can," the union’s president, Andy Stern, said.
To counter such criticisms, Manor Care began sending letters to
regulators and officials in the 32 states where its facilities are located,
pledging to maintain staff levels and other quality standards. The
company has also sent letters to residents and their families
criticizing the article in The Times and the union’s efforts. The
mailings have said that the Carlyle Group does not intend to overhaul
Manor Care in ways that make it harder for regulators to trace
But documents filed with Maryland regulators indicate that Carlyle
plans to reorganize Manor Care to make each nursing home a standalone
company, and to separate ownership of the homes’ real estate
and operations. Other private investment groups have used such
structures to avoid liability and regulatory scrutiny.
In an interview, Manor Care’s general counsel, Richard Parr, said the
revamping was intended only to streamline operations and help the
company achieve lower interest rates.
"It is very clear to regulators that Manor Care owns all of these
entities, and that they are run by Manor Care employees, who are
committed to delivering the best patient care possible," Mr. Parr said
in an interview.
Lawyers who specialize in suing nursing homes are skeptical.
"Manor Care already fights tooth and nail in every lawsuit to say that
the parent company should escape liability," said Nathan P. Carter,
who has filed dozens of suits against Manor Care and other nursing
home chains. "Every other chain that has this structure uses it to
escape liability. I don’t know why Manor Care would be any
The Congressional inquiries and hearings may lead to significant
shifts within the nursing home industry.
"When Congress has examined nursing homes in the past, it’s led to
fundamental changes," said David Zimmerman, a professor at the
University of Wisconsin and president of the Long Term Care
Institute, a nonprofit group. "The government pays for a great deal of
nursing home care. If they demand transparency on ownership and
liability, they’ll get it. Private equity groups have reasons to be