The last few years have seen a turnaround in the nursing home industry across the United States. After years of decreasing profitability, bankruptcies and near-bankruptcies, government cost-cutting and huge legal costs arising from individual cases of substandard care, a new phenomenon has appeared: nursing homes are increasingly owned by private equity firms which manage to insulate their investors from the costs and liability while maximizing profits.

Six of the nation’s ten largest chains, representing about 9% of all nursing home beds in the country, have been bought by private equity firms in the last decade. Their consistent approach: reduce costs and increase layers of protection between injured residents and corporate money. Many of the nursing homes now are owned by one entity, managed by another, licensed to a third and hire employees from yet another. The result: when care slips and injuries result, it is difficult—and sometimes impossible—to figure out who is responsible.

What is the result? According to a recent New York Times article, nursing homes owned by private equity firms are, on average, 41% more profitable than the average facility. That translates into $1700 in annual profits per resident, or more than $200 million in total profits from an industry that was, a few short years ago, flirting with widespread bankruptcies and closures. Meanwhile, staffing levels shrink and care quality suffers.

To be sure, the privatization and profitability trend is not an unmixed curse. The profitability of privately-equity nursing home chains suggests that more beds may be made available as the population continues to age, and particularly as baby boomers begin to require higher levels of care.

Even as a significant portion of the nursing home industry faces cuts in staffing, the acuity of residents may be rising. Nursing home residents are considerably older, on average, with the proportion of patients over age 85 having grown by over ten percent in the past three decades. Stays are shorter, and patients discharged more quickly—and the remaining residents are much less likely to perform activities of daily living like eating, walking, dressing and bathing themselves without assistance.

Who are the private investment groups, what chains and which homes do they own? It can be difficult to sort out the layers of ownership and insulation adopted by the industry. Names like Warburg Pincus, Formation, National Senior Care, Fillmore Capital Partners and the Carlyle Group are not exactly emblazoned above nursing home entrance doors. Even the government’s excellent Nursing Home Compare website does not identify corporate owners.

The New York Times article cited above, incidentally, is part of an excellent series called "Golden Opportunities," which has addressed several issues important to seniors and those aspiring to seniority. Among other topics over the past year: questionable credentials of financial advisers marketing to the senior community, long-term care insurance practices and corporate attitudes toward problems of identity theft.

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