Schedule a Consultation | Toll Free: 1-800-678-1307
Trial lawyers specializing in personal injury and civil litigation

Nursing home liability

     The New York Times conducted a study of 1200 nursing homes purchased by large private investments groups since 2000.  It compared the data it collected against data collected by the government on 14,000 other nursing homes.  When this data comparison was completed, it showed that nursing homes purchased by private investment groups fared worse on 12 of 14 indicators used to track ailments of long-term residents.  (In other words, on virtually every indicator of chronic illness (i.e., bedsores, need for restraint, easily preventable infection), these residents fared worse than average.)  Many of the same homes scored above the national average before they were "privatized" to achieve maximum profit for investors.

        An example offered by the Times to document the trend of minimizing services in order to maximize profits is the Habana Health Care Center in Tampa, Florida, with 150 beds.  It was struggling economically in 2002 when it and 48 other nursing homes were purchased by private investment firms.  The new managers quickly cut the number of clinical registered nurses in half and cut other costs by substantially reducing budgets for nursing supplies, residential activities and other services.  Investors were quickly earning millions of dollars a year from the 49 homes, but as the Times put it "residents fared less well".  Over three years 15 residents allegedly died from negligent care, according to family members.  The Florida agency that regulated Habana cited it numerous times for under-staffing and inadequate safety and care standards.  The Times quoted one woman whose mother died of a large bedsore that became contaminated by feces. 

        Unfortunately, the same "reorganizers" who do the cost-cutting also create a corporate shell-game to immunize the operators from litigation.  In Habana, for example, a principal in "Formation Properties" unabashedly defended the corporate structure that immunized his mangagement from legal responsibility, claiming that "we should be recognized for supporting this industry when almost everyone else was running away".    At Habana, this "support" meant owning the property as Formation Properties I, leasing it to Florida Health Care Properties, which became Epsilon Health Care Properties who subleased the operation to Tampa Health Care Associates (affiliated with Warburg Pincus--a large private equity firm).  Not only is it impossible to identify who is making staffing and budgeting decisions, in this structure, it is also impossible for injured residents to create a collectible judgment---or for the government to identify whether products and services are being purchased "at arms' length" prices from wholly-owned subsidiaries and associates.

        Putting the lie to Formation Properties' claim that this was a neglected industry, the president of Fillmore Capital Parnters, which recently purchased a large nursing home chain, claims that "I've never seen a surer bet", because of the aging of American baby-boomers.  Private investment companies now own almost ten percent of nursing homes, nationwide, according to the Times.  Reports filed by these facilities document a profit of more than $1700.00 per resident.  On average, they are 41 percent more profitable than the average facility.

        Sixty percent of the homes purchased by private investment groups have immediately cut the number of registered nurses employed.  According to government statistics, these homes provided only about 3/4 of the registered nursing time deemed essential by the government and other privately- and publicly-owned homes.  Registered nurses are the professionals most relied upon to provide professional care in these homes, and homes purchased by private investment groups provided only one R.N. per 20 residents, about 35 percent below the national average.  The typical number of "serious health deficiencies" was almost 19 percent higher in homes purchased by private investment groups, according to the Times' study.  The Times offered operators this data and the opportunity to comment, but virtually all declined.  One offered a mixture of explanations and excuses and the suggestion that conditions and staffing were improving at its facility.

        The Times also quoted a number of Florida lawyers on the impact of these corporate structuring changes on accountability.  One noted that he had to sue 22 different entities before the responsibile parties were brought to justice.  Another had incurred $30,000.00 in costs and substantial delay in attempting to identify the entity responsible for a resident's death.   In one case, a family eventually chose to accept a $25,000.00 collection when they could not collect their full verdict of $400,000.00.

       State regulators experience the same problems.  Homes owned by Formation and operated by the investment group Warburg Pincus are among the worst in Florida, in terms of "nutrition, hydration, restraints and abuse, and quality of care", but at the same time at Habana one Warburg Pincus affiliate paid nearly $600,000.00 to another Warburg Pincus affiliate for "management advice and services"--at the same time it was cutting resident services to the bone.

        While the "privatizers" who claim these corporate shell games were necessary to preserve nursing homes from excessive litigation, outside experts point to the fact that the same Formation company sold Habana and 185 other facilities to General Electric in 2006 for a price of $1.4 billion.  A prominent industry analyst estimated that the Formation investors earned more than $500 million dollars from that sale---in four years.

        One would think that we could protect our elderly better than this.  Litigation should be available to prevent abuse and abusive management, however, if some form of regulation of litigation is necessary, it should be achieved in the public sector with thoughtful and reasonable parameters.  "Reform" should not be achieved through corporate obfuscation in a manner designed to make illegal or unethical profits undecipherable. 

          For that matter, doesn't this industry report demonstrate yet again that services are not automatically improved when a private profit has to be scraped off the top in an unregulated manner?  If an industry was already struggling, the introduction of an increased demand for profit for investors may be inimical to the services provided.  While we need to scrutinize the provision of governmental and non-profit services carefully to prevent waste, simply "privatizing" that decision-making process is not the proper answer where essential public services may be short-changed in order to extract higher profits.

Thompson O’Neil, P.C.
309 East Front Street
Traverse City, Michigan 49684
Toll Free: 1-800-678-1307
Fax: 231-929-7262