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In 1980, there were 24 firms that engaged in private equity, but according to Prequin, which tracks alternative investments, by 2022 this number is expected to reach 5,000. Private equity has a deep presence in the healthcare sector, with defenders claiming that the members of the Healthcare Private Equity Association are “building strong companies to positively impact health care”. However, critics argue that conflicts between profit and patient care are irreconcilable. The nursing home industry is particularly striking in this regard.

The debt incurred by a private equity transaction is difficult to absorb by a nursing home, since the model relies on borrowing money to purchase a company and then adding the debt to its balance sheet. To make matters worse, the firms often sell the underlying property to a real estate investment trust, forcing nursing homes to pay rent for facilities they had previously owned, while investors get the cash from the sale. These owners are unable to expand, as a company would, according to Sabrina T. Howell, an economist at New York University. Private equity firms receive between 70 and 90% of their revenue from the federal government.

The thin margins have forced many nursing homes to shrink their nursing staff. This made them ill-prepared for the pandemic. In 2019, Ms. Howell co-authored a study that concluded private-equity ownership increases nursing home mortality by 11%. An analysis in New Jersey revealed that facilities owned and operated by private equity firms had a greater rate of Covid-19 cases and deaths than those that did not belong to private equity. In New Hampshire, by the end of 2020, one in five Covid nursing homes was owned and operated by Genesis Healthcare, which was controlled by Formation Capital, a firm solely focused on nursing homes.

Economists who have studied the issue agree that the incentives in this case are not aligned. Less than 20 percent of all nursing homes meet a minimum level of staffing, according to the Kaiser Family Foundation estimate. Mark Parkinson, Chief Executive Officer of the American Health Care Association, which represents over 14,000 nursing homes, described this proposal as “unfounded, unfunded and unrealistic.”

Ms. Howell added, “Nursing homes are providing a good that we think has an important social function, which is why the government is essentially paying for it. However, the strategies that lead to maximizing profits are not necessarily in the best interests of taxpayers or customers.”

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