Nursing Home Elder Abuse Litigation – The Dangers Of Private Equity Ownership

July 2, 2024

In recent years, “private equity” investors have become more active in the ownership of nursing home and assisted living facilities.  What is private equity?  According to Investopedia: “Private equity describes investment partnerships that buy and manage companies before selling them.  Private equity firms operate these investment funds on behalf of institutional and accredited investors.”

In a typical scenario a private equity company will purchase a majority ownership interest in an elder care facility chain.  Often the funds are used to provide liquidity (e.g., cash) to the original operators of the nursing home chain.  “Cashing out” is highly seductive to individual nursing home operators who have been biding their time waiting to hit their financial lottery.

However, private equity companies are fundamentally misaligned with the needs of patients residing in nursing home and assisted living facilities and this is so for at least three reasons.  First, without question, private equity companies have as their sole goal maximizing the profits of their investors.  Though they may give lip service to other goals, they are judged by return on investment.  Thus, for plaintiffs’ counsel who typically will be arguing that the underlying cause of their plaintiff’s harm is a corporate decision to maximize profits at all costs, private equity ownership of the nursing home chain is nearly sufficient, by itself, to establish this theory. 

Second, when private equity buys a company it is actively involved in the management of the company.  Private equity companies place company employees on the board of directors and those directors exact ongoing pressure on the operations to maximize profits.  This is not a passive investment and practitioners are wise to seek all communications between the private equity company and the nursing home chain.  Much should be revealed in these communications about the private equity company’s priorities. 

Third, private equity company investments are short-term holds of between five and seven years, nearly without exception.  Further, the valuation at the end of the hold period is determined by the company’s performance for at least the past several years.  This means that the emphasis on maximizing profit will be there from the inception of the investment and if the investment is not meeting expectations in early years, the pressure to turn a profit toward the end of the investment period is all the more.

Private equity should not be investing in nursing home and assisted living facilities.  Its goals and means of achieving them are fundamentally misaligned with the needs of some of the most vulnerable members of our community.

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