Since the start of the pandemic, our country has come together in so many ways. Our health care workers, in particular, have shown their heroism in the battle against COVID-19. They represented our country at its best.
But the pandemic also reminded us of a more disturbing part of American life that has become normalized: fraud, neglect, and financial exploitation of older Americans in nursing homes and other for-profit facilities.
I want to briefly say a few words about a development that might exacerbate this trend: the wave of private equity takeovers in the nursing home industry. If this trend accelerates, I am concerned that each of our agencies will face even greater challenges to protect the health and financial well-being of seniors.
As you know, nursing home residents are predominantly older adults with underlying health conditions. During the pandemic, many residents experienced increased isolation, depression, decreases in cognitive functioning, and other significant mental health impacts in addition to higher rates of illness and death. Overall mortality rates in nursing homes increased substantially. About half of Black, Hispanic, and Asian Medicare beneficiaries living in nursing homes had or likely had COVID-19, compared with 41 percent of White beneficiaries, according to .
, more than half of nursing homes were operating at a loss, and 72 percent did not expect to be able to sustain operation for another year due to pandemic-related increased costs and revenue loss. These dire financial straits will continue leading to increased nursing home closures or takeovers of nursing homes.
Private equity investors typically seek to purchase assets, often using significant amounts of debt financing, to ramp up operating profits before selling. Given the short investment horizons and need to rapidly increase profitability, this investment approach invites aggressive strategies that warrant regulatory scrutiny.
In the nursing home context, there is a growing body of concerns about ownership by private equity firms and other financial investors. COVID-19 has shown cracks in the existing regulation and financing of long-term care facilities.
A recent found that private equity investments in U.S. healthcare are on the rise. They have increased more than 1,900 percent over the past two decades: from less than $5 billion in 2000 to more than $100 billion in 2018.
This increase in private ownership of nursing homes raises the question of whether for-profit incentives are misaligned with serving our seniors well. The NYU study found that going to a private equity-owned facility increased short-term mortality by 10 percent during the patient stay and for 90 days after, while taxpayer spending over the same time period increased by 11 percent.
Similarly, a found that private equity acquisition of nursing homes was associated with increases in emergency department visits and hospitalizations and higher Medicare costs for “ambulatory sensitive conditions.”
When the pandemic started, nursing homes were already facing financial challenges. As a result, owners of for-profit nursing homes started to look for new ways to make money. For example, the reported that some investors pushed nursing homes to buy ambulance transports, drugs, ventilators and other products or services at above-market rates from other companies they owned. While these strategies served investors, they reduced available funds and quality of care for residents.
For-profit nursing homes — roughly 70 percent of the country’s 15,400 nursing homes and often owned by private investors — disproportionately lag behind their nonprofit counterparts across a broad array of measures for quality. Also, for-profit nursing homes are cited for health and safety violations at a higher rate than nonprofit facilities.
Private equity owners may also have the incentive to drain financial assets from residents or increase risks of other financial exploitation. We all must pay attention to these and other trends.
The Consumer Financial Protection Bureau was established as an arm of the Federal Reserve System a decade ago. When creating the CFPB, Congress also established an Office of Financial Protection for Older Americans, led by my outstanding colleague Deborah Royster, to spot emerging consumer protection risks and coordinate with federal and state agencies to combat abuse.
Since its creation, the office has published research reports, including a first-of-its-kind analysis of financial institution Suspicious Activity Reports involving elder financial exploitation, and has assisted caregivers supporting older Americans.
I have asked the office to identify cross-cutting consumer protection issues, including when it comes to housing, as many older Americans with substantial financial assets are a target for bad actors. We will be working with you all to find systemic fixes to emerging risks, such as the encroachment of private equity into facilities serving and housing America’s older adults.
Thank you, and I look forward to our work together.