It has become popular among many Democrats to call for investigations of nursing home ownership by private equity firms. But industry experts tell me that, increasingly, big investors in senior services are abandoning nursing facilities in favor of the far more lucrative home health business and, in some cases, private-pay senior housing.

And the shift isn’t just happening with private equity investors. Insurance companies and health systems also are getting into the home health business even as many hospitals are selling their skilled nursing facilities.

And the buyers are not mega-investment firms. Rather, they may be mid-sized owner/operators who are picking up five or 10 facilities in targeted markets. Many will provide quality care. But some likely are the kinds of shady operators that have given nursing homes such a bad name. One especially controversial practice: Contracting a wide range of services, such as pharmacy and supplies, to related party businesses.

How nursing homes operate

To really understand what is happening, remember how the nursing home business already has evolved.

About 70 percent of facilities are owned by for-profit companies. In recent years, nursing homes were owned by one entity but operated by an entirely different business. Many of the largest owners were publicly-traded real estate investment trusts (REITs) that leased the facilities to giant national operators.

But as nursing home margins shrank, many of the big chains ran into financial problems. And they, private equity, and the REITs all went looking for greener pastures. “REITs and PE are abandoning these investments. They are going to the space everyone is in love with—home care,” says Bob Kramer, founder of the think tank Nexus Insights.

Bailing out

For example, just a few years ago, the REIT Welltower Inc. was the nation’s largest owner of nursing facilities, many operated by Genesis Healthcare. But after Genesis suffered major losses in the early days of the pandemic, Welltower severed its leases and largely abandoned the skilled nursing home business.

Today, these facilities account for less than 5 percent of Welltower’s investment portfolio, as it aggressively looks for opportunities in private pay senior living. Another REIT, Ventas Inc., began divesting its nursing facilities in 2015. Now only 1 percent of its portfolio is skilled nursing, down from 18 percent eight years ago.

2017 became something of a tipping point for big private equity as well. That was the year the Carlyle Group, one of the nation’s largest and savviest PE firms, bailed on its investment in HCR Manor Care, owner of 281 nursing homes throughout the US.

According to one study, private equity owned about 11 percent of nursing homes in 2017. But data are old, hard to track, and often aggregate skilled nursing with other health care.  More recent data shows a very different trend: One report found that PE accounted for only about 4 percent of skilled nursing purchases in the first quarter of this year.

Health systems also are abandoning these facilities, weighed down by rising costs and the need to renovate old buildings. For example, last June the large Catholic health system Bon Secours Mercy Health sold all of its skilled nursing, assisted living, an even independent living in Ohio, Virginia, and Florida.

No surprise

It shouldn’t be a surprise. Traditional Medicare is trimming its payments to skilled nursing facilities. Medicare Advantage managed companies pay 20 percent less than traditional Medicare for rehab and other post-acute services. Medicaid payments for long-stay residents remain below facility costs in many states. And post-covid labor and supply costs are exploding.

The American Health Care Assn., the trade group that represents mostly for-profit nursing homes, estimates more than 1,000 facilities have closed since 2015, one-third of them since the pandemic began.

Because private equity is, well, private, we don’t know exactly where their capital is going. But close observers say the trend is unmistakable: The money men see much better business opportunities in home health.

That follows a wider trend of acquisitions and consolidations in the home health business. For example, this month, the Optum unit of insurance giant United Health Care acquired LHC, the nation’s largest home health company, for $5.4 billion. By some accounts, that is more than private equity spent on all its nursing home deals from 2015-2020.

Optum’s big idea: Bring the full continuum of care in-house.

Two beats behind

What does this all mean?

First, Congress is, as usual, two beats behind the real world. Lawmakers are trying to change a business that already has evolved.

Second, we need better, more timely information about who really does own and operate nursing homes. The Biden Administration correctly has begun to require more reporting but it is just a start.

Third, for-profit is not the same as private equity. And further burdens on operations combined with insufficient government payments will continue to drive away patient capital and encourage high-risk investors.

Finally, if Congress and the Biden Administration truly worry about the effect of private equity on the quality of care, they probably should be focusing their attention on home health care, not nursing homes.