Oct 11, 2022 - Economy

Brookdale could be private equity's next nursing home test

Illustration of an elderly man in a wheelchair with a giant quarter for a wheel

Illustration: Sarah Grillo/Axios

Private equity's reputation when it comes to nursing home ownership is on par with bed bugs, with President Biden even devoting a few withering lines of his most recent State of the Union address to chastise the relationship.

Why it matters: PE firms soon may be cane-deep in a bidding war for Brookdale Senior Living, one of the nation's largest overseers of senior living communities, with the ability to serve more than 60,000 residents via 674 facilities in 41 states.

  • This deal, if consummated, could become a new political flashpoint.

Driving the news: Bloomberg reports that the Brentwood, Tennessee-based company, which has been targeted by activist investors, "is working with financial advisers to scope out potential buyers."

  • Brookdale stock soared nearly 20% on the news, representing a market cap of around $900 million (still 36% lower than its peak 2022 price).

In context: Private equity currently owns just shy of 5% of U.S. nursing homes, according to an industry trade group.

  • The figure used to be higher. But that was before The Carlyle Group's calamitous ownership of HCR Manorcare, which included allegations of patient neglect and a failed DOJ lawsuit over Medicare fraud, all culminating in the company defaulting on its debt and Carlyle ceding control.
  • There also was a National Bureau of Economic Research paper in 2021, which argued that "PE ownership increases the short-term mortality of Medicare patients by 10%" — representing more than 20,000 excess deaths over a 12-year study period.
  • On a more positive note, separate academic research found that PE-owned nursing homes performed similarly to other nursing homes when it came to COVID-19 cases and deaths.

The big picture: The U.S. Department of Health & Human Services last month launched a public database of Medicare-certified nursing home ownership, in a move that increases both transparency and scrutiny.

  • Axios health care deals reporter Sarah Pringle also notes that private equity dollars are moving toward in-home care, which is less costly and more popular among many seniors.

The bottom line: The big question now is if any private equity firm will be bold enough to take on Brookdale and the political scrutiny that is sure to follow.

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