The Washington Post had a great article on HCR ManorCare, a national for-profit chain of nursing homes. As with most national for-profit chains, profits are a bigger priority than providing the necessary care. Signs of neglect include pressure ulcers, weight loss, increased falls, inadequate personal hygiene–all caused by the short-staffing to save money. Bedsores occur at nursing homes because there are not enough people to move residents who are confined to their beds, according to experts; the falls happen because there is a lack of staff to answer bells to help people get to the bathroom; and infections spread when aides forget to wash hands.
“Almost all of these issues relate to staffing — either not enough people or not enough training,” said Charlene Harrington, a nurse and professor at the University of California at San Francisco, who has studied nursing homes for years. “That’s why this is so frustrating. It’s just basic hands-on care.”
In terms of nurse staffing hours per patient, HCR ManorCare scored 10 percent or more below the national average. The staffing scores, which include registered nurses, licensed practical nurses and nurse aides, are adjusted by Medicare to reflect the varying needs of patients at each home. At HCR ManorCare, the staffing score changed little during the years leading up to the bankruptcy.
In recent years, private-equity firms have moved into businesses serving some of the nation’s poorest or most vulnerable people. The firms profit by pooling money from investors, borrowing even more, and then using that money to buy, revamp and sell off companies. Their methods are geared toward generating returns for investors within a matter of years, and this has led to criticism that they merely plunder company assets while neglecting employees and customers.
The lack of care had devastating consequences including the preventable and wrongful death of hundreds of residents since the chain was under the ownership of the Carlyle Group, one of the richest private-equity firms in the world. The diversion of funds caused ManorCare nursing-home chain to struggle financially until it filed for bankruptcy in March. During the five years preceding the bankruptcy, the second-largest nursing-home chain in the United States exposed its roughly 25,000 patients to increasing health risks, according to inspection records analyzed by The Washington Post.
The number of health-code violations found at the chain each year rose 26 percent between 2013 and 2017, according to a Post review of 230 of the chain’s retirement homes. Over that period, the yearly number of health-code violations at company nursing homes rose from 1,584 to almost 2,000. The number of citations increased for, among other things, neither preventing nor treating bed sores; medication errors; not providing proper care for people who need special services such as injections, colostomies and prostheses; and not assisting patients with eating and personal hygiene.
Counting only the more serious violations, those categorized as “potential for more than minimal harm,” “immediate jeopardy” and “actual harm,” The Post found the number of HCR ManorCare violations rose 29 percent in the years before the bankruptcy filing.
The rise in health-code violations at the chain began after Carlyle and investors completed a 2011 financial deal that extracted $1.3 billion from the company for investors but also saddled the chain with what proved to be untenable financial obligations, according to interviews and financial documents. Under the terms of the deal, HCR ManorCare sold nearly all of the real estate in its nursing-home empire and then agreed to pay rent to the new owners.
Shortly after the maneuver, the company announced hundreds of layoffs. Some nursing homes were not making enough to pay rent. Over the next several years, cost-cutting programs followed, according to financial statements obtained by The Post.
The origins of the HCR ManorCare deal go back to 2007, when Carlyle solicited investors for money for a new investment fund. More than 300 investors, mostly pension funds, investment companies and big corporations put up money. Carlyle raised $13.7 billion, with Carlyle agreeing to put up $700 million, or about 5 percent of the pool, according to the agreement between Carlyle and investors. The fund, called Carlyle Partners V, then purchased an array of companies — a Canadian distributor of construction products, a Chinese shipping company and a U.S. aerospace company were among them. In December 2007, it bought HCR ManorCare for $6.1 billion plus fees and expenses. Most of the purchase price was borrowed money — about $4.8 billion — and Carlyle put up $1.3 billion.
The deal immediately faced protests from critics who said the aggressive financial tactics of private-equity firms are ill-suited for companies caring for some of society’s most vulnerable. To put together a financial picture of HCR ManorCare, The Post obtained financial statements for the company for 2009 through 2016, as well as the agreement between Carlyle and its co-investors. Other data came from ManorCare’s bankruptcy filings and public-records requests to authorities in Florida, Wisconsin and California.
From the start, Carlyle’s acquisition of HCR ManorCare made the company’s finances more risky because the purchase burdened it with billions in long-term debt. But in April 2011, Carlyle made another critical move at HCR ManorCare, one that would enrich investors and imperil the financial footing of the chain.
Carlyle took HCR ManorCare’s vast real estate empire — the hundreds of nursing homes and assisted living facilities as well as the land underneath — and sold it to HCP, a real estate investment company. HCR ManorCare then had to pay rent to HCP for the use of the nursing homes. This kind of deal, known as a sale-leaseback, is a common tactic of private-equity firms, and it generated financial benefits for Carlyle and its investors. Carlyle got $6.1 billion from the sale, an amount that roughly matched the price that the private-equity firm had paid to buy the company just four years prior. Crucially for Carlyle and its investors, the deal allowed them to recover the $1.3 billion in equity they put into the deal.
Carlyle made money from its investment in other ways, too. It took at least $80 million from the HCR ManorCare venture in the form of various fees, according to interviews and financial documents.
Most of that was a “transaction fee,” which is money Carlyle receives when it buys a company, typically 1 percent of the purchase. The $6.1 billion ManorCare purchase yielded Carlyle $61 million, Carlyle officials confirmed. That money was distributed to Carlyle and its investors.
In addition, Carlyle receives annual “advisory fees” from the companies that it purchases — essentially, Carlyle pays itself to manage the companies it owns. At ManorCare, those fees averaged about $3 million a year from 2007 to 2015, or about $27 million, according to documents and interviews. That money was also distributed to Carlyle and its investors.
Finally, there was one other person who made a lot of money despite the company’s financial woes. After the bankruptcy, longtime chief executive Paul Ormond was awarded $117 million under a deferred compensation agreement. While the HCR ManorCare sale-leaseback benefited Carlyle and its investors, the chain could no longer pay its bills.
The rent HCR ManorCare was obliged to pay — to occupy the nursing homes it had once owned — amounted to $472 million annually, according to legal filings. The rent was set to escalate at 3.5 percent a year, and according to the lease, HCR ManorCare also had to pay for property taxes, insurance and upkeep at the homes.
Required to explain the bankruptcy in court filings, HCR ManorCare began its narrative with the sale-leaseback deal. The rental price had been negotiated when the business environment for nursing homes was “favorable,” the company disclosed in the court filing. But then the environment became “significantly more challenging.”
After the sale-leaseback, the onset of financial troubles was sudden. The chain never again recorded an annual profit, according to financial statements. By the next year, the nursing homes could not afford their lease. An HCR ManorCare expert reported in a recent court filing that by 2012 the net cash flows at the nursing homes in some months were “insufficient . . . to make the required rent payments.”
Executives began to cut costs. By 2012, HCR ManorCare had instituted a “cost reduction program” according to a financial statement of HCP, its new landlord. Between 2010 and 2014, the amount that HCR ManorCare spent to keep the company’s facilities going — operations — fell by 6 percent, after accounting for inflation, according to company financial statements that include its nursing homes, assisted living facilities and other businesses. Operating expenses continued to fall after that, too, but that was partly because the company was reducing the number of nursing homes it operated. Then, during “significant” losses from 2014 through 2016, HCR ManorCare management “instituted measures to control expenses and conserve cash,” according to an HCR ManorCare financial statement.
Several nurses who worked at the ManorCare facility and at others nearby said they thought there was often too few people working. Some said they noticed the problems got worse about 2012.
“They always worked short-staffed,” said Diane Bridges, a nursing assistant who worked there in 2015. “There were two CNAs [certified nursing assistants] for over 30 people. The workload was very heavy. There were not enough girls to get the residents up, get them out of bed in the morning.”
“It was a very good place to work — and then it wasn’t,” said a nurse’s aide who left in 2013 after more than a decade there. “They just didn’t seem to have the money. The Hoyer lifts [equipment for moving patients] started breaking down and it was hard to get them fixed. They switched to cheaper supplies. Residents started complaining.”
“I felt bad because we were supposed to get to these room bells in a certain amount of time, but we couldn’t — there weren’t enough people,” said Kiesha Miller, a nursing assistant who worked at the ManorCare in Allentown, Pa., from 2009 to 2012. “All I could do was say, ‘I’m sorry we’re doing the best we can,’ because management would tell us not to say we’re short-staffed. And when we complained, management would say we can’t afford to have that many people on staff. And I thought, ‘This is just wrong.’ ”
“The short-staffing was to the extent that it was very dangerous for the residents,” said Lisa Kay Wasnowic, who worked off and on at the Allentown ManorCare from 2004 to 2014. “At times, it was just one aide for 60 patients. And it just kept on getting worse.”