At press time, a bill that would require private equity firms and hedge fund organizations in California to give prior notice of acquisitions or changes in control to the state’s attorney general was sitting on the governor’s desk, to become effective Jan. 1 if he signed it into law.
It is just one example of legislation recently put forth at the state or national level focused on the private equity and real estate investment trust funding sometimes used in senior living and in other industries.
Federally, Sen. Edward Markey (D-MA), chairman of the Health, Education, Labor and Pensions, or HELP, Subcommittee on Primary Health and Retirement Security, has been involved in two recent efforts to govern the use of private equity in long-term care and healthcare.
An updated version of one bill, the Health Over Wealth Act, was introduced in late July with Rep. Pramila Jayapal (D-WA).
The legislation calls for greater transparency for private equity firms and for-profit companies that own healthcare entities, including nursing homes, hospitals, and mental or behavioral health facilities.
The senior living industry had pushed back on the inclusion of assisted living communities as covered entities when a discussion draft of the bill was first released in April. Industry advocates said the bill would have a “chilling effect” on future investment in assisted living and jeopardize access to the setting by subjecting the operators and private investment partners to significant scrutiny, extensive reporting, licensure and, in the case of REITs, an outright prohibition on ownership of assisted living properties.
Although assisted living was removed from the list of “covered entities” in the version of the Health Over Wealth Act introduced in July, that exemption is complicated by separate and “significant” provisions of the updated bill dealing with REITs, according to Jeanne McGlynn Delgado, vice president of government affairs for the American Seniors Housing Association.
The provisions include language that alters the tax code relative to qualifying income, treating rent payments from healthcare facilities — as defined by the IRS — as non-qualifying REIT income. The IRS definition of healthcare facilities includes assisted living communities, which Delgado said creates a “significant problem” for REIT investment in the sector.
“Given the industry’s reliance on REIT investment, as well as those structured with private equity and REITs, this could present serious challenges,” Delgado told McKnight’s Senior Living. “Whether a drafting error or intentional, ASHA will seek to address this provision of the bill, which is inconsistent with the removal of assisted living from the definition of healthcare facilities in the prior section of the bill. If this language is not amended, it could severely deter REIT investment in the assisted living industry and others.”
Industry fights to remove assisted living
ASHA and Argentum had submitted a joint letter in May to Markey, raising concerns about the approach taken with his draft legislation. They said that, as worded at the time, the bill would have “catastrophic consequences” for older adults and their families” and create “unnecessary restrictions and an overly burdensome regulatory process to reign in the partition of specific capital sources in certain for-profit healthcare entities.”
The American Health Care Association / National Center for Assisted Living similarly had submitted comments noting that the senior living and healthcare sectors need significant investments to expand access and support workforce, services and infrastructure. The experts noted the private-pay nature of the assisted living business model and a lack of evidence suggesting that private investment in assisted living resulted in harm to residents.
The bill sponsors said that the legislation would put safeguards in place to protect workers, residents/patients and healthcare quality, access and safety; create stronger accountability measures; and close tax loopholes that benefit REITs.
New requirements for private equity
Specifically, the act would require private equity-owned healthcare facilities to publicly report on their debt and executive pay, lobbying and political spending, healthcare costs and any reductions in services, wages or benefits. Private equity-owned firms also would be required to set up escrow accounts to cover five years of expenses to ensure continuity of care in the event of a closure or service reduction.
In addition, the bill would authorize the Department of Health and Human Services to revoke investment licenses from firms determined to have price gouged, understaffed facilities or created barriers to care access. A task force also would be created to review the role of private equity and consolidation in healthcare.
“Private equity firms and greedy corporate executives are using the healthcare system as a piggy bank,” Markey said in a statement, adding that the “fight against corporate greed is growing.”
Argentum, however, said that private investment will be needed to meet the projected surge in demand for senior living, pointing to NIC MAP Vision’s most recent Senior Housing Outlook report, which highlighted a potential shortage of 550,000 senior living units by 2030 and a $275 billion investment shortage that could increase to $1 trillion by 2040.
“Argentum will continue to monitor the Health Over Wealth Act and similar legislation, and work with policymakers to ensure that efforts to limit private capital investment do not jeopardize the important investments needed to meet the needs of our aging population,” Argentum Senior Vice President of Public Affairs Maggie Elehwany said.
Another federal bill introduced
Markey joined Sen. Elizabeth Warren (D-MA) in June in introducing the Corporate Crimes Against Health Care Act of 2024. They said that the bill was meant to “root out corporate greed and private equity abuse” in assisted living communities, nursing homes, home health agencies, hospices and other “healthcare entities.”
The senators said their action was prompted by “private equity greed and mismanagement by Ralph de la Torre and top executives” at Steward Health Care in their home state of Massachusetts. Executives, they said, drove Steward, which operates eight hospitals in the state, into bankruptcy.
Long-term and post-acute care provider advocates, however, called the legislation “misguided,” “overly broad” and “concerning,” saying that it would threaten access and existing care models while serving as “a distraction from the real issues that impact the majority of providers.” Some also questioned the inclusion of assisted living in the bill.
“Assisted living communities are fundamentally different from the healthcare entities included in the legislation,” Argentum’s Elehwany said. “Assisted living communities provide access to healthcare services but primarily offer supportive housing and personalized care designed to promote independence and quality of life for older adults.”
Unlike other provider entities defined in the proposed legislation, she said, assisted living does not depend on Medicare and Medicaid reimbursement or private health insurance. Rather, Elehwany added, it primarily is a market-driven, private-pay residential environment.
“Including assisted living in this bill could have enormous consequences for the 1.4 million Americans who today call assisted living home and the millions of seniors who will need care in the future,” she said, adding that inclusion “would threaten a model of care that improves the lives of seniors.”
The regulatory environment should support the growth and sustainability of assisted living, Elehwany said. “Private capital investment in assisted living is needed to meet rapidly growing demand, and legislation that seeks to curtail these vital investments will likely result in access shortages for millions of seniors for decades to come and almost certainly make assisted living less affordable,” she said.
Introduction of the Corporate Crimes Against Health Care Act followed the March announcement by HHS, the Federal Trade Commission and the Department of Justice of the launch of a cross-government public inquiry into private equity’s role in healthcare. The agencies specifically mentioned home- and community-based services providers, nursing homes, home health agencies, hospice providers and other types of service providers in their announcement.
A team of researchers writing in the journal Health Affairs’ policy blog, Forefront, however, recently called on policymakers to pause before broadly applying regulations aimed at bad actors in other areas of healthcare. The team specifically studied private equity investment in assisted living, calling it a misunderstood sector often mistakenly grouped with other provider types.
Meanwhile, at the state level, the California bill, AB 3129, “represents a growing trend of state-level interventions in healthcare transactions, albeit one that is unusually broad in scope,” the National Law Review reported.
