Investors Seeking Profits In
Area Nursing Facilities

November 9, 2007
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WEST MICHIGAN — Large, multi-state companies, public and private, are scooping up nursing homes in West Michigan and investors are looking for profits, as the baby boomer generation hits retirement age.

Two Michigan-based nursing home operators, TenderCare Inc. and Community Care Group, were acquired within the past few months. Ohio-based Laurel Health Care, which owns three West Michigan nursing homes, was sold twice in 2006.

And shareholders of HCR Manor Care, the nation's largest owner of nursing homes including seven in West Michigan, in October approved selling the public company to the Carlyle Group, an $87 billion private investment firm based in Washington, D.C.

Senior care advocates, an employees' union, and state and national politicians are expressing concerns about how the shake-up in ownership could affect care of the disabled and the elderly.

"These companies don't have any background in managing health care, so they're looking at it strictly from an investment point of view," said Frances Grant, Grand Rapids director of Citizens for Better Care, a long-term care advocacy group.

"We are concerned that investors are only looking at buying nursing homes for the mighty dollar and — I guess I would go so far as to say — to line their pockets, with our most fragile elderly at risk."

State Rep. Kathy Angerer, D-Dundee, with backing from State Rep. Robert Jones, D-Kalamazoo, said last week that she would conduct hearings to examine the Manor Care deal. No schedule for the hearings has been set, but Angerer said she has asked Michigan Department of Community Health Director Janet Olszewski to delay licensing decisions until after the inquiry.

Angerer heads the state House Health Policy Committee and Jones is chairman of the House Senior Health, Security, and Retirement Committee.

Private equity investment in nursing homes is now in the crosshairs of Congress, prompted by the Manor Care deal.

With pressure mounting, sparked by a recent Service Employees International Union campaign, U.S. Reps. John Dingell, D-Dearborn, and Barney Frank, a Democrat from Massachusetts, last month initiated an investigation into the nursing home management practices of private equity companies. Earlier in October, two senators sent similar inquiries to five investment firms.

In addition, 15 Michigan legislators signed a letter urging the state Department of Community Health to conduct a review of the Manor Care acquisition, MDCH spokesman T.J. Bucholtz said, and hearings were planned in Lansing. Legislators in Illinois, Pennsylvania, Florida and Washington have joined a similar chorus.

"My bottom line is that which ever way it goes, we need to make sure that residents are protected and, if anything, their quality of care and quality of life increases," state Long-Term Care Ombudsman Sarah Slocum said.

The $6.3 billion Carlyle-Manor Care deal is just one of several big long-term care buyouts since the turn of the century. Investors are seeking to profit from the retirement age for the 75 million strong baby boomers, in slow but steady growth in Medicare revenue for rehabilitation services and in appreciation in real estate holdings.

In October, the Michigan Department of Public Health granted Certificate of Need approval to the acquisitions of Manor Care homes in the state, but licenses for the homes were still pending. CON requests for additions and remodeling for some of the buildings were still in process as well.

Last month, Carlyle issued a "Patients First" pledge, outlining promises of quality, education and training, acceptance of complicated cases, staffing levels and capital investment.

Toledo-based Manor Care has more than 500 nursing and rehabilitation centers, assisted living, hospice and home health care facilities. Among its holdings are 27 skilled nursing facilities with 3,366 beds in Michigan, including seven Heartland Health Care centers with 835 beds in Kent, Ottawa, Muskegon and Kalamazoo counties.

Carlyle anticipates closing on the Manor Care acquisition by the end of November. Manor Care stockholders last month approved the deal at $67 per share of common stock. In July, the company reported $1.92 billion in revenues and $74 million in net income for the first six months of 2007. For 2006, Manor Care counted $167 million in profit and $3.6 billion in revenue.

Twenty-seven of 52 Medicare-listed nursing homes in West Michigan's four most populous counties — Kent, Ottawa, Muskegon and Kalamazoo — are owned by for-profit ventures. Some, such as Metron Integrated Health Systems, are local, while others are investments by companies located far from West Michigan

"The for-profit sector, for any faults it might have, has one strength: It has to compete in the marketplace," said Lody Zwarensteyn, president of Alliance for Health, a local health planning agency.

"In a market like West Michigan that is heavily influenced by nonprofits that have, by and large, a high level of service, for-profits will rise to that same level. That is one of the prices of entry into the West Michigan market for for-profits."

In February 2006, Formation Capital Health Care LLC of Alpharetta, Ga., bought Ohio-based Laurel Health Care, with 2,736 beds, for "nearly $200 million," as reported in July 2006 in The SeniorCare Investor newsletter. Laurel had 26 facilities, 17 in Michigan, including nursing homes in Galesburg, Lowell and Hudsonville with 359 Medicare-certified beds.

Four months later, Formation sold Laurel Health Care along with five other senior housing groups, totaling 186 facilities and 21,000 beds, to GE Healthcare Financial Services for $1.4 billion, according to a GE news release.

Two weeks ago, a publicly traded Canadian real estate investment trust completed the purchase of TenderCare (Michigan) Inc., a 30-facility, 3,300-bed chain with 4,000 employees based in Sault Ste. Marie. TenderCare this year opened a nursing home in Wyoming and has another under construction in Holland. One of the company's Lansing facilities was forced to close in October after failing three health inspections and losing Medicare approval.

Extendicare REIT of Markham, Ontario, traded on the Toronto Stock Exchange, this month completed the $232.3 million acquisition of TenderCare by its U.S. subsidiary, Extendicare Health Services Inc. of Milwaukee. Extendicare already owned 230 long-term care and assisted living centers in 12 U.S. states and four Canadian provinces.

Community Care Group, which owned 21 nursing homes and assisted living centers in Michigan and Wisconsin, became associated with a company called Orion Operating last month, according to a staff member in the Norton Shores headquarters. CCG owned three facilities in Muskegon, two in Grand Haven, and one each in Allendale, Plainwell and Zeeland. CCG President Steven G. Bandstra and an Orion representative were unavailable for comment. A company called Orion Operating was incorporated in Delaware and registered in Michigan in October, according to state documents.

Metron is a family-owned, Grand Rapids-based company that owns eight skilled nursing and rehabilitation centers, a durable medical equipment supplier, a home health care business and a hospice.

"The profit margin in this industry is nowhere what it used to be 20 or 30 years ago," said David Mix, Metron's director of marketing and community relations. "I think that's one of the reasons why we're seeing so many other companies being acquired by national organizations."

Mix said that Metron, founded 30 years ago by Marvin Piersma and run today by his son, Mark, has no plans to sell and intends to stay in small West Michigan towns such as Lowell and Cedar Springs. "We don't anticipate anything in the foreseeable future changing in terms of the family controlling the future of the company."

Metron, however, has faced recent challenges. Its Kalamazoo facility closed a year ago after a history of serious health violations and a lawsuit filed by the state attorney general that included the company's homes in Allegan and Big Rapids, as well. The attorney general also lodged criminal charges against eight Metron employees in Big Rapids in connection to the 2005 death of an oxygen-dependent patient.

Mix said Metron has responded by beefing up training for nurses and certified nurses aides and has hired corporate-level experts in monitoring and best practices.

A Sept. 23 article in The New York Times studied government data for 14,000 nursing homes nationwide from 2000 to 2006 and found that private investors reduced nursing hours at 60 percent of their skilled nursing facilities and tended to score worse on quality indicators tracked by the Centers for Medicare and Medicaid Services. A Business Journal review of's most recent inspection and survey information for 52 nursing homes in Kent, Ottawa, Muskegon and Kalamazoo counties provided a more mixed snapshot. (TenderCare's Wyoming facility was omitted because it had recently opened and its data was based on a census of just seven residents.)

For example, the Department of Health and Human Services puts the need for licensed nursing care at 80 minutes per resident per day. Skilled nursing facilities in the four West Michigan counties averaged exactly that, with for-profits logging 81 minutes and nonprofits, 79. The average across Michigan is 78 minutes.

However, per-resident minutes for certified nurses' aides, who provide services such as diaper-changing, bathing and feeding, averaged 153 minutes at nonprofit local facilities and 128 minutes at those owned by for-profits. The average statewide is 144 minutes, compared to 140 in the four counties.

The Business Journal also found that for-profit facilities in the four counties were cited for an average of 13 health deficiencies in the most recent data. Local nonprofit facilities averaged nine health deficiencies. The state average for all skilled nursing facilities was 10, and the Business Journal found that the four-county average for all facilities was 11.

In fiscal 2006, Medicaid paid for $2.2 billion worth of long-term care in Michigan, according to the Kaiser Foundation Web site.

Medicare covered nearly 75,000 short-term, rehabilitation stays in skilled nursing facilities in Michigan during 2003, Kaiser reported. Medicare payments for inpatient rehabilitation — the fastest-growing and most profitable line of business for skilled nursing facilities — amounted to $18.5 billion in 2005 nationwide, according to the Medicare Payment Advisory Commission.

Of the state's 407 nursing homes, 64 percent have for-profit ownership, 26 percent are owned by nonprofits, and 10 percent are government owned, according to Kaiser.

"People have different points of view about where there should be for-profit entities in long-term care," Slocum said, in particular companies that have no experience or dedication to human services.

"There are entities strictly for producing wealth. I'm not sure it's a good mix with entities charged with providing care for one set of our most vulnerable people. Even in the privately owned facility or profit-owned facility, the majority (of care) is paid for with public programs and tax dollars. That's two ways these entities are responsible to the public in a different way than a chain of hotels or restaurants."    

Nursing Homes’ Statistics

Type Of Owners Number Of Homes Average Licensed Nursing Minutes Average Nurse’s Aide Minutes Average Health Deficiencies
For Profit* 26 81.26 127.7 12.96
Nonprofit** 25 78.95 127.7 9.44
Overall            52 80.02 140.2 11.24

*Does not include newly opened TenderCare of Wyoming. 

**Includes two government-owned facilities.

Source: GRBJ analysis of Medicare-certified nursing home data from for Kalamazoo, Kent, Muskegon and Ottawa counties

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