Not too long ago, I wrote a post regarding federal legislative activity seeking to impose regulation on Private Equity firms investing in senior living organizations (SNFs, home health, hospice, assisted living). That post is available here: https://rhislop3.com/2024/06/13/private-equity-investment-in-nursing-home-sector-generates-regulatory-scrutiny/
That post focused on a bill known as the Corporate Crimes Against Health Care Act of 2024 aims to eliminate corporate greed and private equity exploitation in various healthcare settings, including assisted living communities, nursing homes, home health agencies, and hospices. According to the bill’s sponsors, Sen. Markey and Sen. Warren, this legislation responds to the bankruptcy of Steward Health Care, which operates eight hospitals in Massachusetts, due to the alleged greed and mismanagement by Ralph de la Torre and other senior executives. Anyone interested, the bill is available by the post referenced in the opening paragraph.
Last Thursday, Senator Edward Markey (D-MA) and Representative Pramila Jayapal (D-WA) introduced the anticipated Health Over Wealth Act. This bill mandates increased transparency from private equity firms and for-profit entities that own healthcare facilities, such as nursing homes, hospitals, and mental or behavioral health institutions. Previous versions included assisted living facilities within the covered entities list, but lobbying efforts were successful in removing the reference. The bill text is available here: health_over_wealth_act1
While assisted living is no longer classified as a “covered entity” in the recent Health Over Wealth Act, this exclusion is complicated by distinct and significant sections of the revised bill concerning REITs. The bill’s language modifies the tax code regarding qualifying income, categorizing rent payments from healthcare facilities—per the IRS definition—as non-qualifying income for REITs. Since this IRS definition encompasses assisted living communities, it could pose an obstacle to REIT investments in this area.
The legislation mandates that healthcare facilities owned by private equity firms must disclose their debt, executive compensation, lobbying and political expenditures, as well as healthcare costs and any cutbacks in services, wages, or benefits. Additionally, these firms would need to establish escrow accounts sufficient to cover five years of operational costs, guaranteeing the continuity of care should there be a shutdown or diminution of services.
Furthermore, the legislation would empower the Department of Health and Human Services to rescind investment licenses from companies that engage in price gouging, under-staffing of facilities, or impeding access to care. It would also establish a task force to examine the impact of private equity and consolidation within the healthcare sector.
Industry concerns, aside from what appears to be invasive regulation, move toward further restrictions on capital access. Private investment is essential to address the anticipated increase in demand for senior living. This is underscored by the latest Senior Housing Outlook report from NIC MAP Vision, which indicates a deficit of 550,000 senior living units by 2030 and an investment shortfall of $275 billion, projected to rise to $1 trillion by 2040. The NIC report is available here: NIC-MAP-Vision_Senior_Housing_Market_Outlook_Report
Rising interest rates and restricted traditional lending sources such as capital markets and banks have significantly slowed new unit development. Higher development costs in terms of supplies and labor have also dampened new unit growth. Private equity and REITs have filled some of the capital void but the demand for units is greater than the investment appetite of REITs and Private Equity combined. $1 trillion investment shortage in senior living development expected by 2040 – McKnight’s Senior Living (mcknightsseniorliving.com)
Though I don’t believe either piece of legislation (Corporate Crimes or Health Over Wealth) will go anywhere this legislative cycle, the concerns of regulation that is viewed as non-friendly to the senior living industry such that the same will chill capital investment, bears watching.
Happy Hump Day everyone!