For Robert Tyler Braun, health economics are personal. His mother was a licensed practical nurse at a school, and his brother needed multiple costly surgeries when he was a child.
Those foundational experiences led AV grantee Braun to pursue a doctorate at the Medical Campus of Virginia Commonwealth University, where he began to pursue what would become groundbreaking work on the effects of private equity investment in nursing homes, hospice, and other care facilities, as he says, at “the intersection of health policy, economics and finance.”
When he was hired as a post-doc at Cornell University in 2018, he pitched the idea to look at private equity in nursing homes and physician management companies, then an unexamined area. He and Larry Casalino, Chief of the Division of Healthcare Policy and Economics at the Weill Cornell School of Medicine, and Mark Unruh, an Associate Professor in the division, got an earlier AV grant to study PE in nursing homes, finding that when a private equity firm acquired a nursing home, a resident’s cost of care went up and the quality of care went down.
His current grant from Arnold Ventures is examining Real Estate Investment Trust acquisitions of nursing home facilities. (A REIT is a for-profit public or private corporation that invests in or fully owns income-producing properties, including nursing homes. Although REITs are a large player in the nursing home sector, less is understood of their role).
Braun is an assistant professor and health researcher at Weill Cornell Medical College.
This interview has been edited for length and clarity.
Arnold Ventures
What is private equity?
Robert Tyler Braun
Private equity is a for-profit entity that needs to make money for its investors in a short time period — typically three to seven years — with returns of investment of on average 20%. This makes them different from your average for-profit, because they never intend to own the organization forever, and want to extract as much profit as they can in the shortest period of time. Private equity firms and other institutional investors have made significant acquisitions in health care in recent years, but the ownership of health care facilities is not tracked in government databases.
Arnold Ventures
Why should people care if private equity owns health care facilities?
Robert Tyler Braun
Private equity firms’ fiduciary duty is to generate high returns on investment in a short period of time for their investors. When you have undercapitalized nursing homes seeking external investment, high-profit motivations from private equity, and lack of government accountability in how money is being spent on direct care for residents, this creates an environment of misaligned incentives that do not necessarily benefit the residents receiving care.
Arnold Ventures
What are you trying to unearth with you research?
Robert Tyler Braun
My research interest is in investigating how variation in the financing and delivery of health care impacts resident health access and cost, and ultimately health outcomes. My main research to date investigates the effects of nursing home and hospice consolidation by private equity firms and other institutional investors on quality and cost of care. By doing this, I hope it creates more ownership transparency and accountability.
Arnold Ventures
What have you seen as some of the impacts of private equity investment in nursing homes?
Robert Tyler Braun
The nursing home industry is capital-intensive — that is, facilities require large amounts of investment to provide high quality care to residents. However, many nursing homes in the U.S. are under-resourced to maintain and improve their facilities, which would cause them to seek alternative funding sources.
Nursing homes with disproportionate shares of residents covered by Medicaid are more likely to be insufficiently resourced to maintain facility properties and equipment, which could negatively impact quality of care. Nursing homes seeking to make capital improvements, increase staffing levels, expand care offerings, or make other upgrades may employ one of several financing strategies. These may include selling their facilities or operations to institutional investors, such as private equity firms and real estate investment trusts.
There are many reasons for the undercapitalization of nursing homes, but one of the main culprits is low state Medicaid reimbursement rates, coupled with the fact that government entities often do not hold nursing homes accountable for the dollars spent on direct care for residents.
As a result of low Medicaid reimbursement rates — Medicaid is the predominant payer for most nursing homes — nursing homes often seek out private equity firms for an infusion of capital and guidance in improving operations to increase profitability.
The largest operating expense of nursing homes is staffing, and staffing is directly correlated with resident quality of care. In order to increase profitability, nursing homes that are acquired by private equity tend to operate with a lower number of clinical staff who provide care to residents.
Arnold Ventures
President Biden noted in his first State of the Union address on March 1: “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.”
Prior to the president’s address, the White House announced a strategy to begin cracking down on behaviors that are contributing to poor outcomes in these facilities. Given attention from the White House, and recent guidance from the Centers for Medicare and Medicaid Services on nursing facilities, what policy changes do you think are needed to improve these institutions and the care delivered to people there?
Robert Tyler Braun
Before we jump into any policy recommendations, we need more transparency from the existing system — where is the money coming in from and where is it going? We need financial transparency on ownership. Who is the parent company? Who are all the related companies, each of which is making a profit from these institutions? We need to see what revenues they’re actually bringing in and how they’re using capital.
More media scrutiny is absolutely a good idea, as well. It’s very, very important to bring this stuff to light. We need to start telling that story more.
Arnold Ventures
As you think about the next decade, what dynamics do you expect will impact the nursing home industry’s ability to deliver high quality, cost-efficient care?
Robert Tyler Braun
Right now we have a terrible nursing home system! We really do. We really have a broken nursing home system in the U.S. and private equity is just one part of it. Do we have adequate training from the start? We need to have systems in place for certified nursing assistants and provide them with job security and adequate pay.
COVID exposed the vulnerability of nursing homes and they were bad before that. We need to keep pushing to get good policy in place, not just hear politicians speak about it. We need to keep pushing the government to come up with a better solution, because private equity and Wall Street are the ones with the money to invest.
For more, read ‘In Pursuit of Profit,’ a series produced by Arnold Ventures on the incursion of private equity into health care.
