Understaffed elder care facilities lost 175,000 residents to Covid, then laid off 12% of workers. But their landlords are doing $well.
When Covid-19 began exterminating everyone around her a year ago, Gloria Duquette thought Genesis Healthcare did a pretty okay job. The biggest nursing home chain in America owns one of the three senior care facilities in which Duquette works as a nursing assistant, and Genesis was the first to give all the workers hazard pay and N95 masks. When she showed up to work wearing one at her morning job at the St. Mary Home in West Hartford, Connecticut, “they laughed at me,” she remembers. “They said, there’s no Covid in the building.” But the Covid was everywhere: and St. Mary ended up losing more than a hundred patients to it, she says. (The official count was only ten, but like a lot of nursing homes St. Mary didn’t report the deaths of residents who died at the hospital.) The Genesis home Kimberly Hall, by contrast, lost just over 70 between its two buildings, and only about 22 in Duquette’s.
But by summer the tables had turned, and the St. Mary Home had learned its lesson. Management spent thousands of dollars getting the building fully sanitized and stockpiling PPE, and established a dedicated Covid wing with its own elevator. A small outbreak came in via a hospital patient on the rehab floor, and immediately everyone was tested and quarantined, and when she worked in the Covid wing she only had four patients to look after, so she could monitor their vitals and oxygen levels constantly. “We didn’t lose a single patient to Covid after the first wave,” she says proudly.
Genesis, on the other hand, seemed to stop caring. The housekeeping budget was slashed, the infection protocols mostly abandoned; when nurses lobbied for new blood pressure equipment and thermometers to use exclusively on Covid patients, management bristled, instructing them to just sanitize everything between patients instead, which might have been a less comical prospect if they hadn’t laid off dozens of staffers now that occupancy was down. They’d also taken in psychiatric patients — “who might try to grab a CNA’s boob or say ‘fucking this and fucking that’” — and while all the open beds made it easier to keep the psych patients from upsetting the geriatrics, the change in the patient mix added to the workload. Duquette has nearly three times as many patients to look after in the afternoons at Kimberly Hall than she does in the mornings: 14 or 15 compared with six at St. Mary’s; when she leaves at night the ratio drops down to one CNA for all 29 patients in the rehab unit.
Most unforgivably, the residents are always hungry, and she never has anything to feed them. “At a normal nursing home dinner is early and half the patients can’t eat it, so you have snacks like cheese and crackers, orange juice, little biscuits. At Kimberly Hall the servings are so tiny the residents are asking you for snacks straight away, and you go down to the kitchen and the cupboard is bare, you open the refrigerator and there is nothing in there,” she says. An administrator told her the facility’s dining budget is currently $16 per resident per day: “Breakfast, lunch and dinner, and they are paying a chef and a dietary assistant too with that money!” It used to be that in lieu of anything else, Genesis would at least keep the place stocked with saltines and ginger ale. “But then last week I walked through every hall on every floor of every building looking for ginger ale and there was not a single bottle of ginger ale anywhere.”
Because she’s active in her union Duquette knows her employer does not want for bailout money: Kimberly Hall got $1.3 million in federal CARES Act grants and a $590,000 CARES act loan on top of at least $200 million in grants Genesis Healthcare, the parent company, was awarded; the nonprofit St. Mary Home got a $1.7 million grant and no loans.
But unlike St. Mary, Kimberly Hall belongs to a chain that was raided by organized greed during the great private equity nursing home bust-out of the first term of the Obama Administration, and the legacy of that looting is a long list of monthly fees the nonprofits don’t have to pay: $1.2 million (between the two buildings) in rehabilitation services sent back to the parent company, $1.1 million in nebulous “home office” fees on top of millions in administrative fees, and most infuriatingly, more a million dollars in annual rent.
A curious feature of the nursing home holocaust of 2020 is how few nursing homes stopped paying their rent throughout the chaos. Even when the price of N95 masks soared close to a thousand bucks a case in March, even where workers were falling ill by the dozen and pricey travel nurses had to be flown in from out of state, even when homes like Kimberly Hall lost a quarter of their residents and by extension the $200-$600 per night each of them were bringing in from Medicaid and Medicare, even though nursing homes before the pandemic were on average reporting a negative operating profit margin…they almost never took out any of their troubles on their landlords.
The Cheesecake Factory stopped paying its rent in April, as did the Gap and AMC Theaters. In May, Starbucks demanded a year rent-free from some of its landlords, and Nordstrom negotiated a 50% discount on its rent payments until its sales reach 90% of 2019 levels. 92% of the restaurants surveyed by the New York Hospitality Alliance still couldn’t pay their rent in December. A year after they passed into law, commercial eviction moratoriums are still in effect in many of the states whose nursing homes were most devastated by the pandemic.
But the obscure landlords that own thousands of American nursing homes — namely, real estate investment trusts like Welltower, which owns Kimberly Hall — don’t seem to have experienced any problems getting tenants to pay up, much less attempting to use the eviction moratoriums to their advantage. In fact, nursing home landlords have been so successful at getting paid some have recently started to gloat a little.
If any nursing home chain should have stopped paying it was Genesis, which lost an astonishing 2,812 residents and staffers to Covid and told investors in August that its future as a “going concern” was under threat absent another government bailout. But Genesis reported a paltry 5% drop in its 2020 lease payments from the year earlier in its 10-K filing, and according to its landlords has been paying the rent in full and on time. Ditto Consulate Healthcare, a notorious Florida chain owned by the same private equity firm that pillaged Genesis and which owes a quarter billion dollars in in jury awards to the federal government and a former employee who filed a whistleblower suit — it kept paying, too, according to its biggest landlord Omega Healthcare Investors, which in February jubilantly reported having successfully collected 99% of contractual rent payments throughout 2020. Two weeks later, another massive nursing home landlord Sabra Health Care REIT’s announced it had collected 99.9% of its “forecasted rents” since the onset of the pandemic. When the CEOs of the big senior care REITs gathered virtually earlier this month for a virtual investment conference sponsored by Citigroup, many were in the mood for a victory lap. “We extracted value for our owners where most people thought there was no value,” boasted Shankh Mitra, the new CEO of Genesis “master” landlord Welltower Inc., which extracted the bulk of the desperate nursing home chain’s $366 million in lease payments in 2020, then engineered some inscrutable deal Mitra claims left the REIT with an 8.5 unlevered rate of return.
The obvious reason all these landlords have gotten their money is, of course, bailouts. The CARES Act earmarked $21 billion for nursing homes, and most states pitched in generously as well: Connecticut alone has doled out or pledged some $180 million in nursing home aid. Unlike the bailouts for airlines and small businesses created by the CARES Act, the nursing home bailout program did not require recipients to use funds primarily for payroll. And they didn’t: a recent report from the consulting firm Altarum says nursing homes have let go a staggering 182,000 nurses and nursing assistants — 11.5% of their workforce — since February 2020, as they have prioritized making rent and staying out of bankruptcy court over the welfare of residents who have been mostly barred by expansive liability shields from suing them anyway.
The decision to shed staff while paying landlords would be less galling if nursing home rents were not so obscene: and here Kimberly Hall is pretty lucky, because unlike most states Connecticut uses a pretty restrictive formula to cap the rental payments it will permit Medicaid-licensed nursing homes to pay. A five-star nursing home with 330 beds in another state might pay triple or even quadruple Kimberly Hall’s rent; a brutally short-staffed one-star home in New Jersey with 700 beds and a Covid death toll of 70 was paying $8.425 million to its Illinois-based landlord Altitude Investments, according to an appraisal document filed with the Tel Aviv stock exchange, where its bonds trade. In 2019 Genesis operated roughly 40,000 beds and made $387 million in lease payments, meaning it pays an average of just under $10,000 per bed, per year, just to exist. For an operator whose occupancy levels currently average around 75%, that’s a fixed cost of about $1,100 a month per resident — all to pay rent on an aging bed that is often one of three in a room.
Twenty years ago most nursing home chains didn’t have landlords. Then in the latter half of the Bush Administration, private equity firms like the Carlyle Group and other leveraged investors began buying up nursing homes in bulk and selling off their real estate to “passive” investors in a move known as a “sale-leaseback.” Private equity firms have done sale-leasebacks on everything from Toys R Us stores to balloon manufacturing plants to freight rail terminals and they always seem to go the same way: the “passive” investor pays too much, the owners make off with an exorbitant chunk of the proceeds, and the company stuck making the inflated rent payments alongside all the other diabolical monthly fees that accompany a private equity buyout (interest payments, management fees, transaction fees associated with the endless cycle of divestment and debt refinancing involved in attempting to make the fees more manageable, etc.) limps along like a forgotten nursing home resident until something gives. When the company finally files for bankruptcy protection, it’s usually too late to claw back any of the vulture capitalists’ ill-gotten gains.
Genesis should have been in bankruptcy court a decade ago, after its private equity firm owner Formation Capital sold off its real estate for nearly twice the $1.25 billion it had paid for the whole company four years earlier. The company posted a nine figure loss in all but two years of the decade following the sale-leaseback; after it went public in 2014, Genesis disclosed it was spending roughly $750 million a year on rent payments, transaction fees and interest expenses on a byzantine collection of loans and credit lines on which it was paying interest rates as high as 22.2%. This was all par for the course: a study published last month by four academics who tracked the financial statements and health inspection data of nearly 1,700 nursing homes acquired by private equity firms between 2000 and 2017 revealed that nursing homes’ interest expenses surged an average of 323% after a private equity takeover, while rents rose 75% and 21,000 patients died unnecessarily as staffing was cut to pay for all of that.
While most private equity firms had cashed out and moved on from nursing homes by the time Covid-19 came, the financial shackles they imposed on their management are mostly still in place. Where there are 22.2% interest rates being reaped, you’ll find parties with a vested interest in keeping the sucker paying them on life support, and that’s essentially what happened to Genesis, until coronavirus disrupted the cycle so profoundly that most industry insiders were pretty sure a massive reckoning had arrived.
CEO George Hager, a figurehead of sorts who had been with the company through an earlier bankruptcy in 2000, the 2007 private equity buyout, the 2011 sale-leaseback and an aftermath so grueling he declared the entire “REIT structure” to be a “failure” at a 2019 conference, believed it too, advising analysts bankruptcy was imminent in an August conference call, and negotiating a contract to stay on through the duration of the anticipated bankruptcy process with the board.
In December, though, Hager was suddenly sacked, right on the heels of the surprise ouster of his counterpart at Welltower. Bankruptcy was suddenly off the table. “Circumstances at Genesis changed quickly and dramatically thereafter, however, in an unanticipated manner,” is how a Washington attorney for Genesis cryptically described the turn of events, adding that it “became clear during the course of these developments that there were significant differences in strategic outlook between Mr. Hager and the rest of the board.” Then earlier this month, the nursing home chain announced another inscrutable deal involving a titular $50 million “investment” — in quotes because it consists of a loan that is convertible to a controlling stake — from yet another “private equity-backed firm.”
But perhaps because like everything involving private equity the details are a mystery, Warren has seized on Hager as the villain of the story, for having received the $5.2 million retention bonus just months before he was canned — bad optics to be sure, but a literal rounding error next to the $116.7 million former HCR ManorCare CEO Paul Ormond got in the 2018 private equity-bequeathed bankruptcy of that nursing home chain, or the billions private equity firms have extracted from Genesis over the years, or the half billion dollars the federal government has plowed since the pandemic began into a chain that somehow just changed hands for a measly $50 million. The fact is that like just about everyone who works for a nursing home these days, Hager was never really in control of much that went on there: the landlords and creditors were the ones in charge, and as long as it stays that way taxpayers will continue to pay evermore billions each year for ever-shoddier care.
Today Kimberly Hall is in the middle of a fourth outbreak Gloria Duquette deems “totally avoidable.” All of the long-term residents and most of the staffers were vaccinated months ago, but a short-term surgery patient caught the virus in the hospital and brought it to the rehab unit whereupon management decided it would be too expensive to separate him from the rest of the patients and instead let it “spread like wildfire,” she says. As it turned out, the governor pledged an additional $31.2 million in state pandemic assistance to nursing homes, then failed to earmark any of the funds for staffing. So she took off a couple of days to attend a rally at the state house for better pay and working conditions. When she got back, her favorite resident Phoebe* had a red line on her door, meaning she had been infected. “I just started bawling,” she says. And then she put on her mask and face shield and went in.
Phoebe is 92, but Duquette is sure she had another decade left. “She has so much fight in her, this woman,” she explains. “No Alzheimers, no dementia, some kidney problems so she was on dialysis. She came to us because she had broken her arm, but she was walking around, she was using the bathroom because I wouldn’t let her use a bedpan, she was brushing her teeth and brushing her hair. Every night I would sit on the bed with her and massage her little feet for 15 minutes and she would tell me her stories.”
Duquette convinced Pheobe’s son that she was strong enough to beat Covid and that they’d better get to dialysis, but over the next two weeks she got pneumonia, and another resident died, and Phoebe finally told her she just didn’t have it in her anymore and stopped her dialysis treatments and moved into hospice care.
“It makes me so mad! She should be home by now,” Duquette is telling me from her break room at her third nursing home, choking back tears. “Genesis just sees these people as dollar signs. And not even in a smart way, because they are ruining their reputation with the community.”
But she is more hopeful than perhaps ever in her career that things can change, in part because last summer, for the first time in 16 years of working 90-hour weeks, she saved money. Now she owns a home, all because of the extra $3.75 an hour she earned in hazard pay between April and August. “None of us could believe how much easier it was to live with just three extra dollars an hour,” she says. “It was the worst few months of my life, but I could afford to grocery store and buy, you know, healthy food, not the junk.”
The hazard pay is in the distant past now, but that brief period of being paid a dignified wage reminded Duquette and her colleagues that they shouldn’t settle for the status quo from corporate bosses, for themselves or the patients they love. “And it made all of us look around and say to one another, Genesis needs to do better!”
*Not her real name