Senators begin inquiry into PE-owned nursing homes

Chuck Grassley and Max Baucus, the Senate Finance Committee members considering carried interest taxation and tax on publicly traded financial partnerships, are investigating patient care at private equity-owned nursing homes.

The two US Senators who have led US political scrutiny of private equity’s taxation, Chuck Grassley and Max Baucus, are now probing alleged health and safety violations at private equity-owned nursing homes.

“The senators’ inquiry stems from a New York Times investigative story in September that described higher numbers of serious health and safety deficiencies in nursing homes that have been taken over by large investment firms,” according to a statement released by the Senate Committee on Finance.

The Times story was based largely on the newspaper's own analysis of government-collected data between 2000 and 2006. The paper found a correlation between substandard care and nursing homes owned by firms including Warburg Pincus. Warburg Pincus did not immediately return PEO's request for comment, and declined comment for the Times story.

Grassley and Baucus have written a letter to federal regulatory bodies requesting a briefing by 2 November on the effects of private equity ownership on nursing homes, including ownership structures which the senators characterised as “legal schemes used by investment firms to shield themselves from liability and, in effect, deny residents and their families legal remedy against nursing homes”. They have also asked firms mentioned in the story – Warburg Pincus, Fillmore Capital Partners, Formation Capital, Cammeby’s Capital Group, and The Carlyle Group – to provide information as to their holdings in or relating to the nursing home industry.

SEIU: Protesting Carlyle

Though it does not yet own any nursing homes, Carlyle has borne the brunt of the fallout from the Times story. The Service Employees International Union, a US union that has waged a vocal campaign against private equity in recent months and has targeted specific firms and deals, has been protesting Carlyle’s pending $6.3 billion buyout of nursing home chain HCR Manor Care and has issued related press releases that refer to the Times story.

“The New York Times article explicitly said that Manor Care, the nursing home company we are going to buy, was not included in the analysis,” a Carlyle spokesman told PEO. “When we own Manor Care, providing quality care will be our top priority. We expect to build upon the fine reputation Manor Care has established over the past 20 years.”

Carlyle issued an official statement to the same effect today, pledging to provide top patient care, as the SEIU demonstrates outside its Washington DC headquarters.

With regard to the congressional inquiry, the Carlyle spokesman said: “We look forward to working with Congress to explain why we purchased Manor Care and why we’re confident we will be good owners and how we’re going to grow the company and build upon their track record. Our structures are going to be very clear and discernable.”

The SEIU has chosen Carlyle as its latest private equity target. Last week it performed “street theatre” in front of the firm’s Washington DC offices to protest against the fact that the firm’s “portfolio is full of defence, energy, healthcare, and other companies that receive potentially billions in government contracts, subsidies, or other payments”, according to an SEIU release.

Union representatives pushed wheelbarrows full of phony money from the adjacent Internal Revenue Service to Carlyle’s offices to demonstrate “Carlyle ‘Fat Cat Tycoons’ welcoming wheelbarrows full of taxpayer money from the IRS”.

The SEIU press release said: “Just how much taxpayer money has the Carlyle Group taken from the U.S. Treasury? The answer is a mystery, but there is no question that buyout giant the Carlyle Group employs sophisticated financial strategies to turn taxpayer dollars into executive profits and avoid paying its fair share of taxes.”

The SEIU did not immediately return a request for comment.