Heightened Scrutiny of Nursing Homes (and Private Equity) in Post-COVID-19 Enforcement

Long Term Care & Senior Housing Update

Firm Alert

Author(s)

On March 3, 2020, then-Attorney General William Barr announced the Department of Justice’s National Nursing Home Initiative, which aimed to “bring justice to those owners and operators who have profited at the expense of their residents, and help to ensure residents receive the care to which they are entitled.” The announcement, which was eclipsed by the unprecedented pandemic-related events of March 2020, highlighted a growing perception that seniors are not receiving adequate care in many nursing homes across the country. It also portends a perilous enforcement environment for nursing home owners, operators and private equity investors in the coming year. 

The announcement of a particular initiative by DOJ has important repercussions within the enforcement community. Resources at a high level are dedicated to the prioritized items. This includes the obvious, such as additional agents and prosecutors, but also the non-obvious, such as resources for advanced data analytics to identify problem areas and targets. Additionally, DOJ and other agencies establish task forces and dedicate personnel to these subjects. Such personnel’s job performance may be assessed on their success in investigating such cases and bringing charges or levying fines.   

Since the attorney general’s announcement, two developments have increased the risk environment for skilled nursing facilities (SNFs). First, there has been the devastating effects of COVID-19 on elderly nursing home residents. Second, there is a renewed focus on private equity ownership of health care companies with a particular interest in SNFs. 

When DOJ announced the nursing home initiative, COVID-19 and the hardship it would inflict on nursing homes, their employees and their residents were as yet unknown. The impact of COVID-19 on nursing homes, however, has focused enforcement authorities even more on the adequacy of care provided. In the early days of the pandemic, some estimates indicated as many as 40% of COVID-19 deaths occurred in nursing home facilities. In June 2020, the House Subcommittee on the Coronavirus Pandemic sent letters to five major nursing home operators seeking information about the “deaths of men and women in your company’s nursing homes during the coronavirus outbreak, the conditions that may have contributed to these deaths, and any steps taken to protect residents and workers from further tragedy.” Consistent with the concerns raised by Barr, the letter recites various allegations regarding failure to comply with infection control protocols and maintain adequate staffing. In the coming year, we expect government authorities to mine their wealth of data on nursing quality metrics, infection control protocols and staffing levels to generate new investigations. Combining this wealth of data with statistics on COVID-19-related deaths in SNFs is likely to generate many enforcement targets.

In this environment of heightened scrutiny, care in nursing homes owned by private equity firms is under the congressional microscope as well. On March 25, 2021, the House Ways and Means Committee on Oversight held hearings on private equity involvement in healthcare. Committee Chairman Bill Pascrell declared “Private equity’s expansion to health care is troubling because private equity’s main focus on profits is often at odds with what is best for patient care.” Although generally addressed to healthcare, much of the hearing focused on private equity ownership of skilled nursing facilities. Enforcement risks for such private equity owners of nursing homes are multi-faceted. In addition to congressional inquiries, private equity firms are finding themselves defendants in False Claims Act suits for the actions of their operating companies. Just last week, the United States District Court for the District of Massachusetts allowed claims against a private equity firm to go forward for alleged fraud by its portfolio company. 

What Can You Do Now to Mitigate Risks?

Although rough enforcement waters lie ahead, nursing home operators and private equity firms can take certain actions to mitigate these risks. 

Companies can monitor staffing levels and adhere to infection protocols and other reportable patient quality of care metrics. Companies should take action to address any problems revealed by such monitoring. Development and adherence to a formal compliance program can not only decrease the risk of violations, but also reduce potential penalties should violations occur. Acting now to address the heightened enforcement environment will likely provide the dual benefit of better patient care and lower risk of an enforcement action.