Real estate investment trusts’ investments in nursing homes can impact a critical component of care quality, according to a first-of-its-kind study published today in Health Affairs, a peer-reviewed journal.
The study found evidence that some REIT-owned nursing homes replace more-expensive, skilled registered nurse staffing with cheaper, less-skilled staff. Staffing is one of the biggest costs of running a nursing home but also key to providing quality care, past studies have found, with higher RN staffing having a particularly positive impact.
“For so long, REITs have been considered just the landlord,” not as players significantly influencing nursing-home operations, said Robert Tyler Braun, an assistant professor at Weill Cornell Medical College and co-author of the study. Widely seen as passive investors simply collecting rent checks, REITs generally haven’t been listed as owners in federal nursing-home data or subjected to the raft of regulations that apply to facility operators.
Healthcare-focused REITs invest in income-producing properties, typically buying the real estate of a nursing home, hospital or other facility and leasing it back to the tenant. REITs held investments in more than 1,800 nursing homes, or about 12% of all US nursing homes as of 2021, according to the new study conducted by researchers at Cornell as well as the Medical University of South Carolina and Vanderbilt University. Because there’s no comprehensive source for REIT ownership data, that’s likely a conservative estimate, said David Stevenson, a professor of health policy at Vanderbilt University and co-author of the study. Nursing home real estate had a total market value of about $117 billion as of 2019, according to research group National Investment Center for Seniors Housing and Care.
The study shakes up the conventional wisdom about REITs’ role in the long-term care industry at a time when regulators are working to implement a nursing-home reform agenda unveiled by President Joe Biden early last year. That agenda includes shining more light on facility ownership? examining the role of investors, including private equity and REITs; and establishing minimum staffing requirements. Although the Centers for Medicare and Medicaid Services, the federal agency that oversees nursing homes, released new facility ownership data last year, “there is a long way to go in improving the accuracy, completeness and usability” of data relating to REIT investment and ownership structures more broadly, Stevenson said.
REITs, which must pay out 90% of taxable income to shareholders annually in the form of dividends, can offer tantalizing yields to investors. Major REIT owners of nursing homes include Omega Healthcare Investors OHI,
which yields 9.4%, CareTrust REIT CTRE,
which yields 5.6%, and Sabra Healthcare REIT SBRA,
which yields 9.1%.
But policy experts in recent years have raised concerns that the investor returns may come at a cost to nursing-home residents, as facilities struggling to pay their rent may look to cut costs in other areas. For facilities looking to boost profits, “one of the easiest ways is to cut staffing,” Braun said.
Some nursing home operators leasing facilities from REITs have recently come up short on rent. Omega, the largest REIT owner of nursing homes, in recent years has reported that several major tenants have failed to make full rent payments. Sabra Health Care REIT said in late 2018 that it had terminated nursing-home operator Senior Care Centers’ leases for several dozen facilities, citing non-payment of rent. Senior Care Centers LLC filed for bankruptcy late that year, saying it was “facing ballooning rent payments.” Omega, Sabra, and Abri Health Care, which was formerly known as Senior Care Centers, did not respond to requests for comment.
In the new Health Affairs study, researchers compared staffing before and after nursing homes received REIT investment with staffing in for-profit nursing homes that had no REIT involvement. REIT investment was associated with increases in the number of licensed practical nurse (LPN) and certified nursing assistant (CNA) hours per resident day, while results for the overall post-investment period showed no significant relative change in registered nurse (RN) staffing. Breaking down the results year by year to examine the effects of REIT investment over time, however, the study found a sharp difference in RN staffing in the second and third years after REIT investment, with RN hours per resident day about 6.3% lower each year in REIT nursing homes compared with non-REIT facilities.
The impact of REIT investment was particularly strong in smaller deals. When researchers excluded the three largest REIT deals, based on number of facilities, they found that REIT investment was associated with an overall relative drop of about 6.3% in RN staffing and no changes in LPN and CNA staffing. Facilities involved in those larger REIT deals may be part of big chains that are more set in their ways, whereas REIT investment may have a more immediate impact in facilities involved with smaller deals, Braun said. There is no minimum federal standard for RN hours per resident day, even though higher RN staffing levels have been linked with lower rates of hospitalization and emergency-department use among nursing home residents, according to a 2022 report from the National Academies of Sciences, Engineering and Medicine. Current rules include a “vague” requirement that nursing homes provide “sufficient staffing” to achieve the highest practicable well-being of residents, the report said.
It’s difficult to pinpoint the exact causes of the links between REIT investment and staffing changes, Braun said. In some cases, REITs may offer nursing home operators IT systems that track metrics such as the CMS “star” ratings that many consumers rely on in selecting facilities, occupancy rates, and profit margins and provide insights on optimizing operations that may lead to staffing changes , he said. In investor presentations, some REITs have suggested they can impact operations. A November 2018 Sabra presentation, for example, said the REIT can “advance the quality of care in our facilities through our operational expertise” and “drive operational efficiencies.”
REITs’ impact on the quality of care, which wasn’t directly measured in the study, “could be good or bad,” Braun said. “The jury is still out on that.” What’s clear, he said, is that “after the acquisition takes place, the REIT has influence on the staffing of the nursing home operation.”
Traditionally, REITs have been involved in nursing homes through “triple-net” lease agreements, in which the tenant nursing-home operator is responsible for paying not only the rent but also the cost of maintenance and repairs, property taxes and insurance. In these arrangements, the REIT is prohibited from directly operating the facility. Another investment structure in place since 2007, however, gives REITs avenues for deeper involvement in operations. This REIT Investment Diversification and Empowerment Act (RIDEA) structure allows a REIT to lease its property at fair market value to a taxable REIT subsidiary. Through that subsidiary, the REIT can contract with an independent nursing home operator and generate revenues from the care offered in its facilities.
Provisions in the 2010 Affordable Care Act designed to make nursing home ownership more transparent still haven’t been fully implemented. In the Health Affairs study, researchers found that REITs involved in nursing homes through RIDEA structures sometimes turned up in federal nursing-home ownership data, but those involved through triple-net lease arrangements were not included. “Along with private equity and other types of ownership, REIT involvement and property ownership more broadly needs to be part of what we capture in ownership data,” Stevenson said.
A CMS spokesperson said that the agency in December proposed a revision to its Medicare enrollment application that would require nursing homes and other providers to disclose whether a particular reported owner or managing organization is a REIT or private equity firm. “CMS continues to explore ways that we can provide more transparency into nursing home ownership,” the spokesperson said.