Nursing home finances associated with real estate investment trust and private equity investments

Abstract

In 2021, real estate investment trusts (REITs) and private equity (PE) held investments in 1915 (16%) and 1569 (13%) US nursing homes (NHs), respectively. We created a database of REIT and PE investments in NHs, merged it with Medicare Cost Report data (2011-2019), and used a difference-in-differences approach within an event-study framework to compare NH spending and financial performance before and after REIT or PE investment to NHs that did not receive REIT or PE investment. REIT investments were associated with higher total wages (3%), total nursing wages (3%; both logged, per resident day [PRD]), and current ratio (81%). PE investments were associated with lower net patient service revenue (7%), total expenses (7%), and total wages (8%; all logged, PRD). The impact of REIT and PE investments in NHs may vary in different market conditions, as may occur in the current environment of low, falling NH profits, potentially higher minimum staffing requirements, and rising interest rates. Therefore, it is important for stakeholders to understand the impact of these large, growing investments on the financial performance of NHs.

Keywords: healthcare finance; nursing home; private equity; real estate investment trust (REIT).

Figure 1.

Association of REIT investment on nursing home finances by year, 2011–2019. Source: Authors’ analysis of Cost Report and LTCFocus data from 2011–2019. REITs are for-profit public or private corporations that invest in income-producing properties. The figure illustrates the difference in net patient service revenue, total expenses, and total wages (all per resident day) in REIT vs non-REIT nursing homes (sample sizes are shown in Table 1). Non-REIT nursing homes are for-profit homes that never received REIT investment. Estimates were generated from a Callaway and Sant'Anna difference-in-differences estimator. Abbreviation: REIT, real estate investment trust.

Figure 2.

Association of PE investment on nursing home finances by year, 2011–2019. Source: Authors’ analysis of Cost Report and LTCFocus data from 2011–2019. The figure illustrates the difference in net patient service revenue, total expenses, and total wages (all per resident day) in PE vs non-PE nursing homes (sample sizes are shown in Table 1). Non-PE nursing homes are for-profit homes that never received PE investment. Estimates were generated from a Callaway and Sant'Anna difference-in-differences estimator. Abbreviation: PE, private equity.