Publicly owned nursing have a big problem.
But first the good news…they do better on average than their privately owned counterparts. A recent study showed that publicly owned and non-profit nursing homes had less citations and serious deficiencies than the ten largest for-profit nursing home companies.
However, at what cost? Literally?
This story from the Thomaston Times (GA) focuses on the Thomaston-Upson Industrial Development Authority (TUIDA) issuing a $9.5 million dollar bond to a private healthcare association so that it could buy and repair a local nursing home.
TUIDA’s attorney explained the reasoning for the unusual deal – it would preserve jobs. The attorney said the bond issuance would likely add another 10-15 jobs once the nursing home’s occupancy rate increased.
What’s the motivation?
Venture capitalists, REITS and private equity firms have all gotten into the nursing home business in the last 15 years because the housing market with its low-interest rates hasn’t offered many better alternatives. The high labor costs of running a nursing home have led many independent communities to sell themselves to larger parent companies.
Some people are uncomfortable with how quickly the nursing home industry has consolidated. As of 2007, 70% of all nursing homes were privately held. The reduction in Medicaid reimbursement rates over the years have left many public nursing homes operating in the red. It is very hard to operate a profitable nursing home but not impossible. While most owners may eventually fail in the nursing home business (like all businesses), the most diligent and fortunate will be able to survive. The county-owned model has not been limber enough to adjust to the new, harsh economic landscape.
Meeting the demands of the prospects will always trump job preservation. Customer satisfaction encourages innovation. When job preservation becomes the most important reason for a nursing home’s existence, as is often the case in publicly owned homes, consider it doomed. County executives and politically connected operators will always cite jobs and tax revenue when championing a nursing home proposal but their rhetoric is usually hard to decipher.
The TUIDA bond issuance may turn out fine. The nursing home may thrive, taxpayers might not have to subsidize it further, and investors might end up satisfied. If that happens, then the business just needed tinkering and job preservation was not the driving force behind the bond issuance. However, if the nursing home doesn’t improve and requires continuous subsidies and bailouts, then it will be obvious that it never had a realistic business plan and job preservation really was its most important function.