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A team of researchers embarking on a four-year study into understanding the characteristics of assisted living communities that are targets for private equity investment — and how those acquisitions affect operations and care — on Tuesday called on policymakers to take a breath before broadly applying regulations aimed at bad actors in other areas of healthcare. 

Calling assisted living a “significant and continually expanding sector,” researchers from Johns Hopkins University, Brown University, Georgetown University and others studying private equity investment in assisted living published an editorial in the journal Health Affairs policy blog Forefront. They said that assisted living is misunderstood and often is mistakenly lumped in with other types of providers in the overall healthcare sector.

Through a four-year grant from the National Institute on Aging, a team of researchers led by Kali Thomas, PhD, a professor at Johns Hopkins University and associate director of health services research in the Center for Equity in Aging, are building a data set of assisted living communities acquired by private equity firms over the past decade. 

The level of care and service provided in many assisted living communities — which can vary by state and operator — has caused confusion regarding whether lessons learned about private equity investments in healthcare are directly applicable to assisted living, according to the Health Affairs piece.

“There is a ton of negative attention on private equity in healthcare. We recognized assisted living is very different from other sectors of healthcare,” Thomas told McKnight’s Senior Living. “We wanted to be able to inform the dialogue around what private equity is and does, and how it interacts with providing care to residents in assisted living.”

Researchers conducted information and research interviews with providers, private equity firms, state agencies, and industry and finance leaders to understand the role of private equity in assisted living. Based on preliminary data, they identified two fundamental elements that make the influence of private equity investment in assisted living different from other healthcare sectors: payment models and historical roots.

Payment models differ

Economic incentives in many areas of healthcare are driven by the fact that prices are set by government entities. Therefore, the only way to increase profits in a healthcare setting is by providing more services or being more efficient, John Bowblis, PhD, professor and research fellow at the Scripps Gerontology Center of Miami University, told McKnight’s Senior Living

In contrast, assisted living remains a predominantly private-pay care model, with 81% of residents paying out of pocket for room and board and personal care services. Providers do not rely on health insurers, can set their own prices and can offer differentiated products compared with other settings that rely on third-party payers and commercial insurers, according to the study authors. 

“Because assisted living residents have traditionally self-paid for care, assisted living communities and private equity investors are incentivized to enhance quality to compete for residents who are willing to pay a higher price for improved quality,” the authors wrote. “This competition comes in the form of remodeling a building and offering attractive services and amenities that align with consumers’ preferences, such as full-time nurses, memory care programming, medical concierge services, movie theaters, attractive recreational opportunities, and specialty dining.”

Private equity firms, in short, have a “unique incentive” to invest in building a “brand,” the researchers said, adding that cutting costs may challenge the ability to increase profits if those strategies harm the brand.

Mechanisms less straightforward

Private equity involvement in assisted living historically is different from its involvement in other healthcare entities, according to the researchers. 

“The mechanisms by which private investment affects care are different and less straightforward compared to other sectors,” the authors wrote. “We believe that, without clearer evidence, private equity should be viewed as a neutral financing tool in assisted living settings: It can either enhance or reduce societal welfare.” 

The investigators said they will continue to examine the influence of private equity investment on providers’ behaviors and resident outcomes in assisted living. Until then, they encouraged policymakers to “pause and consider the unique structure, financing and history of this important sector.”

Pointing to the recently introduced Corporate Crimes Against Health Care Act of 2024 — a bill targeting “corporate greed and private equity abuse” in assisted living communities, nursing homes, home health agencies, hospices and other “healthcare entities” — the researchers said that policies proposed as solutions to private equity investment in other healthcare settings may compromise access to assisted living by having “profound unintended consequences” for the sector.

“Assisted living is a unique and important form of long-term care not well understood by policymakers, journalists and healthcare providers,” the authors concluded. “And so, to advance policies that are responsive to the sector’s needs, these very same players have a responsibility to listen to assisted living owners, operators, staff, residents and families, and continue analyzing data specific to this unique care setting.”

Private investment ‘crucial’

The American Seniors Housing Association told McKnight’s Senior Living it was pleased that the preliminary findings of the study are consistent with industry sentiment that private equity in senior living has not led to poor outcomes. And although the research does not address real estate investment trust funding, ASHA said it believes that the same is true for this “valuable and necessary” source of capital. (The Corporate Crimes Against Health Care Act of 2024 does include REITs in its list of types of companies that own or control healthcare entities.)

“Federal dollars in healthcare can be a strong incentive to investors seeking reliable payment streams; however, the private-pay assisted living model relies on satisfied residents who will not stand for substandard service and care,” ASHA Vice President of Government Affairs Jeanne McGlynn Delgado said. “It is private investment that will be the source of innovative solutions to meet the range of affordability levels going forward, not the federal government.”

Argentum Senior Vice President of Public Affairs Maggie Elehwany, JD, said that the Health Affairs study findings support the association’s position that private investment in assisted living is distinct from investment in other healthcare providers.

“This model reduces the incentive to cut costs at the expense of quality, because assisted living communities compete to attract residents by offering high-quality care and services that align with consumers’ preferences,” Elehwany told McKnight’s Senior Living. “Importantly, the study highlights the lack of federal investment in assisted living infrastructure, meaning private investment is crucial for the continued existence and growth of this vital care option — the assisted living care setting exists solely because of private investment.”

Elehwany described the research as “groundbreaking” and said that it underscores the essential role that private capital plays in ensuring a thriving assisted living industry that prioritizes the well-being of older adults. State or federal legislative efforts to limit private investment in assisted living are “premature” before the findings of the four-year study are released, she added.

Argentum previously has said that assisted living is not a healthcare setting, noting that “assisted living communities provide access to healthcare services but primarily offer supportive housing and personalized care designed to promote independence and quality of life for older adults.”

The American Health Care Association / National Center for Assisted Living pointed to previous comments it made supporting the need for private capital and investments to support innovation and quality care for older adults in all care settings. 

Educating the masses

Bowblis encouraged assisted living providers to highlight positive changes that occur when private equity takes over, such as building improvements and improvements in the quality of life for residents.

“They need to look at assisted living through a different lens,” Bowblis said of policymakers. “They need to understand the motivations and how that particular industry operates, and whether or not those intrinsic economic incentives are the same.”

Thomas said that it’s important for operators to educate policymakers and the media about the differences between assisted living and nursing homes. The research team continues to conduct interviews, she said, and is open to speaking with investment professionals, owners, operators and other private equity and senior living stakeholders to understand varying perspectives on what private equity acquisitions in assisted living mean for operations and residents.

“There’s such a misunderstanding about what assisted living is. We feel like it’s our job as researchers to provide evidence and information to help people understand,” Thomas said. 

ASHA said that it will continue to educate policymakers on the benefits that senior living provides to the overall healthcare system as well as the need to encourage — not discourage or prohibit — private investment in the industry.

“Now is not the time for policymakers to disrupt the private investment environment that is crucial to meet the demands of an aging population, based on misunderstood and faulty premises about senior living,” Delgado said.

AHCA/NCAL previously submitted comments on a draft of the Health Over Wealth Act, which industry experts said inappropriately lumps assisted living in with more clinical healthcare settings. AHCA/NCAL Senior Vice President of Government Relations Clif Porter said that the senior living and healthcare sectors need significant investments to expand access and support the workforce, services and infrastructures. 

LeadingAge said it favors transparency and accountability in healthcare, and the association called for more research into the role of private equity investment in assisted living. 

“If investments funded through private equity can help providers improve their ability to provide quality care for older adults and their families, then we support it,” a LeadingAge spokesperson told McKnight’s Senior Living. “However, when those types of investments lead to chasing profit over providing quality care — including investments in staff — then the potential hazards associated with private equity in other sectors also threaten assisted living.”