The Hollowed-Out American Nursing Home: Using Private Law to Police Poor Quality Care and Expand Owner Responsibilities

11 Pages Posted: 18 Aug 2023

See all articles by Barry R. Furrow

Barry R. Furrow

Drexel University Thomas R. Kline School of Law

Date Written: August 15, 2023

Abstract

The United States has more than 26,000 nursing homes, caring for more than 1.4 million residents. About 70 percent of these nursing homes are now operated by for-profit corporations, 24 percent are not-for-profit, and 7 percent are government-owned; private equity firms own about 11 percent of these nursing facilities nationwide. Most of these nursing home residents are or will become exceptionally vulnerable and fragile, yet the quality of their daily lives may well be shortchanged
by their nursing home owners -- particularly private equity owners.

I will argue in this article that Private Equity (PE) ownership is unique: PE owners are a special class of financial entity driven toward intense opportunistic strategies in order to hit high rates of return promised to investors within a short time frame. These pillaging strategies risk damaging nursing home quality and long-term stability.

The problem with the nursing home industry is that regulatory control is weak. Government regulators are hard-pressed to inspect and sanction the thousands of nursing homes in the United States with annual surveys of nursing homes backlogged. I argue that government enforcement needs a partner -- private law litigation -- to force transparency of ownership, improve remedies for families of injured residents, and formalize a fiduciary standard of ownership that allows the use of tools to claw back excess profits and constrain bad nursing home management.

My argument proceeds in three steps. First, I will examine the unique financial incentives baked into the private equity model of profit-maximizing ownership. Second, I will examine the development of corporate negligence doctrine. Third, I will develop a model of a robust fiduciary duty, coupled with equitable remedies. My goal is to build a private law doctrinal framework to better police the waste, fraud, and pillaging of assets by private equity owners of nursing home systems.

Suggested Citation

Furrow, Barry R., The Hollowed-Out American Nursing Home: Using Private Law to Police Poor Quality Care and Expand Owner Responsibilities (August 15, 2023). Drexel University Thomas R. Kline School of Law Research Paper Series No. Forthcoming, Available at SSRN: https://ssrn.com/abstract=4541739 or http://dx.doi.org/10.2139/ssrn.4541739

Barry R. Furrow (Contact Author)

Drexel University Thomas R. Kline School of Law ( email )

3320 Market Street
Philadelphia, PA 19104
United States
2155714706 (Phone)

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