Real estate investment trusts (REITs) are generating massive profit margins from the U.S. long-term care industry and their influence over facility operations is being blamed for staffing shortages and poor patient outcomes, according to an investigation by KFF Health News.
Internal records and court filings show that these specialized landlords, which now own one in six U.S. nursing homes, often exercise significantly more control over health care facilities than they publicly acknowledge.
While federal tax rules prohibit REITs from directly managing health facilities to maintain their tax-exempt status, documents reveal they often select management companies and strictly monitor financial performance down to monthly spending on food and nurses.
The human cost of this business model is highlighted by the 2020 death of Pearlene Darby, an 81-year-old retired teacher at City Creek Post-Acute and Assisted Living in Sacramento. Darby died from infections and bedsores after allegedly being left in her own waste, a period during which the facility paid over $1 million in rent to CareTrust REIT despite running a financial deficit.
“The REITs are in charge,” said Laraclay Parker, an attorney representing Darby’s daughter in a lawsuit that was settled last year.
In response to the allegations, CareTrust Corporate Counsel Joseph Layne told KFF Health News in a written statement: “We are the property owners, not the operators.” The company maintained in court papers that its monitoring is intended only to ensure nothing “jeopardizes rent payments.”
The financial disparity between the landlords and the providers is stark. Last year, CareTrust reported a 67% profit margin, earning $320 million in net income from $476 million in revenue.
By comparison, HCA Healthcare, one of the nation’s largest for-profit hospital chains, reported a 10% profit margin.
Industry advocates defend the role of these investors. John Kane, a senior vice president at the American Health Care Association, stated that “REITs have been valuable partners in helping to invest in long term care without influencing daily operations.”
However, legal experts and researchers suggest the focus on investor returns can compromise care. One analysis found that nursing homes frequently replaced registered nurses with less skilled staff after being acquired by REITs, while another concluded that health inspection results typically worsened following such investments.
In March, a California jury awarded $110 million to the family of Mildred Hernandez, a 100-year-old woman with dementia who froze to death after wandering out of a facility owned through shell corporations by the REIT Colony Capital (now DigitalBridge).
“REIT money is very detached from knowing about or caring about patient or resident outcomes, because it’s not in their business model,” said Ed Dudensing, a lawyer for the Hernandez family. “Their allegiance is to their investors.”
Despite their growing footprint—health care REITs are now worth nearly a quarter of a trillion dollars—they remain largely invisible to federal regulators. The Centers for Medicare & Medicaid Services (CMS) indefinitely suspended a requirement for nursing homes to disclose REIT involvement, stating they focus on the quality of care rather than corporate tax status.
Critics argue that the financial resources are available to improve conditions if the profit structure were different. “There’s plenty of money,” said Lesley Ann Clement, a lawyer involved in the Darby case. “They’re just not spending it on patient care.”