For the past decade, investors have poured billions of dollars into constructing a massive stockpile of senior housing
baby boomers, which felt like one of Wall Street
's safest bets at the time.
Then there was the global pandemic
Instead of a guaranteed paycheck, the commercial real estate
firms and senior housing chains that dominate American eldercare
have seen demand plummet. Hospitals are sending fewer patients to nursing homes, and no one wants to put their mother in an assisted living facility if they can avoid it. Costs are skyrocketing, and staff turnover is astronomical.
It has forced an industry that relies on high occupancy rates – what health care
professionals refer to as the “butts in beds” model – to scramble to maintain enormous profit margins.
That was the context last year when CareTrust, one of the country's largest owners of eldercare housing, replaced one of its operators with another with a questionable safety record.
With the pandemic raging in the summer of 2020, a contractor who leased and operated five CareTrust-owned senior assisted living homes in Virginia
asked CareTrust to postpone some of its rental payments.
Instead, CareTrust hired a replacement: Noble Senior Services, a senior home operator with a worisome safety record but a track record of meeting CareTrust's financial expectations.
Noble previously ran several CareTrust-owned facilities across the country, including one in Fort Wayne, Indiana, which CareTrust leased to Noble beginning in 2019. Since Noble took over, Indiana state health inspectors have visited the facility 18 times in response to a total of 60 complaints, with half of those visits involving a complaint about the facility's handling of COVID-19.
At the same time, state investigators discovered evidence of heinous mistreatment: a nurse
treated a wound on a resident's finger with a sloppily sterilized box cutter, leaving the digit looking like "raw hamburger meat," according to the same September inspection.
Because the facility had so many other issues, Fort Wayne's executive director told inspectors that she had not implemented the corporate COVID-19 policies.
Other residents complained about deeper systemic issues: in February 2021, more than a year after Noble took over the Fort Wayne facility, residents, staff, and the facility's own records revealed that residents were not getting all of their medication on time — drugs like insulin, Lipitor, and psychiatric medications.
The director of nursing told inspectors that the facility still didn't have a good system in place for tracking whether residents who needed help with their personal care had taken a shower. During the same inspection, inspectors spoke with a resident who complained that there weren't enough staff to help residents get dressed; the inspector noted that the resident was not wearing pants
Inspectors substantiated 56 of the 60 complaints and cited the facility for deficiencies 29 times, compared to the average of three citations for an Indiana long-term care facility in 2019. (Noble told Stardia that the statewide comparison is unfair because the Fort Wayne facility houses mostly low-income seniors
with a variety of health challenges.)
But CareTrust executives thought Noble was doing a "great job," as COO Dave Sedgwick put it on a recent investor call, and Noble took over the five
new assisted living facilities in Virginia in December 2020, despite the health inspections in Indiana.
The changing of the guard has been hailed by CareTrust as one of the year's "operating and financial performance highlights."
When it came to bonuses, the move paid off. CareTrust gave its CEO
, Greg Stapley, a $1.2 million cash bonus this spring, partly as a reward for replacing the previous contractor with Noble, and partly as a reward for collecting nearly 100% of rents from its other operators.
Noble Senior Services is now one of CareTrust's top ten operators. In May, local news
reporters investigated another CareTrust-operated senior facility, this time in Pensacola, Florida
obtained from a resident's family member showed soiled sheets, rodent droppings, and piles of clothes and trash in a resident's room; state inspectors who visited the facility found soiled sheets, rodent droppings, and piles of clothes and trash.
Profits are being squeezed to the max.
Even if the name on the marquee says Noble, a relatively small operator, or Genesis, a nationwide chain, a growing share of eldercare real estate — the most valuable part of the business
— belongs to commercial real estate trusts.
Trusts like these have traditionally invested in shopping
malls and hotels because they are a tax-advantaged way to pool income from a large number of individual commercial properties and distribute profits to shareholders in large, consistent dividends. However, over the last decade, they have begun to dominate eldercare, where they earn a profit from the operators by taking a cut of a facility's income or charging a significant fee.
As a result, the companies that operate the facilities are under intense pressure to deliver aggressive profits on a strict timetable, and operators who fail to deliver risk losing their leases.
CareTrust reported that in 2020, its 200-plus facilities received more than $150 million in various forms of federal COVID-19 aid, including aid from a $100 billion fund established by the CARES Act for health care providers who lost revenue or incurred costs due to the pandemic.
Without specifying how much of that taxpayer money
went directly toward satisfying CareTrust's rents, the company has stated that federal coronavirus
aid was "critical" in enabling CareTrust to collect nearly 100% of rents since the start of the pandemic, including from nursing homes demanding rent deferrals.
Wall Street is dealing with the devastating impact of COVID-19 on the senior living industry by putting extreme pressure on day-to-day operators to deliver the same staggering profits as before.
In response to Stardia's questions about CareTrust's choice of Noble as an operator, Sedgwick issued a lengthy statement in which he stated that the seven facilities Noble took over in November 2019, including the troubled Indiana facility, and the five facilities Noble took over in December 2020 are "predominantly lower-income private pay and Medicaid-funded senior communities."
Most assisted living communities, on the other hand, serve upper- and middle-class families who can afford high fees; Noble, according to Sedgwick, is one of only a few operators who specialize in running assisted living facilities for those who cannot.
“We have no control over the day-to-day operations of the facilities,” Sedgwick continued, explaining that CareTrust primarily relies on state regulators to ensure operators provide quality care, and it terminates contracts with operators who have a history of safety issues.
Nonetheless, Noble has spent tens of thousands of dollars improving the Fort Wayne facility and was “making steady progress” in improving “some troubled operations” when the pandemic struck, he added.
“We understand the distinction between a chronic pattern of underperformance and problems that occur during transitional periods. The first year of a transition is usually the most difficult as the new operating company implements their own systems, policies, leadership, and plans. The unprecedented COVID-19 pandemic magnified the customary difficulties by many times,” he continued.
In response to Stardia's questions, Noble CEO Lorne Schechter blamed the Fort Wayne facility's staffing issues on the industry-wide worker shortage, which has worsened due to COVID-19.
He claimed that the high volume of complaints at that location was due to random inspections, self-reported violations, and the fact that the majority of the facility's residents are low-income seniors dealing with a variety of issues.
“Noble prevents them from being homeless
, imprisoned, addicted, hospitalized, or dying inhumanely and or alone,” Schechter wrote. “Providing a safe and secure environment
for their residents is the highest priority of each Noble facility, and it has frequently entered these residents’ lives at a time when prior management has failed to provide for their most basic needs.”
The Fort Wayne facility director who told inspectors in September that she did not have time to implement the COVID-19 protocols is no longer there, according to Schechter, and staffing levels, medication, and shower schedules have not been an issue since an inspector cited Noble in February; a state follow-up inspection did not find the same problems.
According to Noble's own reports to the state, a total of 32 residents and staff have been infected with COVID-19, with between 1 and 4 people
dying. When asked about the discrepancy, Schechter said one resident had died after contracting the coronavirus, so Noble was obligated to report it.
In the case of the box cutter incident, Noble fired the nurse involved and is cooperating with the state as the nurse's license is revoked, despite the fact that the company called the hamburger meat description "an exaggeration designed to shock."
Since the beginning of the pandemic, federal coronavirus assistance has been "critical" in allowing CareTrust to collect nearly 100% of rents.
Priority Life Care, the company that ran the Fort Wayne facility before Noble, denies that any of the facility's current problems are the result of its previous management. According to Priority Life Care CEO Severine Petras, the companies worked closely together to transition operations, and Priority Life Care has not managed the facility's operations for more than 18 months at this point.
The 14-story building was originally a hotel, and it was not constructed or used as a long-term care center until 2010. “It’s a tough building for any operator, and COVID probably didn’t make it any easier,” Petras said.
Concerning the new Noble-managed facilities in Virginia, Sedgwick stated that CareTrust and the former operator of those facilities, Twenty/20 Management, “mutually agreed” to part ways after Twenty/20 requested a rent deferral and the rent discussions led CareTrust to realize the companies had “significantly different” views on the facilities’ long-term prospects.
“As we understand it, the primary reason for the takeover was prior management’s poor performance,” Noble’s Schechter said, citing the discharge of low-income residents as well as “a substantial number of deficiencies and life safety issues.”
Due to nondisclosure agreements with CareTrust and Noble, Mike Williams, the CEO of Twenty/20, said he couldn't go into detail about the rent discussions leading up to the lease's loss, but he took strong offense to Noble's claim that his company had run the facilities poorly.
“Steve and I are blindsided and disgusted by these false and misleading comments by CareTrust and Noble,” he said in a statement, referring to Steve Orndorff, the co-founder of Twenty/20.
The decision to discharge some low-income patients in 2018 was made because the building they lived in was old and unsuitable for long-term care, and many of those residents moved right into another building on the same campus, according to Williams. However, the entire issue is a red herring, and has nothing to do with why Twenty/20 lost its leases to Noble after requesting a rent reduction.
“We obviously consider this an attempt to deflect a story about them toward [us],” he said, adding, “Steve and I will have a public debate with CareTrust about our love and commitment to our residents and caregivers versus CareTrust’s love and commitment to Wall Street, anywhere, anytime, anyplace.”
Only one of the eight campuses managed by Twenty/20 had to close due to a COVID-19 outbreak in 2020, he said, and none of their facilities have been subject to a state investigation
, and the state has granted several of them multiyear licenses, which are reserved for facilities with clean compliance records.
“We didn’t know Noble from anyone,” Williams said, adding that during the transition, he learned about their track record at other facilities. “I guess I would say I was disappointed.”
'I've never seen anything like it.'
The transfer of Twenty/20′s facilities to Noble, as revealed by CareTrust’s SEC filings and recent investor calls, exemplifies one way Wall Street is dealing with the catastrophic impact of COVID-19 on the senior living industry: by putting extreme pressure on day-to-day operators to deliver the same staggering profits as before.
Capital Senior Living, a publicly traded operator of assisted living and memory care facilities, has been open about its plans to pay low-wage employees in an industry that is already notorious for underpaying, undertraining, and overworking employees.
“With millions of Americans out of work, as well as the hospitality industry being hit hard, we expect the labor
market to loosen, and senior living is a natural fit for hospitality workers from restaurants
and hotels,” the company said in a recent update, in an unmistakably optimistic tone.
A regional sales director at Life Care Services, which bills itself as the country's second-largest manager of senior housing rentals, tried to entice new residents to a facility owned by the company called Clarendale at Indian Lake in the Nashville
suburbs by dangling a "call now!"-style promotion for new residents: priority access to COVID-19 vaccines
at a time when vaccines were still extremely scarce.
“Simply refer someone who chooses to move to Clarendale by February 12th*, and we will add them to the list for our vaccine clinic in February,” said the email, which was sent in January. “*Must sign residency agreement on or before February 12th.”
The sales director sent the email to a network of local medical professionals and care providers who serve the area's seniors and are a major source of referrals, and one of them shared the email with Stardia under the condition of anonymity.
A Life Care Services spokesperson stated that the email was sent to referrers because the facility was receiving questions about vaccine availability from potential residents. “The email left too much to interpretation when read out of context,” she added.
If you don't make this very high return on investment, you'll be reviewed, put on probation, and if you don't cut it after a while, you're out.
Attorney Kathryn Stebner
However, the person who forwarded the email to Stardia stated that the facility has been aggressively seeking new patients and accepting far sicker patients than before the pandemic.
“I have never seen it this bad,” this person said, adding, “It is not always about the care given; it is about the census,” referring to how close facilities can get to capacity. Life Care Services did not respond to Stardia’s follow-up questions.
Many of these strategies, such as keeping occupancy high and wages low, are simply enhanced versions of how the industry operated prior to the pandemic. According to a 2018 federal occupational survey, tens of thousands of health care aides earned less than $30,000 per year on average.
Large corporate chains like these own or operate roughly half of the country's nursing homes and assisted living communities, which are less regulated and do not require round-the-clock care for residents.
Whether the operators are owned by a trust or not, middle managers at the companies that actually run the facilities are typically under intense pressure to deliver aggressive profits on a strict timetable. Many management companies, including Life Care Services, offer regular bonuses as frequently as every month for recruiting
a certain number of patients.
Failure to meet benchmarks can result in consequences as severe as the incentives: “If you don't make this very large ROI [return on investment], you will be subject to a review, you may be put on probation, and if you don't cut it after a while, you're gone,” said Kathryn Stebner, an attorney who frequently represents families in lawsuits against assisted living facilities.
Not only is occupancy down at nursing and assisted living homes, but it may remain so as more and more families find solutions that allow their elderly relatives to age at home. Operators were forced to spend millions on PPE and had to deal with a staffing crisis caused by widespread burnout, bargain-basement wages, and the physical
risks associated with the pandemic.
Unlike some of its competitors, CareTrust collected almost all of its rents during the pandemic, which the company said was factored into executive bonuses.
The company also believes that its strategy of switching between operators is critical to its long-term success, referring to it as “rins[ing] out any real softness in the portfolio” by Stapley, the CEO.