Life with my 100-year-old father has given me some insight into what caring for the aged means to the elderly themselves, as well as to the “sandwich generation.” The latter describes the baby boomers still paying for their children’s educations while taking responsibility for the care of their aging parents.
We have been lucky in my father’s case, because he and my mother were financially prepared for the substantial costs of nursing home care. But first-hand experience of managing these costs has taught me something about the opportunism that exists across the care industry.
I’ll start with the most egregious example. My father’s nursing home was recommended to me as being one of the best in the area, so I didn’t hesitate to place him there when we brought him from Florida. Confined to a wheelchair, Dad suffers from some memory loss. Other than that, he is in relatively good health, with no signs of any death-threatening malady. In addition to the nursing home staff, we hire additional outside caregivers who spend time with him during the day. If I told him how much all this costs, he would probably croak.
The facility is part of a chain of more than 250 nursing homes owned by a major Washington, D.C.-based private equity firm recently in the news for having over $200 billion in assets they manage for their investors. Unfortunately, the private equity business model may be an explanation for why the costs are as high as they are in our case.
To review the basics, a private equity firm is in the business of buying companies, doing whatever is necessary to make them more profitable, and then selling them for a profit. Private equity investors are generally pension funds, college endowment funds and wealthy individuals. Like house flippers, a private equity firm is less interested in growing businesses for long-term stockholders.
Instead, they are looking forward to making as much money as possible quickly, taking a share of the profit for themselves, and then moving on to the next opportunity while enjoying a controversial tax break (“carried interest”) that allows them to pay roughly half of what the rest of us pay on our earned income. It’s a destructive business model best described in the movie “Other People’s Money,” starring Danny DeVito.
So, I was watching CBS’s “60 Minutes” about two years ago when at the end of the episode, they announced an upcoming investigative report. It was to be a story about our same chain of nursing homes, which also owned an online pharmacy. The nursing home company had been paying its doctors bonuses for prescribing drugs purchased from its proprietary drug firm. A segment of “60 Minutes” was going to explain the alleged ripoff.
I could hardly wait until the following week, but to my dismay, the segment never aired. Since then, the drug company has been sold, and Dad’s drug costs dropped to a fraction of what they had been. As we speak, the same private equity firm is being sued by the federal government for overcharging Medicare for various therapy services.
The advantages created by economies of scale have not been enough for these people. Unethical behavior has given them what they needed to drive smaller, locally owned nursing homes out of business, like the Orinda home that was recently forced to sell.
My nursing home owners are apparently not alone among those who nibble away at the financial well-being and health care of our oldest, most vulnerable citizens. Five years ago, Dad was a patient in a Florida facility for a few weeks of physical therapy. While Medicare was billed for all fourteen days, the therapy rooms were closed on weekends.
I’m reminded of when Congress refused to confirm Dr. Donald Berwick, who had been appointed by President Barack Obama to be the head of Medicare after having successfully founded the Institute for Healthcare Improvement as a culmination of a successful medical career. In his short stint as appointee, he was quick to point out that about one-third of Medicare costs were fraudulent -- roughly $800 billion worth of fraud per year -- an observation that was probably his undoing given the intense lobbying effort of health care providers.
From where I sit at my father’s bedside, it looks like whoever did get the nod to run the system is allowing the status quo to continue. Abuse of the annual $2.7 trillion gravy train is taking its toll on all of us, including the “Greatest Generation.” None of us deserve this treatment, but a generation that saved the world from tyranny deserves far better.