The SEIU also has its sights set on Manor Care (NYSE: HCR) and the private equity firm that is about to purchase it, The Carlyle Group, including a Web site dedicated to the deal. A few weeks ago, the SEIU marched on Carlyle’s Washington, D.C. headquarters in the hopes of being able to talk with Carlyle’s CEO, Steven Rubenstein (if they really believed he would come out to meet with them, we have a certain bridge to sell them). They wanted to talk about quality of care at Manor Care’s nursing facilities, calling on the private equity group to put care above profits. This was particularly ill-calculated, since Manor Care has one of the best reputations in the industry.

Our guess is that CEO Paul Ormond and COO Steve Guillard would quit before succumbing to pressure to cut health care staffing at the facilities to boost returns. The company has been pushing to increase its higher-acuity Medicare and private insurance business which requires higher licensed staffing, and since Medicare is profitable (for now), it would make no economic sense for Carlyle to put care at risk. And we don’t see that happening. So we have to assume that the SEIU is blowing a lot of smoke in the hopes that something lights on fire.

Then last week, at the NIC Conference in Washington, D.C., six SEIU agitators barged into one of the main evening receptions, wearing union t-shirts and handing out flyers attacking Atria Senior Living, calling on its CEO to let workers decide on a union in (and you’ve got to appreciate the irony) "an environment free of harassment and intimidation." The only one harassing and intimidating these days appears to be the union, but this is nothing new. They were quickly grabbed and thrown out, but it was curious how the extra security provided by the hotel somehow let them slip by. Is it possible the hotel security staff belongs to the SEIU and turned the other way? Hmmm.

And then there was that article in The New York Times, that bastion of fair and objective reporting with no bias at all (at least we admit to a bias and having opinions). The gist of the article was that when private equity firms take over skilled nursing facility companies, they cut costs and staff, sometimes below state or federally mandated staffing levels, just to boost profits at the expense of patient care. Call us lazy, but there is no story for which we could or would examine financial and regulatory data from 1,200 nursing facilities purchased by large investment groups, plus 14,000 other nursing facilities for the time period from 2000 to 2006. But the reporter for the Times states that is what they did, completing an analysis of such records collected from the Centers for Medicare and Medicaid (CMS).

Come on, let’s get real. Ask any appraiser or buyer how long it takes to dissect the cost reports and surveys for one facility, let alone 15,200 separate facilities over seven years. That would be more than 212,000 documents which can run in excess of 100 pages each. Our suspicion is that the Times did not pore over Medicaid cost reports and surveys for all these facilities for all these years; rather, our guess is that this data was already compiled for them by several law firms and at least a union or two to target for-profit nursing home companies. If true (but try challenging the Times), there would be a built-in bias against those companies in the analysis, since statistics can be manipulated in many ways. And don’t you think the unions and trial lawyers want to present one side? What a silly question.

The Times article in particular went after Formation Properties’ acquisition of 48 skilled nursing facilities from Beverly Enterprises in January 2002 and the corporate structure used in the purchase. Given the litigious environment in Florida at the time, with billboards on every highway basically asking you whether you think you might have a lawsuit against any nursing home (they are still there, both the billboards and the trial lawyers), most of us thought buying into that mess five years ago made little economic sense. Protecting yourself from Florida’s alligators, I mean, litigators? You would be a fool not to in that environment, as they had little regard for patient care and only wanted their check for 33% of the settlement. But separating the legal ownership of the real estate from the operations has been going on for 30 years, and there was rarely a "mom and pop" we dealt with in the 1980s who did not, on the advice of their accountants (and sometime their lawyers), put the real estate into a separate corporation or partnership and the operations and license in another one.

What is somewhat troubling is that the Times story used 2000 as its base year. Not too coincidentally, from late 1999 through mid-2000, five of the largest nursing home chains in the country filed for bankruptcy protection. There was not much deal-making going on back then, given the lousy state of the industry, and it took the industry several years to recover. Of the seven private investor buyers noted in the article completing transactions, four of them completed or announced their deals in 2006 or 2007. If the Times really wants to see what impact private equity has on the industry, they should do a follow-up story in three years, because there was very little private equity buying in the industry prior to 2006. Of the $11.6 billion of private equity acquisitions cited, 85% closed in 2006 or 2007 (assuming Manor Care closes), so they really don’t know what impact, if any, private equity has on skilled nursing facilities after the purchase. That time will come, however.

The Times article says staffing was cut in Formation’s first Florida acquisition. While we don’t know how they determined that, according to a study done by a reputable, independent consulting firm on the performance of these 48 facilities before and after the purchase in January 2002, from 2001 to 2006, at these facilities RN staffing increased 17%, LPN staffing increased 10% and CNA staffing increased by a whopping 39%. In every year from 2002 to 2006, health deficiency counts were lower than in 2001 when operated by Beverly, and by 2006 "severe" deficiencies were 70% lower than in 2001. While overall deficiencies were higher than a geographically-adjusted benchmark rate, the gap between these 48 facilities and that benchmark narrowed from 2002 and 2006. Somehow, that tells us things were improving.

One academic in the Times article was quoted as saying that "chains have made a lot of money by cutting nurses," which makes little sense since there certainly is no surplus of RNs and these are the core employees of any skilled nursing facility. The good ones are worth their weight in gold, and nursing facilities lose money when they have to rely on temporary staffing. They also lose on the quality, and in the long run when quality goes down, so does a facility’s value. The one thing that everyone seems to be avoiding is that skilled nursing facilities today, at least those with a sizable Medicare census, are vastly different than those 20 years ago. The acuity levels have increased substantially, long-term stays are way down and now we see revolving doors from the hospital to the SNF back to home or another setting, like assisted living. Twenty years ago, SNFs were the last stop for most of the residents. Now, for many they are a place to recuperate and rehabilitate, and at a much lower cost than elsewhere.

So the unions are bashing, the Times is slanting, the trial lawyers are licking their lips and what do you suppose happens next? Senators Charles Grassley and Hillary Clinton ask for a GAO investigation into nursing home ownership structures, which is just plain ridiculous. But we are heading into an election year, and these things make great sound bytes. What gets little attention is that the Medicaid system underfunds long-term care by more than $4.0 billion nationally, a gap that is increasing annually. Shrinking that funding gap would go a long way to helping with quality care, but don’t hold your breath. Instead of focusing on ownership structures, Congress should focus on adequate financing.

The "buzz" at last week’s industry conference was that we may be entering into a new cycle of providers coming under attack from multiple sources. While never pleasant, it will pass and providers will survive. The industry is trying to keep a low profile while under attack, and we don’t blame them since this is a battle that is difficult to win in the press, which is one reason why we took it up. After all, as one friend always likes to point out, we aren’t really the press, are we?