In Churn of Assisted Living Deals,
An Island of Misery
‘Conceived as a humane alternative to
nursing homes, assisted living facilities typically offer apartment-like
rooms, meals, and help to people too ill or frail to live independently,
most of them elderly’
By A.C. Thompson, ProPublica
Jan. 2, 2014 - The one-story beige
building on Southwest Hill Road in McMinnville, Ore. – an old mill town
between Portland and Salem – has seen plenty of trouble over the years
of its operation as an assisted living facility.
Two men have been jailed for
committing sex crimes inside its walls. Residents of the facility have
repeatedly assaulted one another. There has been at least one case of
severe, near-fatal neglect. To be sure, then, the building has been
something less than the refuge it has held itself out to be for local
seniors, many of them afflicted with dementia. State records have
chronicled the damage.
The episodes of violence and
neglect inside the McMinnville facility, if sad, are not particularly
unique. Page through the regulatory records and court files of any state
and one will come across such horror stories.
The history of the facility itself
reflects a larger reality of the assisted living business. Hundreds of
such facilities -- some exemplary, some deeply troubled -- change hands
each year, many of them scooped up by the large chains that have come to
dominate this swiftly expanding industry.
Such deals typically well serve the
large companies that drive them. Often enough, however, they do little
to improve conditions in places like the facility in McMinnville, where
ownership turmoil can compound the unaddressed problems that undermine
In less than three years, the
McMinnville facility came under the ownership of three different
companies, including two of the most prominent chains in the country.
The first, Sunwest Management, collapsed under nearly $2 billion in
unpaid debt, a spectacular implosion that led federal prosecutors to
label the company a Ponzi scheme and file criminal fraud charges.
The second was a three-way joint
venture between Blackstone, the private equity firm, Emeritus Senior
Living, the nation’s largest assisted living company, and a real estate
company. As part of the deal, Emeritus took over the operation of the
facility, dubbing it Emeritus at Osprey Court.
The joint venture held onto the
property for a few years before selling it in 2012 to a real estate
investment trust with a vast portfolio of health care properties. That
trust immediately leased the facility back to Emeritus. Today, Emeritus,
under close scrutiny from Oregon regulators due to the continued
problems in McMinnville, has decided to subcontract the facility’s
operations to an outside firm.
Throughout all the changes, there
has been one constant for the elderly people who call the place home:
dubious living conditions.
Just last April, citing the
facility’s “chronic” inability to follow state laws, the Oregon
Department of Human Services, which regulates assisted living in the
state, moved to revoke its license and shutter it permanently.
Related Archived Stories
Exercise Fails to Help Depressed Elderly in London
Popular with residents but it had no effect on
depression or general quality of life
May 2, 2013
As Assisted Living Options Increase, Nursing Home Occupancy Declines
Assisted living poorly defined, typically includes a broad range of options with varying levels of care; offers
alternatives to nursing home care for some
By Katherine Kahn, Contributing Writer
July 10, 2012
How to Pay for Assisted Living? New Guide Offered Free to Seniors and
Stratford Retirement is making the new guide free to help people make informed decisions about the costs of senior living
June 26, 2012
Aging in Place
Preserves Seniors’ Independence, Reduces Care Costs
‘With this type of
care, most people wouldn’t need to relocate to nursing homes’ - see
March 8, 2011
Senior Citizens Finding Long-Term Care Close to
Home; Say Nursing Homes Depressing
Growing number of people banding together to help
each other grow old at home
By Jennifer Ludden, NPR News
Sept. 7, 2010
Independent Living Solutions for Aging Senior
Citizens a Booming U.S. Industry
Certified Aging in Place Specialists (CAPS) popping
up nationwide, states getting involved with creating necessary standards
for the industry
Cheryl Kerr, Caregiver Systems’ Division Manager
Oct. 5, 2009
Elder Care & Caregivers News
For Emeritus, the ongoing legal
troubles – fines, failed inspections, a string of scathing state
investigations – has not kept the company from generating revenue at the
McMinnville facility. Internal company records show the facility pulled
in approximately $1 million during the first six months of 2013.
A company spokeswoman, Karen Lucas,
said Emeritus was not currently making a profit on the facility, but
rather investing money in improving its operations.
Conceived as a humane alternative
to nursing homes, assisted living facilities typically offer
apartment-like rooms, meals, and help to people too ill or frail to live
independently, most of them elderly. Over the past decade, large chains
have become a major force in the assisted living business, which now
houses some 750,000 Americans. There are at least 35 companies with
1,000 or more beds, many of them, like Emeritus, publicly traded.
Some industry analysts say the
increase in chain ownership has had virtues: a more professional and
sophisticated workforce inside the facilities; cheaper prices for
consumers; the financial wherewithal to invest in improvements, whether
in the level of 24-hour care offered or the quality of food served. A
trade group for the industry says customers express high levels of
satisfaction in surveys the group has conducted.
But others, including advocates for
the elderly, frustrated state regulators, and academics who study the
industry, say chains’ expanding footprint in assisted living has also
come with serious downsides. In some cases, companies that are under
pressure to produce returns for investors and saddled with debt from
acquiring facilities cut back on items that affect care, such as
staffing, training and basic upkeep.
In the churn of what can often seem
like real estate swaps, critics say, places like McMinnville can get
lost, becoming specks in financial empires, lines on a balance sheet.
In just the past few years, one
major player, Sunrise Senior Living, was purchasedby a real estate trust
in a deal valued at $4.3 billion; a private equity fund acquired another
large company, Assisted Living Concepts, which had been embroiled in
litigation with its former top executive; and Emeritus bought a mobile
nursing firm and took control of facilities spread across eight states
that had been run by a competing chain.
“It’s about, ‘How do I make a
buck?’” said John Bowblis, an economist and assistant professor at Miami
University’s Farmer School of Business in Ohio. “It seems a lot of the
human element has been taken out of it.”
The McMinnville facility has been
operating for a decade, but 2009 seems to have been a particularly grim
year for the facility’s residents.
In separate incidents, two men were
arrested and convicted for sexually abusing elderly women with dementia.
In one case, the husband of a resident sexually assaulted another woman
in the facility; in the other, a nursing assistant at the facility was
found guilty of sexually assaulting a woman living at the facility and
sentenced to more than eight years in prison.
A state investigator, in records
examined by ProPublica, noted something remarkable about the case
involving the nursing assistant: he had been hired to work at the
McMinnville facility even though he’d accumulated five criminal
convictions between 2005 and 2008.
The facility was, at the time,
owned and managed by Sunwest. Chief executive Jon Harder oversaw
Sunwest’s national operations from the company’s headquarters in an
office complex in Salem, 30 miles from McMinnville. He’d built the
company into one of the industry’s leading players, amassing a
collection of roughly 300 facilities that claimed to generate$500
million in annual revenues.
But by 2006, a year after it had
acquired the McMinnville facility, Sunwest was in financial trouble. And
in the ensuing years it became the target of federal investigators.
Prosecutors ultimately produced a 56-count fraud indictment in federal
court in Portland, alleging that Harder, in an effort to hide the
company’s growing losses, went on “an acquisition binge,” one financed
by $130 million he illegally obtained by misleading more than 1,000
investors and banks.
Harder has pleaded not guilty in
the case, which is still unresolved. He could not be reached for
comment, and his attorney, Christopher Schatz, declined to be
By late 2008 Sunwest was buckling
under a reported $2 billion in debt. In McMinnville, the company had
defaulted on a $26.9 million mortgage on the facility, property records
show. The company eventually became embroiled in bankruptcy proceedings,
and auctioned off its assets under the scrutiny of a judge and dozens of
Before the sale, Sunwest had been
in conflict with the state due to a string of “significant” regulatory
violations, according to Christina Higby, the corrective action
coordinator for the licensing wing of the Oregon Department of Human
Services. Higby said the department deployed an array of “different
sanctions,” including fines and a written plan aimed at bringing the
facility into compliance with state laws during the Sunwest era.
When the facility was sold, that
compliance plan was scrapped. From the state’s perspective, it was a new
For Emeritus, the 2010 deal was, in
the words of the company’s chairman, a “game-changing event.” Emeritus
and its partners had acquired 144 Sunwest facilities for $1.3 billion.
It was an attractive enough proposition that the Blackstone Group, a
prominent private equity firm in New York, had put much of the money
into the deal.
The purchase helped make Emeritus
the largest assisted living company in the country – the company would
staff and manage the old Sunwest buildings and hold a small ownership
stake in them. And as a general rule, the company’s strategy of buying
up properties offered a tax advantage, allowing Emeritus to list the
real estate as assets with declining values, reducing its tax burdens.
But the company’s rapid
expansion had pushed its debt load to nearly $2 billion, and Bowblis,
the Ohio economist, said that is one of the perils of these kinds of
acquisitions. Locked into debt payments and short of cash, like
homeowners who’ve signed onto a mortgage too big for their monthly
budget, companies like Emeritus can be forced to cut costs elsewhere.
Brian Kaskie, associate director of
the University of Iowa’s Center on Aging, has seen what often happens
next: staff cuts, fewer training sessions for workers, a falloff in the
quality of the food provided in the company’s facilities.
“Individual facilities may be
unable to provide good care because the parent corporation isn’t giving
them enough money,” Kaskie said. “It’s all spread-sheet driven.”
In an interviewlate last year,
Granger Cobb, the chief executive officer of Emeritus, said the
company’s debt obligations were not an impediment to delivering quality
“We’ve been never been in a
position where we felt like our capital structure was too heavy on the
debt side,” Cobb said. “We’ve always felt very comfortable about our
revenue stream and our cash flows. And the beauty about our business --
and part of the reason I’m so passionate about it is -- if you do a
really good job of delivering the care and service and creating high
customer satisfaction, you’re going to stay full from an occupancy
standpoint. You’re going to be able to charge a fair price for your
product and rest of it just, kind of takes care of itself.”
The financial and regulatory
records reviewed by ProPublica don’t show spending or revenue for
individual facilities, so it is unclear how changes at Emeritus have
affected the 57-bed McMinnville property. The company says it has
invested amply in improving the facility.
But in 2011, the state had to press
Emeritus to agree to bolster its employee training in key areas.
After conducting inspections in
late 2011 and early 2012, the human services department concluded the
facility was putting seniors at “risk for serious harm,” and barred
Emeritus from admitting any new residents, according to interviews and
state records. The restriction was eventually lifted, but regulatory
violations continued to pile up, with the department citing the facility
in at least 14 separate subsequent complaint investigations.
In one case, the state faulted
Emeritus for failing to give a resident a prescription medication for
nearly a month. In another, the state determined that the facility
neglected a client so severely the person nearly died. After losing 21
pounds during the course of a month, state records show, the resident
was sent to the hospital suffering from respiratory failure, kidney
failure, pneumonia, sepsis, and dehydration. Hospital staff promptly
pumped five liters of fluid into the person.
In the eyes of the department, the
failure of Emeritus staffers to address the resident’s mounting health
problems constituted “abuse.”
Lucas, the company spokeswoman,
said Emeritus disputes the state’s finding. ProPublica asked the company
what, precisely, it disputed about the state’s investigation, or whether
it could provide any more detail about the incident. The company said it
would not comment further.
Many of the other violations
involved episodes in which residents with dementia physically attacked
one another. Oregon’s human services department has repeatedly faulted
Emeritus staffers for failing to intervene to prevent the violence.
“Emeritus overtook operations of
Osprey Court from Sunwest, which admitted residents with psychiatric
disorders,” Lucas said in an email response to questions from
ProPublica. “These types of health conditions are characterized by an
increased risk of behavioral issues, including aggressive behaviors
towards other residents and staff. Many of those residents were still
living at the community when Emeritus took it over.”
By the fall of 2012, the facility
had changed owners again. This time the joint venture organized by
Emeritus sold it and 128 other properties to HCP, a real estate
investment trust. HCP leased the McMinnville facility back to Emeritus,
which continued to run the place.
This transaction appears to have
been a score for Emeritus. The company had put a relatively modest
amount into the original deal, buying a 6 percent sliver of equity in
the properties, according to securities filings; the rest of the cash
was put up by the other joint venture partners. On an earnings call, a
company executive was exuberant: “As a result of this transaction,
within two short years,” Emeritus had turned an “initial $20 million
investment into $140 million,” said chief financial officer Robert
Bateman. After expenses, Bateman continued, the company would be looking
to net $110 million.
On Southwest Hill Road, there was
no obvious indication that anything had changed: Emeritus workers kept
working. The brown-and-white Emeritus signs remained out front.
Regulators in many states are
hesitant to permanently close assisted living facilities -- shutting
down a troubled operation can sometimes cause even more trouble, in the
form of costly litigation and scrambles to relocate seriously ill
seniors. In Oregon, the human services department moved to shut down
only one of the state’s 475 facilities during 2013.
It was Emeritus at Osprey Court,
the McMinnville facility.
For the state, the biggest concern
in McMinnville was the “sheer volume” of regulatory violations, said
Diana Norton, deputy director for the department’s licensing wing.
Norton said Emeritus had been granted “many opportunities” to turn
things around but couldn’t consistently adhere to state laws.
In a written notice, the department
said the facility’s failures posed a “threat to the health, safety, and
welfare” of its clients.
“When you get to the point where
the state is revoking the facility license, it is a sign that the whole
operation is on fire,” said Eric Carlson, directing attorney of the
National Senior Citizens Law Center.
Lucas, the spokeswoman for
Emeritus, said in an email that the company could not comment on the
pending dispute with the state over the license revocation effort.
“Emeritus saved Osprey Court from
bankruptcy and its residents from bankruptcy’s impact,” Lucas said. “Had
we not done so, many of these residents would have been displaced with
nowhere to go. We have invested substantially in measures designed to
enhance the care environment to meet the unique needs of Osprey Court’s
residents, a number of whom have psychiatric disorders. We are committed
to seeing this through.”
While there are no national
statistics, industry experts say it’s unusual for a facility owned by a
major chain to be closed; it’s far more common for regulators to shut
down establishments run by small companies. Larger chains often have the
financial resources to challenge such actions in court, and they
typically run facilities with many more residents, both of which give
regulators pause when considering terminating a facility’s license.
Brian Lee recently reviewed three
years of license revocation data for Florida. “I saw no corporate
facilities,” said Lee, head of Families for Better Care, an advocacy
group, and a former state ombudsman for assisted living and nursing
homes. “They’re all small operators.”
In Oregon – as in most states – the
process of pulling a facility’s license can unfold slowly over the span
of months or even years. Emeritus, which has fought to hold onto the
license, is slated to argue its case during an administrative hearing in
February. Should it lose, the company is entitled take the matter to
This article is part of an ongoing investigation by ProPublica:
Life and Death in Assisted Living
Is the loosely regulated, multi-billion dollar assisted living industry
putting seniors at risk?
Today, Emeritus continues to run
Osprey Court, though the company has quietly handed over the day-to-day
management to a consulting firm, Aidan Health Services, according to the
human services department and Emeritus employees.
“As a part of our commitment to
providing quality care and the well-being of Osprey Court’s residents
and families, we have engaged Aidan Health Services to help in that
regard,” Lucas said in her reply to ProPublica. “We sought additional
resources because of the location and challenges of the physical
environment, something Emeritus does on occasion.”
At some point, Emeritus may be
forced to abandon its little outpost in McMinnville, but the company’s
march toward ever greater growth seems set to continue: It recently
snapped up another 38 facilities in a single acquisition.
>> Published by ProPublica, Dec.
ProPublica is an independent, non-profit newsroom that produces
investigative journalism in the public interest. The work focuses
exclusively on truly important stories, stories with “moral force.” It
reports to do this by producing journalism that shines a light on
exploitation of the weak by the strong and on the failures of those with
power to vindicate the trust placed in them.
• Nursing Home Abuse,
• Medical Malpractice -
• Experienced Legal Help
Janicek Law attorneys are working every day to help senior citizens and others harmed by failure of care in nursing homes and the healthcare system.
you or a loved one have suffered due to the neglect or inadequate care of others, call us today. We offer the skill and knowledge gained in more than twenty years of success.
Free Consultation - Call toll free 1-877-795-3425