Preview

Last month, as part of our Universal Family Care issue, we had Moe Tkacik do a great report on the corporatization of nursing homes. It was a rich history of an industry led by a tiny coterie of Mafia-style dons, and how their modern progeny use financial engineering and assorted tricks to fleece their residents while also consigning them to misery through short-staffing and lack of care. It also showed how the industry was completely unprepared for the additional care that would be needed during the pandemic.

Nursing home deaths have been an astounding percentage of overall deaths in the U.S. (around 40 percent), and the incidence of cases has tracked increases in the general population. With case rates out of control right now—we had over 100,000 cases on each of the two lowest-reporting days of the week, and hospitalizations over 59,000, nearing a new peak—you can expect another epic spike. The data from the American Health Care Association and the National Center for Assisted Living only extend to the week of October 18, but it shows confirmed cases at nursing homes at the highest level since August. It’s probably over that by now. Almost all of the increase is coming from the Midwest.

Deaths have begun to creep up too, though not at the horrific level from the spring. There have been at least some safety measures installed to protect residents from the virus and save their lives if they contract it. But the real prophylactic measures have been reserved for corporate finances.

The Wall Street Journal is out with a story about Genesis Healthcare, the largest U.S. nursing home chain and one of the stars of Tkacik’s story. Their business model has been to relentlessly cut labor costs, and low quality has been typical, especially during the pandemic. “More than 70 percent of Genesis nursing homes now had either a one- or two-star rating on the five-star” Medicare star ratings system, Tkacik reported.

One of the key preoccupations has been the manipulation of debt and real estate assets. Genesis uses an “OpCo/PropCo” model, where it splits off the real estate of the facilities it purchases, forcing them to pay rent on properties they once owned outright. Genesis grows through debt financing, siphons out value to the PropCo and its parent company, a private equity firm called Formation, and cuts staff when it can no longer borrow.

Now the reckoning is coming due, as people naturally don’t want to put their loved ones into what has been revealed as a chamber of horrors. So what’s Genesis doing? Ensuring better quality to attract customers? Making safety their top priority? No, they’re restructuring debt and seeking a bailout, of course.

With a net loss in the third quarter of 2020 at $62.8 million, even with an infusion of state and federal support of over $64 million, this doesn’t look like a going concern. In reality, the pandemic is probably saving Genesis a bit with the public dollars, since the debt load and leasing costs were already breaking it. But it has now entered into conversations with “select capital partners to analyze a number of restructuring alternatives.” More to the point, Genesis CEO George Hager told analysts, “There is no question Genesis will need ongoing support from the federal government and our capital partners to sustain operations.” So a bailout, then, is on the wish list.

There’s nothing particularly unusual about Genesis, which is as dysfunctional as the rest of the nursing home sector. A bailout would be untenable; but a series of closures, which we’re already starting to see, will further stress the commercial real estate sector, which affects everything from construction to municipal tax bases. More critically, it affects the lives of hundreds of thousands of families and how they will manage their loved ones in the future. The sector needs a complete overhaul; it needs to bar the private equity structures that allow substandard care and financial maneuvering. As Tkacik says, we need to commandeer these bad facilities with an FDIC-style conservatorship, to protect the residents and reverse the enormous sums flowing out to financiers. Because otherwise, firms like Genesis are going to take care of their bottom lines while patients sit and rot.

I’m a little late to this, but Sen. Pat Toomey (R-PA), the Senate Republican representative on the Congressional Oversight Commission, wants out of his job. Specifically, he wants the Federal Reserve credit facilities, which is the sum total of what he oversees on that commission, to expire at the end of the year. The Fed would have a bunch of outstanding loans, so this wouldn’t be the end of the process, but it would cease to make new loans through the facilities, under the Toomey plan.

Toomey says that he’s worried that the Fed programs could become a substitute for fiscal policy. He maybe should have thought of that when he voted to institute the Fed programs, punting fiscal policy over to the central bank. The subtext here is that a new administration, particularly with the Fed’s partner in administering the credit programs at Treasury turning over to a Democrat, could want to actually put the money cannon toward something useful, like saving municipal governments. And Sen. Toomey just can’t stomach that.

Toomey’s poised to become head of the Senate Banking Committee, so he’ll have some say. But let me offer a compromise. We could wind down the money cannon for corporate bonds: that money was just positioned to inflate asset prices, and now the market seems to be able to stand on its own, especially as good vaccine news rolls in. And then we can take all the remaining dollars in the credit facilities, all $4 trillion of it, and move them to the state and local government side of the ledger, while committing to make short-term, endlessly-rolled-over loans to prevent offsetting austerity. Sounds like a plan!

Masks don’t just save lives, they boost economies. (Washington University/St. Louis)
The lead on the Trump election lawsuits, a guy who’s not a lawyer, contracts COVID. (Bloomberg)
Eli Lilly gets FDA authorization for its antibody treatment. (Financial Times)
There has been a ramp-up in testing, and that’s pulled supply stocks away from other forms of critical testing. (Wall Street Journal)
The vaccine is on a collision course with social media disinformation. (ReCode)
Trump administration freezes wages for essential farmworkers. (HuffPost)
Zoom, which lost ground in the markets yesterday, was fined $0.00 by the FTC for deceiving customers about its privacy features. Here’s Rohit Chopra’s dissent. (Federal Trade Commission)