Private Equity and The Care Economy

By Ricardo Valadez

Having a rapacious business like private equity watching over particularly vulnerable people has never been a good idea. Still the evidence is mounting that Wall Street has pushed the envelope in recent years. Nursing homes, youth facilities, and homes for disabled adults have all fallen under the ownership of an industry with a track record of prioritizing wealth extraction over running companies well, to say nothing of caring for people in need.

A year-long investigation by Buzzfeed News titled “Profit, Pain, and Private Equity” painstakingly detailed the abuses that arise from private equity firm KKR’s purchase and management of BrightSpring Health Services, a company that manages group homes for disabled adults, many of whom need around-the-clock supervision and healthcare. “Some vulnerable residents suffered abuse and neglect,” the authors wrote. Conditions were “often dire, and in some cases fatal.” 

Under KKR’s ownership, BrightSpring prioritized growth and profits while doing the minimum to provide the care residents depend on. “Again and again, [Buzzfeed reporters] found residents consigned to live in squalor, denied basic medical care, or all but abandoned,” they wrote.

The company ran facilities using dangerously low staffing levels, suppressed caregiver wages, and ignored warnings from front-line managers and state regulators of gross negligence. BrightSpring facilities racked up citations from inspectors far out of proportion to their size in key states. 

At the same time, KKR loaded the company with $135 million in debt and charged millions more in fees – a common practice in private equity – that could have gone to improving care. KKR, having taken its bite, has since announced plans for BrightSpring to become a publicly listed company. 

Private equity firms are Wall Street companies that raise money from pension funds, endowments, and very rich people to buy companies, mostly with debt the companies have to repay. The debt-fuelled, short-term approach of private equity means the pressure to extract money by cutting corners and costs is virtually hard-wired into the business model. Employees and customers – in this case, disabled adults – pay the price.

The report’s title, “Pain, Profit, and Private Equity,” could well be applied to the effects of any number of cases of private equity, which includes job losses in retail and manufacturing, driving up the costs of mobile homes and emergency medical treatment. 

But private equity’s drive into what can broadly be called the “care economy” – meaning jobs and sectors that provide care and services which people rely on for health, survival, and basic human dignity – is especially disturbing. The list is long: eating disorder treatment centers, motorized wheelchairs, early childhood education and hospice services have all attracted the attention of private equity.

In 2020, NBC News uncovered an outrage that echoes what Buzzfeed found, in this case about Sequel Youth and Family Services, which was controlled by private equity firm Altamont Capital. The report, titled “A Profitable ‘Death Trap,’” uncovered gut-wrenching stories of children under Sequel’s care living in squalid conditions and being subjected to neglect and abuse by staff members. Just as in the case with KKR and Brightspring, Altamont and other private equity firms put the company into debt to fuel further acquisitions while neglecting facilities and the people the companies serve. As with KKR and BrightSpring, Altamont continued expansion and aggressive marketing while ignoring the warnings of state regulators appalled by their standards of care. 

These cases are not isolated incidents caused by a few bad apples. 

In 2021, academics at the conservative-leaning Becker Institute for Economics at the University of Chicago examined the outcomes of private equity-owned nursing homes over a 12-year period. Their conclusions were stark: “Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying over 20,000 lives lost due to PE ownership over our twelve-year sample period. At the onset of the COVID-19 pandemic, New Jersey nursing home residents were more likely to die in homes controlled by private equity, even compared to other corporate owners, according to a study by Americans for Financial Reform.

Stories like these add to a growing body of evidence of the harm done by unregulated private equity greed and increasing scrutiny from advocates and policymakers. Sens. Warren, Wyden, Sanders, and Murray strongly condemned KKR’s behavior after the Buzzfeed story broke and have demanded information from the firm about its practices.

While policymakers and regulators are responding to private equity abuses in the care economy, private equity’s reach continues to grow throughout the economy. Private equity has grown from $1 trillion in 2008 to nearly $4.5 trillion today, controlling 11.7 million jobs in the United States. 

Ultimately, we need an ambitious and comprehensive solution to stop private equity abuses, like the Stop Wall Street Looting Act, federal legislation first introduced last year. And we need thorough investigations of companies that deliver such terrible treatment to the most vulnerable Americans.