State bill would ban new private equity, REIT investment in nursing homes

McKnights Long-Term Care News – Thursday, March 6, 2025
By Zee Johnson and Kimberly Marselas

Connecticut lawmakers have proposed a new bill that would ban private equity investors and real estate investment trusts from acquiring any stake in a nursing home.

Several states have taken recent action to increase oversight or add new review powers in healthcare deals involving private equity. But if passed, the Connecticut legislation could be the first to prevent private equity firms from investing in a specific sector.

SB 1332 would prohibit investors from “acquiring or increasing any direct or indirect ownership interest in a nursing home or any operational or financial control in a nursing home” beginning this October. The bill had its first hearing last week.

The federal government estimates that private equity investors had an ownership role in just 5% of nursing homes in 2022. Prohibiting private equity or REIT investment in nursing homes could leave struggling operators with fewer sale options, possibly forcing some providers to choose closure instead.

Matthew Barrett, president and CEO of Connecticut Association of Health Care Facilities/Connecticut Center For Assisted Living, raised concerns about a potential ban’s impact on nursing home operations. He challenged the notion that all private equity involvement in healthcare is nefarious.

“We are concerned that SB 1332 holds an inherent assumption that all private investment in nursing home operations or real estate is bad, when many providers point out that private capital investments have served to provide considerable stability in the system and can often provide more favorable lending terms to nursing homes,” he told McKnight’s Long-Term Care News Tuesday.

He also said the bill needs revisions to more narrowly define the private equity entities and practices they seek to prevent. Scrutiny of nursing home buyers comes as state lawmakers are considering a wide range of bills seeking to limit private equity investment in Connecticut.

But Barrett told McKnight’s the types of “short-term private equity transactions that have drawn this attention around the country have not been observed in the Connecticut nursing home sector.”

Unfavorable insights

Nationally, private equity investment in nursing homes has been trending downward, especially as facilities have faced more financial challenges and additional scrutiny at the state and federal levels since the start of the pandemic.

The Private Equity Stakeholder Project reported “steady” investment in the broader healthcare sector, with the number of such US deals falling from 1,049 in 2024 from 1,135 in 2023. That’s a 7.6% decrease.

Dental care, health IT, outpatient care, medtech, and pharmacy services were the busiest subsectors among those PESP tracked. Home health, home care, & hospice, behavioral health, and disability services were also noteworthy investment targets.

Still, PESP’s latest annual report cites previous findings that linked private equity to higher costs and some worsening patient outcomes.

“We still think it’s important to regulate private equity in nursing homes and hospitals, even if deal activity is temporarily lower than it has been in the past,” said PESP Communications Director Matt Parr.

“Legislation is ultimately forward looking, and states need to safeguard against future bad behavior from private equity investors,” he told McKnight’s. “Home care, hospice, and behavioral health would also benefit from increased oversight over transactions, especially ones that lead to consolidation.”

Recent private equity-related bills are mostly focused on oversight, with Massachusetts, Maine and California among states that have added new layers of review for deals involving certain kinds of investors. Others are pushing for future changes.

Still, sources interviewed by McKnight’s couldn’t point to other laws that prohibited investment outright. Minnesota proposed legislation last year to ban private equity and REITs in hospitals, Parr said, but the bill wasn’t passed last session.

Bankruptcies bring pressure

The link between private equity and bankruptcy in healthcare will likely only bring more states to the drawing board. PESP said PE-backed companies accounted for 88% of the largest healthcare-related bankruptcies last year.

Back in Connecticut, another proposal, introduced by Senator Saud Anwar, chairman of the Public Health Committee, would restrict such firms from acquiring hospitals. Joe O’Leary, Anwar’s press aide, enlightened McKnight’s on Tuesday as to how such companies have had a “disastrous impact on health systems across the state.”

“Three hospitals bought by Prospect Medical Holdings saw an erosion of care where financial support to continue functioning was decreased and resulted in negative impacts on quality of care,” he said. “This includes locations where Prospect has taken money from hospitals by selling physical properties to a REIT and charging very high rent to hospitals, having very negative impact.”

Prospect Medical Holdings, a private equity company that owns hospitals in Connecticut, California, Pennsylvania and Rhode Island, filed for Chapter 11 bankruptcy last month, citing mounting debt, regulatory pressures and several lawsuits related to patient safety and care.

Prospect is not the only conglomerate that faced this outcome. New York-based Goldner Capital Management, a private equity firm once prominent in the skilled nursing sector, filed for bankruptcy in October 2024, placing blame on what it called a COVID-era lending “scheme.”

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