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Each week, Health Affairs Editor-in-Chief Alan Weil brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
00;00;00;01 - 00;00;28;17
Alan Weil
Hello and welcome to “A Health Podyssey”. I'm your host, Alan Weil. If you've been paying attention to health care costs, you've probably heard about the role of consolidation in driving higher prices. You've likely heard about venture capital and how this form of investment creates pressure for large financial returns. But it's a lot less likely that you've heard about real estate investment trusts or REITs.
00;00;29;06 - 00;01;00;16
Alan Weil
As the name suggests, REITs invest in real estate. So how is this relevant to health care? Well, health care facilities own a lot of real estate, and according to an article published in JAMA last May, REITs own more than $3.5 trillion in assets in the U.S., including about 8% of health care real estate in 2021. The presence of REITs in skilled nursing facilities commonly known as nursing homes is even greater than that 8% figure.
00;01;01;04 - 00;01;29;19
Alan Weil
How REITs play a role in nursing homes and how that ties to nurse staffing levels is the topic of today's episode of “A Health Podyssey”. I'm here with Robert Tyler Braun, assistant professor of population health sciences at Weill Cornell Medical College. Dr. Braun and coauthors published a paper in the February 2023 issue of Health Affairs, examining trends in nursing home staffing following investment by real estate investment trusts.
00;01;30;06 - 00;01;43;26
Alan Weil
They found a decline in registered nurse staffing levels, with an increase in licensed practical nurses and certified nursing assistants. We'll discuss these findings in today's episode. Dr. Braun, welcome to the program.
00;01;44;08 - 00;01;46;19
Dr. Robert Tyler Braun
Thank you for having me, Alan, I really appreciate it.
00;01;47;02 - 00;02;05;25
Alan Weil
I'm looking forward to getting into a topic that, before I read your paper, I have to say I didn't know very much about. So I've heard of REITs, but can you tell us without all the gory details, what is a real estate investment trust and why is it relevant to the topic of nursing homes?
00;02;06;17 - 00;02;31;09
Dr. Robert Tyler Braun
Yeah, as you suggest or allude to, Alan, it's a very dense topic, so I'll just try to keep it very simple here. But essentially a REIT is a company that invests or fully owns income producing properties such as nursing homes. Right? They can own assisted living facilities. They can own even physician facilities like buildings of ambulatory surgical centers.
00;02;31;19 - 00;02;54;23
Dr. Robert Tyler Braun
Right? REITs are pass-through entities. So what do I mean by “pass-through entities”? Well, REITs have to qualify for a couple tax exemptions if they want to satisfy a series of requirements related to sources of income and assets. One of those includes dispersing 90% of their taxable income to shareholders annually in the form of dividends.
00;02;54;27 - 00;03;24;09
Dr. Robert Tyler Braun
Alright. I hope I haven't lost you here. But as pass-through entities, they actually avoid corporate double taxation. And so what do I mean by “corporate double taxation”? Well, it means that they don't pay taxes on the income that's produced from the properties. “The properties,” I have to emphasize that. But the investors or the shareholders in the REIT actually pay taxes on the profits of whatever is made, also known as capital gains.
00;03;24;14 - 00;03;53;14
Dr. Robert Tyler Braun
Right? And REITs are typically structured in one of two ways. The first is called the triple net leasing agreement. Right? And this is the more traditional model or structure. Right? And think of this as just your basic landlord tenant relationship. Alright? The nursing home typically will sell their property or their facility to a REIT, and then the REIT will lease it back to the nursing home.
00;03;53;14 - 00;04;24;22
Dr. Robert Tyler Braun
And in exchange, the nursing home will pay rent and then receive an infusion of capital. Okay? And the triple, and the additional structure, which is known as the RIDEA structure. Right? This stands for the REIT Investment Diversification and Empowerment Act. And this was implemented in 2007. And in this structure, they can actually lease their property to their commonly owned tax REIT subsidiary.
00;04;25;03 - 00;05;00;04
Dr. Robert Tyler Braun
And then that subsidiary that they own contracts with an independent operator or nursing home operator to provide care within their facilities. So in this scenario, the REIT itself can be more hands on or hands off. Right? And in return, they can actually receive income from the operations from themselves at a tax status, but also at the same time receive revenues from the properties at a tax preferred status.
00;05;00;12 - 00;05;10;04
Alan Weil
So you've done an amazing job of describing something really complex. And I'm sure people on the finance side would have 100 questions for
00;05;10;04 - 00;05;10;12
Alan Weil
you.
00;05;12;03 - 00;05;41;18
Alan Weil
On the health care side, what I'm hearing is that sort of in the old days, everything was under one umbrella and that has certain tax implications. This is a mechanism for divvying up the assets or the operations into one focused on real estate, one that's focused on the actual care at the site. And that has, again, financial implications that go beyond, I think, what I would be able to understand in a conversation like this.
00;05;42;07 - 00;06;07;11
Alan Weil
But in so doing, it then presumably puts some different financial expectations on the enterprise. And that leads in to the question that you studied about staffing. So help me understand the relationship between the investment of the REIT and the financial incentives or pressures for the nursing home operations.
00;06;07;15 - 00;06;34;08
Dr. Robert Tyler Braun
One of the big things is when a REIT creates an investment or pursues a nursing home for an investment and they do the sale leaseback or other types of arrangements. Right? These lease arrangements typically have rent escalators in the leasing clauses and the leasing contracts. And they typically range around 2 to 6% depending on your geographic region and market composition.
00;06;34;17 - 00;07;04;10
Dr. Robert Tyler Braun
Right. Or they can also be tied to an inflation index, which is actually pretty relevant today with high periods of inflation in the United States. Right. And so when you have these rent escalations or you have rent tied to an inflation index, the cost of rent goes up. Right. And this can be really difficult for nursing homes to actually afford, especially because a lot of nursing homes at this period of time operate on very thin margins.
00;07;04;18 - 00;07;44;01
Dr. Robert Tyler Braun
Right. And they may have trouble or struggle to pay for certain other things, like the largest operating expense of a nursing home: staffing. Right. So what could be the first thing that you cut if you're having a hard time affording rent? This also is compounded by the fact that if you have a large composition of your patients on Medicaid, right, you could be struggling a lot as well as inflation going up and the cost to operate the nursing home going up. REITs, you know, through these triple net leasing agreements are kind of protected from that financial risk in some regard, even though they can't actually afford the rent.
00;07;44;06 - 00;07;50;27
Dr. Robert Tyler Braun
Right. Because they are legally obligated to pay that and they're going to have to liquidate in some way to actually pay that rent.
00;07;51;11 - 00;08;22;15
Alan Weil
So what you're describing, as I understand it, is a financial instrument that has certain benefits, particularly some tax benefits, but then it also creates a lever point where if the nursing home, in order for the nursing home to meet its financial obligations, it is potentially under greater cost pressure than it would have been if it hadn't engaged in this structure that has some offsetting benefits.
00;08;23;01 - 00;08;48;23
Alan Weil
So what I'm trying to understand, again, from a health care side, not from the real estate investor side, is that although you can get an infusion of cash and there can be tax benefits, the dynamic it unleashes, is it correct to say that it's one that can increase the financial pressure on the nursing home under certain circumstances, like payer mix or inflation?
00;08;48;23 - 00;08;56;28
Alan Weil
Is that why it's important from a health care perspective to look at the effects of the REIT investment?
00;08;58;00 - 00;08;58;25
Dr. Robert Tyler Braun
That is correct.
00;08;59;03 - 00;09;24;16
Alan Weil
Okay. All right. So if I'm getting that right, I want to turn to what you found. So given this leverage between the investment of the REIT in the nursing home and the potential for greater financial pressure, you were looking for whether that affected staffing, because, as you said, staffing is the largest cost for the nursing homes. So tell me what you found.
00;09;24;16 - 00;09;28;08
Alan Weil
What do you find about staffing levels after a REIT investment?
00;09;29;00 - 00;10;06;09
Dr. Robert Tyler Braun
At about 2021, we found about 1800 nursing homes that have received REIT investment and have current REIT investment in the United States. And so we did a, you know, a before and after study with a difference-in-difference model, looking at staffing patterns after REITs made an investment in nursing home. And so what our results showed that after REIT investment there was association of actually relative increases and licensed practical nurse staffing of about 2.15% and then a 1.55% increase in certified nursing assistants.
00;10;06;22 - 00;10;42;11
Dr. Robert Tyler Braun
But this is where things get a little more interesting. We saw actually reductions in registered nursing staffing of about 6.25% in years two and three of post REIT investment. Getting even more into the weeds here, right, after you actually exclude the three largest deals, you see that there's actually this substitution effect going on as well where we see decreases in RN (Registered Nurse) staffing across the board.
00;10;43;10 - 00;11;33;09
Dr. Robert Tyler Braun
And no changes in LPN (Licensed Practical Nurse) and CNA (Certified Nursing Assistant) staffing. And what you can interpret this as is that the bigger deals typically were actually increasing CNA and LPN nursing, and then the smaller deals were actually decreasing RN staffing. There's a lot of theories of why this could be, but the impact of bigger acquisitions on these like big nursing home chains versus smaller ones might be due to, you know, various factors such as size, resources and risk tolerance and, you know, these bigger chains that are getting parts of these REIT investments generally have more resources and stronger financial position which can allow them to absorb the impact of, you know, these large REIT investments than the smaller
00;11;33;09 - 00;11;40;28
Dr. Robert Tyler Braun
firms have. And then because of that, larger market presence can actually help mitigate this risk associated with that.
00;11;41;11 - 00;12;19;11
Alan Weil
So these are really important potential changes in the staffing at the nursing home. I want to get deeper into the implications of those changes and a little bit of what we might want to do about that, given the concerns that they may raise. We'll talk about those topics after we take a short break. And we're back. I'm speaking with Dr. Robert Tyler Braun about the implications of real estate investment trusts in U.S. nursing home staffing.
00;12;19;22 - 00;12;54;06
Alan Weil
Before the break, we got sort of the top line of the study, which showed a reduction in RNs and an increase in CNAs and LPNs. This seems important. Let's just begin with the basics. RNs are more highly trained professionals. And the concern here, presumably the reason why you did the study was that if we are swapping out, which would be the implication here, you're swapping out potentially more trained staff with staff with lower level of training that that could affect patient care.
00;12;54;07 - 00;12;58;01
Alan Weil
Is that the reason we're looking at these questions?
00;12;58;13 - 00;13;10;07
Dr. Robert Tyler Braun
Yes, Alan, exactly right. You know, prior literature has said that higher proportions of RNs to patients have better quality of care within their facilities.
00;13;10;18 - 00;13;36;22
Alan Weil
So you're sort of flashing a little yellow light here. If I read the paper right, it's like, caution: REIT investment. After there's a REIT investment there are changes in staffing, and those changes could be negative for patient care. And then in the paper, you also and you alluded to this before, that there's a difference in the changes you see in the big chain acquisitions relative to the smaller ones.
00;13;37;01 - 00;14;00;15
Alan Weil
So, you know, we're a policy journal and actually in the news these days, there's a lot about private equity, but we just had announcements about transparency in nursing home ownership. Can you bring me in sort of the policy side of this? What do we do about this? What, should we be thinking about the role of REITs?
00;14;00;15 - 00;14;06;29
Alan Weil
Should there be limitations? Should there be more data disclosure? You're the expert here. Where does it take you?
00;14;07;27 - 00;14;36;06
Dr. Robert Tyler Braun
Yeah, you know, so I guess kind of the implications from this from a policy standpoint is that, you know, the old adage of REITs are just kind of a landlord and tenant relationship. We're kind of shining light on that. Well, maybe not necessarily, at least directly or indirectly. Right. Even if it's just infusions of capital. Right. You do have influence, you know, indirectly on resident care and cost of care.
00;14;36;14 - 00;14;57;14
Dr. Robert Tyler Braun
Right. All of these things, we can't say that it's good or bad at this point in time. Right. But it's certainly something that we need to look at from, you know, a more policy reform act. Right. We were conveniently the other day, CMS (Centers for Medicare & Medicaid Services) released a rule, a proposed rule that they want to increase data transparency and ownership transparency.
00;14;57;23 - 00;15;20;26
Dr. Robert Tyler Braun
I think that is the first great step in trying to create accountability. Right. How they are going to define private equity or real estate investment trusts is kind of up in the air at this point. I'm kind of curious how that's going to go. Right. But one of the first things that we need to actually do, too, is not only extend ownership transparency, but to also financial transparency.
00;15;21;20 - 00;15;29;13
Dr. Robert Tyler Braun
We need to know where the funds are flowing in and out of the nursing home through related party transactions, ultimately to the parent company.
00;15;29;15 - 00;15;57;07
Alan Weil
That's really helpful. It leads me to two other questions I hope you don't mind me asking. One is, you know, in health care there’s, we talk about outcome measures and there's, you know, structure, process, outcome. These sound like structure and process. And if the gold standard is outcome, you know, why should we really care about the dollar flows if, shouldn't we be measuring patient satisfaction and bedsores and family engagement?
00;15;57;07 - 00;15;59;29
Alan Weil
I mean, is this a quality measure?
00;16;00;14 - 00;16;32;05
Dr. Robert Tyler Braun
I think that going forward, right, if you look at Medicare cost reports, they're not routinely audited and they might not be representative of actual, the profitability of nursing homes. Right. And so one way of looking at this or thinking about this is they may appear unprofitable, but they're actually not because they might be actually creating related party transactions with companies that the parent company might ultimately own.
00;16;32;16 - 00;16;54;10
Dr. Robert Tyler Braun
Right. And so when you look like you're financially distressed, right, you can say, well, we have lower staffing levels which ultimately translate to poor quality of care. So I'm not saying that that's what REITs do or even private equity does, even though evidence suggests otherwise. But we need to create more financial accountability so that we understand what's going on
00;16;54;12 - 00;17;03;11
Dr. Robert Tyler Braun
under the hood, which ultimately affects quality of care. So, yes, it may not be a direct quality outcome, but it is certainly correlated to quality.
00;17;03;12 - 00;17;23;16
Alan Weil
So that's so interesting to me. So first of all, there's a correlation with quality. But also, I mean, you're right, we hear all the time about payment rates relative to cost. And if we don't have a clear sense of what the financial flows are as you've mentioned, you can get maybe an inaccurate picture of how costly things really are.
00;17;23;23 - 00;17;42;16
Alan Weil
There is something you mentioned in the paper that I also wanted to follow up on. You talked about the difference between reporting data at the facility level and the ownership level. At the risk of this being really arcane, it actually sounded kind of important to me. So can you say a little bit about those, what the difference is there and why it's important?
00;17;43;09 - 00;18;08;27
Dr. Robert Tyler Braun
Right. Yeah. So obviously very, very important. And it's something that I hope that CMS institutes going forward. But the main difference between reporting data at the facility level and the ownership level is that the facility level focuses on the actual individual nursing home while on the ownership level, it focuses on the organizations that, you know, own or control multiple nursing homes.
00;18;08;27 - 00;18;34;21
Dr. Robert Tyler Braun
So think of big nursing home chains. Right. And this can include parent owners such as private equity firms or real estate investment trusts. Okay. And so in the current state of, you know, quality assurance in the United States, we've only focused on the facility level operator and not on the financial ties between institutional investment and nursing homes as well as the parent companies.
00;18;34;27 - 00;19;08;17
Dr. Robert Tyler Braun
Obviously, these things can get very complex, right? But information that's available to the public and researchers such as on Nursing Home Compare and the CMS five star rating system, it's only limited to the individual facility. Right. So it's important to have this information about this complex ownership and these related entities, because this information can help consumers, licensor agencies and other stakeholders to make informed decisions about the quality of care being provided in a nursing home.
00;19;08;28 - 00;19;28;20
Alan Weil
This opens up a whole new dimension that I, as we come to the end, I guess I want to, first of all, see if I understand it right and then maybe see if you can talk a little bit about what the research and policy implications are. So, you know, we've been talking a lot and studying a lot about consolidation and ownership structure.
00;19;28;20 - 00;19;54;09
Alan Weil
And you mentioned sort of, we have a lot of correlation data between different types of ownership and various outcomes. But those are, you know, correlations. They're not 1 to 1 relationships necessarily. And what I, when we think about the, let me try to say this right because it's complicated and I'm just trying to form it in my head right now,
00;19;54;09 - 00;20;42;00
Alan Weil
but we think a lot about the role of ownership structure in prices and we think about the role of ownership structure in sort of correlations with these potential outcomes. What I think I hear you saying is that from a quality measurement and transparency perspective, if I'm considering going to a facility, having not just the ratings for that facility, but an understanding of the ownership structure behind it, could actually help me make a better choice, not because of price, but because I'm in essence, entering an ecosystem that might be affecting quality in ways that are complicated.
00;20;42;00 - 00;21;06;09
Alan Weil
But at least I should be aware that that dynamic is in play. If that's a reasonable interpretation of what you're saying to me, what are sort of the next questions to answer, what's your research agenda for thinking about, okay, I characterize this as a flashing yellow light. What do you do next with this kind of information?
00;21;07;02 - 00;21;40;00
Dr. Robert Tyler Braun
A great example of having organizational ownership transparency also with individual facility ownership would be with like state licensure. So let's say that if a owner is trying to make an acquisition in a state that was affiliated with poor quality facilities, right, this information could be used at the interests of licensure agencies that approve these transactions. Right.
00;21;40;20 - 00;22;16;06
Dr. Robert Tyler Braun
And then also families seeking to choose a nursing home, as you said, come into play here, as well as physicians or hospitals that want to build referrals to nursing homes. It would be great to know or benefit from these ownership transparency structures to make sure that they make advised, advisable decisions on how to refer care. I will say that. Now going forward, obviously we see these staffing patterns or dynamics changing after REIT investment.
00;22;16;17 - 00;22;46;19
Dr. Robert Tyler Braun
Right. And there is this strong correlation on lower RN staffing or, you know, changes in staffing more generally have impacts on resident quality of care. So the next step in this is to look at quality outcomes that are typically used in the literature to understand, okay, maybe because we're seeing the substitution effect, how is quality changing? And that's the next step in this type of research.
00;22;47;03 - 00;23;22;19
Alan Weil
Well, that seems really important. So I want to thank you for taking a really complicated topic and making it understandable and drawing attention. I would really say, as I said at the outset, we've heard a lot about venture capital. I just don't think the role of REITs is getting the same level of policy attention. And then as you said at the closing, you know, the real question here, of course, is not just where does the dollars go, but do these ownership structures have implications for patient care?
00;23;22;19 - 00;23;38;18
Alan Weil
And there may be some positive implications, but there also may be some negative and it sounds like you're teed up to take a look at that. So I want to thank you for doing this interesting and important work. And also thank you for being my guest today on “A Health Podyssey”.
00;23;39;21 - 00;23;43;10
Dr. Robert Tyler Braun
Thank you so much, Alan, I really appreciate it.