Over the past four years, the Portopiccolo Group has quietly built a nursing home portfolio that rivals some of the nation’s largest chains. Simcha Hyman, the 30-year-old CEO of the Englewood Cliffs, New Jersey-based private equity and investment management firm, and Naftali Zanziper, its 37-year-old president, acquired their first nursing home in 2016. They and Portopiccolo’s affiliated companies now own or operate roughly 100 facilities under dozens of different names, such as Accordius, Pelican Health, and Orchid Cove, the majority of those coming under their purview since the start of 2019.
The firm’s rapid-fire takeovers, which have focused on lower-quality nursing homes, continue even as several of its recently acquired facilities have violated infection control regulations and suffered severe Covid-19 outbreaks and staffing shortages, according to state inspection reports and current and former employees. In recent months, Portopiccolo has been piecing together two new nursing home chains while its existing stable of nursing homes dealt with at least 1,400 Covid cases and over 200 deaths, according to state and federal data.
The story of Portopiccolo’s growth underscores longstanding industry issues such as understaffing and infection control problems that have made some nursing homes particularly vulnerable to Covid and reveals a tension between patient care and profit motives. It also highlights weaknesses in regulatory oversight of facility owners, resident advocates say, even as private investors’ appetite for nursing homes has drawn scrutiny from lawmakers and researchers. Private equity buyouts of nursing homes are tied to lower nurse staffing and declining care quality, according to a recent study by researchers at the University of Pennsylvania, New York University, and the University of Chicago.
Complex nursing home ownership structures and state and federal regulators’ outdated and incomplete ownership data have helped Portopiccolo stay out of the spotlight as it plays a growing role in the pandemic-roiled skilled-nursing industry, which cares for 1.3 million vulnerable Americans. Private Equity News’ sister title Barron’s used property records, corporate filings, federal provider data, and interviews with current and former employees to form a picture of the firm’s nursing home operations.
Some workers say, including in court-filed affidavits, that there was no clear plan from management on how to confront the virus. “We never had a meeting. No administrator ever said, ‘Covid’s in here. This is what we need to do,’ ” says Kanehsa Hamilton, who worked until early April as a nursing assistant at Accordius Health at Harrisonburg in Harrisonburg, one of several recent additions to the Accordius chain to suffer a major Covid outbreak.
“Our company was founded by people who share a passion for caring for the sick and elderly,” Hyman said in a statement, noting that he was raised by a single mother who spent years working in a New York nursing home. “That caring spirit is an important part of who we are as a company. Any attempts to characterise our work differently is flat out wrong.”
While Covid has slowed the pace of nursing home transactions, Portopiccolo isn’t the only firm inking deals during the pandemic. There were 59 long-term care M&A deals in the second quarter, down from 99 in the first quarter and 118 in the second quarter of last year, according to Irving Levin Associates.
In many cases, these deals get little scrutiny from state regulators. If a nursing home sale doesn’t go through, the state might have to move the residents, “and they don’t want to do that,” says Charlene Harrington, professor emerita at the University of California. “The states just want somebody to own the facility. They really don’t care who,” says Harrington, whose research on large for-profit nursing home chains has found that better regulation of facility ownership is needed.
Researchers and resident advocates say that need was underscored by Skyline Healthcare, a Wood-Ridge, New Jersey-based company unrelated to Portopiccolo that grew rapidly in recent years to operate more than 100 facilities. The chain gradually collapsed in 2018 and 2019 as the company fell behind on its bills, and states placed many of its facilities in receivership.
In North Carolina, where Hyman and Zanziper purchased their first facility, taking over an existing nursing home requires filling out a six-page form and paying a fee. Unlike some other states, North Carolina doesn’t ask prospective owners to demonstrate their financial capacity to operate the facility or disclose all other facilities they operate. Portopiccolo-affiliated Accordius Health now runs nearly 40 facilities in the state.
“The health and safety of residents in North Carolina’s nursing homes is a top priority” for the state’s health department, an agency spokeswoman said, noting that every nursing home is inspected and providers who plan to bill Medicare or Medicaid must also fill out a federal form asking about adverse legal actions and ownership interests.
Portopiccolo’s nursing home strategy is a turbocharged version of a standard industry playbook, researchers and industry experts say. The firm often buys lower-quality facilities, which can be had at a discounted price, with an eye toward making renovations that can help boost overall occupancy and attract more-profitable short-term rehab patients whose stays will be covered by Medicare rather than the lower Medicaid reimbursements that generally cover long-term residents.
Among the 75 facilities for which Hyman is listed as an owner in federal regulatory data, 43% have one star, the lowest overall quality rating, whereas only about 17% of nursing homes nationwide have one star. The ratings are based on quality measures, staffing, and three years’ worth of health inspections.
Portopiccolo hasn’t been involved with most of its facilities long enough to fully influence the ratings. But Hyman points out that their first facility, which had one star when they acquired it, now has four. “Change does not happen overnight,” he says. “It takes considerable time and effort to implement improvements, and that’s exactly what we are committed to.”
Boosting staffing levels can improve quality across the board and even lower the likelihood of Covid outbreaks, according to recent academic research — but it also crimps nursing home profits. Just three of the 75 facilities that federal regulators currently list under Hyman’s ownership exceed the national average total nurse staffing of 3.86 hours per resident day, and only one meets the federal government’s recommended total nurse staffing level of 4.1 hours per resident day.
A December 2019 inspection of Accordius Health at Harrisonburg, which Accordius took over last summer, found that the facility didn’t have sufficient staff to bathe residents and answer call bells in a timely manner. Staffing had declined since July because the facility no longer used staffing-agency aides due to budgeting, an employee told the inspector. “Since this company took over, this place has gone from bad to worse,” said one resident quoted in the state inspection report. “There aren’t enough staff here,” the resident said. “They have cut costs at our expense.”
“Across the nation, there are just not enough licensed and trained staff,” Portopiccolo said in a statement. To attract experienced workers, the firm said it offers sign-on and referral bonuses, pays for higher education for eligible employees, and partners with companies to educate and certify nursing aides.
The company’s cost-cutting ideas, however, put some workers on edge. At Iliff Nursing and Rehabilitation in Dunn Loring, Va., proposed staffing cuts could have caused harm that outweighed the money saved, says Andy Beyers, former interim administrator at the facility, which Accordius took over in 2019. Iliff has a pediatric unit alongside the geriatric nursing home, and the company wanted to cut about five nurse management positions and have the nurse managers on the geriatric side also oversee the pediatric unit, Beyers says. He pushed back against the idea, he says, because “the needs of the children are a lot different than the needs of the elderly.” A number of senior employees, alarmed by Accordius’ proposed changes, left the facility, he says.
Although some staff left Iliff after the takeover, Portopiccolo said “a lot of the leadership remained.”
Like many other nursing homeowners, Portopiccolo also stands to profit when its facilities enter into management contracts or other deals with entities that are also owned by the facilities’ parent company. While legal, these related-party transactions allow nursing homeowners to “spirit the money out” of their facilities, leaving the nursing homes with less cash for direct-care staffing, protective gear, and other essentials, says Ernest Tosh, a Dallas attorney who handles nursing home abuse and neglect cases. “If they can make the nursing home look like it’s losing money, that’s great,” he says. The industry “can go cry poverty to the government” as it lobbies for higher reimbursement rates. Portopiccolo-affiliated facilities paid management fees ranging from roughly $90,000 to $440,000 to related parties in 2018, the latest data available, according to cost reports the facilities filed with the federal government. In most cases, those fees exceeded the facility’s net income.
Hyman said that the firm hires local medical professionals and experienced operators to lead its facilities, empowering them to build teams of trained nurses. “We remain committed to putting care first,” he said.
By early March, Covid’s threat to nursing homes was clear, and federal regulators had issued guidance saying that facilities should quarantine people newly admitted from hospitals for 14 days. But at the Citadel Salisbury in Salisbury, North Carolina, which Accordius took over early this year, newly admitted residents were placed with the general population through late March and early April, while an entire hall that was available as a quarantine unit sat largely empty, according to a state inspection report completed in May. The 160-bed facility ultimately had 168 Covid cases among residents and staff and 18 deaths, the largest outbreak among congregate care settings in the state.
Although nursing home inspections were sharply curtailed after the pandemic’s start, Portopiccolo-affiliated facilities have been cited for infection-control violations at an unusually high rate. Since March, at least 10% of Portopiccolo-affiliated facilities have been cited for such violations, including failing to screen workers for Covid symptoms, workers not wearing proper protective gear, and failing to maintain social distance among residents, according to state inspection reports. Nationwide, less than 3% of nursing homes inspected during the pandemic have been cited for infection-control violations, according to a Center for Medicare Advocacy analysis of nearly 10,000 inspections.
In early April, there was a hallway dance party at Accordius Health in Harrisonburg. “I thought that was absolutely insane,” says Hamilton, the nursing assistant who worked at the facility at the time. “Other facilities weren’t even allowing their residents to come out of their rooms.”
During the party, “the residents were in their rooms. The staff was in the hallway,” Portopiccolo said. Photos of the event posted on the facility’s Facebook page show both residents and staff in the hall.
On 14 April, the local health department tested 81 residents at the facility for Covid, according to a state inspection report. Seventy-eight were positive. The toll at the 117-bed facility would eventually climb to 112 cases among residents and staff and 23 deaths. Mills Nursing and Rehabilitation in Mayfield, Kentucky, a 98-bed facility that Portopiccolo’s ClearView Healthcare Management took over late last year, has had 107 cases among residents and staff and 23 deaths, one of Kentucky’s largest long-term care outbreaks. Pelican Health Henderson in Henderson, North Carolina, operated by Accordius since mid-2019, is a 78-bed facility with 77 resident and staff cases and 14 deaths. Iliff, which had 77 residents in June, according to a state inspection report, has had 78 resident and staff cases and 12 deaths.
The pandemic struck “like a freight train,” Accordius Chief Operating Officer Kim Morrow wrote in a 17 April letter to residents and families. “No one did anything wrong to create this,” she wrote. Portopiccolo said that it has invested millions of dollars to fight the virus, including $3m between April and June to acquire additional protective gear.
At some facilities, staff shortages became severe. “I was getting texts at 11 pm, 2 am from [staff] in that Harrisonburg facility, begging me, pleading to get help for them somewhere,” says Doris Gelbman, an elder-law attorney in Charlottesville, Virginia. “One of them had 60 patients she was caring for on one shift.” At Citadel Salisbury, Covid-positive staff were asked to come to work if they didn’t have symptoms, a staff member said in an affidavit accompanying a lawsuit residents filed against the facility in April. The lawsuit asked a state court to mandate that the facility provide adequate staffing and infection control. Morrow told Barron’s in May that the company worked “with all government authorities to do everything proper,” and that it disputes any claims in the lawsuit to the contrary.
At the same time, Portopiccolo was assembling two new chains: Orchid Cove in Florida and Peak Healthcare in Maryland. In mid-April, the firm bought three Florida properties for a total of about $42m, property records show. Portopiccolo said its recent acquisitions were the result of agreements in place before the pandemic began.
Less than two weeks later, Portopiccolo received a Paycheck Protection Program loan in the range of $350,000 to $1m, according to Small Business Administration data. The forgivable PPP loans were designed to incentivise small businesses to keep workers on their payroll during the Covid crisis. The SBA clarified in late April that private equity firms aren’t eligible for the program. Portopiccolo said it has returned all PPP funds it received directly. Its facilities received less than $20m in PPP funds, the firm said.
As the virus raged on, so did the deal-making. In June, Portopiccolo obtained federal provider identification numbers for 11 facilities currently affiliated with Grace Healthcare, a step that signals interest in operating at those locations. Portopiccolo has also had preliminary discussions with Genesis HealthCare about acquiring two additional Florida facilities, a Genesis spokeswoman said. Portopiccolo and Grace didn’t respond to questions about potential deals.
While facilities were battered by the virus, Portopiccolo received some positive publicity. At a May press conference, Kentucky governor Andy Beshear played a video created by Portopiccolo — a montage of scenes from its facilities, set to Rachel Platten’s “Fight Song.” The video, which ended with the logos of Accordius, ClearView, and Orchid Cove, was for “all those health-care heroes that are out there,” Beshear said at the briefing.
“Our heart goes out to those we love and can’t visit,” one caption read. “But we know they’re in the best of hands.”
Source: Private Equity News
By Eleanor Laise
