With studies showing a higher mortality rate in nursing homes owned by private equity firms, Connecticut lawmakers are calling for more transparency and accountability from private equity firms investing in nursing homes in the state.

The Government Accountability Office has reported that “private equity firms have drawn attention in recent years by buying nursing homes, changing their operations to increase profit and selling them for more money.”

In Connecticut, private equity ownership has brought concerns about firms stripping equity and cutting costs to the detriment of the company and its customers.

Lawmakers are considering legislation that would require private equity firms that own nursing homes to produce “investor names, business addresses, and thorough financial details to the Department of Social Services every year,” according to testimony from Senate Democrats in support of SB 125.

“Additionally, any private equity entity firm with a real estate investment trust will not be permitted to sell or offload any nursing home property until five years after purchase unless the Commissioner of Public Health finds that doing so will increase patient wellbeing or facility stability,” said the Senate Democrats.

At the beginning of the legislative session, Senate President Pro Tem Martin Looney called for the restriction of private equity in the health care, nursing, housing, child care and education industries saying its role in essential public services is “dangerous and toxic as a matter of public policy.”

The bill’s original intent was to restrict private equity in nursing homes but the language was revised after conferring with state agencies understanding that not “every actor is a bad actor when it comes to private equity,” said Sen. Jan Hochadel, a Meriden Democrat and co-chair of the Aging Committee.

“Sometimes they use it to make improvements,” she said.

A paper published in Health Policy late last year found that “across studies, private equity was linked to a higher number of deficiencies, increased hospitalization rates and higher mortality, although some improvement in care processes were noted.”

Hochadel said “private equity is there to make money.

“That money does not go toward patients,” she said. “We have seen some good players (in private equity) but the bad players, what we’re saying is they’re coming in to make money. They’re not coming in to take care of these patients that are elderly, the most fragile (who) deserve dignity and respect in their last years. And we want to make sure that we have that.”

She said private equity firms will come in at times and buy the land, sell it off and strip some of the needed resources such as staffing.

“I think what we’re looking for is transparency and accountability after we saw what happened in Rockville and Manchester,” she said, referring to hospitals owned by Prospect Medical Holdings.

Prospect Medical Holdings, a private equity company that in Connecticut owned Manchester Memorial, Rockville General and Waterbury hospitals, filed for Chapter 11 bankruptcy last year.

The hospitals struggled over the years under the company with inadequate staffing and antiquated equipment. Hartford HealthCare has since purchased Manchester Memorial and Rockville General. The Office of Health Strategy approved UConn’s Health emergency certificate of need to purchase Waterbury Hospital on Jan. 30.

Sarah Dzialo wrote testimony in opposition to the bill that “private investment – including private equity – brings capital, operational expertise, and the ability to modernize struggling facilities.

“In a sector facing workforce shortages and rising costs, discouraging investment is the wrong direction,” Dzialo said in her testimony.

Matt Barrett, president and CEO of the Connecticut Association of Health Care Facilities/Connecticut Center for Assisted Living, said originally the trade association did oppose earlier versions of the legislation that included “an outright ban of all private equity investment.”

But through revisions of the bill, Barrett said he commended the leadership of the Aging Committee for their leadership.

“The additional ownership and more detailed disclosure will also be meaningfully important in better understanding which types of nursing home private equity ownership structures correspond to lower quality outcome and which structures demonstrate high quality,” he said in an email. “In this regard, we recommend against prematurely adopting other provisions in this year’s bill that will too broadly increase costs for a wide range of nursing homes and limit access to nursing home care by restricting property transfers to new owners.”

Asked what percentage of nursing homes are owned by private equity in the state, Hochadel said this is part of the intent of the bill to seek clarity on that specific percentage as legislators do not know that number.

“We will collect that information and we will have better knowledge on how much private equity is in the state right now,” Hochadel said.

In its risk assessment, The Private Equity Stakeholder Project, a nonprofit watchdog organization focused on the growing private equity and broader private funds industry, said that 5.4% of nursing homes in the state are owned by private equity companies.

Sen. Saud Anwar, co-chair of the Public Health Committee, has been advocating for the restriction of private equity in hospitals and health care.

“As a state we have to be very watchful of private equity-owned nursing homes to make sure they’re not cutting corners and changing the workforce in ways that would result in such a negative impact on patient outcomes,” Anwar said.

Atul Gupta, assistant professor in the department of health care management at the Wharton School, University of Pennsylvania, was one of several researchers who examined the acquisition of over 1,600 skilled nursing facilities by private equity firms between 2005 and 2016.

“We found that mortality rates at PE-owned facilities increase by 11% after acquisition and spending also increases by 8%,” he said. “These headline results are supported by evidence on changes of care inputs (decline in nursing staff) and declines in CMS 5-star ratings, which track other quality metrics.”

The legislation was passed by the Aging Committee and heads to the Senate.