Wealth Extraction from a Nursing Home Chain With Individual,Private Equity,and Real Estate Owners

Abstract

For-profit nursing home (NH) chains have become increasingly financialized in order to maximize short-term profits. This descriptive case study focused on the wealth extraction from a mid-sized for-profit California NH chain, from its founding in 1999 until its sale in 2021. The chain had individual founders/owners, a private equity owner, and a real estate group owner. The aims were to analyze the chain's (a) history and profits, organizational structure, and board; (b) management, operations, and strategies; (c) financial status; and (d) quality outcomes. Qualitative and quantitative data were collected and analyzed from multiple public and private sources. The company grew to 63 NHs and related companies with an estimated enterprise value of US$1.3 billion in 2020, while making substantial profits for its owners. The private equity owners had a strong, direct influence on the chain's organizational structure, board, management, operations, strategies, and financial controls from 2016–2020. Its cost controls appeared to be associated with a negative impact on NH nurse staffing levels, nursing wages, turnover rates, resident complaints, penalties, and litigation. Future research should study NH policies that improve ownership and financial transparency while ensuring that government funds are used for NH residents and care providers.

Keywords

private equity nursing home chain real estate financing staffing quality

For-profit nursing homes (NHs) have controlled NHs in the United States for decades,¹ and almost 60 percent are chains with two or more facilities.² Many large chains developed in the 1970–1990 period, often through acquisitions, mergers, and debt financing, and some became publicly traded companies.^3,4 Some large chains, facing bankruptcy in the early 2000s, restructured by divesting unprofitable NHs and rebranded or renamed their companies.³ Many NH chains diversified by purchasing related businesses such as assisted living facilities, home health agencies, and hospices³.

In 2000–2007, NHs increasingly shifted away from large national chains to smaller private regional invested-owned facilities.^5,6 They often used limited liability companies (LLCs) and partnership structures to reduce personal liability and allow profits and losses to be passed through to owners without corporate taxes.^5,6 In addition, NHs established separate management companies and separated their operating companies (hereafter “OpCos”) from their property companies (hereafter “PropCos”) to protect their assets from litigation.^5,6 Some NH property companies were established as public or private real estate investment trusts (REITs), which have tax-exempt status when they are passive owners.⁷ REITs are increasingly complex in structure, and some are allowed to be more active in the NH management.⁷ As a result of these changes, NH organizational structures became very complex with many layers of corporate ownership.^5,6

With separate management, property, and other companies, called related parties, NHs are able to hide profits because related-party profits are usually not reported to the government.^8,9 For-profit NHs that “tunnel” funds through their own related-party companies have been found to extract large profits from management and property companies and increase the costs to government.⁹

Private equity companies that recruit investors as limited partners entered the NH market in the early 2000s.¹⁰ Private equity firms typically invest on a short-term basis (e.g., 3–7 years) while seeking high investment returns.¹¹ Private equity NH owners use many strategies that non-private equity chains use, although they emphasize financial efficiency and maximization of short-term profitability.¹² In 2022, private equity companies were found to be invested in 5 percent of NHs, while 9 percent of NHs had investors from REITs, and 2 percent had both.¹

The NH industry changes are part of the “financialization” of the health sector where organizations are transformed into “salable and tradeable assets from which the financial sector may accumulate capital”.¹³ Financialization places the focus on short-term profits and investor/shareholder value over the interests of residents and care providers.¹³

NH financialization can have negative consequences. Some for-profit chains have been found to have lower nurse staffing, poorer resident outcomes, and higher deficiencies compared to nonprofit and government facilities.^14,15 Private equity acquisition has been associated with a 10 percent increase in the short-term mortality rates of Medicare patients, reduced resident well-being measures, increased government spending, reduced nursing and regulatory compliance, increased operating costs,¹⁶ increased emergency department visits, and hospitalizations.¹⁷ Recently, private equity and REIT-owned NHs were found to be similar to other for-profit facilities in size, resident acuity, and payer mix, but private equity facilities had lower Centers for Medicare and Medicaid Services (CMS) quality ratings, a 12 percent decline in registered nurse (RN) hours, and a 14 percent increase in deficiency scores after acquisition. REITs had a 7 percent decline in RN hours and a 14 percent increase in deficiency scores after acquisition.¹

This descriptive case study of a mid-sized NH chain, with individual owners, a private equity company owner, and a real estate group owner, provides a unique in-depth analysis over a 22-year period. The study shows the chain used many NH strategies described here to maximize profits and extract wealth for its owners. The strategies also included debt financing with multiple owners, a complex organizational structure of LLCs, separate operating and property companies for each NH, and management strategies to increase revenues and control expenses. These corporate practices appeared be associated with negative consequences for nurse staffing levels, wages, turnover, and resident outcomes.

Methods

Specific Aims

This article provides a comprehensive description of Plum Healthcare Group (hereafter “Plum”), with stable ownership by two founders for 22 years, with two periods of part ownership by a private equity firm (2006–2012 and 2015–2021) and a real estate group (2008–2021). It examines Plum's history with a special focus on the 2016–2020 period when more data were available, until Plum was sold to a large NH chain in 2021. The first aim was to describe and examine the history of the owners and their profits, organizational structure, and corporate board. The second aim was to describe management, operations, and strategies. The third aim was to describe Plum's corporate financial status and its California NH finances compared to average NHs, including staff wages, turnover rates, and staffing levels. The final aim was to examine Plum's quality outcomes for residents, including facility deficiencies, complaints, penalties, and litigation.

Study Design

This study used standard procedures to collect and analyze qualitative and quantitative data from multiple sources. Although Plum was a privately held company, extensive publicly available court documents were obtained from litigation cases. Data were combined from documents with company financial reports and federal and state statistical data for the 2016–2020 period (because earlier data were unavailable). Because of the private equity company's 13-year part ownership and the lack of available statistical data prior to its ownership, the study could not examine the impact of the private equity firm before and after its ownership, but the study examined the firm's leadership role in Plum along with the role of the real estate group. No NH residents were involved as human subjects and only publicly reported data were used.

Data Collection

Data on Plum's history of ownership, organizational structure, board, operations, management, and strategy data were obtained from company reports, contracts, organizational charts, statistics, recorded depositions, and internal corporate emails. Financial data were obtained from Plum's quarterly and annual audited consolidated financial reports (including selected data from balance sheets, statements of operations and member equity, and statements of cash flows) for 2016–2020.¹⁸ Plum's California NH financial data and comparison data from California NHs were collected for 2016–2020 including wages and staff turnover rates.¹⁹ For quality measures, we used data reported to the CMS for 2016–2020.²⁰ Finally, some litigation complaints were obtained from attorney sources.

Data Analyses

A description of Plum's ownership history, profits, and structure over time was undertaken. Plum's management, operations, and strategies were examined for 2016–2020. Multiple sources of data were compared that confirmed the information and identified conflicting information. A descriptive summary with documented sources was prepared. Plum's financial indicators included: revenues and expenses; earnings before interest, taxes, depreciation, and amortization EBITDA); net income; member equity; assets; liabilities; and cash flow data for 2016–2020. We compared Plum California NHs with other NHs on payer sources, revenues, expenditures, net income, wages, and staff turnover rates.

Finally, we compared Plum's California NHs with state NHs on nurse staffing hours per resident day (HPRD), deficiencies, complaints, and federal penalties.²⁰ We prepared descriptive statistics using averages, changes over time, and differences between Plum and California NHs without using statistical tests for significance. Documents, emails, and litigation complaints supplemented the analysis.

Results

History of Plum's Owners and Profitability

Paul Hubbard, Lee Sorenson (who left Plum in 2004), and Mark Ballif met in California during an NH administrator training program.²¹ Ballif earned a master's degree from Brigham Young University²² while Hubbard received an accounting degree from the University of Arizona and was a Certified Public Accountant.²¹ After gaining NH administrative experience, they formed Plum Healthcare Group, LLC as a for-profit NH parent/management company in 1999, as owners/co-chief executive officers (CEOs), to purchase and manage NHs.²²

Phase 1 (1999–2006). To begin operations, Ballif secured an initial investment of $250,000 (all dollar amounts in U.S. dollars) in 1999 from his father-in-law, who cashed out for $7 million in 2006.²¹ Plum acquired its first five facilities in California through bank loans and grew to 11 facilities in 2006.²¹

Plum established separate LLCs for each NH operation (OpCo) and property (PropCo) that allowed its owners to take profit distributions, avoid board meetings, and receive tax benefits.^21,22 Each of the OpCos had triple-net leases, making them responsible for all property expenses, taxes, building insurance, maintenance, and improvements, thereby maximizing profits for the PropCos.²²

Phase 2 (2006–2012). Ballif/Hubbard identified GI Partners as potential investors to expand Plum's holdings.²¹ In 2006, GI Partners, a California mid-market private equity firm, described as a financial management and investment company, purchased an approximately 80 percent equity ownership in Plum for about $50 million (GI Fund 2) and assumed a debt of $88–$95 million. As part of the transaction, Ballif/Hubbard each received $10 million in cash and collectively held 20 percent ownership with some management employees.²¹ GI Partner's purchase gave them majority ownership, and Ballif/Hubbard continued as owners and co-CEOs.^21,22

Plum grew to 23 facilities in 2012. Using funds from GI Partners and bank loans, Plum purchased Horizon West's 23 operating NHs (for $32 million) from Martin Harmon and his family (the Harmon Group) and leased its 23 properties (for $12 million with 5% annual escalating lease costs) in 2011.^21,23 The Harmon Group held its NHs properties in private LLCs, which generated income from rent although they were not REITs.

Phase 3 (2012–2015). By 2012, Plum had grown to 50 NHs and diversified with five home health and hospice agencies in California, Utah, and Arizona. Plum needed to replace GI Partners, which had planned to sell its ownership shares after six years.²² In order to make this change in 2012, the Harmon Group agreed to move its 23 NH properties into Plum (valued at $125–$130 million) in return for 60 percent ownership, and Ballif/Hubbard held 40 percent ownership along with other managers. The debt financing for this change added $200 million to Plum's $100 million debt, but it reduced its property lease costs that had expensive escalating rates.^21,22

In 2012 GI Partners sold its Plum investment of $50 million²⁴ for approximately $150 million ($130 million for GI Fund investors and $20 million for GI Partners).²⁵ GI Partners received about a 2 percent annual fund management fee paid by investors ($6 million) and a 2 percent transaction fee ($3 million) on the sale paid by the purchasers.²⁵ Plum reported its 5-year EBITDA was about “30%–32% compounded annually”.²⁴ In early 2015 Ballif/Hubbard retired as co-CEOs while retaining their ownership and appointed a new CEO.²²

Phase 4 (2015–2021). GI Partners purchased a 42 percent ownership of Plum in July 2015 (GI Fund IV) for approximately $150 million.²⁵ GI Partner's purchase gave them the largest share of equity and ownership rights. The Harmon Group retained 36 percent, and Ballif/Hubbard and other managers retained 22 percent ownership. With the transaction, the Harmon Group received $100 million cash while Ballif/Hubbard each received $25 million cash and continued on salary as owners/managers of Plum.^21,22 GI Partners annually received about 2 percent in management fees ($15 million) from its fund investors.²⁵

GI Partners had planned to sell its shares of Plum after six years, and facing financial uncertainties during the pandemic in 2020, they consulted with two investment banks for strategic advice on a sale.²⁵ Plum's estimated enterprise valuation was $1.3 billion, with $500 million in debt, and an equity valuation of $800 million.²⁵

Plum Sold (2021). In 2021, GI Partners sold its share of Plum for approximately $200 million to Providence Group, making a profit of about $50 million for GI Fund IV investors.²⁵ As part of the sale, Plum entered into a purchase and merger agreement with Providence Group, Inc., a California corporation owned by two former Plum administrators, in February 2020.²² In November 2021 the sale was completed, including 58 of Plum's NH operating companies and eight properties.²⁶ Ballif/Hubbard and the Harmon Group retained ownership in the NH properties. Providence assumed Plum's future legal liabilities, and the merger was approved by the California Attorney General.^27,28

Organizational Structure and Plum Board

Plum's two founder/owners remained stable for 22 years, while Plum's ownership and organizational structure grew larger and more complex with its many changes in ownership.²⁹ Although Plum Healthcare Group, LLC was the original parent and management company, Bay Bridge Capital Partners, LLC (BBCP) was established as the parent company in 2012 to buy out GI Partners.³⁰ Plum Healthcare Group, LLC became Plum's operational arm and management company through which BBCP effectuated control over all its NHs.^31,32 Flower Farm Group, LLC was established as a holding company to purchase Horizon West NHs.³⁰ In 2015, New Sisu Holdco, LLC was formed as a holding company for all Plum's operations, including Flower Farm and its property companies.^21,25,31,32 These holding companies did not have operations or employees.

In 2018 Bay Bridge Capital, Inc. was a holding company owned by the Harmon Group (including Crosswinds Trust and Harmon; 60%) and Ballif/Hubbard (40%).^33,34 Bay Bridge Capital, Inc. was the 100 percent owner of GI Side Fund Plum Corporation. See Figure 1.

Figure 1.

Plum Healthcare Group ownership structure for Bay Bridge Capital Partners, LLC, 2018.

BBCP, the Plum parent company, was owned by GI Plum Holdings, LLC, GI Side Fund Plum Corporation, Plum individual managers, and the Harmon Group (Foremost, Horizon West, Allpro, and Auburn Manor). BBCP had two holding companies, New Sisu Holdco, LLC and Sister Sisu Holdings, LLC in 2018, and its management company, Plum Healthcare Group, LLC³⁴; (see Figure 2). New Sisu Holdco, LLC was the holding company for the property companies and owned Flower Farm Group, LLC, which held the operating NHs. Overall, 14 companies, with multiple levels of holding companies, managed 63 NHs, three assisted living facilities, three home health and hospice agencies, and 54 property companies.^18,22 Of Plum's 63 NHs, 43 were owned by Plum and 20 had long-term operating leases.¹⁸

Figure 2.

Plum Healthcare Group organizational structure for Bay Bridge Capital Partners, LLC, 2018. Abbreviations: HH, home health; H, hospice; AFL, assisted living facility; OpCo, nursing home operation; PropCo, nursing home property.

In 2015 the BBCP board had two members from GI Partners, two from the Harmon Group, one independent, and Ballif and Hubbard.^21,25,35,36 GI Partners effectively had board control under its operating agreement, and it held the largest ownership share. Only Bay Bridge Capital, Inc. had statutory responsibility for an annual board meeting, held concurrently with BBCP's board. No other Plum entities held meetings.^21,22 In 2020 a court ruling established that BBCP, Plum Healthcare Group, and its holding companies all operated as part of a single enterprise in managing its NHs.³²

Management, Operations, and Strategies

Board Management. BBCP's board had quarterly meetings which covered all operational issues with detailed statistical and financial reports.^22,25,30 The Harmon Group held board membership, but no evidence was found that they were actively involved in board policies.

In 2015 GI Partners took a leadership role on BBCP's board,²⁵ stating they expected 10–30 percent annual returns and $1.5 billion in revenues in five to six years.³⁷ To achieve this goal, GI Partners introduced a 100-day plan update, prepared by a third party, that addressed strategy, leadership, the core business, acquisition priorities, financial growth, and operations, using “management by objective”.³⁸ After GI Partners were disappointed in Plum's 2016 profits, Plum's CEO³⁹ left to start his own company in 2017, and Ballif/Hubbard stepped in as co-CEOs for a year until a new CEO was appointed. The chief operations officer (COO) later left, citing disagreements with GI Partner's cost oversight.⁴⁰

To increase profits and cut costs, GI Partners installed a GI manager at Plum ($480,000 annual salary) paid for by Plum.⁴¹ GI Partners designed a scorecard to reduce costs by $20 million at the corporate and facility levels by December 2017, and to increase facility growth by 3 percent in 3–5 years, increase annual profit margins by 15–16 percent, and make operational improvements.⁴¹ Plum cut its executives from 12 full-time employees to six.⁴¹ Board meetings particularly focused on controlling staffing costs, stating that “every 0.1 nursing hour per resident day (HPRD) equated to $5.8 million and every 0.1 non-nursing HPRD to $4.8 million in spending for all its NHs”.^21,22 The board also planned to reduce nursing overtime by 4 percent (saving $3.4 million), and non-nursing overtime by 1 percent (saving $1.6 million).³⁵

Management Company. Plum Healthcare Group, LLC was the management company that provided the centralized and integrated administrative services for all operations.^22,42 It employed Plum's executives (the CEO, chief financial officer [CFO], controller/treasurer, and COO) and had 50–60 employees in 2014.²¹ All cash management and financial reporting occurred at the corporate level.^22,43 The CFO/finance team prepared an annual budget template with projected numbers for staffing and expenses for each NH.⁴⁴ Plum prepared cost reports and provided NHs with consulting, human resources, risk management, information technology (IT), and continuing education for nurses.²²

The management company was responsible for all accounting. All NH funds were deposited daily into Plum's central “sweep account,” leaving each facility with a zero balance, to ensure that funds were available to meet its loan obligations.²² All NH revenues were pooled, giving Plum owners and managers financial control over its facilities, with the ability to maximize profits, control investments, and make profit distributions.^22,32 NH profits were not earmarked for use at the facility.

The management company submitted all billing requests. It used a “third-party scrubber” (commercial software) to prepare and transmit resident assessment data for billing Medicare.²² Medicare pays higher rates for higher resident acuity based on assessment data (commercial software can be used to adjust or up-code assessments to maximize payment). Plum executives did not discuss adjusting its staffing levels to meet CMS's requirements for its reported NH resident acuity.

NH Administrator Contracts and Authority. NH administrators were required to sign standard administrative agreements that gave authority to Plum's management company.^45,46 The agreements had a nonnegotiable fixed fee charge²¹ of 5.25 percent of monthly gross revenues for administrative services.²²

Under the California state licensing law, each NH is required to have a governing board. The Plum NH governing body included the branch president, COO, and the CEO, and not the NH administrator.^22,42,44 Administrators did not attend Plum board meetings and primarily were responsible for keeping costs within Plum's budgeted amounts, overseeing marketing activities, and maximizing Medicare and managed care admissions and profits.^42,44

Each NH OpCo had an area manager and a branch manager who provided oversight. Managers pressured NH administrators to maintain high occupancy, following Hubbard saying, “you can never get back a lost bed day”.^21,47 High occupancy and Medicare residents were praised, and Medicaid residents were avoided.^42,44,48 Branch managers required weekly NH reports, and some sent two or three emails a day to administrators regarding staffing and budgets.^42,44,47 One branch manager terminated two administrators and one resigned for failing to meet their budget.⁴⁹

Management Incentive System. Plum established a strong financial incentive payment system for administrators based almost entirely on its annual profits. Administrator salaries were $120,000 with annual bonuses up to 15 percent of each NH's profits, and branch presidents received 35 percent bonuses on regional NH profits.^21,22,49 Beginning in 2017, annual NH losses had to be carried over and recouped before administrative bonuses were issued.^42,44

Corporate Financial Status and Profitability

Table 1 shows Plum owned/operated 63 NHs with 6,972 beds (53 in California) in 2016 and beds declined by 11 percent in 2020.¹⁸ Plum discontinued NH leases and sold programs that were not sufficiently profitable.

Corporate Finances. Plum's revenue growth was only 2 percent over those five years (Table 1). In 2020, Plum had lower occupancy rates operating revenue due to the pandemic, but Plum received other revenues from federal and state pandemic relief funds and other sources.¹⁸ Plum kept its annual expenses flat between 2016–2020.¹⁸ Plum's EBITDA grew by 29 percent over five years to $73 million in 2020 (range was 7% to 11% annually).

Table 1.

Plum Healthcare, Revenues, Expenses, Profits, Assets, Liabilities, Cash Flow, 2016-2020.

	2016	2018	2020	Average 2016-20	% Change
Total Facilities	63	55	56	58	−11%
Total Beds	6,972	6,102	6,174	6,300	−11%
Revenue
Net patient service revenue	$714,523,258	$ 743,986,060	$ 732,865,097	733,114,380	3%
Management fee revenue	36,685,616	20,487,238	0	18,172,113	−100%
Gain on sale of assets	0	15,486,459	0	4,772,375
Other income	16,246,173	6,587,358	49,164,307	16,599,400	203%
Total revenues	767,455,047	786,547,115	782,029,404	772,658,268	2%
Expenses
Salaries, wages, & benefits	453,898,795	463,508,538	464,897,378	459,773,159	2%
Operation & supplies	117,315,098	123,407,630	127,122,485	124,446,028	8%
General & administration	114,286,160	98,802,094	97,189,147	99,661,722	−15%
Provision for uncollectibles	9,482,352	7,456,476	0	6,143,789	−100%
Rent	15,879,570	18,922,947	19,560,943	18,141,993	23%
Total expenses	710,861,975	712,097,685	708,769,953	708,166,692	0%
EBITDA	56,593,072	74,449,430	73,259,451	64,491,576	29%
EBITDA as a % of revenue	7.92%	10.01%	10.00%	8.80%	26%
Interest expense	−31,071,979	−34,544,409	−19,682,306	(28,887,788)	−37%
Depreciation & amortization	−19,363,991	−21,529,738	−17,311,627	(19,168,435)	−11%
Loss on operations	−2,942,953	0		(980,984)	−100%
Net Income	3,214,149	18,375,283	36,265,518	15,846,762	1028%
Member equity beginning yr	35,655,192	32,108,328	45,198,153	35,902,369	27%
Member distributions	−24,291,867	−2,653,778	−6,758,220	(9,127,066)	−72%
Members equity yr end	18,634,098	47,916,075	74,791,695	43,729,670	301%
Assets
Current assets	137,233,023	166,922,811	308,170,034	184,992,535	125%
Property & equipment net	265,998,779	259,709,452	309,989,269	279,314,586	17%
Other assets	162,586,526	157,139,316	152,009,173	157,588,854	−7%
Total Assets	565,818,328	583,771,579	770,168,476	621,896,053	36%
Liabilities
Current liabilities	136,146,514	132,345,977	221,256,685	150,860,195	63%
Long-term liabilities	547,184,230	535,855,504	695,376,781	578,166,383	27%
Members equity	18,634,098	47,916,075	74,791,695	43,729,670	301%
Total liabilities & equity	565,818,328	583,771,579	770,168,476	621,896,053	36%
Cash Flow
Net Cash from Operations	35,866,981	36,461,159	152,524,210	58,841,701	325%
Net Cash for Investing	32,422,236	4,693,004	−146141924	(29,730,522)	−551%
Net Cash for Financing	8,601,922	−4710745	−10368360	(4,210,937)	−221%
Cash End of the Year	12,824,187	46,521,823	60,434,254	38,855,799	371%

Note: EBITDA = Income before interest, depreciation & amortization

Source: Plum annual audited consolidated cost reports, selected data from the balance sheets, statements of operations and members’ equity, and statements of cash flows, 2026-2020.

Total assets were $770 million in 2020 (a 36% increase over 2016; Table 1). Executive and owner incentive payments (called member distributions) based on profits averaged $9 million/year (a total of $45.6 million) from 2016–2020. The executive member equity (shares in Plum's corporate value) grew from $18.6 million in 2016 to $74.8 million in 2020 (a 301% increase).¹⁸ Ballif and Hubbard reported each receiving approximately $500,000 in salary and bonuses annually, and $8.5 million in profit distributions in 2016–2017.²¹

Plum did not report profits on its related-party transactions. Pharmaceutical supplies were purchased ($6.4 million in 2020) and a 10-year IT contract (for $63.9 million in 2019) was signed with related-party owners.¹⁸ Plum's California NHs paid 5 percent of net revenues in related-party costs for management services and home office costs, and profits on its lease/rent rates were not reported.^19,50

Despite Plum's resources, it acquired a loan guaranteed by the Department of Housing and Urban Development (HUD) to reduce loan costs in 2018. In 2020, Plum had $462 million in mortgage loans and leased 19 properties for $37 million.¹⁸ Net cash flow from operations increased substantially in 2020 to $152.5 million, which was used for investing and financial activities, and year-end cash was $60 million in 2020, a 371 percent increase over 2016.¹⁸

Plum Finances Compared to Average California NHs. Plum's NHs had an average 87 percent occupancy rate, 1 percent higher than the state average for 2026–2020 (Table 2). Overall, 98 percent of its resident days were paid by government and managed care. Plum's managed care days were 43 percent higher and Medicaid days were 38 percent lower than the state average, which resulted in 6 percent higher daily payments from 2016–2020, consistent with its strategy to focus on Medicare and managed care markets.

Table 2.

California Plum Nursing Homes Compared to Average California Nursing Homes, 2016-2020.

	2016		2018		2020		Average 2016-2020		% Difference	% Change 2016-2020
	Plum	CA	Plum	CA	Plum	CA	Plum	CA	% Difference	Plum	CA
Total Facilities	50	995	52	982	48	952	51	981		−4%	−4%
Total Beds	5,807	95,261	6,019	94,521	5,217	91,479	5,828	94,391		−10%	−4%
Occupancy Rate	89%	87%	89%	87%	78%	80%	87%	86%	2%	−12%	−9%
Payer Mix
% Medicare Days	18	15	16	16	16	18	16	16	0%	−12%	19%
% Medicaid Days	37	57	33	55	63	55	40	55	−38%	70%	−4%
% Managed Care/Other	43	22	49	24	19	22	42	24	43%	−55%	4%
% Private Pay days	2	6	2	5	2	4	2	5	−122%	−20%	−23%
Aver Pay Per Day in $	290	263	314	292	338	327	313	293	6%	17%	24%
Average Revenues, Expenses, Profits in $ in thousands
Revenues	13,236	9,404	13,578	10,037	13,098	11,423	13,380	10,264	23%	−1%	21%
Expenses & Taxes	12,237	9,060	12,898	9,841	12,383	10,785	12,722	9,919	22%	1%	19%
Net Income	1,002	343	685	196	888	638	696	345	50%	−11%	86%
Net Income Margin	8%	4%	5%	2%	7%	6%	5%	3%	36%	−10%	53%
Average Wages ($ per hour)
Managers	53.71	53.01	55.63	56.78	59.7	65.02	56	58	−2%	11%	23%
RNs	35.46	37.02	39.25	40.37	41.76	48.15	39	41	−6%	18%	30%
LPNs	26.86	26.72	29.07	28.68	31.97	31.36	29	29	1%	19%	17%
CNAs	14.27	13.91	16.24	15.66	18.52	18.09	16	16	3%	30%	30%
Nursing Turnover Rates
Total Nursing	51%	49%	56%	54%	66%	55%	55%	52%	5%	30%	12%
CNA	56%	48%	61%	53%	72%	53%	60%	51%	15%	29%	10%

Source: California Long Term Care Annual Disclosure Pivot Data

Note: Plum reported having 53 nursing homes in California during the 5 year period. Some facility cost reports were unavailable.

RN= registered nurses, LPN = licensed practical nurses, CNAs = certified nursing assistants

Overall, in 2016–2020, Plum's California NHs had 23 percent higher revenues, 22 percent higher expenses, and 50 percent higher net income than the average NH (Table 2). Revenues declined by 1 percent, expenses increased by 1 percent, and average net income decreased by 11 percent from 2016 to 2020. Plum's average net income margin was 5 percent, or 36 percent higher than the state average, although it declined by 10 percent over the period.

Administrator salaries/bonuses at three Plum facilities averaged over $435,000 from 2015–2018, depending on facility profitability,^42,44,50 and reported by Plum as being “upwards of 2.5 times the average industry compensation”.^51,52 In contrast, Table 2 shows that nursing supervisors/managers were paid 2 percent lower and RNs were 6 percent lower per hour than the state average in 2016–2020. Plum's average total nursing turnover rates were 5 percent higher, and its certified nursing assistant (CNA) turnover rates were 15 percent higher than average California NHs.¹⁹

Plums’ CMS reported average RN HPRD were 13 percent lower than the state average, declining 36 percent from 2016–2020²⁰ (Table 3). Licensed practical nurse HPRD were 1 percent lower, and CNA and total nursing HPRD were 6 percent lower than average. Plum's RN HPRD were 23 percent lower and total staffing HPRD were 15 percent lower on its state cost reports than its CMS report, suggesting inaccurate or misleading reporting.⁵³ One NH's actual staffing time sheet hours were 36 percent lower than its staffing hours reported to CMS in 2017. By providing lower staffing than reported to CMS, a NH could potentially save an estimated $1.2 million.⁵³ Some DON emails to staff reported falls with fractures, new pressure ulcers, worsening wounds, rehospitalizations, and medication errors.⁵⁴

Table 3.

Plum and California NHs Average Nurse Staffing Hours and Deficiencies, Complaints, and Federal Penalties 2016-2020.

	2016		2018		2020		Average 2016-2020		% Difference Plum vs CA	% Change 2016-2020
	Plum	CA	Plum	CA	Plum	CA	Plum	CA		Plum	CA
Total Facilities	52	1,207	52	1198	53	1,185	52	1,196		2%	−2%
Total Beds	6,019	118,802	6,019	118,381	6,065	117,607	6,037	118,280		1%	−1%
Average Nursing Hours							-
RN HPRD	0.88	0.88	0.49	0.61	0.56	0.71	1	1	−13%	−36%	−19%
LPN HPRD	1.01	1.07	1.14	1.13	1.26	1.26	1	1	−1%	25%	18%
CNA HPRD	2.51	2.68	2.48	2.57	2.53	2.62	2	3	−6%	1%	−2%
Total Nursing HPRD	4.39	4.63	4.11	4.31	4.34	4.58	4	4	−6%	−1%	−1%
Deficiencies, Complaints, Penalties
Average Deficiencies	11	12	12	10	12	13	12	12	0%	11%	7%
Total Deficiencies Total	580		636		656		629			13%
Average Confirmed Complaints	7	5	8	7	7	7	7	6	19%	5%	43%
Total Confirmed Complaints	358		397		380		383			6%
Aver Federal Penalties in $	$ 6,692	$ 5,334	$ 11,166	$7,409	$ 2,021	$4,697	$ 6,921	$ 6,269	9%	−70%	−12%
Total Federal Penalties in $	$347,993		$ 569,472		$ 107,112		$ 358,793			−69%
Average No. Federal Penalties	0.40	0.32	0.41	0.12	0.19	0.27	0	0	16%	−53%	−16%
Total Federal Penalties	21		21		10		18			−52%

Source: CMS provider data used for Medicare NH compare. All CMS data reported through December 31st.

Resident Outcomes

Plum had an average of 11 deficiencies per facility (629 annually) in its California facilities and the same as the average California NH²⁰; (Table 3). Plum's confirmed complaints were 19 percent higher, federal penalties were 16 percent higher, and federal penalties amounts were 9 percent higher than the state average.

Plum had 16 litigation cases identified from 2014 to 2021, leading to two trials and 15 settlements and one pending case. One resident (who allegedly developed two stage IV heel pressure ulcers, required surgery, and died) received a $30.9 million trial verdict.⁵⁵ Another trial was for a resident who allegedly developed five urinary tract infections, two stage IV pressure ulcers, was hospitalized, and had his leg amputated.⁵⁶ Four resident complaints of pressure ulcers, weight loss, understaffing, rehospitalizations, amputations, and/or death were settled.^57–60 Three wrongful death cases involved acquired C. diff infections,^61–63 and another death from a COVID-19 infection.⁶⁴ Two cases claimed residents developed wound infections resulting in multiple surgeries and a leg amputation,^65,66 another two other residents claimed falls⁶⁷ with one resulting in surgeries.⁶⁸ Another resident allegedly died from severe dehydration,⁶⁹ and one claimed a leg amputation from an improperly treated blood clot.⁷⁰

Discussion

Plum's two founders/owners started a NH chain that grew to 63 NHs and related companies with an estimated enterprise value of $1.3 billion in 22 years. The founder/owners, along with the chain's private equity owner for two different lengths of time and a real estate group owner for eight years, extracted large profits from the company. The original individual investor made a profit of 28 times his investment in seven years. In 2006, after the founders/owners agreed to a private equity firm's purchase of 80 percent Plum equity for $50 million, they received $20 million in cash along with their annual salaries and bonuses. In 2012, the real estate group agreed to a 60 percent ownership in Plum, which allowed Plum to replace the private equity firm's ownership. When the private equity firm sold its ownership share in 2012, it made approximately $150 million, or three times its investment over seven years.

In 2015, the same private equity firm purchased a 42 percent ownership in Plum for $150 million, which allowed the real estate owner to receive $100 million and the founder/owners to receive $50 million in cash. Over the 2016–2020 period, Plum's annual profits were high (EBITDA of 8.8% with $46 million in profit distributions). Facing the end of its investment period of 5–7 years and the uncertainties of the pandemic, the private equity firm sold its share for $200 million (a 33% profit), and Plum's owners sold the entire company to a larger NH chain while the founder/owners and real estate group retained their ownership in some NH properties.

Plum's ownership shifted and its organizational structure became increasingly complex over time. By 2018, its parent company had 14 holding companies to manage its many loans, operating, property, management, and development companies for 63 NHs and related companies. The LLC holding companies channeled funds and profits to the parent company and owners. Complex NH organizational structures, like Plum's, are a common approach to hide capital flows and profitability and to avoid taxes, government oversight, and litigation.^1,7,71 No evidence was found that CMS or California conducted oversight of Plum's many ownership changes, although the Plum sale was reviewed by California Attorney General in 2021.

Plum was closely managed by a small board of owners through its parent and management companies. Plum's successful strategies focused on keeping occupancy high and attracting short-term Medicare/managed care residents to maximize government revenues, and they successfully limited admitting Medicaid residents with lower payments.

Plum's board and management operated its facilities as one large company. All NH funds were swept daily into the management company's control in order to control all the cash generated. This practice can create substantial debt due from the management company to the individual NHs because the cash taken may exceed the expenses incurred to operate the NH. Plum's NHs were almost all paid by government funds to care for residents of particular NHs, based on residents’ assessed needs, which did not appear to be considered in budgeting for staffing. Plum was able to use its cash for wealth extraction, investments, purchasing property, and other activities not necessary for resident care.

Even though Plum's EBITDA was 8.8 percent in 2016, Plum's board instituted cost cutting by eliminating unprofitable operations, selling some assets, reducing the size of managers by half, tying 15–35 percent bonuses to profits, cutting administration costs, instituting strict management oversight, and controlling wages and staffing. These cost controls align with for-profit chain and private equity strategies reported in previous studies.^{3,5,6,11,12,14–17} Plum's cost cutting efforts kept expenses flat from 2016–2020, with an average annual EBITDA of 8.8 percent, and Plum's California NH net income was 50 percent higher than the state average. During this period, CMS and California did not require companies to submit consolidated cost reports. California later instituted a requirement for such reports in 2024.⁷²

Plum's NHs paid related-party costs to Plum for administration and leases/rent as well as home office costs, but CMS and California did not require reports on profitability for related parties. A recent study that showed a large proportion of NH profits are hidden (called “tunneling”) in inflated related-party management and lease transactions, which obscures profits, shields assets from malpractice risks, and encourages government to increase payments.⁹

Plum made little effort to invest in its nursing management and RNs, paying them 2 percent and 6 percent lower wages than the state average for 2016–2020. Not surprisingly, Plum's total nursing turnover rates were 5 percent higher and CNA turnover was 15 percent higher than the state average. Research has found that the persistent and common practice of high nurse turnover has been used to reduce NH costs.⁷³ High staff turnover is associated with low wages/benefits, low staffing levels,⁷⁴ job dissatisfaction,⁷⁵ and poor-quality care.⁷⁶

Plum's RN staffing was 13 percent lower and total staffing was 6 percent lower than state average staffing, even though it had higher levels of short-stay higher-acuity residents. Lower staffing levels are consistent with other research on private equity ownership of NHs^1,14 and a factor in poor quality.⁷⁴

Although Plum's federal deficiencies were similar to the California average, confirmed complaints were 19 percent higher, federal penalties were 16 percent higher, and federal penalty amounts were 9 percent higher than the state average. Plum's average deficiencies may be related to weak enforcement by California and CMS NH survey agencies.^77,78 Litigation cases also indicated resident quality problems including pressure ulcers, infections, falls, and weight loss. These quality indicators suggest that Plum provided poor resident quality.

Study Limitations

This study was limited to one chain and is not necessarily generalizable to other chains with private equity and real estate owners. The historical data on ownership changes, financial data, and profits primarily came from depositions of the owners and managers from court documents and could not be verified with financial reports. Financial and statistical data were limited to the period of 2016–2020 and compared to state averages.

Conclusions

The case illustrates the financialization of a mid-sized private NH chain with substantial wealth extraction by its owners over 22 years. Its private equity owners had a strong, direct influence on Plum's management, financial controls, and limited spending on staffing and direct care in the 2016–2020 period. Plum's cost controls appeared to have had a negative impact on staffing levels, wages, turnover, and quality of care, while the company was very profitable over time. Future research should study public policies that improve ownership and financial transparency and ensure government funds are used to provide care to NH residents and care providers.

Footnotes

Acknowledgments

The author would like to thank Ed Dudensing, J.D. for access to court documents and for comments on the paper, and Robert McLaughlin, Richard Mollot, Samuel Brooks, Valerie Gray, and Ernie Tosh for comments on the article.

Author Contributions

The author contributed to the design, data collection, data analysis, and writing the entire paper.

Declaration of Conflicting Interests

The author has no conflicts of interest as they relate to the article with respect to the research, authorship, and/or publication of this article. The author has previously served as an expert on nursing home litigation cases in relation to staffing and quality of care. She previously served as a staffing consultant on one Plum litigation case, but was not involved in any depositions, trials, or settlement of cases. The author has no potential conflicts of interest in terms of any circumstance or competing interest that could be construed or perceived as influencing the interpretation of the results prior to the time the manuscript was submitted.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

Ethical Committee

No human subjects were involved. The study used only publicly available documents.

Sponsor's Role

The University of California San Francisco had no role in the design, methods, analysis, or preparation of the article.

ORCID iD

Charlene A. Harrington

Author Biography

Charlene Harrington, PhD, RN is a professor emerita of sociology, nursing, and gerontology at the University of California San Francisco. She was elected to the American Academy of Nursing and the National Academies of Medicine, and served on the government's Nursing Home Care Compare website advisory committee and many other government committees. Harrington has served on editorial boards, testified before Congress, and has written more than 260 articles and books on nurse staffing, quality of care, ownership, financial transparency, and accountability.

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