Nursing Home Abuse & Neglect Case Valuations

As much as we focus on nursing homes as places where our loved ones can go to receive skilled care as their health fails, others look at nursing homes through a different lens. Given the high cost of nursing home care and the amount of reimbursements that these facilities receive from Medicare, there is a profit element to running a nursing home. Simply stated, nursing homes are an industry where a large number of people have made a lot of money. This makes owning nursing homes an attractive business opportunity for both private and publicly-owned entities.

There have been a high number of transactions in the nursing home chain space in recent years, although the market has started to cool in light of particular challenges that the industry is facing. Specifically, private equity companies have found skilled nursing facilities to be a prime target for their activity and all of the investor money that they have to put to work. For these funds, nursing homes have several different valuable assets that can help boost private equity returns. There is both the actual home as well as the real estate on which the home is located. Although it is detrimental to the overall business of the nursing home, private equity companies have found a way to leverage these two assets to boost their bottom lines. Many times, the nursing homes enter into rental agreements with holding companies for the real estate, which does not benefit the patients in any way. At the same time, care in these facilities suffer.

Factors Impacting the Valuation of a Nursing Home Lawsuit

When it comes to valuing a nursing home, there are several factors that come into play. One of the most commonly referred to metrics for valuation is the most obvious ones. The number of beds in a nursing home represents the amount of potential revenue that the home could have. As such, these homes may be valued at $75,000 up to $150,000. In 2017, the average valuation of a nursing home was roughly $81,000 per bed. This was a large drop from the previous years as there have been persistent worries about falling reimbursement rates and other regulatory challenges.

However, valuation per bed only tells part of the story. This is because beds at nursing homes are not always occupied. In 2018, the average nursing home occupancy rate dropped to approximately 81 percent. In addition, nursing homes' costs will also dictate the amount of cash flow for each bed. This gives nursing homes an incentive to lower their costs in order to maximize the amount of cash flow for each bed. For patients, this means that nursing homes will often reduce their staff to levels where the skilled nursing facility does not have adequate staff to perform the functions that are required by law. In 2015, the average net operating income for each bed in a nursing home was just under $10,000.

Another important number to be aware of when it comes to nursing home valuations is the cap rate. This rate is obtained by dividing the annual net operating income by the purchase price. This is similar to a price/earnings ratio in stocks. The cap rate for nursing homes has historically been between 11 and 13 percent. This reflects the fact that nursing homes have long been viewed as a desirable investment and profitable for their owners. When a nursing home can increase its income, its cap rate may go up since it is viewed as a more profitable investment.

Business First, Patient Needs Second

All of these reflect the fact that nursing homes are businesses at their core. While families view skilled nursing facilities as a place where their loved one can be treated with dignity and care, owners of these facilities are often viewing them as a business out of which they can squeeze extra profits by engaging in complicated related-party transactions and slashing staff. Especially after a nursing home is sold, the new owner often has a motivation to justify the purchase price paid and may try to cut expenses.

The Nursing Home Law Center LLC has a long track record in dealing with nursing homes that have attempted to maximize profits by cutting staff and other corners. When this results in an injury to your loved one, we can help you take legal action which can entitle you and your family to financial compensation. Call or contact us today at (800) 726-9565 to see how we can help you.

Client Reviews
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Jonathan did a great job helping my family navigate through a lengthy lawsuit involving my grandmother's death in a nursing home. Through every step of the case, Jonathan kept my family informed of the progression of the case. Although our case eventually settled at a mediation, I really was impressed at how well prepared Jonathan was to take the case to trial. Lisa
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After I read Jonathan’s Nursing Home Blog, I decided to hire him to look into my wife’s treatment at a local nursing home. Jonathan did a great job explaining the process and the laws that apply to nursing homes. I immediately felt at ease and was glad to have him on my side. Though the lawsuit process was at times frustrating, Jonathan reassured me, particularly at my deposition. I really felt like Jonathan cared about my wife’s best interests, and I think that came across to the lawyers for the nursing home. Eric