The Rosewood Care Center in Inverness, Ill., was backed by a program run by the Department of Housing and Urban Development that insures loans to more than 2,300 nursing homes across the country. CreditCreditDanielle Scruggs for The New York Times
The cracks in the foundation of a Chicago nursing-home business began to appear almost immediately.
The owners stopped making mortgage payments on their crown jewel, the Rosewood Care Centers, barely a year after buying it in 2013. Paperwork about the chain’s finances was never filed with the government. Some money meant for the 13 nursing homes and assisted-living facilities went to prop up another investment.
In the end, the business defaulted last year on $146 million in government-backed mortgages — the biggest collapse in the history of a little-known loan-guarantee program run by the Department of Housing and Urban Development.
The Rosewood debacle demonstrates the problems plaguing the HUD program, which helps nursing homes obtain affordable loans and has become a linchpin of the American elder-care system.
By the government’s own admission, the federal agency’s stewardship of the program has been haphazard. Its oversight of nursing homes has been weak. When HUD officials have spotted problems, they often have been slow to respond. Sometimes it has taken years to intervene, allowing the finances at certain facilities to unravel to such an extent that the quality of care was undermined.
HUD officials described Rosewood as an outlier, saying that only 1 percent of the guaranteed loans end up defaulting. “Mortgage defaults in this program are exceedingly rare, yet reaching an acceptable resolution requires an owner’s willingness and ability to work on behalf of their residents,” the department said in a statement.
But the program — run by a department better known for fostering affordable housing — is a vulnerability for the federal agency. The nursing home industry is increasingly being run by for-profit operators facing dwindling margins. Some homes — especially those in rural areas — are struggling to stay open, with operators blaming low occupancy and insufficient payments from Medicaid and Medicare.
At the Rosewood chain, which houses more than 1,100 people, the housing department has been forced to take control of the 13 facilities in Illinois and Missouri. It is paying a million dollars a month to keep them afloat.
When the program was created in 1959, its goal was to help ensure that Americans had access to affordable nursing homes by bankrolling the construction of new facilities. The program has evolved, and it now provides financial guarantees on loans that banks make to elder-care facilities. By making the loans less risky for banks, lenders could charge lower interest rates, thus reducing the fees that the nursing homes needed to charge patients.
The result now is that the agency manages a portfolio of loans that are at risk of going bad. HUD, and therefore taxpayers, could be on the hook for money-losing facilities around the United States — just as waves of aging baby boomers are likely to prompt a surge in America’s nursing-home population.
Today, the program guarantees $20 billion in mortgages to more than 2,300 nursing homes — about 15 percent of the country’s total, up from about 5 percent a quarter-century ago. Most of the nursing homes it backs are private, for-profit enterprises.
The problems with the program go back decades.
A report from the Government Accountability Office in 1995, when the program supported about 800 nursing homes, found that loan-management staff members “generally do not focus attention on nursing home loans unless financial trouble appears imminent or a default occurs.” The report said this left a gap in oversight, because other state and federal regulators focus on the quality of care and not on the homes’ financial viability.
Reports by the HUD inspector general last year found similar issues. An audit of 18 “financially challenged” nursing homes concluded that the housing department “did not always identify and address the root causes of a nursing home’s financial or operational challenges” and failed to “penalize operators that did not submit accurate and complete data in a timely manner.”
Another 2018 report focused on the agency’s lack of oversight of the homes’ physical conditions to ensure they would remain viable over the course of the federally backed loan. The inspector general said some facilities “were neglected and generally run down.”
Edward Golding, a former top official with HUD during the Obama administration, defended the loan-guarantee program as essential to helping nursing homes and assisted-living facilities get access to credit.
But, he said, the program “could benefit from more transparency and public awareness.”
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