In public discourse about the damage wrought by private equity firms in the long-term care system, real estate investment trusts (REITs) have unfortunately been overlooked. REITs specializing in medical care facilities – including long-term care properties – are heavily subsidized by federal and state governments through tax codes, guaranteed revenue, and various supplemental payments from CMS. During the COVID tragedy, they have received funding from the CARES Act and other supplemental funds from CMS.
As pass through entities, they pay no corporate income taxes. They are, however, required to distribute a specific percentage of their earnings to shareholders who pay capital gains taxes. These are significant tax expenditures and subsidies.
Other important features of REITs with a specialization in long-term care are: (1) they have more than a tenant-landlord relationship with their tenants/operators, i.e., they can exercise managerial control over and serve on boards of their operators, (2) their leases are “triple net” (NNN), which means tenants pay insurance, taxes, and maintenance on the property, or even “absolute net,” in which tenants pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance, and capital expenditures.
Along with private equity and other ownership structures, REITs play a major role in the financialized, extractive processes dominating the long-term care industry. In other words, the mission of these entities is to extract as much value as possible from the business with as little reinvestment as possible in services to stakeholders.
As this country assesses the underlying causes of the COVID catastrophe, activists, advocates, and scholars must insist on transparency and disclosure of details regarding contractual relationships between REITs and operators, but also between networks of LLCs owned by holding companies, private equity firms, or other legal ownership structures. We need to empirically establish the actual level of extraction versus the appropriate level of extraction.