Manor Care Plans To Restructure After Takeover by Carlyle

Manor Care plans to restructure its operations once Carlyle Group completes its $6.3 billion takeover of the nation's largest nursing-home chain, a move critics say could obscure ownership and make it more difficult to regulate care.

In documents filed with health regulators in Maryland and Virginia and more than two dozen other states, Manor Care outlined plans to reorganize into separate operational and real estate entities with several distinct corporate subsidiaries. Manor Care, which has its headquarters in Toledo and runs 552 facilities around the country, does not own or operate facilities in the District.

The reorganization would split the company's real estate holdings from the rest of the business so the properties could be used as collateral to raise funds in credit markets to expand the business. Manor Care said the company would be more streamlined after the reorganization. It also said the change would help bring more logical order to a corporation that has grown unwieldy through years of acquisitions. But even after the reorganization, the company will comprise about 300 corporate entities, said Manor Care's general counsel, Richard Parr.

The Service Employees International Union, which wants to organize Manor Care's 60,000 employees, says the proposed reorganization would create several layers to the company, making it difficult for regulators to enforce standards of care.

Critics say ownership structures with multiple stakeholders have been used by other private-equity firms to minimize liabilities and shield them from regulator inquiries when operational changes, such as cutting staff, are made to improve profit margins.

"The record with nursing homes is to use these kinds of structures and lack of transparency to avoid taking responsibility when taking control of nursing homes," said Andrew McDonnell, a spokesman for SEIU.

Carlyle, based in the District, has pledged in letters to state legislators to provide quality care to patients and educate and train staff. Manor Care said the new organization would make it the sole owner of all the nursing homes in its chain.

"A lot of the criticism is based on what people have seen other nursing-home companies do, not ours. In our company, we end up with a simpler structure and it is transparent who owns a facility," Parr said. "The real important message is that Manor Care now owns all assets, and Manor Care will continue to own all assets. There is not a third party coming in."

Manor Care runs a network of more than 500 skilled nursing and rehabilitation centers, assisted living facilities, outpatient rehabilitation clinics, and hospice and home health-care offices in 30 states.

The company started in 1959 in Montgomery County and grew through acquisitions of other nursing-home and health-care companies. In 1998, Manor Care merged with Health Care and Retirement Corp. and moved its headquarters to Toledo. In the process, it acquired a number of corporate structures.

Manor Care's deal with Carlyle is scheduled to be finalized later this month, and once that happens Manor Care said it would become a holding company for the individual nursing homes and groups of health-care facilities in its chain.

Parr said each unit, as license holder, would be legally responsible for the care given at its facilities.

"If someone has an issue with a facility, [he or she] will have recourse with the person who holds the license, which is one of our facilities," Parr said.

Two congressional committees said last month that they would begin inquiries into business practices at nursing homes owned by private investors.

Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, said the panel plans to conduct a hearing on private-equity investments in nursing-home operators in the coming months.

"Nursing homes are not factories that can generate profits for investors by making more widgets at less cost," Dingell said. "They are temporary and long-term homes for people whose lives depend upon dedicated staff to provide them quality nursing and medical care around the clock."

Holding the private-equity firm accountable can be difficult when it is several layers removed from the license holder, as Carlyle is proposing, said Toby Edelman of the Center for Medicare Advocacy, a law firm that represents Medicare patients.

"This is quite troubling because the point of doing this is for a company to protect themselves from liability," Edelman said.