A recent sale of 10 nursing homes provides an example of how complicated private equity healthcare acquisitions can be, and the ways in which state officials can oversee and regulate private equity acquisitions—both at the time of sale, and in the years after. It is important for state health officials and policymakers to consider how to apply and expand protections against harms caused by private equity’s extractive business model: This case study provides a good example of how to do that, but also includes certain pitfalls for officials to beware of.
In the latter half of 2022, the Rhode Island Department of Health approved a sale of 10 nursing homes to private equity firm Tryko Partners and another operator for $85 million. In their initial review of the proposed transaction, some state health officials minimized poor quality ratings and safety concerns documented at nursing homes that were already owned by the sale’s buyers.
During this process, health officials had opportunities to establish appropriate safeguards for Rhode Island’s nursing home residents, including placing stronger limits on debt to finance the acquisition. Instead, the buyers were allowed to abide by already-existing private equity norms. Meanwhile, recent economic conditions have put an increasing number of healthcare companies at risk of credit downgrades and potential debt defaults.
In this case the state did ultimately establish important post-sale conditions, requiring the new owners to maintain quality levels at each facility. As part of the conditions, each facility must maintain a specific quality rating for five years, at risk of increased state scrutiny. On this measure, Rhode Island can serve as an important example for other states in how to oversee new nursing facility owners.
The buyers and seller
The Rhode Island facilities in this transaction were sold by Health Concepts, which formerly operated 11 centers throughout Rhode Island as the state’s largest skilled nursing provider. Ten locations were sold to private equity firm Tryko Partners, which was then to operate four of the facilities and sell the remaining six to private nursing home operator Kadima Healthcare.
Tryko was founded 1989, with a focus in healthcare facilities among other investments. As of early 2022, the firm’s portfolio included nearly 6,000 skilled nursing and assisted living beds in New England and the Mid-Atlantic. Tryko operates its nursing homes through its management company Marquis Health Consulting Services, which sometimes collects a 6% fee for its this work.
The other buyer, Kadima Healthcare, is a private nursing home operator with six locations in Pennsylvania. In early 2021, Kadima made headlines for conditions at one of its Pennsylvania locations, when all but one resident tested positive for COVID-19. In response, a state legislator requested all residents be transferred out of the facility and into a new location. Tryko and Kadima have both operated a number nursing homes with documented quality issues, as discussed below.
Separating real estate from operations
In September 2022, the state approved the $85 million sale to Tryko, and at the same time also approved Tryko’s plan to sell six of the acquired facilities to Kadima. As part of this process, real estate and physical assets at each location would be placed into separate corporate entities from the facility operations.
Initially, Health Concepts transferred operations of the 10 facilities to Rainwood Holdings LLC, an “interim operator” owned by Tryko Partners. Separately, real estate and physical assets were transferred to Tryko-owned RSO Investments LLC. Through these distinct corporate holdings, Tryko remained the licensee and operator for four former Health Concepts facilities, as well as the corporate owner of the real estate at each location.
Similar to Tryko, Kadima will ultimately own operations and real estate in different corporate holdings at its six acquired locations. At each facility, one Kadima-affiliated entity will take over facility operations, while another will own the property itself.
|Facility (and ultimate owner)||New Operating Entity||New Real Estate Entity|
|Heritage Hills Nursing and Rehabilitation Center (Tryko)||Heritage Hills Operator LLC d/b/a Heritage Hills Rehabilitation and Healthcare Center||Heritage Hills Property LLC|
|Morgan Health Center (Tryko)||Morgan Operator LLC d/b/a Morgan Rehabilitation and Healthcare Center||Morgan Property LLC|
|Riverview Health Center (Tryko)||Riverview Operator LLC d/b/a Riverview Rehabilitation and Healthcare Center||Riverview Property LLC|
|Westerly Health Center (Tryko)||Westerly Operator LLC d/b/a Westerly Rehabilitation and Healthcare Center||Westerly Real Property LLC|
|Bayberry Commons (Kadima)||Bayberry Rehabilitation & Nursing LLC d/b/a Kadima Rehabilitation & Nursing at Bayberry LLC||Bayberry Property Management LLC|
|Eastgate Nursing & Rehabilitation Center (Kadima)||Eastgate Rehabilitation & Nursing LLC d/b/a Kadima Rehabilitation & Nursing at Eastgate LLC||Eastgate Property Management LLC|
|Elmwood Nursing & Rehabilitation Center (Kadima)||Elmwood Rehabilitation & Nursing LLC d/b/a Kadima Rehabilitation & Nursing at Elmwood LLC||Elmwood Property Management LLC|
|South Kingstown Nursing & Rehabilitation Center (Kadima)||South Kingstown Rehabilitation & Nursing LLC d/b/a Kadima Rehabilitation & Nursing at Village House LLC||South Kingstown Property Management LLC|
|Village House Nursing & Rehabilitation Center (Kadima)||Village House Rehabilitation & Nursing LLC d/b/a Kadima Rehabilitation & Nursing at Village House||Village House Property Management LLC|
|West Shore Health Center (Kadima)||West Shore Rehabilitation & Nursing at West Shore LLC||West Shore Property Management LLC|
Buyer review criteria
Rhode Island law requires that facility ownership changes be reviewed by the state’s health department at two different levels. First, the department’s Health Services Council conducts a preliminary review and recommendation. Based on this recommendation, the Department of Health makes a final decision on whether to approve the sale, and on what conditions. In its initial review, the Health Services Council must consider a buyer’s character, competence, commitment, and standing in the community.
In approving Tryko’s application, the council did not discuss quality at the company’s existing locations. Instead, it cited a letter from the state’s long-term ombudsman highlighting the ombudsman’s good relationship with the owner of Tryko’s Marquis Health Services. The ombudsman’s letter also discussed her opposition to working with some out of state buyers. Marquis is headquartered in neighboring New Jersey. Its owner Tryko Partners is also located not in Rhode Island but New Jersey.
Regarding the Health Services’ Council’s omission, the Department of Health wrote, “despite the HSC’s findings that the Applicants satisfied criterion one of Rhode Island Gen. Laws Section 23-17-14.3 ([t]he character, commitment, competence, and standing in the community of the proposed owners, operators, or directors of the health care facility), RIDOH finds the Applicants’ operation of its three (3) nursing home facilities in Rhode Island to be of concern in that the Rhode Island facilities function at or below the standards of the four (4) additional homes they seek to operate in Rhode Island.”
For Kadima, on the other hand, the Health Services Council minimized findings from quality inspectors. When faced with quality concerns at Kadima’s nursing homes, the council responded by adopting statements from a Kadima facility owner and a regional director, who characterized the offices overseeing their facilities as “draconian” and “notoriously difficult.” But, like its review of Tryko, the Department of Health emphasized poor quality ratings at nursing homes owned by Kadima.
The publicly available data as of February 2023 reveals quality concerns for both companies’ already-owned facilities, outlined below.
Other SNFs owned by Tryko and Kadima
|Facility||Owner||Star Rating as of February 2023||Total Deficiencies||Total Fines|
|Elmhurst Rehabilitation and Healthcare Center (Providence, RI)||Tryko||This facility is not rated due to a history of serious quality issues and is included in the special focus facility program.||62 (3 infection-related)||$178k|
|Lincolnwood Rehabilitation and Healthcare Center (North Providence, RI)||Tryko||2 stars||42 (4 infection-related)||$57.8k|
|Bayview Rehabilitation and Healthcare Center (North Kingstown, RI) (acquired 2012||Tryko||3 stars||22 (2 infection-related)||$6,760|
|Kadima Rehabilitation & Nursing at Campbelltown||Kadima||1 star||26||$1,642|
|Kadima Rehabilitation & Nursing at Lakeside||Kadima||1 star||74 (3 infection-related)||$30.9k|
|Kadima Rehabilitation & Nursing at Lititz||Kadima||1 star||34 (2 infection-related)||$202k|
|Kadima Rehabilitation & Nursing at Luzerne||Kadima||1 star||53 (2 infection-related)||$34.2k|
|Kadima Rehabilitation & Nursing at Palmyra||Kadima||1 star||71 (1 infection-related)||$4,586|
|Kadima Rehabilitation & Nursing at Pottstown||Kadima||1 star||45 (1 infection-related)||$102k|
Tryko’s prior problems
All three Tryko facilities that Rhode Island examined have had a history of health and safety concerns. Tyrko’s Bayview location received better CMS ratings than other Tryko facilities at 3 out of 5 stars, but has still had a number of issues. Tryko acquired the location in September 2021.
In July 2022 CMS identified problems including failure to meet professional quality standards; failure to provide enough food and fluids to maintain resident health; failure to provide safe and appropriate dialysis care; failure to ensure licensed nurses have necessary competencies and skill sets for resident care; failure to adequately review a resident drug regimen; and failure to meet professional standards for food service safety.
Rhode Island also examined ratings for Tryko’s Lincolnwood site, which it acquired in June 2020. During a October 2021 survey at the site, problems included failure to notify residents of balances and resident funds; failure to maintain proper advance directive records; failure to honor a resident’s right to a safe, clean, comfortable, and homelike environment; failure to ensure residents are accurately assessed; failure to meet professional standards related to wound healing; and failure to provide enough food/fluids to maintain resident health.
The Lincolnwood facility has also seen problems including failure to store and label drugs and biologicals to professional standards; failure to meet professional standards for food safety; failure to ensure hospice services meet professional standards; failure to provide a safe, functional, sanitary, and comfortable environment; failure to ensure the facility is free of pests; failed to train staff on abuse, neglect, exploitation, theft, and dementia management; and failed to provide adequate training to nurse aides.
Among the Tryko facilities reviewed by Rhode Island, its Elmhurst facility has had the highest number of deficiency citations. The company acquired the location 2016. Many of the conditions described from Tryko’s other facilities also exist here.
Additionally, in a September 2022 report, CMS determined that the Elmhurst site’s problems included failure to ensure resident dignity relative to privacy; failure to notify the state ombudsman of resident discharges; failure to ensure medical care of each resident is supervised by a physician; failure to provide appropriate mental health treatment; failure to appropriately administer medications; and failure to maintain accurate medical records.
Kadima’s prior problems
Kadima facilities reviewed by Rhode Island have had problems similar to Tryko’s locations. Kadima’s facility in Campbelltown received the fewest deficiencies and fines. At this location, in a September 2022 report, CMS found that the company failed to complete a reference checks, verify professional licensing, or conduct criminal background checks for some newly hired employees.
The CMS report also noted that at its Campbelltown site Kadima failed to develop and implement a comprehensive care plan; did not ensure the nursing home area was free from accident hazards or providing adequate supervision against accidents; and failed to properly store food items or maintain sanitary food conditions.
Among Kadima locations that were reviewed, its Lakeside has received the most deficiency citations. In a March 2022 report, CMS found that concerns at this site included failure to timely consult with a physician; failure to give residents adequate coverage and service information; failure to establish an adequate grievance policy; failure to develop procedures to prevent or report abuse, neglect, and theft; failure to ensure residents received accurate assessments; and failure to develop a comprehensive care plan.
CMS reported that same site also failed to ensure adequate personal hygiene and grooming by not providing scheduled showers/bathing; failed to provide person-centered care and treatment as prescribed by a physician; did not ensure that nurses and nurse aides have necessary competencies and skills; failed to implement procedures to promote accurate medication records; did not ensure that a pharmacist conducted regular drug regimen reviews; and did not employ sufficient food and dietary staff.
In its initial recommendations, later to be overridden, the Health Services Council’s included what it called standard conditions. The standard conditions included financing conditions requiring a minimum equity contribution of 20% and maximum debt of 80% for the purchase of each site.
Private equity purchases are typically financed with around 30% equity and 70% debt—debt which is not borne by the private equity firm making the purchase, but instead placed onto the acquired company itself. The “standard conditions” therefore allow private equity firms to go beyond the industry average, and place onto acquired companies even larger proportions of debt than is typical.
Placing high levels of debt onto providers can increase bankruptcy risk and diverts money away clinical operations in order to make interest payments. Additionally, this structure allows fund managers to put less of their own capital at risk, creating misaligned incentives.
Rhode Island’s conditions are step in the right direction. It is essential that finance limits be placed on private equity acquisitions. But if they are to protect and promote the health and safety, then these requirements must be made more strict, and limit further the amount of permissible debt.
The table below includes figures for total purchase cost for each facility, as well as the maximum amount from that price which can be financed with debt, and the minimum amount that must be paid in equity.
|Facility (and purchaser)||Star Rating as of August 2022||Total Cost||Maximum Debt Financing||Minimum Equity Financing|
|Heritage Hills Nursing and Rehabilitation Center (Tryko)||5 stars||$6,920,543||$5,536,434||$1,384,109|
|Morgan Health Center (Tryko)||2 stars||$8,304,651||$6,643,721||$1,660,930|
|Riverview Health Center (Tryko)||2 stars||$13,149,031||$10,519,225||$2,629,806|
|Westerly Health Center (Tryko)||4 stars||$7,335,775||$5,868,620||$1,467,155|
|Bayberry Commons (Kadima)||3 stars||$9,295,377||$7,436,301||$1,859,075|
|Eastgate Nursing & Rehabilitation Center (Kadima)||5 stars||$5,746,233||$4,596,986||$1,149,247|
|Elmwood Nursing & Rehabilitation Center (Kadima)||5 stars||$5,915,240||$4,732,192||$1,183,048|
|South Kingstown Nursing & Rehabilitation Center (Kadima)||5 stars||$8,112,329||$6,489,863||$1,622,466|
|Village House Nursing & Rehabilitation Center (Kadima)||3 stars||$8,027,825||$6,422,260||$1,606,454|
|West Shore Health Center (Kadima)||4 stars||$12,252,996||$9,802,397||$2,450,599|
Quality measure conditions
In its final review and approval, the health department did recognize that standard conditions may not be enough to protect Rhode Island patients. In response, it established additional conditions requiring that the new owners to at least maintain quality levels at each facility for five years from the deal.
In order to meet its requirement to maintain quality, Tryko and Kadima must ensure CMS ratings at the acquired locations do not decrease. If a facility rating decreases by two stars within the next five years, an independent monitor must be brought in at the owner’s expense in order to remediate the facility.
By creating this rule, Rhode Island has taken an important step to protect its nursing home residents. Because the measure makes use of inspection data provided from federal authorities, it avoids concerns about use of limited state resources. And because it extends five years into the future, the rule prevents buyers from seeking easy and immediate profits through cost-cutting reductions in care. Other states should examine this Rhode Island rule and seek to apply similar measures themselves.
Rhode Island has taken the important step here of placing increased scrutiny onto private equity buyers. In requiring that the companies maintain quality at the new facilities, the state recognized Tryko and Kadima need more than just standard oversight. That much is clear just from a review of the operators’ other sites.
However, the state’s method does not address a major factor that creates poor conditions. These acquisitions are funded with four times more debt than equity. For healthcare providers, large amounts of debt can divert money away from clinical operations, resulting in problems with care. States that wish to move upstream, and address quality problems closer to their source, should explore financing conditions that are more strict than Rhode Island’s.
In addition to purchase financing and quality conditions, states should consider limits on how facility revenue is spent. For example, limits on fees and debt-funded dividends to private equity owners can reduce incentives to implement policies that prioritize profit over quality of care. Another way to protect patients is to require that operators spend a certain percentage of revenue on resident care.
Regardless of specific steps taken by different states, the overall aim remains the same: To maintain and improve care quality at nursing homes—and other healthcare providers—by preventing wealth extraction by private equity firms, and by keeping revenues within the facility and directed towards care provision.
 Rhode Island Department of Health. “Tryko Partners, Decision with Conditions,” p. 5, September 2, 2022. https://pestakeholder.org/wp-content/uploads/2023/03/Tryko-Decision-with-Conditions.pdf.
 Rhode Island Department of Health. “Kadima Healthcare, Decision with Conditions,” September 2, 2022. https://pestakeholder.org/wp-content/uploads/2023/03/Kadima-Decision-with-Conditions.pdf.
 Rhode Island Health Services Council. “Report on Kadima Healthcare Applications,” p. 6, August 30, 2022. https://pestakeholder.org/wp-content/uploads/2023/03/Kadima-Report-on-Kadima-Healthcare-Applications.pdf.
 See Richard M. Scheffler, Laura M. Alexander, and James R. Godwin. “Soaring Private Equity Investment in the Healthcare Sector: Consolidation Accelerated, Competition Undermined, and Patients at Risk,” May 18, 2021. https://publichealth.berkeley.edu/wp-content/uploads/2021/05/Private-Equity-I-Healthcare-Report-FINAL.pdf.
 Heather Landi. “More Healthcare Companies at High Risk of Default: Moody’s.” Fierce Healthcare, December 12, 2022. https://www.fiercehealthcare.com/finance/healthcare-companies-default-risk-steadily-rising-most-owned-private-equity-moodys.
 “Tryko Partners, Decision with Conditions,” p, 8; and “Kadima Healthcare, Decision with Conditions,” p. 6.
 Rhode Island Health Services Council. “Report on Tryko Partners Applications,” p. 2, August 30, 2022. https://pestakeholder.org/wp-content/uploads/2023/03/Tryko-Report-on-Tryko-Partners-Application.pdf.
; and “Report on Kadima Healthcare Applications,” p. 2.
 Sandy Crisafulli and Emma Ackel. “Tryko Partners Expands Greater Philadelphia Portfolio with CCRC Acquisition.” Caryl Communications, January 13, 2022. https://caryl.com/tryko-partners-expands-greater-philadelphia-portfolio-with-ccrc-acquisition/.
 Harold Brubaker. “Inglis Foundation Agrees to Sell Its Philadelphia Nursing Home to Fast-Growing for-Profit Firm.” https://www.inquirer.com, July 28, 2022. https://www.inquirer.com/business/inglis-house-nursing-home-sale-tryko-marquis-20220728.html.
 WNEP Web Staff. “State Representative Calls for Luzerne County Nursing Home to Transfer Patients.” wnep.com, January 28, 2021. https://www.wnep.com/article/news/local/luzerne-county/state-representative-calls-for-luzerne-county-nursing-home-to-transfer-patients/523-0c7666d3-f6ef-4446-b3d1-b8ae92a590bf.
 “Tryko Partners, Decision with Conditions.”
 “Kadima Healthcare, Decision with Conditions”; Health Services Council. “Report on Tryko Applications of 4 Facilities,” p. 2.
 Health Services Council. “Report on Tryko Applications of 4 Facilities”; 2 reports from Rhode Island Department of Health, August 30, 2022.
 “Report on Tryko Partners Applications,” p. 2; and “Report on Kadima Healthcare Applications,” p. 2.
 “Report on Tryko Partners Applications,” p. 2; and “Report on Kadima Healthcare Applications,” p. 2.
 “Report on Tryko Partners Applications,” p. 5; and “Report on Kadima Healthcare Applications,” pp. 5-6.
 “Report on Tryko Partners Applications,” p. 5.
 Kathleen Heren, RI LTC Ombudsman. “Public Comment Letter,” October 21, 2021.
 “Tryko Partners, Decision with Conditions,” pp. 5 (underline added).
 “Report on Kadima Healthcare Applications,” p. 6.
“Tryko Partners, Decision with Conditions,” pp. 2-4; and “Kadima Healthcare, Decision with Conditions,” pp. 3-6.
 Seniors Housing Business. “Tryko Partners Buys 120-Bed Skilled Nursing Facility in North Kingstown, Rhode Island,” September 23, 2021. https://seniorshousingbusiness.com/tryko-partners-buys-120-bed-skilled-nursing-facility-in-north-kingstown-rhode-island/.
 Centers for Medicare and Medicaid Services. “Health Inspections: Bayview Rehabilitation,” July 11, 2022. https://www.medicare.gov/care-compare/details/nursing-home/415063?id=f5b8118b-5189-4547-822e-2119a8894b96&state=RI&measure=nursing-home-health-inspections.
 Adriana Marinescu. “Tryko Partners to Purchase Rhode Island Facility.” Multi-Housing News (blog), June 18, 2020. https://www.multihousingnews.com/tryko-partners-to-purchase-rhode-island-facility/.
 Centers for Medicare and Medicaid Services. “Health Inspections: Lincolnwood Rehabilitation,” October 1, 2021. https://www.medicare.gov/care-compare/details/nursing-home/415035?id=fffa8732-8584-41db-aa27-9aa460c39aaa&state=RI&measure=nursing-home-health-inspections.
 Providence Business News. “N.J. Firm Buys Elmhurst Extended Care,” December 27, 2016. https://pbn.com/nj-firm-buys-elmhurst-extended-care119411/.
 Centers for Medicare and Medicaid Services. “Health Inspections: Elmhurst Rehabilitation,” September 23, 2022. https://www.medicare.gov/care-compare/details/nursing-home/415084?id=f7ff2398-37c5-4926-88f0-7ef82070ff07&state=RI&measure=nursing-home-health-inspections.
 Centers for Medicare and Medicaid Services. “Health Inspections: Kadima Campbelltown,” September 1, 2022. https://www.medicare.gov/care-compare/details/nursing-home/395846?state=PA&measure=nursing-home-health-inspections#ProviderDetailsDetailsContainer.
 Centers for Medicare and Medicaid Services. “Health Inspections: Kadima Lakeside,” March 17, 2022. https://www.medicare.gov/care-compare/details/nursing-home/395730?state=PA&measure=nursing-home-health-inspections#ProviderDetailsDetailsContainer.
 “Report on Tryko Partners Applications,” p. 5,; and “Report on Kadima Healthcare Applications,” pp. 5.
 “Report on Tryko Partners Applications,” p. 9-10; and “Report on Kadima Healthcare Applications,” pp. 12-13.
 Matthews, Sajith, and Renato Roxas. “Private Equity and Its Effect on Patients: A Window into the Future.” International Journal of Health Economics and Management, May 23, 2022, 1–12. https://doi.org/10.1007/s10754-022-09331-y.
 Richard M. Scheffler, Laura M. Alexander, and James R. Godwin. “Soaring Private Equity Investment in the Healthcare Sector: Consolidation Accelerated, Competition Undermined, and Patients at Risk,” pp. 6-7, May 18, 2021. https://publichealth.berkeley.edu/wp-content/uploads/2021/05/Private-Equity-I-Healthcare-Report-FINAL.pdf.
 “Tryko Partners, Decision with Conditions,” pp. 6; and “Kadima Healthcare, Decision with Conditions,” pp. 8.