So much of the ire against skilled nursing facilities (personal, political and in the media) has been directed towards privately-owned facilities, and mainly their ownership those they deem as “private equity”, because of their great sin of caring for nursing home patients at a profit, and often not even at one. However, a recent Supreme Court ruling is now opening up public SNFs to the threat of lawsuits on the basis of civil rights violations.
After the wife of a patient with dementia in a county-owned SNF in Indiana sued alleging he was unnecessarily chemically restrained and involuntarily transferred without their consent, which would be violations of the Federal Nursing Home Reform Act of 1987, the owner of the facility, the public entity Health and Hospital Corporation of Marion County, argued that because they operated within the existing oversight and regulatory guardrails enforced through Medicaid and the 1987 Act, adjudication or redress for violations should take place within the existing administrative scheme put in place by the states and the congressional Act, and not through private court action under an 1870 statute referred to as Section 1983 protecting people deprived of any rights secured by the Constitution and laws.
However, the 7-2 opinion, authored by Ketanji Brown Jackson, saw “no incompatibility between private enforcement under Section 1983 and the remedial scheme that Congress devised,” essentially saying that public nursing homes accepting Medicaid funding must answer to both administrative and federal court remedies regarding alleged violations. It’s worth noting that those federal suits would not be limited by existing state malpractice laws or damage caps, so the costs to public SNFs could be very high, increasing their liability insurance costs as a result, too.
It would not be surprising to see government entities exit many of their skilled nursing assets because of this ruling, which would help keep M&A volume up. But with a minimum staffing mandate up in the air, some high-profile lawsuits making their way through the courts, a more litigious environment post-COVID and, who knows, a potential rate adjustment from CMS, the recent luster on SNFs, at least in terms of valuations, may be fading even more.
