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Monopoly on Age

In churn of assisted living deals, an island of misery

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The one-story beige building on Southwest Hill Road in McMinnville, Ore.--an old mill town between Portland and Salem--has seen plenty of trouble over the years of its operation as an assisted living facility.

Two men have been jailed for committing sex crimes inside its walls. Residents of the facility have repeatedly assaulted one another. There has been at least one case of severe, near-fatal neglect. To be sure, then, the building has been something less than the refuge it has held itself out to be for local seniors, many of them afflicted with dementia. State records have chronicled the damage.

The episodes of violence and neglect inside the McMinnville facility, if sad, are not particularly unique. Page through the regulatory records and court files of any state and one will come across such horror stories.

The history of the facility itself reflects a larger reality of the assisted living business. Hundreds of such facilities--some exemplary, some deeply troubled--change hands each year, many of them scooped up by the large chains that have come to dominate this swiftly expanding industry.

Such deals typically well serve the large companies that drive them. Often enough, however, they do little to improve conditions in places like the facility in McMinnville, where ownership turmoil can compound the unaddressed problems that undermine care.

In less than three years, the McMinnville facility came under the ownership of three different companies, including two of the most prominent chains in the country. The first, Sunwest Management, collapsed under nearly $2 billion in unpaid debt, a spectacular implosion that led federal prosecutors to label the company a Ponzi scheme and file criminal fraud charges.

The second was a three-way joint venture between Blackstone, the private equity firm, Emeritus Senior Living, the nation's largest assisted living company, and a real estate company. As part of the deal, Emeritus took over the operation of the facility, dubbing it Emeritus at Osprey Court.

The joint venture held onto the property for a few years before selling it in 2012 to a real estate investment trust with a vast portfolio of health care properties. That trust immediately leased the facility back to Emeritus. Today, Emeritus, under close scrutiny from Oregon regulators due to the continued problems in McMinnville, has decided to subcontract the facility's operations to an outside firm.

Throughout all the changes, there has been one constant for the elderly people who call the place home: dubious living conditions.

In April 2013, citing the facility's "chronic" inability to follow state laws, the Oregon Department of Human Services, which regulates assisted living in the state, moved to revoke its license and shutter it permanently.

For Emeritus, the ongoing legal troubles--fines, failed inspections, a string of scathing state investigations--has not kept the company from generating revenue at the McMinnville facility. Internal company records show the facility pulled in approximately $1 million during the first six months of 2013.

A company spokeswoman, Karen Lucas, said Emeritus was not currently making a profit on the facility, but rather investing money in improving its operations.

Conceived as a humane alternative to nursing homes, assisted living facilities typically offer apartment-like rooms, meals, and help to people too ill or frail to live independently, most of them elderly. Over the past decade, large chains have become a major force in the assisted living business, which now houses some 750,000 Americans. There are at least 35 companies with 1,000 or more beds, many of them, like Emeritus, publicly traded.

Some industry analysts say the increase in chain ownership has had virtues: a more professional and sophisticated workforce inside the facilities; cheaper prices for consumers; the financial wherewithal to invest in improvements, whether in the level of 24-hour care offered or the quality of food served. A trade group for the industry says customers express high levels of satisfaction in surveys the group has conducted.

But others, including advocates for the elderly, frustrated state regulators, and academics who study the industry, say chains' expanding footprint in assisted living has also come with serious downsides. In some cases, companies that are under pressure to produce returns for investors and saddled with debt from acquiring facilities cut back on items that affect care, such as staffing, training and basic upkeep.

In the churn of what can often seem like real estate swaps, critics say, places like McMinnville can get lost, becoming specks in financial empires, lines on a balance sheet.

In just the past few years, one major player, Sunrise Senior Living, was purchased by a real estate trust in a deal valued at $4.3 billion; a private equity fund acquired another large company, Assisted Living Concepts, which had been embroiled in litigation with its former top executive; and Emeritus bought a mobile nursing firm and took control of facilities spread across eight states that had been run by a competing chain.

"It's about, 'How do I make a buck?'" said John Bowblis, an economist and assistant professor at Miami University's Farmer School of Business in Ohio. "It seems a lot of the human element has been taken out of it."

Chapter 1.

The McMinnville facility has been operating for a decade, but 2009 seems to have been a particularly grim year for the facility's residents.

In separate incidents, two men were arrested and convicted for sexually abusing elderly women with dementia. In one case, the husband of a resident sexually assaulted another woman in the facility; in the other, a nursing assistant at the facility was found guilty of sexually assaulting a woman living at the facility and sentenced to more than eight years in prison.

A state investigator, in records examined by ProPublica, noted something remarkable about the case involving the nursing assistant: He had been hired to work at the McMinnville facility even though he'd accumulated five criminal convictions between 2005 and 2008.

The facility was, at the time, owned and managed by Sunwest. Chief Executive Jon Harder oversaw Sunwest's national operations from the company's headquarters in an office complex in Salem, 30 miles from McMinnville. He'd built the company into one of the industry's leading players, amassing a collection of roughly 300 facilities that claimed to generate $500 million in annual revenues.

But by 2006, a year after it had acquired the McMinnville facility, Sunwest was in financial trouble. And in the ensuing years, it became the target of federal investigators. Prosecutors ultimately produced a 56-count fraud indictment in federal court in Portland, alleging that Harder, in an effort to hide the company's growing losses, went on "an acquisition binge," one financed by $130 million he illegally obtained by misleading more than 1,000 investors and banks.

Harder has pleaded not guilty in the case, which is still unresolved. He could not be reached for comment, and his attorney, Christopher Schatz, declined to be interviewed.

By late 2008, Sunwest was buckling under a reported $2 billion in debt. In McMinnville, the company had defaulted on a $26.9 million mortgage on the facility, property records show. The company eventually became embroiled in bankruptcy proceedings, and auctioned off its assets under the scrutiny of a judge and dozens of private attorneys

Before the sale, Sunwest had been in conflict with the state due to a string of "significant" regulatory violations, according to Christina Higby, the corrective action coordinator for the licensing wing of the Oregon Department of Human Services. Higby said the department deployed an array of "different sanctions," including fines and a written plan aimed at bringing the facility into compliance with state laws during the Sunwest era.

When the facility was sold, that compliance plan was scrapped. From the state's perspective, it was a new beginning.