The World Thought Flat and the Dance of the Dinosaurs

Rise and Fall of Consolidation: The resurgence of the Pyramid Age “We need to get rid of the mom and pops . . . . Theyare inefficient and poorly run small businesses, and we can build on economies of scale and knowledge of how to succeed in business without even trying.” Such was the strategy of the captains of the real estate business who began tearinginto nursing homes in the 1980s and overnight built giant conglomerates that I call pyramids. These pyramids cost America its personal patient centered care and hollowed out the very core of quality for the elderly.

It all started with a small-time owner of three nursing homes in California that grew into Beverly Enterprises, which onceowned 1,200 nursing homes across the nation and has since imploded due to substandard care and violation of the minimum standards of quality. This paved the way for the classic strategy of acquiring real estate with a business attached—in this case, servicing the growing needs of an aging society. Other operators followed, including Manor Care, Sun Health, Mariner, Kinder Care, National Health, Vencor, Hillhaven, Genesis, and Integrated Health Services. Now it is Avi and Kindred. Currently, 50 percent of the nursing home industry is owned by chain operators having 20 or more homes. Another 25 percent is owned by religious-based groups who own three or more (Good Samaritan, for example, at one time owned over 200). What that means is that 75 percent of nursing homes have absentee ownership.

What is absentee ownership? It is the organizational structure in which the money decisions are made off-site. The on-siteadministrator has all the responsibility, limited authority on operational policies, and no authority on money issues.

With the emergence of Obama Care giving rise to moreenforcement and money driven care consolidation is inevitable as enterprise fights the dominance of the Monopsony. It didn’t work in the 1980s and is destined to fail again. If allowed to evolve it will destroy competition as a Monopoly does.