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Illinois lawmakers hear about high-stakes nursing home buyout

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CHICAGO - Lowanda Moore says her 73-year-old mother developed bedsores because the suburban nursing home where she lives has too few workers. When the staff doesn't have time, she changes her mother's diapers herself.

"I make sure I'm there every day," Moore said. "Sometimes she's soaking wet. I don't know how long (she's been) wet because she has aphasia so she can't talk that good."

Moore testified Monday to state lawmakers gathering information on a proposed $6.3 billion purchase of Toledo, Ohio-based Manor Care Inc. by Washington-based private equity firm Carlyle Group.

Manor Care, the nation's largest nursing home chain with 3,500 patients and 31 nursing homes in Illinois, has pledged to maintain staffing levels if the deal goes through.

But Moore's testimony to the Illinois House Committee on Aging about her mother's Manor Care facility in Homewood underlined worries of legislators and patient advocates that staffing levels already may be too low and a change in ownership would threaten the safety of frail, elderly residents.

"The red flags are up," said Rep. Gregory Harris, a Chicago Democrat and committee member. "We need to find out if we have the tools in place to evaluate and regulate this unprecedented transaction."

The acquisition would be the first private equity firm buyout of nursing homes in Illinois, but the facilities have become popular acquisition targets for Wall Street investment companies in recent years.

"We simply want to be treated fairly," said Clifton Porter, an Ohio-based Manor Care executive who defended the quality of the company's facilities and invited committee members to visit them.

Carlyle wants to buy Manor Care because it foresees profits driven by aging baby boomers and the success of Manor Care, Porter said. Cost of servicing the debt on which the deal depends would come from money now used to pay dividends to shareholders, he said.

Senior executives would remain in charge, Porter said.

"It's not a gut-and-flip kind of transaction," he said.

The Carlyle Group buyout is under scrutiny from lawmakers in more than 30 states where Manor Care runs homes. State regulators must review and approve changes of licenses if the deal goes through.

Representatives from the Service Employees International Union want state regulators to review the purchase, including its effect on the Illinois Teachers' Retirement System, an investor in the Carlyle Group fund involved in the buyout.

"Illinois Teachers is in essence buying an asset with significant operational problems," said Chirag Meta of SEIU, which has undertaken a nationwide campaign to raise concerns about whether Carlyle would cut back on patient care.

The state can deny a nursing home license if a company has insufficient staffing, finances or experience running a nursing home, said Brent Stratton of the state attorney general's office.

Private equity acquisitions of nursing homes "create pressure to reduce staffing levels as a way to improve profit-ability, particularly when the acquisitions are financed by large increases in debt," Stratton said.

The purchase would be financed through a combination of commercial mortgage-backed securities, other debt fi-nancing and equity provided by Carlyle.

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