Regulatory and legal challenges to nursing home ownership transparency.
By Russ Banham
Leader’s Edge magazine
Many senior-care advocates point to the lack of transparency associated with private nursing home ownership as part of the problem.
“Private equity firms and other private owners are a significant problem because they intentionally keep information about themselves and what they’re doing as secret as possible,” says Toby Edelman, a senior policy attorney at the nonprofit Center for Medicare Advocacy. According to Edelman, the secrets are about to be exposed through litigation in New York state that seeks to “identify who is actually behind the facilities, taking too much public reimbursement as excessive private profit.”
The lawsuit Edelman refers to was filed in June by New York Attorney General Letitia James against the owners and operators of four nursing homes for resident neglect and financial fraud. The lawsuit alleges the owners and operators converted more than $83 million in Medicaid and Medicare funds to enrich themselves. Rather than use the funds for sufficient staffing and resident care needs, the owners leveraged an “elaborate network of related companies” to engage in collusive and fraudulent transactions, the state charged.
Senior care advocates also contend that many owners and operators of nursing homes have long been hiding income generated by the other businesses they own. One example is separating owned real estate, the brick-and-mortar nursing home, from the owned operating entity licensed to provide care. Having two separate corporations, the owned operating entity can collect rent or lease fees from the real estate entity. Senior care advocates say the practice provides an opportunity for a nursing home facility to show a loss due in part to the cost of paying rent and lease fees, while obscuring what the lease income was actually used for.
Beginning in the 1980s, for-profit nursing homes perceived an opportunity to profit off federal government reimbursements by setting up subsidiaries that sold goods and services to the nursing homes they owned and operated. These subsidiaries ran the gamut from home healthcare products such as crutches, hospital beds, incontinence supplies, and respiratory therapy equipment to healthcare services such as physical therapy, occupational therapy and speech language pathology. Any profits from the sale of goods and services were a reimbursable cost on a nursing home’s books. While this all sounds like smart business, the benefits did not trickle down to nursing home residents.
Here are some findings from a 2023 report by the National Consumer Voice for Quality Long-Term Care.
- Owners and operators of nursing homes routinely pay their related parties more than the reported costs, in some instances by nearly 1,200%.
- Related parties make nursing homes look less profitable, while a closer look at the parties reveals that profits may be hidden in these transactions.
- Cost reports do not capture enough information on related-party transactions to enable the Centers for Medicare & Medicaid Services to fulfill its regulatory obligation to ensure taxpayer dollars are going toward care and not toward profits to owners and operators.
- Despite billions of dollars being funneled through related-party companies each year, there appears to be little to no scrutiny by the federal government on how this money is spent.
A case in point is Life Centers of America, the country’s largest chain of nursing homes. “While Life Care Centers was paying its related parties $140 million more than their costs, residents in Life Care Center homes were, on average, receiving insufficient nursing care,” the report said. Life Care Centers of America did not respond to a request for a rebuttal.
Asked for her perspective on insufficient nursing care, Lori Smetanka, executive director, National Consumer Voice for Quality Long-Term Care, says that nursing home residents need 4.1 hours per resident day of direct nursing care at a minimum to “prevent harm and poor outcomes.” She attributed the 4.1 hours to a 2001 CMS report to Congress. At Life Care Centers between 2018 and 2020, the residents received 3.82 hours per resident day of direct nursing care on average, “an amount insufficient to provide the most basic care,” she said.
In a statement to Leader’s Edge, AHCA sharply disagreed with the position taken by senior care advocates. “Related parties are common across a variety of industries and focusing on them among nursing homes is a red herring. The sad truth is that because long-term care is chronically underfunded, ancillary services sometimes help keep these nursing homes afloat.”
To increase the transparency of related-party transactions, CMS recently issued a proposed rule requiring facilities to disclose additional ownership and management information to CMS and state health departments.