Center for Medicare Advocacy, January 5, 2023, by T. Edelman
Editor’s note: Richard Moore is the Chair of Dignity Alliance’s Legislative Workgroup.
Owners and operators of nursing homes and their trade associations argue that they will need more money when mandatory staffing ratios promised by the Biden Administration are implemented. Don’t believe them.
In “Are nursing homes really in tough shape? Full transparency needed before any more taxpayer bailouts,” former Massachusetts state senator Richard T. Moore, who chaired the Committee on Health Care Financing, calls for government leaders to look beyond facilities’ cost reports and to focus on consolidated financial statements for companies doing business with nursing facilities. He observes, “The focus needs to be in the combined payouts to their own ancillary businesses such as real estate, insurance, management services, etc. that are expensed on cost reports which affect each facility’s net income but funnels cash to investors.”
“Expenses” to related parties on cost reports are actually profits, by another name. Moore calls out the nursing home industry’s “‘political narrative,’” which is “‘based on a false impression that the industry is comprised of struggling businesses barely avoiding bankruptcy.’” Review of facilities’ consolidated financial statements would tell a different, and truer, story.
The Center for Medicare Advocacy agrees with Senator Moore. Ample evidence, accumulated over many years and continuing to the present time, documents that facilities hide enormous profits through related parties – that is, businesses that they own and control.
- The New York Times reported in 2018 that three-quarters of all nursing facilities buy goods and services, such as therapy services, management services, medications, and rent, often at highly inflated prices, from companies that they own and control. As the result of these related party transactions, facilities hide profits as the cost of doing business. The family trust of two owners described in the article took $40 million of the $145 million that their facilities received as reimbursement over an eight-year period – a 28% profit margin. The New York Times reported that facilities engaging in related party practices have fewer nurses and aides to provide care to residents, “higher rates of patient injuries and unsafe practices,” and twice as many complaints as other facilities.
- The Naples Daily News reported in 2018 that Consulate Health Care, then the largest nursing home operator in Florida and sixth largest operator in the country (with 210 facilities and 22,059 beds in 21 states), founded in 2006 and owned by the Atlanta-based private equity firm Formation Capital, designed its facilities “to appear cash-strapped.” The article described the chain’s individual facilities as “essentially empty shells, they pay rent, management and rehabilitation service fees to Consulate or Formation Capital-affiliated companies.” One Consulate facility paid $467,022 in management fees and $294,564 in rent to two companies owned by Consulate and Formation Capital.
- In a July 2022 report, the Empire Center found that nearly three-quarters of New York’s for-profit nursing facilities (72%) “structure themselves as networks of interlocking companies” that “disguise the true profitability of their businesses.” In 2020, companies related to the state’s for-profit nursing homes (related-party companies) reported $306 million in profits from $1.6 billion in revenue – a margin of 19.5%. At the same time, the nursing facilities themselves officially showed profits of only 2.3%. Related-party transactions reflected two-thirds of owners’ profits for the year. Most significantly, facilities using related-party transactions spent less money on staffing and had poorer federal quality ratings than not-for-profit or government-owned facilities. The report provided details about a 17-facility chain in the state, whose two owners “netted at least $13.8 million in profits and salaries from their combined nursing home businesses,” more than eight times the $1.7 million that they officially reported as profits.
- Most recently, between late November and mid-December 2022, the New York State Attorney General, through the Medicaid Fraud Control Unit, filed lawsuits against three nursing facilities, documenting how the facilities diverted millions of dollars in Medicare and Medicaid reimbursement to excessive profits for their multiple, often undisclosed owners. The Attorney General alleges that the facilities were understaffed and provided grossly inadequate care to residents, before and during the COVID-19 pandemic.
In addition to reimbursement from the Medicare and Medicaid programs, nursing facilities received many additional billions of dollars in federal and state COVID-19 relief money during the pandemic. Nursing facilities also receive substantial subsidies through federal and state needs-based public benefit programs that their underpaid workers rely on.
Prices for nursing home beds soared in 2022 – from $80,000 in the fourth quarter of 2019 to $95,800 per bed in the second quarter of 2022. Why? In a blog post, Bill Kauffman, senior principal for the National Investment Center for Seniors Housing & Care, identifies Medicaid rate increases and federal relief funding during the pandemic, Medicare’s new reimbursement system for skilled nursing facilities (Patient Driven Payment Model), and “the opportunity for growth in other ancillary businesses” (“in-house dialysis, contract therapy, wound care, pharmacy services or an on-site diagnostic lab, among other businesses”), among other factors. Ancillary businesses, another term for related parties, create facilities’ hidden profits. Would there have been such a buying frenzy if the nursing home industry was unprofitable?
Before nursing homes are given more public money, the Center for Medicare Advocacy urges far greater transparency and accountability for the billions of dollars that nursing homes already receive.