University of California Los Angeles
By Dr. Ashvin Gandhi and Dr. Andrew Olenski
March 4, 2024
Summary prepared by Becker’s Hospital Review
A recent study led by researchers at the University of California Los Angeles study found reported nursing home profits may reflect only 37.1% of total profits as of 2019, suggesting a practice of profit extraction from the industry that is being “tunneled” into owners’ pockets.
“Tunneling” describes the transfer of assets and profits out of firms into the pockets of the people who control them. The analysis used a stacked difference-in-differences approach to document how related party transactions were used as a form of profit extraction in the nursing home industry. Researchers found that services purchases from related parties are substantially inflated and a large share of related party spending is on real estate and management services.
Here are three main findings:
- The estimates suggest that reported nursing home profits reflect only 37.1% of profits as of 2019, and only 33.5% of facilities have no related party transactions.
- Among firms with positive “hidden” profits, the scope of such profits ranged from $81,834 to $415,379.
- The calculations suggest that firms may be substantially understating their profitability, which allows them to mislead potential plaintiffs, dissuade litigation, and ask for increased reimbursements.
Full report at: The ‘hidden profits’ in the nursing home industry
Editor’s note: Consumer Voice is holding a webinar featuring Dr. Ashvin Gandhi and Dr. Andrew Olenski on Wednesday, April 10, 2024 from 2:00 to 3:00 p.m. Hidden Profits in the Nursing Home Industry