Untangling the Web of Nursing-Home Ownership to Reduce Fraud and Neglect

President Joe Biden promised in his 2022 State of the Union speech to have Medicare set higher standards for nursing homes. The administration’s priorities included national minimum-staffing standards. That has not been done yet.

By Steve Wishnia

Editor’s Note: This is Part II of special two-part Work-Bites series on New York State’s nursing home crisis. Part I is here. 

If the owners of for-profit nursing homes are shuffling money around multiple related companies to conceal income and increase profits, what can be done about it?

In general, greatly increase investigations and audits, look at all the nursing homes in a chain, and publicize the information found, say policy experts at nonprofits that advocate for patients. Specifically, auditors should look at all the related companies involved with a nursing home, says 1199SEIU policy analyst Dennis Short.

The related-party business model often makes an individual facility look like it’s losing money, but when an operator is paying rent to the related company that owns the land, hiring another to administer the business side, Short explains, “it’s extremely difficult to determine the financial health of the facility.” Providers are supposed to charge “fair market value” for those services, so auditors need to look at the overall profitability of all entities involved with the home to determine they’re not overcharging.

“Unless we know that, it’s hard to crack down on that,” Short says. That’s not an easy task, as it’s hard to dig into the books of privately held limited-liability corporations.

Without audits, there’s no way to be sure rates are not inflated, notes Lindsay Heckler, supervising attorney at the Center for Elder Law and Justice in Buffalo. Under a 2021 state law, however, nursing homes have to disclose related-entity agreements.

The state Department of Health, she adds, could look into resident complaints and the costs of contracts at one nursing homes affiliated with the same owners. The state’s website for nursing-home profiles should also have links to the owners’ other properties, she contends: People should be able to see if a specific facility is owned by bad owners, but the listing on current profiles “doesn’t tell you what other nursing homes their owners have in New York State.”

The federal Centers for Medicare and Medicaid Services should begin “raking all this information” about the chains as well, she continues, and both the state and federal governments should “pull this all together so people can see what’s going on.”

State Attorney General Letitia James has lots of ability to investigate, Heckler adds. Last year, she filed lawsuits accusing three nursing homes — the Villages at Orleans, east of Buffalo, and Fulton Commons and Cold Spring Hills, in Nassau County — of using related-party transactions to conceal fraud, with the diversion of funds from care leading to “widespread neglect and abuse.”

National issue

“It’s not just in New York,” says Short. A study of more than 800 California nursing homes published in the Journal of the American Geriatrics Society in April found that while their profits on average more than doubled during the pandemic, facilities with related parties — almost half of those in the study — overall reported lower profits.

That, says coauthor Richard Mollot, executive director of the Manhattan-based Long-Term Community Care Coalition, indicates “they’re using those related-party transactions to hide money.”

The study, led by University of California at San Francisco, relied on cost reports that nursing homes submitted to the state of California for 2019 and 2020, correlated with data from the federal Centers for Medicare and Medicaid Services. Its purpose was to assess whether federal and state aid and rate increases during the pandemic had helped protect nursing homes from financial distress, but what struck Mollot was the “crazy numbers.” The net income the facilities reported in 2020 ranged from a 48% loss to a 74% profit. In 2019, the range was a 25% loss to a 26% profit.

“There’s no verifiable basis” for those claims, Mollot says, as there are no required audits to see if those cost reports are valid.

The extremes were particularly implausible, he says. Nursing homes should have a modest margin of profit, as their revenues are fairly stable, almost all coming from Medicare and Medicaid payments, so “there shouldn’t be big disparities.”

Medicaid pays $250 a day for long-term care, and Medicare pays $400-$800 for rehabilitative care, Mollot explains, so owners can’t reasonably claim they are not making money.

New York’s law requiring nursing homes to spend 70% of income on care is a good first step, Short says, as “it is a way to put some guardrails on how money is spent.” New Jersey and Massachusetts have enacted similar laws.

Nationally, there’s pressure on the federal government to do more on transparency, he says. President Joe Biden promised in his 2022 State of the Union speech to have Medicare set higher standards for nursing homes. The administration’s priorities included national minimum-staffing standards, Centers for Medicare and Medicaid Services administrator Chiquita Brooks-LaSure told a group of SEIU nursing-home workers in April 2022.

That has not been done yet. Biden’s 2023 State of the Union address mentioned only cracking down on fraud and abuse. In March, Reps. Jan Schakowsky (D-Ill.) and Lloyd Doggett (D-Tex.), joined by more than 100 other House Democrats, the Long-Term Care Community Coalition, and SEIU, AFSCME, National Nurses United, and the American Federation of Teachers, urged Brooks-LaSure to include “strong mandatory minimum staffing standards” in Medicare payment rules for the 2024 fiscal year.

A report released May 19, by the Senate Special Committee on Aging said that the state agencies that oversee health and safety standards at nursing homes are seriously understaffed and underfunded. In 32 states, more than 20% of nursing-home surveyor positions were vacant, and more than half were vacant in nine states. Federal law, the report added, requires inspecting each of the nation’s 15,000 nursing homes at least once every 15 months, but one out of every nine had not received a standard inspection in two years.