Financial Transparency

Forbes reported on a study by health economists at UCLA and Lehigh University. Nursing home owners understate profits to federal regulators by shifting income to related businesses. Ashvin Gandhi and financial economist Andrew Olenski looked into how operators “tunnel” expenses to related parties. The bottom line is that staffing levels within nursing homes will increase by 30 percent if they paid market rates instead of inflated prices for rent and services.

A wide variation in diverting funds to related business transactions within the facilities. These kinds of business-related transactions overstate the costs
and understate the profits that are reported to the government. These costs are mainly for real estate and management versus services like nursing and laundry.

The sad truth is that long-term care is chronically underfunded because owners siphon funds to ancillary services and related parties and not on safe staffing or patient care. This exchange is present when a nursing home operator sells the facility to a real estate company where the facility owner has control. The real estate firm will lease the property back to the nursing home at an increased price. These high rents will reduce “profits” that the nursing homes report to the federal government but increase the revenues to the owners or its investors.

This same idea applies to related party purchases of other services such as laundry, management, and accounting. Having the opportunity to shift profits to related businesses hide profits and shield owners from liability. The federal government should continue to push for transparency and financial disclosure requirements for nursing home facilities but should do more to highlight nationwide related party transactions. Nursing home payments should be more closely related to patient and resident outcomes rather than reported costs.