Related Entities

Self-Dealing with Related Entities

The Washington Post had an incredible story about the infamous Brius chain of nursing homes. The largest for-profit nursing home operator in California is Brius Healthcare. Brius pursued a business practice of paying related companies exorbitant rates for goods, services and rent. While the chain diverted funds to related or affiliated entities, the facilities were short on staff and quality causing neglect and wrongful deaths.  In 2018 alone, Brius took more than $800 million from Medicare and Medicaid.

“I know Mr. Rechnitz’s approach to funding his nursing homes,” geriatrician Michael Wasserman, the former CEO told The Washington Post. “Typically those decisions would be made looking at the bottom line rather than what was the right thing to do for the residents.”

More than 70 percent of the country’s nursing home providers use operating funds to pay themselves through so-called related entities. These affiliated companies have common ownership or common control. In 2018, Brius nursing homes paid related parties $13 million for supplies. $10 million for back office administrative services and financial consulting. $16 million for workers’ compensation insurance. The homes also sent a total of $64 million in rent to dozens of related land companies.

Consumer advocates, experts, and watchdog groups warn that nursing home owners exploit excessive profits from public funds by overpaying their own companies for nothing. Related parties generally do not have to disclose profits, leaving regulators with little way to assess the financial gains of owners.

Transparency

In recent weeks, consumer advocacy groups advanced a proposal that would require owners to submit tax returns and consolidated financial reports for all related parties. This would include management, land companies, holding companies and parent companies. The proposal stops troubled owners from operating homes and ensures that profits and administrative costs are reasonable. 85 percent of nursing home revenue comes from Medicare and Medicaid.

Brius homes pay about 40 percent more per bed on average to related parties than other for-profit nursing homes in California, a Washington Post analysis of state data shows. In 2018, Brius homes paid more than $100 million to related parties for everything from medical supplies to rent.

“The money simply falls through a trap door without oversight from regulators and consumer watchdogs,” said Mike Dark, a lawyer with the nonprofit California Advocates for Nursing Home Reform.

The state does not “even ask for certified audits. It’s sort of pathetic,” said Charlene Harrington, a sociology and nursing professor at the University of California at San Francisco who has studied the industry for decades and worked on the proposal. “They’re just doing what they’ve done for the last 20 years and not realizing the industry has changed dramatically. The corporations run circles around government.”