Systemic Problems

The COVID-19 pandemic has exposed a failure to protect nursing home residents and staff. As a nursing home lawyer for over 25 years, these failures were long-standing and systemic. Persistent problems with nursing home care existed for years. Often because of too few and inadequately trained frontline staff. Solutions do exist. Safe staffing, transparency, and accountability are needed.

The harm to frail older adults is severe and tragic. Preventable abuse and sexual assault, infections, overuse of psychotropic medications, pressure ulcers, falls with injuries, weight loss, dehydration, pain, and medication errors are common.  Infection control violations have also been found repeatedly in a majority of nursing homes.

At least 600,000 residents and 500,000 staff members were infected. At least, 115,000 residents and 1500 died from failures related to infection prevention and control. The growth in complex nursing-home ownership structures has limited financial transparency by allowing nursing homes to hide public payments and cut direct resident care.

Related Party Transactions

About 70 percent of nursing homes are operated by for-profit corporations while 58 percent are operated by corporate chains. Private equity firms own about 11 percent of nursing facilities. Non-profits and government-owned make up only 24 percent and 7 percent respectively.

Most chain nursing homes separate their operating companies from their real estate to shield parent companies from liability and reduce transparency. Real estate investment companies (REITs) have dramatically expanded their ownership since the Housing and Economic Recovery Act of 2008 allowed REITs to buy health care facilities. These companies lease their facilities and property to nursing home operating companies at exorbitant rents.

By contracting with related-party entities for management services, nursing and therapy services, and lease agreements and loans, companies siphon money out as expenses. They can then hide the profits through these third-party contractors. Most nursing homes use related enties as separate management companies.

Almost all nursing homes have related-party business transactions. These related transactions account for $11 billion of nursing home spending in 2015 according to Medicare cost reports. Nursing homes that did business with related-party companies employed fewer nurses, were more likely to have immediate jeopardy deficiencies, higher fines, and substantiated complaints compared with independent homes. Additionally, for-profit nursing homes use related entities more than nonprofits.

Potential Solutions

CMS should audit the accuracy and completeness of the PECOS ownership reporting system. Right now each facility hides its chain ownership. No penalty equals no compliance.

CMS should establish quality and financial standards for approving changes in ownership or management. These standards should include minimum staffing standards; meeting quality regulations; preventing abuse and neglect; complying with financial and ownership reporting requirements; having liability insurance coverage; and having adequate financial reserves.

CMS should ensure that cost data are reliable and accessible to the public. Accurate monitoring would provide a new lens on how ownership and financial investment in the nursing home sector impact the quality of care and the stability of individual facilities and chains.

CMS should augment PECOS reporting to include all parent, management, and property companies, and other related party entities. Then CMS’s Care Compare website could provide information by chain and common ownership. Cost report requirements should require nursing homes to provide annual consolidated financial reports. These reports should include data from operating entities and related entities.