Tunneling to Related Entities

McKnight’s reported a disturbing study on how much money nursing homes divert to related parties with common ownership. Greater costs especially in real estate (20%) and management (25%) occur. UCLA and Lehigh University researchers found as much as 63% of nursing home profits in Illinois were hidden from state regulators using related party transactions in 2019.

Those results are indicative of a nationwide trend. Nursing homes overstate costs by hiding profits in related-party transactions and hiding revenues by funneling them through entities that share ownership with those nursing homes — a practice the study refers to as “tunneling.”

The study’s authors wrote that “tunneling” makes the nursing homes look poorer than they really are to seek higher reimbursements and avoid compensation to victims of abuse and neglect by shielding assets.

Audited financial reporting should be pursued by state and federal regulators to ensure that informed decisions can be made about reimbursement rates, staffing mandates and other issues related to long-term care funding. Profits in the industry are higher than publicly available data suggest.

Consumer advocates have been calling for consolidated cost reporting of related party transactions for years, citing concerns of hidden profits and resulting higher costs. More data could allow for better analysis of Medicare and Medicaid rates related to the cost of providing care, as well as the costs of staffing mandates for nursing homes — such as the federal staffing mandate currently under consideration at the Centers for Medicare & Medicaid Services.