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The National Consumer Voice for Quality of Long-Term Care recently released a report scrutinizing the expense reporting practices of nursing homes that receive federal tax funds from the Centers for Medicare & Medicaid Services (CMS.) Their investigation discovered that current processes to hold nursing homes accountable for their spending are flawed and have resulted in a system where there is little to no transparency or accountability.
Consumer Voice examined nursing homes’ yearly cost report data from 2018–2020 to see how funds were spent and if the expenditures they reported matched the funds they received from CMS. It appears that most nursing homes funnel expenses into related parties with little to no oversight, allowing owners and operators to essentially pay themselves and report profits as expenses.
What Are Related Parties?
Related parties are separate, single-purpose corporations created by nursing home owners and operators to meet the needs of running a nursing home while simultaneously protecting their own investments. For example, many nursing homeowners create property management companies to manage the buildings they already own, allowing them to charge rent to themselves rather than an outside party. They may also create companies that provide other services needed by a nursing home, such as housekeeping services, so they can keep the money they charge their own facility.
Essentially, related parties allow nursing homes to use federal funds to pay for services or rent to other companies they already own, meaning the money never actually leaves their hands. This practice became widespread among nursing homes after an article published in 2003 in the Journal of Health Law suggested creating related parties to protect owner investments from civil judgment.
Throughout their investigation, Consumer Voice discovered many errors in the way nursing homes have been reporting expenses to related parties and recognized that CMS could be doing more to discipline nursing homes that abuse this legal loophole.
Main Report Discoveries
Here are the main discoveries of this Consumer Voice investigation:
- It appears that there is little oversight from the federal government on the billions of dollars funneled through related parties each year.
- Nursing home owners and operators routinely pay their related parties above reported costs, sometimes by nearly 1200%.
- Funneling money through related parties hides profits and makes nursing homes look less profitable.
- Even when properly completed, cost reports do not provide sufficient information on related party transactions, preventing CMS from regulating spending and ensuring taxpayer dollars are going towards care instead of profits.
4 Recommendations from Consumer Voice:
Consumer Voice is a strong advocate for quality care, transparency, and regulation. Their report also contained recommendations for CMS to improve its practices and reduce the misuse of federal funds through related party transactions.
- Auditing of Cost Reports by CMS–Cost reports must be reviewed by CMS with both automated and manual processes to ensure that reported information is complete and accurate. In addition, cost reports should be made available to the public so advocates and researchers can use this information when evaluating nursing homes. Public records could also incentivize nursing homes to use funds more appropriately.
- Consolidated Cost Reports–CMS should require consolidated cost reports. These reports would require owners and operators to disclose more information on all companies related to the operation of nursing homes, including related parties, holding companies, shell corporations, and other entities used to mask ownership and profits.
- Implement a Minimum Staffing Standard–There are currently no minimum staffing requirements to receive federal funds at a nursing home, though some states have their own requirements. Creating requirements would force nursing homes to use federal funds to hire, train, and fairly compensate staff.
- Medical Los Ratio (Profit Cap)–Establishing profit caps would encourage more funds to be used on patient care and reduce the ability of owners and operators to divert profits for their own use.
What Does This Mean for You and Your Loved One?
You should be able to trust the staff and operators of nursing homes to use federal funds to appropriately care for your loved one. However, this Consumer Voice report indicates that federal funds are routinely misused, directly affecting the care their residents receive.
Reports like this are an important part step forward in the process of protecting vulnerable populations in nursing homes. Evidence of bad practices and procedures allows for resident advocates and their families to take action and exercise their right to demand transparency and better care.
At Solomon & Relihan, we are here to help you navigate the legal system and seek justice for any nursing home abuse experienced by your loved one. Our Phoenix law firm has been representing personal injury victims since 1974, limiting our practice to nursing home and assisted living abuse and neglect cases.
Solomon & Relihan offers decades of experience and in-depth knowledge surrounding elderly abuse and neglect. If you’re looking for a nursing home abuse lawyer in Arizona, contact us for a FREE case review and analysis today.
Martin J. Solomon is a principal at Solomon & Relihan PC and has been licensed to practice law in Arizona since 1970. He practices exclusively in the area of personal injury litigation, with an emphasis on nursing home abuse and neglect. Martin is a graduate of the University of Arizona College of Law, a past president of the Arizona Trial Lawyers Association, and has served as a member of the Board of Directors for the Arizona Center for Disability Law and the Arizona Center for Law in the Public Interest. He is a member of the Nursing Home Litigation Group in the American Association for Justice (formerly the American Trial Lawyers Association), the National Citizens’ Coalition for Nursing Home Reform and the Maricopa Elder Abuse Prevent Prevention Alliance.