Researchers estimate that redirecting those hidden profits toward direct care staffing could increase RN hours per resident day by 28.9% and CNA hours by 21.0%, with significant implications for Medicaid reimbursement rates and staffing mandate compliance assessments.
Tunneling and Hidden Profits in Health Care
This study examines whether healthcare providers tunnel profits and assets to commonly-owned related parties by making inflated payments for their goods and services. Such practices allow providers to understate their profitability—which may encourage regulators to increase reimbursements and relax quality standards—and shield assets from malpractice liability. Using uniquely detailed nursing home financial data, we find evidence of widespread tunneling to related-party real estate and management companies.
Gandhi, Ashvin, and Andrew Olenski. “Tunneling and Hidden Profits in Health Care.” National Bureau of Economic Research, Working Paper 32258, 14 Mar. 2024, doi.org/10.3386/w32258.
Hidden Profits in the Nursing Home Industry (YouTube webinar)
In this webinar, Consumer Voice was joined by Dr. Ashvin Gandhi and Dr. Andrew Olenski, authors of a new paper on related parties, “Tunneling and Hidden Profits in Health Care.” The authors of this groundbreaking study discussed their methodology, findings, and what steps they recommend be taken to address the lack of transparency and accountability that allows nursing homes to continuously claim poverty as to why they are unable to provide high-quality care.
— National Consumer Voice for Quality Long-Term Care, April 10, 2024
Nursing Homes Understating Profits To Get Higher Reimbursement Rates Is Impacting Staffing
The practice of nursing home owners understating their profits to federal regulators by shifting income to related businesses may be more widespread than initially thought, and it’s affecting staffing. The study suggests that if market prices were paid for rent and services instead of inflated prices through related party transactions, nursing homes could potentially increase staffing levels by about 30%.
“The federal government is taking steps to increase financial disclosure by nursing homes,” Gleckman wrote. “But it needs to do more to illuminate the nationwide scale of related party transactions. Ultimately, however, nursing home payments should be more closely tied to quality and patient and resident outcomes rather than reported costs.”
— Skilled Nursing News, March 19, 2024
For-profit nursing home owners rebut report that left few untarnished
Meanwhile, owners make the facilities look less profitable by siphoning money from the homes through byzantine networks of interconnected corporations. Federal regulators have neglected the problem as each year likely billions of dollars are funneled out of nursing homes through related parties and into owners’ pockets.
The nearly 6,500-word piece hit private equity investors as well as some typically well-regarded industry players for having “swooped in to purchase underperforming homes” since 2016. It also slammed the growing class of midsized operators (those holding between 11 and 100 facilities), which the analysis found had higher than average fines per home, lower quality ratings, and a higher likelihood of being cited for resident abuse.
However, what the article failed to highlight, providers and their representatives pointed out to McKnight’s Long-Term Care News Friday, are the investments many for-profits providers are pouring into quality and innovation efforts in a field with historically low margins — margins that they said dried up during the pandemic’s crisis days.
— McKnight’s Long-Term Care News, March 18, 2024
Do Nursing Homes Low-Ball Profit Reports To Get Higher Government Payments?
Do nursing home owners understate the profits they report to federal regulators by shifting income to related businesses? Two academic experts in nursing home finance found that in one state 63 percent of margins are hidden this way. To put it another way, only 37 percent of true nursing home profits are reported to federal regulators.
The federal government is taking steps to increase financial disclosure by nursing homes. But it needs to do more to illuminate the nationwide scale of related party transactions. Ultimately, however, nursing home payments should be more closely tied to quality and patient and resident outcomes rather than reported costs.
— Forbes, March 18, 2024
Data Analysis Finds Troubling Quality at Midsized, For-Profit Skilled Nursing Chains
Midsize for-profit nursing home chains, which make up about 40% of the industry, are at the center of investigations by news organizations whose analysis of new government data shows troubling statistics for quality.
— Skilled Nursing News, March 14, 2024
Nursing homes claim to lose money every year, but they stay in business and don’t close or file for bankruptcy. How is that possible? It’s possible because industry claims aren’t true. Nursing homes hide 62.9% of profits by paying inflated prices to related parties, primarily for real estate and management services.
In “Tunneling and Hidden Profits in Health Care,” economists Ashvin Gandhi and Andrew Olenski report that if nursing facilities spent their hidden profits on staffing, mean staffing ratios would significantly increase – by nearly 0.23 hours per resident day (HPRD) of registered nurse (RN) time, a 28.9% increase, or by 0.47 HPRD of certified nurse aide (CNA) hours per resident day, a 21.0% increase.
— Center for Medicare Advocacy, March 14, 2024
Spotlight: The ‘hidden profits’ in the nursing home industry
The estimates suggest that reported nursing home profits reflect only 37.1% of profits as of 2019, and only 33.5% of facilities have no related party transactions. Among firms with positive “hidden” profits, the scope of such profits ranged from $81,834 to $415,379.
— Dignity Alliance Massachusetts, March 11, 2024
Nursing homes bury 63 percent of profits in related-party tunnels, but not all play the game: study
As much as 63% of nursing home profits in Illinois were hidden from state regulators using related party transactions in 2019, according to the results of a new study from UCLA and Lehigh University researchers. Those results are likely indicative of a nationwide trend that has continued through the pandemic and into 2024, experts told McKnight’s Long-Term Care News Thursday.
Those results are likely indicative of a nationwide trend that has continued through the pandemic and into 2024, experts told McKnight’s Long-Term Care News Thursday.
— McKnight’s Long-Term Care News, March 08, 2024
Nursing home owners can hide nearly two-thirds of their profits, new study shows
The practice makes the nursing homes look poorer than they really are, the study’s authors wrote, which seems to bolster the industry’s arguments to Congress that it can’t meet certain proposed quality standards or handle potential Medicare payment cuts. Artificially decreasing profit margins this way could also help shield their assets from any potential legal settlements.
Nursing homes are hiding their profits by funneling them to “related parties” — companies that share the same owner. The most common related parties are landlords or management companies. An owner hiding profits might charge their nursing home especially high rents or management service fees, and they would pocket all the money.
— STAT News, March 07, 2024
Tunneling and Hidden Profits in Health Care
This study examines “tunneling” practices through which health care providers covertly extract profit by making inflated payments for goods and services to commonly-owned related parties. Masking profits as costs, thereby obscuring true profitability, may dissuade regulators from imposing stricter quality standards and encourage public payers to increase reimbursement rates.
Researchers find evidence of widespread tunneling through inflated rents and management fees paid to related parties. Extrapolating these markups to all firms’ related party transactions, their estimates suggest that in 2019, 63% of nursing home profits were hidden and tunneled to related parties through inflated transfer prices.
— UCLA Health Policy, March 04, 2024
