The for-profit nursing home sector is growing, and it places a premium on cost cutting and big profits, which has led to low staffing and patient neglect and mistreatment. (Photo by picture alliance via Getty Images)

The care at Landmark of Louisville Rehabilitation and Nursing was abysmal when state inspectors filed their survey report of the Kentucky facility on July 3, 2021.

Residents wandered the halls in a facility that can house up to 250 people, yelling at each other and stealing blankets. One resident beat a roommate with a stick, causing bruising and skin tears. Another was found in bed with a broken finger and a bloody forehead gash. That person was allowed to roam and enter the beds of other residents. In another case, there was sexual touching in the dayroom between residents, according to the report.

Meals were served from filthy meal carts on plastic foam trays, and residents struggled to cut their food with dull plastic cutlery. Broken tiles lined showers, and a mysterious black gunk marred the floors. The director of housekeeping reported that the dining room was unsanitary. Overall, there was a critical lack of training, staff and supervision.

The inspectors tagged Landmark as deficient in 29 areas, including six that put residents in immediate jeopardy of serious harm and three where actual harm was found. The issues were so severe that the government slapped Landmark with a fine of over $319,000 — more than 29 times the average for a nursing home in 2021 — and suspended payments to the home from federal Medicaid and Medicare funds.

Persistent problems

But problems persisted. Five months later, inspectors levied six additional deficiencies of immediate jeopardy — the highest level — including more sexual abuse among residents and a certified nursing assistant pushing someone down, bruising the person’s back and hip.

Landmark is just one of the 58 facilities run by parent company Infinity Healthcare Management across five states, including nine facilities in Kentucky. The government issued penalties to the company almost 4? times the national average, according to bimonthly data that the Centers for Medicare & Medicaid Services first started to make available in late 2022. All told, Infinity paid nearly $10 million in fines since 2021, the highest among nursing home chains with fewer than 100 facilities.

Infinity Healthcare Management and its executives did not respond to multiple requests for comment.

Such sanctions are nothing new for Infinity or other for-profit nursing home chains that have dominated an industry long known for cutting corners in pursuit of profits for private owners. But this race to the bottom to extract profits is accelerating despite demands by government officials, health care experts and advocacy groups to protect the nation’s most vulnerable citizens.

To uncover the reasons why, The Conversation’s investigative unit Inquiry delved into the nursing home industry, where for-profit facilities make up more than 72% of the nation’s nearly 14,900 facilities. The probe, which paired an academic expert with an investigative reporter, used the most recent government data on ownership, facility information and penalties, combined with CMS data on affiliated entities for nursing homes.

The investigation revealed an industry that places a premium on cost cutting and big profits, with low staffing and poor quality, often to the detriment of patient well-being. Operating under weak and poorly enforced regulations with financially insignificant penalties, the for-profit sector fosters an environment where corners are frequently cut, compromising the quality of care and endangering patient health. 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.

More trouble at midsize chains

Analyzing newly released government data, our investigation found that these problems are most pronounced in nursing homes like Infinity — midsize chains that operate between 11 and 100 facilities. This subsection of the industry has higher average fines per home, lower overall quality ratings, and are more likely to be tagged with resident abuse compared with both the larger and smaller networks. Indeed, while such chains account for about 39% of all facilities, they operate 11 of the 15 most-fined facilities.

In Kentucky, seven of the 10 most fined facilities are owned by midsize chain owners, four of which are associated with Infinity Healthcare. The Landmark of River City Rehabilitation and Nursing is the most fined facility in Kentucky, with over $528,000 in penalties levied against the facility since the start of 2021. During one inspection in the summer of 2023, inspectors found multiple lapses of care that placed residents in immediate jeopardy of harm. In one instance the facility missed two of a resident’s dialysis treatments, and when the resident was brought in to the clinic for third treatment that week, the patient was slumped over, unresponsive, and twitching.?

Likewise for the third most fined facility in the state, the Landmark of Laurel Creek Rehabilitation and Nursing in Manchester. Inspectors uncovered multiple incidents that jeopardized the safety of residents in December of 2022, and fined the facility over $489,000.?

Lexington Health Management has six of its 16 facilities in Kentucky and is the second most fined chain in the state. The company is also affiliated with the second most fined nursing home, Lyndon Woods Care & Rehab in Louisville. The home was fined over $517,000 in March of 2023 alone. That inspection report documented numerous instances of residents fighting each other, including one incident that resulted in a neck fracture. The most severe citation noted that many residents were in danger due to their poor care.??

“We strive to enhance and strengthen our clinical systems through routine QAPI (Quality Assurance & Performance Improvement) meetings,” Tom Watts, President and CEO Exceptional Living Centers, which runs operations for Lyndon Woods Care & Rehab, wrote in a statement. “We continue to work closely with CMS and state surveyors to ensure that we are following all guidelines and providing the best care possible to our residents.”??

A 2023 report by Good Jobs First, a nonprofit watchdog, noted that a dozen of these chains in the midsize range have doubled or tripled in size while racking up fines averaging over $100,000 per facility since 2018. But unlike the large, multistate chains with easily recognizable names, the midsize networks slip through without the same level of public scrutiny, The Conversation’s investigations unit found.

“They are really bad, but the names — we don’t know these names,” said Toby Edelman, senior policy attorney with the Center for Medicare Advocacy, a nonprofit law organization.

“When we used to have those multistate chains, the facilities all had the same name, so you know what the quality is you’re getting,” she said. “It’s not that good — but at least you know what you’re getting.”

In response to The Conversation’s findings on nursing homes and request for an interview, a CMS spokesperson emailed a statement that said the CMS is “unwavering in its commitment to improve safety and quality of care for the more than 1.2 million residents receiving care in Medicare- and Medicaid-certified nursing homes.”

The statement pointed to data released by the oversight body on mergers, acquisitions, consolidations and changes of ownership in April 2023 along with additional ownership data released the following September. CMS also proposed a rule change that aims to increase transparency in nursing home ownership by collecting more information on facility owners and their affiliations.

“Our focus is on advancing implementable solutions that promote safe, high-quality care for residents and consider the challenging circumstances some long-term care facilities face,” the statement reads.

CMS is slated to implement the disclosure rules in the fall and release the new data to the public later this year.

“We support transparency and accountability,” the American Health Care Association/National Center for Assisted Living, a trade organization representing the nursing home industry, wrote in response to The Conversation‘s request for comment. “But neither ownership nor line items on a budget sheet prove whether a nursing home is committed to its residents. Over the decades, we’ve found that strong organizations tend to have supportive and trusted leadership as well as a staff culture that empowers frontline caregivers to think critically and solve problems. These characteristics are not unique to a specific type or size of provider.”

It often takes years to improve a poor nursing home — or run one into the ground. The analysis of midsize chains shows that most owners have been associated with their current facilities for less than eight years, making it difficult to separate operators who have taken long-term investments in resident care from those who are looking to quickly extract money and resources before closing them down or moving on. These chains control roughly 41% of nursing home beds in the U.S., according to CMS’s provider data, making the lack of transparency especially ripe for abuse.

A churn of nursing home purchases even during the COVID-19 pandemic shows that investors view the sector as highly profitable, especially when staffing costs are kept low and fines for poor care can easily be covered by the money extracted from residents, their families and taxpayers.

“This is the model of their care: They come in, they understaff and they make their money,” said Sam Brooks, director of public policy at the Consumer Voice, a national resident advocacy organization. “Then they multiply it over a series of different facilities.”

Investor race

The explosion of a billion-dollar private marketplace found its beginnings in government spending.

The adoption of Medicare and Medicaid in 1965 set loose a race among investors to load up on nursing homes, with a surge in for-profit homes gaining momentum because of a reliable stream of government payouts. By 1972, a mere seven years after the inception of the programs, a whopping 106 companies had rushed to Wall Street to sell shares in nursing home companies. And little wonder: They pulled in profits through their ownership of 18% of the industry’s beds, securing about a third of the hefty $3.2 billion of government cash.

The 1990s saw substantial expansion in for-profit nursing home chains, marked by a wave of acquisitions and mergers. At the same time, increasing difficulties emerged in the model for publicly traded chains. Shareholders increasingly demanded rapid growth, and researchers have found that the publicly traded chains tried to appease that hunger by reducing nursing staff and cutting corners on other measures meant to improve quality and safety.

“I began to suspect a possibly inherent contradiction between publicly traded and other large investor-operated nursing home companies and the prerequisites for quality care,” Paul R. Willging, former chief lobbyist for the industry, wrote in a 2007 letter to the editor of The New York Times. “For many investors … earnings growth, quarter after quarter, is often paramount. Long-term investments in quality can work at cross purposes with a mandate for an unending progression of favorable earnings reports.”

Recognizing the long-term potential for profit growth, private investors snapped up publicly traded for-profit chains, reducing the previous levels of public transparency and oversight. Between 2000 and 2017, 1,674 nursing homes were acquired by private-equity firms in 128 unique deals out of 18,485 facilities. But the same poor-quality problems persisted. Research shows that after snagging a big chain, private investors tended to follow the same playbook: They rebrand the company, increase corporate control and dump unprofitable homes to other investment groups willing to take shortcuts for profit.

Multiple academic studies show the results, highlighting the lower staffing and quality in for-profit homes compared with nonprofits and government-run facilities. Elderly residents staying long term in nursing homes owned by private investment groups experienced a significant uptick in trips to the emergency department and hospitalizations between 2013 and 2017, translating into higher costs for Medicare.

The human toll comes in death and suffering. A study updated in 2023 by the National Bureau of Economic Research calculated that 22,500 additional deaths over a 12-year span were attributable to private-equity ownership, equating to about 172,400 lost life years. The calculations also showed that private-equity ownership was responsible for a 6.2% reduction in mobility, an 8.5% increase in ulcer development and a 10.5% uptick in pain intensity.

Gaming the five-star rating system

Not that nursing homes have much to fear in the public perception of their reputation for quality. CMS uses what is known as the Five-Star Quality Rating System, designed to help consumers compare nursing homes to find one that provides good care. Theoretically, nursing homes with five-star ratings are supposed to be exceptional, while those with one-star ratings are deemed the worst. But research shows that nursing homes can game the system, with the result that a top star rating might reflect little more than a facility’s willingness to cheat.

A star rating is composed of three parts: The score from a government inspection and the facility’s self-reports of staffing and quality. This means that what the nursing homes say about themselves can boost the star rating of facilities even if they have poor inspection results.

Multiple studies have highlighted a concerning trend: Some nursing homes, especially for-profit ones, inflate their self-reported measures, resulting in a disconnect from actual inspection findings. Notably, research suggests that for-profit nursing homes, driven by significant financial motives, are more likely to engage in this practice of inflating their self-reported assessments.

At bottom, the elderly and their families seeking quality care unknowingly find themselves in an impossible situation with for-profit nursing homes: Those facilities tend to provide the worst quality, and the only measure available for consumers to determine where they will be treated well can be rigged. The result is the transformation of an industry meant to care for the most vulnerable into a profit-driven circus.

The pandemic

Nothing more clearly exposed the problems rampant in nursing homes than the pandemic. Throughout that time, nursing homes reported that almost 2 million residents had infections and 170,000 died.

No one should have been surprised by the mass death in nursing homes — the warning signs of what was to come had been visible for years. Between 2013 and 2017, infection control was the most frequently cited deficiency in nursing homes, with 40% of facilities cited each year and 82% cited at least once in the five-year period. Almost half were cited over multiple consecutive years for these deficiencies; if fixed, one of the big causes of the widespread transmission of COVID in these facilities would have been eliminated.

But shortly after coming into office in 2017, the Trump administration weakened what was already a deteriorating system to regulate nursing homes. The administration directed regulators to issue one-time fines against nursing homes for violations of federal rules rather than for the full time they were out of compliance. This shift meant that even nursing homes with severe infractions lasting weeks were exempted from fines surpassing the maximum per-instance penalty of $20,965.

Even that near-worthless level of regulation was not feeble enough for the industry, so lobbyists pressed for less. In response, just a few months before COVID emerged in China, the Trump administration implemented new regulations that effectively abolished a mandate for each to hire a full-time infection control expert, instead recommending outside consultants for the job.

The perfect storm had been reached, with no experts required to be on site, prepared to combat any infection outbreaks. On Jan. 20, 2020 — just 186 days after the change in rules on infection control — the CDC reported that the first laboratory-confirmed case of COVID had been found at a nursing home in Washington state.

The least prepared in this explosion of disease were the for-profit nursing homes, compared with nonprofit and government facilities. Research from the University of California at San Francisco found those facilities were linked to higher numbers of COVID cases. For-profits not only had fewer nurses on staff but also high numbers of infection-control deficiencies and lower compliance with health regulations.

Even as the United States went through the crisis, some owners of midsize chains continued snapping up nursing homes. For example, two Brooklyn businessmen named Simcha Hyman and Naftali Zanziper were going on a nursing home buying spree through their private-equity company, the Portopiccolo Group. Despite poor ratings in their previously owned facilities, nothing blocked the acquisitions.

One such facility was Mills Nursing and Rehabilitation in Mayfield, Kentucky, a 98-bed facility that Portopiccolo’s ClearView Healthcare Management took over in late 2019. By August 2020, it had had 107 COVID cases among residents and staff, and 23 people had died, according to Private Equity Insights. At the time it was one of Kentucky’s largest long-term care outbreaks.?

By the end of 2020, Hyman and Zanziper owned more than 70 facilities. By 2021, their portfolio had exploded to more than 120. By February, 2024, according to data from the Centers for Medicare & Medicaid Services, Hyman and Zanziper are associated with at least 134 facilities, including 25 in Kentucky, and have the highest amount of total fines recorded by the agency for affiliated entities, totaling nearly $12 million since 2021. Their average fine per facility, as calculated by CMS, is more than twice the national average at almost $90,000.?

In a written statement, Portopiccolo Group spokesperson John Collins disputed that the facilities had skimped on care and argued that they were not managed by the firm. “We hire experienced, local health care teams who are in charge of making all on-the-ground decisions and are committed to putting residents first.” He added that the number of facilities given by CMS was inaccurate but declined to say how many are connected to its network of affiliates or owned by Hyman and Zanziper.

White House initiatives

With the nearly 170,000 resident deaths from COVID and many related fatalities from isolation and neglect in nursing homes, in February 2022 President Biden announced an initiative aimed at improving the industry. In addition to promising to set a minimum staffing standard, the initiative is focused on improving ownership and financial transparency.

“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch,” Biden said during his 2022 State of the Union address. “Medicare is going to set higher standards for nursing homes and make sure your loved ones get the care they deserve and expect.”

Still, the current trajectory of actions appears to fall short of what’s needed. While penalties against facilities have sharply increased under Biden, some of the Trump administration’s weak regulations have not been replaced.

A rule proposed by CMS in September 2023 and released for review in March 2024 would require states to report what percentage of Medicaid funding is used to pay direct care workers and support staff and would require an RN on duty 24/7. It would also require a minimum of three hours of skilled staffing care per patient per day. But the three-hour minimum is substantially lower than the 4.1 hours of skilled staffing for nursing home residents suggested by CMS over two decades ago.

The requirements are also lower than the 3.8 average nursing staff hours already employed by U.S. facilities.

The current administration has also let stand the Trump administration reversal of an Obama rule that banned binding arbitration agreements in nursing homes.

Hiding profit

Private investors in nursing home chains often employ a convoluted system of limited liability corporations, related companies and family relationships to obscure who controls the nursing homes.

These adjustments are crafted to minimize liability, capitalize on favorable tax policies, diminish regulatory scrutiny and disguise nursing home profitability. In this investigation, entities at every level of involvement with a nursing home denied ownership, even though the same people controlled each organization.

A rule put in place in 2023 by the Centers for Medicare & Medicaid Services requires the identification of all private-equity and real estate investment trust investors in a facility and the release of all related party names. But this hasn’t been enough to surface the players and relationships. More than half of ownership data provided to CMS is incomplete across all facilities, according to a March 2024 analysis of the newly released data.

The shadowy structure of ownership and related party transactions plays an enormous role in how investors enrich themselves, even as the nursing homes they control struggle financially. Compounding the issue, the figures reported by nursing homes regarding payments to related parties frequently diverge from the disclosures made by the related parties themselves.

Overall, 77% of US nursing homes reported $11 billion in related-party transactions in 2019 — nearly 10% of total net revenues — but the data is unaudited and unverified. The facilities are not required to provide any details of what specific services were provided by the related parties, or what were the specific profits and administrative costs, creating a lack of transparency regarding expenses that are ambiguously categorized under generic labels such as “maintenance.” Significantly, there is no mandate to disclose whether any of these costs exceed fair market value.

What that means is that nursing home owners can profit handsomely through related parties even if their facilities are being hit with repeated fines for providing substandard care.

“What we would consider to be a big penalty really doesn’t matter because there’s so much money coming in,” said Mollot of the Long-Term Care Community Coalition. “If the facility fails, so what? It doesn’t matter. They pulled out the resources.’’

That ability to hide profits is key to nursing homes’ ability to block regulations to improve quality of care and to demand greater government payments. For decades, the industry’s refrain has been that cuts in reimbursements or requirements to increase staffing will drive facilities into bankruptcy; already, they claim, half of all nursing homes are teetering on the edge of collapse, the result, they say, of inadequate Medicaid rates. All in all, the industry reports that less than 3% of their revenue goes to earnings.

But that does not include any of the revenue pulled out of the homes to boost profits of related parties controlled by the same owners pleading poverty. And this tactic is only one of several ways that the nursing home industry disguises its true profits, giving it the power to plead poverty to an unknowing government.

Under the regulations, only certain nursing home expenses are reimbursable, such as money spent for care. Many others ? unreasonable payments to the headquarters of chains, luxury items, and fees for lobbyists and lawyers ? are disallowed after Medicare reviews the cost reports. But by that time, the government has already reimbursed the nursing homes for those expenses ? and none of those revenues have to be returned.

Data indicates that owners also profit by overcharging nursing homes for services and leases provided by related entities

Nursing homes also claim that noncash depreciation cuts into their profits. Those expenses, which show up only in accounting ledgers, assume that assets such as equipment and facilities are gradually decreasing in value and ultimately will need to be replaced. But a 2004 report by the Medicare Payment Advisory Commission found that the depreciation claimed by health care companies, including nursing homes, may not reflect actual capital expenditures or the actual market value.

If disallowed expenses and noncash depreciation were not included, profit margins for the nursing home industry would jump to 8.8%, far more than the 3% it claims. And given that these numbers all come from nursing home cost reports submitted to the government, they may underestimate the profits even more. Audited cost reports are not required, and the Government Accountability Office has found that CMS does little to ensure the numbers are correct and complete.

“They face no repercussions,” Brooks of Consumer Voice said, commenting on the current state of nursing home operations and their unscrupulous owners. “That’s why these people are here. It’s a bonanza to them.”

Ultimately, experts say, finding ways to force nursing homes to provide quality care has remained elusive. Michael Gelder, former senior health policy adviser to then-Gov. Pat Quinn of Illinois, learned that brutal lesson in 2010 as head of a task force formed by Quinn to investigate nursing home quality. That group successfully pushed a new law, but Gelder now says his success failed to protect this country’s most vulnerable citizens.

“I was perhaps naively convinced that someone like myself being in the right place at the right time with enough resources could really fix this problem,” he said. “I think we did the absolute best we could, and the best that had ever been done in modern history up to that point. But it wasn’t enough. It’s a battle every generation has to fight.”

Click to learn more about how some existing tools can address problems with for-profit nursing homes.

This article is republished from The Conversation under a Creative Commons license. Read the original article.