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More than 1.4 million Americans live in nursing homes; two-thirds of whom are primarily covered by Medicare and Medicaid. They are our frail elderly, disabled, medically compromised, and cognitively impaired who are at risk because they cannot care for themselves.

According to NPR, when Medicaid is the primary source of income for nursing homes, the homes tend to provide a lower quality of care. This is true not just for the Medicaid patient, but for all patients there, even private pay. The Medicaid reimbursement level causes the homes to lose about two percent on each resident. They make about ten percent for each patient on Medicare.

The reimbursement matrix drives the number of nurses, nurse’s aides, quality of meals and more. When staffing levels are low, a nursing home runs the risk of unnecessary falls, unchanged soiled diapers, unanswered call lights and false chart entries. Pressure sores can turn deadly when there is no one available to regularly reposition a patient.

“Low staffing is just one factor behind inferior quality ratings for homes that rely heavily on Medicaid,” says Dr. David Gifford of the American Health Care Association, a nursing home trade group. A facility’s ability to buy medical equipment, medications and oxygen also suffer.

Nursing Homes With The Worst Staffing Quality Ratings Rely More On Medicaid Funding

Share of Nursing Facility Residents with Medicaid as Primary Payer by State, 2015. Kaiser Family Foundation.

One would think that if the reimbursement matrix changed, residents would receive a better quality of care. Not so fast! Other problems plague the industry, despite increasing government oversight.

Seventy percent of the 15,600 nursing homes in the U.S. are for-profit. The Journal of Health Law published more than a decade ago that corporate restructuring can reduce the unnecessary risks of financial liability. This was the needed permission to tap into the public trough of Medicare and Medicaid. Why?

Because with the structuring of “related companies” like limited liability companies and partnerships, much of the work and potential liability of nursing homes could be outsourced. Software, pharmacy, real estate, therapy, and even management are all examples of the goods and services that form a corporate web of entities contracted to an actual nursing home.

Nursing home owners and their relatives control many of these new companies. In fact, according to Medicare, nursing homes paid related companies $11 billion in 2015, a tenth of its spending. This does not even include Medicaid, the dominant source of revenue for nursing homes.

Public uproar is routine when Medicaid funding is cut. But after learning about the moral integrity of some owners and their lack of care for our frail, why should the first option be increased funding?

It would be a better story if these related companies improved conditions for patients. The reality is just the opposite. When a family sues a nursing home, it is much harder to collect monies from a related company. Even worse, these companies are plowing cash into pockets of owners. They can charge their own companies higher-than-market rates and then siphon off profits for themselves. They report none of this on nursing home financials. Typically, nursing home profits are in the range of three to four percent.

However, such profits are small change for those who manipulate the system. Some owners are reaping related company profits of 28 percent.

Exhibit A is the story of Norbert Bennett and Donald Denz, two Long Island accountants who owned 33 nursing homes. One of their many underfunded homes did not have not enough money for diapers, sheets or linens, according to a nurse who testified against them. However, they both pocketed almost a quarter of a single facility’s $12 million in operating expenses. In fact, they distributed more than $40 million from all of their homes to themselves.

According to Kaiser Health News, a whopping 75 percent of homes have these financial arrangements. Brius Healthcare Services, California’s largest nursing home chain, “purchased $67 million in goods and services from more than 65 companies” controlled by its owner, a Los Angeles billionaire. Eighty percent of its revenue is from Medicare and Medicaid/Medi-Cal.

Where should we start when a nursing home is a future option for someone we love? First, Medicare provides a website where you can compare nursing home scores. The problem here is that staffing numbers are self-reported, and nursing homes are only compared with others in their state. recommends going to your state’s Medicaid website to investigate as much as you can before making your choice.

Asking about the corporate structure of a nursing home may provide valuable information if you’re savvy enough to ask the right questions. If you find that the owner also has financial interests in myriad other LLCs or partnerships that provide “goods and services,” this is a red flag!

Public uproar is routine when Medicaid funding is cut. But after learning about the moral integrity of some owners and their lack of care for our frail, why should the first option be increased funding? Does that not just enrich “related companies” rather than improve the care of our most vulnerable?

Let’s fix this problem first. Only then can we consider increased funding. Let’s not be the taxpayers who are complicit in creating wealth for owners of for-profit chains.

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