The For-Profit Nursing Home Scam
Private equity–owned nursing home facilities across the country are poaching government funds that should be used to increase staffing levels and pay workers more to line their owners’ pockets.
In response to the deteriorating conditions at nursing homes nationwide, regulators have proposed bare-minimum staffing standards. (Richard Bailey / Getty Images)
Last June, an elderly stroke survivor residing at Chicago’s Lakeview Rehabilitation and Nursing Center fell to the floor while being transferred by mechanical lift from his bed to a shower chair. The fall broke his leg in two places. A single nurse’s aide had texted her coworkers three times seeking help before attempting the lift. None responded. The nurse — in a clear violation of a requirement that two aides conduct any high-risk transfer — went ahead on her own.
It wasn’t an isolated incident at the 178-bed facility. Since the beginning of 2021, federal regulators fined Lakeview Rehab, which is run by privately owned Infinity Healthcare Management, more than $250,000 for ten serious violations, according to the government’s Nursing Home Compare website. The facility earned just one out of five stars for quality, the lowest possible rating.
In response to the deteriorating conditions at nursing homes nationwide, regulators have proposed bare-minimum staffing standards. The facilities have cried poverty, claiming they can’t afford it. But in fact, researchers have found many of these private equity–owned operations, including Lakeview, are funneling funds — almost all of which come from Medicare and Medicaid — to pay exorbitant fees to their affiliated companies.
In short, nursing home owners are poaching government funds that could be used to increase staffing levels to line their own pockets with inflated real estate and management fees.
The repeated safety violations at Lakeview Rehab are typical of an industry that has long been known for skimping on staff and paying near-poverty wages to its workers. Poorly regulated by understaffed state public health departments, the for-profit owners who now control nearly three-quarters of the nation’s fifteen thousand nursing homes shrug off the minimal fines while complaining they are broke and can’t staff their facilities properly, because of inadequate reimbursement by government agencies.
However, as several studies and investigations have documented in recent years, private equity–owned nursing home chains like Infinity Healthcare Management are highly lucrative. Their owners have created an affiliated network of outside real estate, management, and service firms that extract huge profits while claiming the nursing home itself is either broke or barely profitable.
This is money that should be used to hire more staff, raise pay, and improve working conditions, which would go a long way toward bettering the health and living conditions of the elderly and disabled Americans who live there.
A Need for More Nurses
The nursing home industry has undergone a massive upheaval in recent years, one that began well before the COVID-19 pandemic led to the deaths of more than two hundred thousand residents and sixteen hundred staffers. Large, shareholder-owned chains like Kindred and HCR ManorCare left the field in 2017 and 2018, respectively. A few dozen midsize private equity firms headquartered far from Wall Street emerged to take their place.
This shake-up has exacted a huge toll on nursing home quality.
“These firms, such as Arcadia Care, Brius Health Care, Aperion Care, and Infinity Healthcare Management, perform poorly in the federal government’s nursing home rating system, averaging only 2 on a 1 to 5 scale,” according to a recent report by Good Jobs First, a watchdog group that tracks fines imposed by government agencies. “These bad actors — some of which have doubled or tripled in size in recent years by purchasing facilities sold off by more established operators — have been averaging over $100,000 in penalties per facility, nearly three times the national level.”
To improve safety and the quality of care delivered at nursing homes, the Biden administration last September proposed a minimum staffing ratio for nursing homes. In an attempt to expose the machinations of the industry’s private equity owners, the proposal also called for greater financial transparency. The proposal comes after decades of protests over the poor quality at the nation’s nursing homes by patient advocacy groups and unions representing the homes’ beleaguered and poorly paid staff.
Under the proposed rule, nursing homes must always have a registered nurse on duty, up from the current eight-hours-per-day standard. The total number of registered nurses must equal at least .55 hours per resident per day. The ratio for certified nurse aides, who help residents with most of their daily living chores like eating, bathing, mobility, and toileting, must equal at least 2.45 hours per resident per day.
Though thirty-five states already have a minimum staffing standard, only twelve and the District of Columbia are more stringent than the proposed federal rule.
The Biden administration has bent over backward to make the proposal palatable to an industry that threatened to sue to stop implementation even before the proposal was announced. The Centers for Medicare and Medicaid Services (CMS), which oversees nursing homes, rejected calls by patient advocates and unions representing nursing home workers for tougher rules.
The agency didn’t include a ratio for licensed practical nurses, who administer medications and conduct other medical tasks. It postponed full implementation for three years for most homes and five years for those in rural areas, which have the hardest time finding staff and face the greatest financial difficulties due to the low Medicaid reimbursement rates in their mostly Republican-run states. The rule also provided an exemption for those operating in tight labor markets.
“The proposed rule won’t help all residents,” said Sam Brooks, director of public policy for the advocacy group National Consumer Voice for Quality Long-Term Care. “It’s designed only to help the worst performers and bring them up to average.”
Indeed, the proposal’s minimum nursing staff requirement fell short of the 3.9 hours per resident per day that a newer study said would reduce delayed or unmet care to less than one percent of residents, while eliminating 12,100 hospitalizations and 14,800 emergency room visits a year.
Regulators estimated their proposed rule would cost nursing homes $40 billion over the next decade, or about $6.8 billion a year by the time the rule comes fully into effect. That’s less than 3 percent of projected revenue for the $179 billion industry, which is expected to grow by 3.4 percent a year over the next decade as aging baby boomers hit their peak years for nursing home utilization.
The cost to the industry could wind up being even less than the rule writers anticipated. CMS last month offered the industry a 4.1 percent bump in Medicare reimbursement rates for 2025, rejecting the recommendation from independent congressional advisors that it cut rates by 3 percent because profits on short-stay Medicare patients have now reached 18 percent.
Private Equity Strikes Back
Despite the government’s attempt at moderation, the nursing home industry has mounted a scorched-earth campaign to scuttle the proposed staffing rule, which received more than forty-six thousand public comments.
The American Health Care Association, the for-profit nursing home industry’s trade group, ran ads in inside-the-Beltway publications claiming numerous companies would face bankruptcy and closure under the rule, especially those in rural areas. Their chief complaint: in an industry already facing severe labor shortages, government reimbursement rates are too low for them to afford the cost of hiring a hundred thousand new workers to meet the proposed standards.
They’ve been joined by LeadingAge, a lobbying group that represents about a third of the nation’s skilled nursing facilities that are still nonprofit. “The ongoing workforce crisis and the proposal’s astronomical implementation costs make this approach impractical, not viable,” said Katie Smith Sloan, CEO of the group, in a statement sent to the Lever. “How can the administration expect nursing homes to absorb billions of dollars in implementation costs?”
Those groups, along with the American Hospital Association, whose members operate post-acute care rehab facilities, have unleashed a small army of lobbyists on Capitol Hill to make their case.
The American Health Care Association spent $4.1 million on lobbying Congress last year, including $1.34 million in the most recent quarter, its most ever. Its political action committee also contributed nearly $1 million during the current Congress to sitting Senators and House members on both sides of the aisle. LeadingAge, which doesn’t have a PAC, spent $132,000 on lobbying.
In the wake of that lobbying, the Republican-run House Ways and Means Committee, whose health subcommittee oversees nursing home finances, passed a resolution last month that would prohibit the Centers for Medicare and Medicaid Services from imposing the new staffing rule. The bill passed on a 26-17 vote with only one Democrat — Rep. Terri Sewell of Alabama — voting in favor.
The bill now moves to the full House, where passage is expected. It could even win in the Senate if a few Democrats from largely rural states come out against the proposed staffing rule.
A Silver Scam
This strident industry opposition ignores mounting evidence that nursing home facilities’ private equity owners are racking up huge profits at the expense of residents and staff.
In a new study that uses data from Illinois, which has one of the nation’s most comprehensive health care institution financial transparency laws, researchers Ashvin Gandhi of the University of California Los Angeles and Andrew Olenski of Lehigh University found that real estate and management firms that were closely affiliated with the nursing homes’ owners siphoned off 63 percent of industry profits, which were masked as costs on nursing home financial reports.
Here’s how it works: a holding company buys a nursing home and puts its operations in a limited liability company. It then sells or transfers the real estate to another company, owned by the same people, which collects rent from the nursing home. The nursing home also hires at inflated rates another wholly owned subsidiary of the holding company to manage operations at the nursing home.
These tactics, which Gandhi and Olenski call profit tunneling, inflate profits in the related entities while turning the nursing home’s operations into what looks like a break-even or even money-losing proposition.
It also insulates the owners from legal liability when the short-staffed nursing home gets sued by family members who’ve seen loved ones die or be severely injured by poor-quality care. There are few valuable assets on its book for aggrieved family members to go after.
“Facilities that transact with related parties for real estate or management services pay considerably more for these services than facilities that do not engage in such transactions, while spending no more on nursing, which is the single largest line item expense,” Gandhi and Olenski wrote in their paper, which was published by the National Bureau of Economic Research.
Infinity Healthcare Management’s Lakeview facility in Chicago offers a textbook example of profit tunneling. After acquiring the home in 2014, the holding company took over an existing $8.9 million mortgage and transferred the real estate to Lincoln Park Holdings, a wholly owned subsidiary of Strawberry Fields, a publicly traded real estate investment trust that owns ninety-nine nursing homes in nine states. The trust’s CEO and largest stockholder comes from the same family that has a large ownership stake in both Infinity Healthcare Management and Lincoln Park Holdings.
Lakeview Rehab then began paying $1.26 million a year in rent to Lincoln Park Holdings. While rent has stayed constant since the acquisition, interest paid by Lincoln Park Holdings has soared from $349,986 a year in 2015 to $611,298 in 2021, the year before the Federal Reserve Board began raising rates to combat the pandemic-related inflation spike. In 2022, the most recent year reported to the state, interest payments rose by more than 50 percent to $942,284.
Those interest payments go to the capital source for the original purchase: Strawberry Fields. Real estate investment trusts are required by law to pay at least 90 percent of their profits as dividends to stockholders, which in this case include the owners of both Infinity Healthcare and Lincoln Park Holdings.
Lakeview Rehab’s management fees experienced the same run-up in costs since the 2014 acquisition. In the first year, Lakeview paid $478,730 a year to Infinity Healthcare’s consulting arm, which represented 4.2 percent of its total revenue. By 2022, management fees had surged to $775,000, or 4.8 percent of revenue.
Neither Infinity Healthcare Management nor Strawberry Fields returned phone calls and emails seeking comment.
Out of curiosity, I compared Lakeview Rehab to a nonprofit nursing home roughly a mile away run by the religious organization Little Sisters of the Poor. The seventy-eight-bed facility, which earned five stars for quality on Nursing Home Compare, had no rent or interest payments on its books, although it did declare $340,000 in depreciation, which is a non-cash expense that frees up money to invest in repairs and maintenance. It also paid just $63,713 in management fees to the Catholic order that manages its human resources, payroll processing, and information-technology services.
It is instructive to compare the total amount paid by both homes on direct payroll for nursing care and support services like food service and laundry (which does not include benefits or payments for unemployment and workers’ compensation insurance). Lakeview Rehab paid 37 percent of its revenue to its workers. Little Sisters of the Poor paid 46 percent.
In an interview, Olenski, coauthor of the new report on nursing home profit tunneling, said nonprofit nursing home owners appeared less prone to engage in the scam.
“Nonprofits seem less likely to engage in any related transactions,” Olenski told me. “When you look at the amounts spent on related parties [by for-profit homes], it’s not on staffing agencies. For the most part, it’s on rent and management.”
On the Ground
Workers like Shantonia Jackson, fifty-four, who works at another Infinity Healthcare Management facility outside Chicago, have seen firsthand the devastation it has wrought on the quality of care. When she began working as a certified nurse assistant in 1997, she took care of the personal care needs of five to seven residents each day. By 2012, she was caring for twelve residents per day, she recalled.
More recently, there have been some days when she is responsible for more than thirty residents who require her to provide for almost all of their daily care needs.“I can’t do all this work, making sure their hair is combed, that they get their food trays,” she said. “We’ve been short-staffed since 2015.”When I asked Jackson if she ever had to use the mechanical lift for a patient without help, she hesitated before answering.
“The other nurses are busy getting people into bed. How can they help me?” she said. “The law says I’m not forced to do this, but I’m forced to do it because I have no one else to help me.”
“I do this work because I’m going to be that age one day and I don’t want to be mistreated,” she continued. “I’ve been with people who died when I was the only family they had. This is their home. They should be treated with respect and dignity. They shouldn’t have to go through all this.”
Two years ago, during his State of the Union address, President Biden promised to “make sure your loved ones get the care they deserve and expect” when in a nursing home. His nursing home regulators are expected to release their final rule on nursing home staffing requirements sometime this year.
We’ll soon see if they have the guts to ignore the industry’s poverty pleas and approve what advocates say is, at best, a down payment on the president’s promise.