Sun Tzu is credited with being the first person to say “Keep your friends close; keep your enemies closer.” That was good advice when he lived about 2,500 years ago. It remains good advice today.

Especially for nursing home operators facing scrutiny from individuals like Ernie Tosh. He may not be an enemy of the sector. But few operators would call him a friend. And by all indications, the feeling is mutual.

For the unfamiliar, Tosh is an attorney and self-described forensic accounting expert. He co-founded Bedsore.Law, a firm that basically sues facilities suspected of delivering substandard resident care.

He’s hardly the only attorney who makes a living that way. What does separate him from the herd, however, is his remedy for opaque ownership structures.  Hint: Most operators are not going to like it.

But first, some context: Tosh is a big critic of what he calls the lack of transparency in nursing home financial reports, especially when it comes to actual profits. To put it mildly, he’s a bit skeptical about whether facility-provided numbers are either accurate or complete.

As he describes it, many operators have done some curious things corporate-structure wise, in an effort to make profits look far worse than they actually are. Among the most obvious tactics, according to Tosh: byzantine corporate structures that allow revenues to be moved  around to allied corporate offices, real estate holding companies, and management firms. Then there are the connected side businesses, such as therapy companies, pharmacy companies and other portfolio expansions where money can be diverted.

According to Tosh, such tactics allow firms to essentially move money from one pocket to another, while revealing the empty pocket to lawmakers and CMS when it’s time to report profits.

The practice allows operators to seek better payments from the government, and to use the alleged lack of profits as an excuse to understaff facilities. Or as he said during a recent webcast sponsored by the Long-Term Care Community Coalition: “Nursing homes can’t be trusted.”

And what is his solution? He’d like to see the industry subjected to more stringent financial reporting requirements. Specifically, he’s calling for consolidated financial statements that are audited by a third party. Moreover, such reports would be required to include all the profits and losses within an entity.

And it’s not just empty rhetoric. His firm collaborates with attorneys general to establish more stringent reporting standards. California has already taken steps in that direction. New Jersey, Colorado and Maryland could potentially follow suit.

Yep, keeping an eye on this guy might be a good idea.

John O’Connor is editorial director for McKnight’s. 

Opinions expressed in McKnight’s Long-Term Care News columns are not necessarily those of McKnight’s.