John O'Connor

For years, some nursing home operators have relied on an unusual tactic for avoiding lawsuits and other trouble: a catch-me-if-you-can corporate structure. But the future is looking less bright for this dubious if effective business model.

It’s hardly a secret to the feds, consumers or plaintiff attorneys that some operators have put elaborately layered ownership structures in place. Some critics describe the practice less tactfully: They call it a corporate shell game.

By cutting themselves into tinier and tinier pieces, such operators try to make sure that outsiders seeking restitution are likely to find there’s no there there. Certainly, such slicing and dicing may also happen to unlock tax advantages and other bottom-line sweeteners. But let’s not kid ourselves about its core purpose: disguise and cover.

However, recent developments at the federal and state levels may force such operators to reconsider this way of doing business.

One is the new federal health law. Specifically, coming Obamacare rules are expected to require extensive reporting of nursing home ownership, management and financial connections.

At the state level, a pending bill in Connecticut might soon emerge as a national model for ensuring ownership transparency. This measure would require nursing homes to reveal the financial status of any “related party” businesses that contract with the facilities — including associated companies that own the facility properties, or spinoff businesses that provide rehabilitation or management services. Further, the bill would require nursing homes to report profits for any side businesses exceeding $10,000 a year.

To be fair, groups representing nursing homes are saying they already report on related businesses in detailed cost reports filed with the Department of Social Services, and that the new measure is simply a favor for unions. They add that no other state-funded health care entities are forced to reveal losses or profits from side businesses. Those are certainly legitimate provider concerns.

Unfortunately, the actions of relatively few operators have harmed the field’s reputation — and continue to do so. As the sector has taken no action to police such behavior, it can hardly be surprising that regulators and lawmakers are now beginning to take matters into their own hands.