New Jersey state lawmakers would place themselves at the front of a push for greater financial transparency of nursing homes with the passage of two bills currently making their way through the Legislature.
The identical measures would require nursing homes and any related business entities operating in New Jersey to file consolidated financial statements to be audited at their own expense.
The laws are aimed at curbing a method some industry critics say nursing home owners have used to hide their profits. In related party transactions, nursing home owners may pay well above market rate for rent and management services to third-party companies that are also owned by the same person or group. That makes it hard for state and federal officials to determine owners’ true operating costs.
Not all agree that these requirements are necessary. Nursing homes already disclose related party transactions and related financial details and have done so for years, according to Andrew Aronson, president and CEO of the Health Care Association of New Jersey.
Consumer advocates cheered the bills on Thursday. Sam Brooks, director of public policy for The National Consumer Voice for Quality Long Term Care, said the long-term care sector would ultimately benefit from states stepping up to fill a gap in transparency.
“The industry should welcome these reforms,” Brooks told McKnight’s Long-Term Care News. “Just this year, MACPAC issued a report stating that the use of related parties made determining the actual care costs impossible. Increased transparency and accountability could help facilities allegedly struggling to cover costs demonstrate the need for increased funding.”
Brooks emphasized the need for financial accountability, citing a New York Times article that claimed up to 70% of for-profit nursing homes were funneling money through private companies in 2017, leaving $11 billion dollars beyond public scrutiny.
Clarifying finances for policymakers
The bills’ advocates in New Jersey are pushing for a vote in both the state Senate and Assembly by the end of the current legislative session on Jan. 8, according to Laurie Facciarossa-Brewer, New Jersey’s long-term care ombudsman.
“Advocates and regulators need consolidated financial statements to properly evaluate nursing home operations and foster quality care and better conditions for the residents,” Facciarossa-Brewer wrote in an article for northjersey.com. “The current disclosure requirements make it too easy for nursing homes to hide profits and resist calls to improve conditions. We see this clearly when it comes to staffing rules.”
The identical bills would require that new nursing home owners in New Jersey submit applications to the state Department of Health — including, among other details, a list of all parties assuming ownership, an organizational chart disclosing any related entities under the same parties and a consolidated financial statement with a projection of profits or losses for the next three years.
Transparency at a high cost
Without objecting to greater transparency in principle, association leaders in the state sounded the alarm over the additional regulatory burden the requirements could place on providers.
“The issue that we have with the bills is they require audited financial statements,” Aronson told McKnight’s. “The audits would add significant costs to the facilities. They’re very expensive.”
Aronson cast doubt that the new requirements would provide meaningful information that the government doesn’t already have access to through cost reports. He also projected the costs of audits to be over $100,000 per building, per year when factoring in all involved parties.
“We think that cost is excessive to require information frankly that the state already has,” Aronson said.
Jim McCracken, president and CEO of LeadingAge New Jersey & Delaware, expressed similar hesitation.
“Nonprofit nursing homes file 990s, so there is financial transparency regarding their operations,” McCracken told McKnight’s. “The bill … would create duplication and result in increased administrative costs for nonprofits. If the proposed bill becomes law, administrative costs would increase, diverting resources that would otherwise be available to improve patient care.”
Advocates, on the other hand, claim the bills are necessary to provide clarity on nursing home finances in the state. They could impact how New Jersey’s facilities are regulated for staffing and how they are reimbursed for the care they provide, according to Facciarossa-Brewer.
A proposed staffing rule from the Centers for Medicare & Medicaid Services would raise minimum requirements for facilities across the country. Opponents say most nursing homes do not meet those requirements, are already struggling financially and would be heavily burdened by extra operational costs without corresponding reimbursement adjustments to cover losses.
Meanwhile, some advocates for the proposed staffing rule argue that it does not go far enough in regulating care quality.
Facciarossa-Brewer asserted that these transparency bills would allow lawmakers to see the full picture of nursing homes’ financial status and, therefore, make more informed decisions about regulations and how to allocate government resources.
“Nursing home owners and their lobbyists argue that many cannot afford to recruit and retain additional staff,” Facciarossa-Brewer said. “Greater financial transparency would go a long way toward proving — or disproving — those claims.”
Policymakers and consumer advocates are beginning to push for similar transparency measures across the country, including recently in California, according to Aronson.
This article has been updated to add clarifying language and also correct a misstatement to properly note that providers would have to pay for the new audits.