Operators mull bankruptcy as a hedge against lawsuits

It’s no secret that nursing homes outsource a wide variety of goods and services — often management, facilities maintenance, staffing and so forth — to companies in which they have a financial interest or even a controlling stake.

But a new, highly critical analysis finds that nearly three-quarters of U.S. nursing homes are involved in “related party transactions,” often funneling money to sister companies while claiming to be cash-strapped to worried employees and patients.

A Kaiser Health News review of federal inspection and quality records shows nursing homes that outsource to related organizations often have fewer nurses and aides per patient, higher patient injury rates and almost twice the number of complaints as independent facilities.

Behind the scenes, the related owners can create lucrative contracts with facilities for their services and record those higher profits away from  nursing home accounts, Kaiser reported.

“Almost every single one of these chains is doing the same thing,” said Charlene Harrington, a professor emeritus of the School of Nursing at the University of California-San Francisco. “They’re just pulling money away from staffing.”

In 2015, nursing homes paid related companies 10% of their spending, according to Medicare disclosures reviewed by Kaiser. Companies argue that related transactions create efficiencies and cut tax burdens, and they are perfectly legal.

One chain whose partnerships were examined in court after a pressure-ulcer related lawsuit revealed its owners turned a 28% profit over eight years — while nurses at the buildings they owned testified about chronic supply shortages.

A financial consultant told Kaiser that typical nursing home profits are “in the 3 to 4 percent range.”

Now, Kaiser reported, the larger margins enjoyed by related companies are being scrutinized by lawyers, unions representing healthcare workers and even California’s state auditors.