The outsourcing of logistical support services, which became commonplace in the U.S. military in the 1990s and later was adopted by state prison systems, has now come to dominate the nursing home industry. And while nursing homes, unlike the military or prisons, are not part of federal or state governments, Medicaid pays for the care of 62 percent of all nursing home patients, amounting to $55 billion in 2015.
So the question of who’s profiting from meeting — or not meeting — their needs is a matter of great public import. People’s lives can and do hang in the balance.
In a remarkable story published Dec. 31, Kaiser Health News reported that the owners of nearly three-quarters of the 15,600 nursing homes in the United States buy a wide variety of goods and services from companies in which they have a financial interest or control. Nursing home owners can rent the land to themselves at above-market rates, or own the staffing company that provides nursing care and management.
These business dealings, known as related-party transactions, offer efficiencies that can hold down costs and help minimize taxes. They are a modern take on vertical integration, pioneered in the Gilded Age, by John D. Rockefeller’s Standard Oil.
In the nursing home industry, however, with its reliance on taxpayer dollars, related-party transactions can also encourage insider dealing, maximizing profits for the outside vendors while siphoning off funds needed for patient care and staffing.
If a nursing home gives a no-bid contract for, say, linen services, to a firm controlled by the nursing home’s owners, it often pays inflated prices. The nursing home itself may have trouble making ends meet, causing it to cut back on nurses and aides. For-profit nursing homes have margins of 3 percent to 4 percent, Kaiser Health News reported, while related corporate entities can have profit margins of 28 percent of more.
Relative to homes that don’t have related-party transactions, Kaiser reported, nursing homes that do deal with related parties have an average of 8 percent fewer aides and nurses on staff and are 9 percent more likely to have injured a resident or put him at risk. They have 35 percent more complaints and are fined 22 percent more frequently by government regulators.
Fines are less of a problem under the Trump administration, which has scaled back penalties against homes that harm residents or place them in grave risk of injury. In some cases, even contributing to a resident’s death won’t be cause for a fine.
For nursing home owners, a complex web of related-party transactions can offer a shield against lawsuits or governments seeking restitution for Medicaid overpayments.
This is outrageous. America’s vulnerable elderly shouldn’t be a profit center. Government should protect people and tax dollars, not profits.