1. Sofer, Dalia


A look inside an opaque industry that often puts profits over patient care.


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Like desolate airport hotels on urban outskirts, nursing homes are places with scarce advance bookings. Guests typically check in because of an unfortunate circumstance. These facilities-there are about 15,600 of them in the United States-provide long-term care or skilled nursing services to approximately 1.4 million Americans, some of whom end up as case studies of subpar care or worse: neglect and even wrongful death. An examination of the forces behind the industry reveals a maze of operators reaping an annual revenue of $132 billion. But who are these actors and how do they flourish?

Figure. Workers at S... - Click to enlarge in new window Workers at San Rafael Healthcare and Wellness Center in San Rafael, California, who hadn't had a raise in over three years, picket during a strike in August 2017. San Rafael Healthcare and Wellness Center is owned by California's largest nursing home chain, Brius Healthcare. Photo (C)

About 69% of nursing homes in the United States are for-profit entities, 24% are nonprofits, and 7% are owned by the government. From 2009 to 2016, more than half were owned or leased by chains (organizations that have two or more facilities). According to a 2017 analysis by Kaiser Health News, nearly three-quarters of U.S. nursing homes-more than 11,000-outsource goods and services to companies in which they have some financial stake. Sometimes, even the nursing home's management has been contracted out, and its buildings have been rented from sister companies. According to the analysis, in 2015 one-tenth of nursing homes' spending-$11 billion-went to related companies.


Known as "related party transactions," these arrangements offer multiple benefits. Owners can charge their own nursing homes inflated prices, siphoning off profits into sister corporations' accounts. In this way, they show meager or nonexistent profits and justify cutting expenses, particularly those associated with staffing. The related companies also provide the owners with financial and legal cover. Should there be a negligence lawsuit, for instance, the plaintiff's attorneys will have a very difficult time navigating the maze of separate limited liability companies to collect a large negligence payment. Moreover, bringing all the related companies into one lawsuit requires proving the various corporations acted as one entity, which usually requires gaining access to the companies' internal documents. These difficult feats necessitate a significant investment by plaintiff attorneys to "pierce the corporate veil." Finally, because each facility and related company are typically separate entities, the owners ensure that the loss of government funding at one facility-because of a criminal conviction, for example-won't affect funding at any of the chain's other facilities.


One example is California's largest nursing home chain, Brius Healthcare, which is owned by a billionaire named Shlomo Rechnitz and operates approximately 80 nursing homes. According to a study by the National Union of Healthcare Workers, Brius uses a web of companies that offer goods, services, and rental leases to its own facilities at highly inflated fees. In 2015, the rental fees paid by Brius facilities were 36% higher per nursing home bed than those paid by their competitors in the same county. That same year, Rechnitz created a firm that charged his nursing homes $3.5 million for financial advice and for him to review monthly profit-and-loss statements. Brius homes have also been charged with fraudulent practices: in November 2017, four nursing homes in San Diego paid up to $6.9 million to settle civil allegations about kickbacks for patient referrals and for fraudulently billing government programs.



Multiple studies have found a correlation between for-profit homes and lower quality of care. A 2012 study in Health Services Research showed that the 10 largest for-profit chains-owning a total of 1,977 facilities and providing care to about 14% of the nation's residents-had fewer RN and total nurse staffing hours compared with government facilities. They also had 36% more deficiencies (violations of federal quality standards) and 41% more serious deficiencies (harm or jeopardy to a resident). Complicating this picture is the fact that the largest publicly held chains are increasingly being purchased by private equity investment firms, which prioritize profits. The study also found evidence that in the year following the purchase of a chain by a private equity company, the number of deficiencies and serious deficiencies often increased. A 2013 study in the Journal of Health Economics found that acute care patients who were newly admitted to a nonprofit facility were less likely to be rehospitalized within 30 days compared with those cared for in a for-profit nursing home; those in nonprofit facilities also had greater improvement in mobility, pain, and functioning.


Despite widespread evidence that nonprofit homes have better patient outcomes, the current economic model doesn't encourage their proliferation. Charlene Harrington, PhD, RN, FAAN, professor emeritus at the University of California, San Francisco, who for decades has been researching the powerful forces in the nursing home industry, explains that this is largely because of lax staffing regulations. Nonprofit homes, she says, which typically have higher staffing levels than for-profit homes, are at a financial disadvantage; tougher regulations on minimum staffing would help to level the playing field.


But mandatory minimum staffing requirements remain elusive. In 2016, in its latest revision of regulations for long-term care facilities, the Centers for Medicare and Medicaid Services (CMS) once again did not mandate staffing ratios or a round-the-clock RN presence. (An RN must be present at least eight consecutive hours a day, seven days a week.)


In a commentary published in 2016 in Health Services Insights, Harrington and colleagues highlighted the findings of a 2014 U.S. Department of Health and Human Services (HHS) Office of the Inspector General report, Adverse Events in Skilled Nursing Facilities: National Incidence Among Medicare Beneficiaries. This report found that approximately 22% of patients experienced adverse events within 35 days of admission to a skilled nursing facility after hospitalization, and an additional 11% experienced temporary harm events-events that required intervention but did not cause lasting harm. Physician reviewers determined that 59% of these adverse or temporary harm events were clearly or likely preventable and in part the result of substandard treatment, inadequate monitoring, and a failure to provide treatment, costing Medicare $2.8 billion.



Under the Trump administration, regulation is becoming even softer: the CMS has rescinded an Obama administration policy that banned nursing homes from issuing residency contracts with arbitration clauses, thus preventing residents from going to court should there be a dispute. The CMS is also discouraging its state agencies, which inspect nursing homes, from issuing daily fines for violations that occurred before an inspection, favoring one-time fines that are potentially less costly to facilities and discourage their prompt correction of a violation. In addition, beginning in November 2017, the CMS exempted nursing homes that violate certain new safety rules-those focused on the overuse of psychotropic drugs and adequate resources to manage major psychological problems, for example-from being penalized for 18 months.


"Regulation was already so weak," Harrington says. "But this is in line with the stance of this administration, which is antiregulation. The nursing home industry lobbies at all levels, at CMS, at HHS, and in Congress." She adds that the American Nurses Association doesn't lobby enough on behalf of nursing home residents and nurses. "The average person-or nurse-isn't aware of the differences between these facilities when it comes to staffing, quality of care, and CMS ratings."


Despite her frustration with the lack of progress, Harrington carries on with her research. She has recently been examining and comparing nurse staffing standards and levels in several countries, including the United States, Canada, England, Germany, Norway, and Sweden. "In Norway," she says, "people have a different attitude toward the elderly. I once asked a Norwegian politician why their nursing homes provide such good care. He replied, 'Someday we'll have to go there too.' I guess American politicians don't think they'll ever end up in a nursing home."-Dalia Sofer