In what has become an increasingly common business arrangement, owners of nursing homes outsource a wide variety of goods and services to companies in which they have a financial interest or that they control. Nearly three-quarters of nursing homes in the United States — more than 11,000 — have such business dealings, known as related party transactions, according to an analysis of nursing home financial records by Kaiser Health News. Some homes even contract out basic functions like management or rent their own building from a sister corporation, saying it is simply an efficient way of running their businesses and can help minimize taxes.
But these arrangements offer another advantage: Owners can establish highly favorable contracts in which their nursing homes pay more than they might in a competitive market. Owners then siphon off higher profits, which are not recorded on the nursing home’s accounts.
Typical nursing home profits are “in the 3 to 4 percent range,” said Bill Ulrich, a nursing home financial consultant.
In 2015, nursing homes paid related companies $11 billion, a tenth of their spending, according to financial disclosures the homes submitted to Medicare.
KHN’s analysis of federal inspection, staffing and financial records nationwide found shortcomings at homes with similar corporate structures:
- Homes that did business with sister companies employed, on average, 8 percent fewer nurses and aides.
- As a group, these homes were 9 percent more likely to have hurt residents or put them in immediate jeopardy of harm, and amassed 53 validated complaints for every 1,000 beds, compared with the 32 per 1,000 that inspectors found credible at independent homes.
- Homes with related companies were fined 22 percent more often for serious health violations than were independent homes, and penalties averaged $24,441 — 7 percent higher.
You can read more on the latest nursing home financial insight and its impact on resident care at Kaiser Health News.