The nursing home industry is a billion-dollar business. It is estimated that in 2021, Medicare/Medicaid paid out $170 billion to the Nursing Home Industry to provide care to our most vulnerable population—our seniors. Almost eighty percent (80%) of all nursing homes in California are for-profit. Over half of all nursing homes are owned by large nursing home chains. Further, private equity ownership of nursing homes is increasing. Recent research shows a direct correlation with increased mortality for short stay Medicare patients by about 10% in private equity-owned nursing homes.1
To make matters worse, there has been a lack of transparency as to who owns a nursing home and where the revenue from the facility is going. This lack of transparency not only impacts a family’s choice in deciding which facility their loved one should go to, but it can also cause a litigator who is not savvy in this practice area to be unaware of which parties to name in an elder abuse case to ensure legal accountability.
Make no mistake about it: These Nursing Home Syndicates work harder at protecting their corporate assets than they do at providing quality, individualized care to our elderly. These nursing homes go to great lengths to create a complex ownership structure consisting of multiple layers of holding companies and related parties2 designed to shield themselves from liability. After creating a complex web of companies, the Nursing Home Syndicate then diverts the revenue from the facility and to its other related businesses to increase profits, thereby leaving the facility itself with little to no cash in its account. This diversion of funds away from the facility and into the parent and related parties’ accounts also leaves the individual facility undercapitalized and under-resourced, almost judgment proof. This business scheme is by design: to shield the parent company and its related parties from their true punitive damage exposure, thereby leaving their victims with limited resources to recover from and capping their risk of punitive damages if and when you name the individual facility only. And these types of facts will be important in helping you establish liability against the parent company and related parties using alter ego and joint enterprise theories of liability. So how do you go about identifying the parent company and related parties when litigating an elder abuse case? To help facilitate your corporate research, we have compiled a list of resources to help you identify ownership information, related party information, and identify where facility revenue is being diverted to.
Resources to Conduct Nursing Home Ownership Research
First, request a copy of the Department of Public Health’s facility file, including but not limited to ownership and managerial control, license applications, correspondence, and citation history. The DPH file will contain ownership information, related party information (such as the identity of the home office/management agreement) the identification of the parent company, and it will also include prior citation history.
Second, pull the Cost Reports for the facility.3 The Medicare cost report (CMS 2510-40), at Section S-2, will identify if a facility is part of a chain organization. Other parts of the cost report will identify costs incurred as a result of transactions with related organizations, the interrelationship with related organizations and/or the home office. The Long-Term Care Facility Integrated Disclosure and
Medi-Cal Cost Report will also identify related party transactions, common ownership or control, and identify names of owners having 5% or more equity interest. Medi-Cal Cost Reports can easily be obtained at /data-and-reports/cost-transparency/long-term-care-facility-financial-data/.
Third, another source of information that will identify ownership and managerial control, as well as related party information, is the CMS 855A form. A facility owner or manager must complete and sign this CMS 855A form, which requires disclosure of ownership and managerial control information and the identification of related parties under penalty of perjury. You can obtain the CMS 855A form for your facility with a FOIA request.
In addition to the traditional business search with the Secretary of State, some commercial vendors have compiled data on nursing facilities, such as snfdata.com.
Recent California legislation gives greater transparency to Nursing Home Enterprise-Related Parties with Consolidated Financial Reporting
There is a bit of good news that will make your job easier in identifying related parties and the entities the facility’s revenue is flowing to – recent California legislation under SB 650 adds Section 128734.1 to the Health and Safety Code that will require an organization that owns, operates, or manages a skilled nursing facility to file annual consolidated financial reports with the Office of Statewide Health Planning and Development (“OSHPD”). These
required consolidated financial reports will give more transparency to previously shielded information. Further, these annual consolidated financial reports must be certified and will be made public on the OSHPD’s website.
These OSHPD reports, along with CMS and Long-Term Care Facility Integrated Disclosure and Medi-Cal Cost Reports will identify the parent company and related parties that you should consider when deciding who to name as a defendant in your elder abuse case.
The Facility’s “Governing Body”
The federal regulations require that skilled nursing facilities have a “governing body” that is legally responsible for establishing and implementing policies regarding the management and operation of the facility. This “governing body” also appoints the facility administrator who is responsible for the management of the facility. (42 CFR, Section 483.70(d).)
The governing body is commonly made up of individuals or officers from the parent company and its management company/home office, who then hire the licensed administrator who reports to the governing body. As a litigator, you can find out who makes up the governing body of your defendant facility from several sources: the DPH licensing file of the facility, the Long Term Cost Reports of the facility, and the CMS Compare
website (/carecompare/). As a litigator, the governing body’s legal responsibilities under the federal regulations can be cited to as a further basis for why the management company and/or parent has direct liability in your case.
Identifying the entity or entities truly responsible for the neglect your client suffered is oftentimes a difficult and confusing task. However, this task is an important one and the resources discussed above will hopefully make the process a little less daunting.
Wendy York is a trial attorney handling elder abuse, wrongful death, and personal injury cases in Sacramento and Northern California for over 25 years. Wendy and her legal team can be reached at www.yorklawcorp.com or [email protected] com.
1 Braun RT, Jung H, Casalino LP, Myslinski Z, Unruh MA. Association of Private Equity Investment in US Nursing Homes With the Quality and Cost of Care for Long-Stay Residents. JAMA Health Forum. 2021;2(11):e213817. doi:10.1001/jamahealthforum.2021.3817.
2 Related party is defined at California Health & Safety Code Section 128734 and may include, but is not limited to, home offices; management organizations; owners of real estate; entities that provide staffing, therapy, pharmaceutical, marketing, administrative management, consulting, and insurance services; providers of supplies and equipment; financial advisors and consultants; banking and financial entities; any and all parent companies, holding companies, and sister organizations; and any entity in which an immediate family member of an owner of those organizations has an ownership interest
of 5 percent or more. See also 42 CFR § 413.17 (b).
3 See 42 CFR §§ 413.20 and 413.24.