The Biden administration will likely bring some degree of new oversight to the nursing home sector as lawmakers and regulators look to sort out what went wrong during the COVID-19 pandemic, and ownership transparency — coupled with significantly more stringent financial reporting requirements — could emerge as a key area of reform.
While the industry generally purports that Medicaid funding is insufficient to provide quality care in many parts of the country, the complex ownership structures favored by operators make it difficult to arrive at a clear assessment of nursing home finances and performance, a quintet of experts argued in a commentary published this week in the journal Health Affairs.
“Quality issues persist as policy makers are unable to oversee how nursing homes spend Medicare and Medicaid payments,” the group wrote. “The growth in complex nursing-home ownership structures has limited financial transparency by allowing nursing homes to hide public payments and stint on direct resident care.”
The authors consisted of University of California, San Francisco professor emeritus Charlene Harrington; director of Altarum’s Center for Eldercare Improvement Anne Montgomery; King Enterprise Group CEO and former Centers for Medicare & Medicaid Services (CMS) official Terris King; Harvard University researcher David Grabowski; and former Rockport Healthcare Services CEO Michael Wasserman.
The commentary acknowledged that the federal government’s own Medicare Payment Advisory Commission (MedPAC) puts the overall nursing home profit margin as low as 0.6%, but asserts that the web of interrelated companies often involved in nursing home ownership and management may be obscuring a deeper truth.
“Because nursing homes can hide profits through their own related-party companies, however, it is not possible to know what the actual margins are without improved cost reporting and accountability,” the authors wrote.
To solve this problem, the group called for the creation of a wide-ranging federal task force that would beef up audits of CMS’s Provider Enrollment, Chain, and Ownership System (PECOS) database along with Payroll-Based Journal (PBJ) and other nursing home operational data.
Their recommendations also included the release of clearer public information about nursing home chain ownership, as well as expanding PECOS to include all related-party entities involved in the day-to-day operations of each nursing facility.
The group additionally focused on the need for federal change-of-ownership rules, which have thus far been primarily left to the states.
“By not establishing and enforcing ownership and management screening requirements, CMS also allows unsuitable persons or companies to acquire and operate facilities,” they wrote.
Nursing home leaders in Kansas, for instance, embraced a stricter set of ownership transparency rules in the wake of the Skyline Healthcare disaster, which saw the out-of-state chain collapse in the wake of rapid expansion — fueled in part by officials that approved Skyline’s takeover of facilities despite clear problems brewing elsewhere in its portfolio.
A law requiring potential owners to submit detailed information about their stakes in nursing home real estate and operations passed with bipartisan support in Kansas in the spring of 2019, giving state officials broader leeway to analyze their finances — and blacklist owners with a history of problems.
Cindy Luxem, CEO of the Kansas Health Care Association, acknowledged that the laws would load additional burdens on the sector, but insisted that it was worth it to prevent another Skyline-style disaster.
“I don’t know that we ever denied somebody coming into the state to operate,” Luxem noted. “And it sounds like maybe we should have.”
Writing in Health Affairs, the leaders called on CMS to create a formal ownership approval process that would bar investors with prior staffing shortages or instances of poor-quality care from expanding; operators that had settled allegations of providing “worthless services” would also be shut out of the program for five years.
On top of that, the group recommended that owners be required to submit detailed cost reports — subject to audits from third-party public accounting firms — that cover the entire scope of the nursing home’s operations.
“The reports should provide flow charts of all related party entities including home offices, management organizations, staffing, therapy, supply, pharmaceutical, consulting, insurance, banking, investment entities, parent companies, holding companies, and sister organizations,” they wrote. “Management companies and property companies should also be required to provide a full financial report annually.”
That oversight should also give CMS access to Internal Revenue Service (IRS) filings associated with all nursing home-related entities.
Though the Health Affairs piece went into substantially more detail, President Biden called for PECOS audits as part of his campaign’s overall nursing home reform proposals released last year.
“It did not have to be this bad,” the Biden-Harris campaign wrote of the coronavirus pandemic’s impact on nursing homes.