Billionaires

Post by: Kimberly Valentine
This article is less about law and more about life. I am a plaintiff lawyer who has spent the past 24 years practicing in the area of elder abuse and neglect. And what I know for sure is that each and every one of us should be very, very concerned about what is supposed to be our “golden years.”

Who needs to read this article? Well … everyone. Unless somehow you know something the rest of us don’t and can guarantee perfect health for the balance of your life and the lives of those you love.

Now many of you youngsters probably already stopped reading thinking “what does this have to do with me.” But if your parents are still alive or if you plan on stay- ing alive, you need to keep reading. Be- cause what lies ahead is a rude awakening.

Many of you think you may have sub- stantial financial means and thus whatever horror stories I have to tell, certainly can’t and won’t apply to you because you have great health insurance and can afford whatever care you need. Don’t be fooled. Keep reading.

Here is what you all need to know. Se- nior living care is one of the most broken systems in the United States. Frankly put, the system is designed in a way that unintentionally breeds fraud. Capitalism is fine and good. I own my own law firm and thus understand the need to make money.

But let’s take skilled nursing facilities as an example. Roughly eighty-two percent of revenue generated in skilled nursing is paid from state and federal funds. That translates to your tax dollars. Yet many individual owners of skilled nursing or- ganizations are millionaires and billion- aires. Ask yourself how does a business structure where eighty-two percent of its income is paid with government funds breed billionaires?

The answer is complicated, but it’s also sad, scary, and gross. There is no one-size- fits-all answer. Each organization does it just a little bit different. But there are some overlapping themes and requirements.

First off, to make billions the organiza- tion needs volume. No nursing homeowner is going to become a billionaire with one or two facilities. You would think that having more facilities would generate a financial benefit because those organizations can get price cuts for suppliers by buying them in volume. True. But that only translates to a benefit for the patients if those savings are realized and retained at the facility level. But guess who decides where profits are spent? In large organizations it isn’t the people in the facilities, it’s the people in the corporate office who set/approve the facility budgets and who manage and control the facility money.

In a skilled nursing facility, the top person sitting in that facility is the Execu- tive Director/Administrator. That person almost always has no medical background but has a business degree. Most are hired if they have a strong background in mar- keting and sales. Their primary job is to drive census, meaning get heads in the beds. They are incentivized with financial bonuses, which typically require their census numbers to stay above a corporate driven goal.

Every patient in a skilled nursing home has a payor source. Every nursing home clambers for the patient being released from an acute care hospital in need of rehabilitation who still has those first 20 days of eligibility with Medicare. Under the current reimbursement regimen those are the patients with the higher reimburse- ment rate. Even though patients have Medicare rehabilitation eligibility beyond that, the reimbursement rates drop. So what you see are lots of therapy for 20 days and then oftentimes a decision is suddenly made that the patient isn’t ben- efiting from therapy and the family is told the patient has to leave. Technically that’s not true. The patient isn’t disqualified for reimbursement. But the patient no longer fits the goals the facility set for its mix of patients. Families unknowingly think the patient has to move and they do so, often taking the patient home before they are really ready.

The current Medicare reimbursement model since October of 2019 is called Pa- tient Driven Payment Model (PDPM). It’s a per diem payment model that calculates the payment to a skilled nursing facility based on clinical characteristics, patient assessments and diagnoses and resources needed. While that sounds great, it is highly susceptible to manipulation.

Often the bonus structure amounts to as much as the administrator’s annual salary.


There are other ways owners incentivize their executive directors/administrators to focus on dollars rather than quality patient care. Most facilities have budgets that are originated at the corporate level and while the facility staff may have some input, the ultimate approval also comes from the corporate board of directors or owners. The administrator is then incentivized by getting financially scaled bonuses based on how much money the administrator can save on that budget. And zero bonus if the budget isn’t met. Often the bonus structure amounts to as much as the administrator’s annual salary. Some administrators are paid a healthy percentage of the net profits.

Again, making money isn’t a bad thing. But here is how this plays out. Time after time what we see is facility after facility with a particular staffing budget. Under- stand that clinical staffing is the largest budget item in a nursing home budget. The clinical budget is broken down by position, registered nurse, licensed nurse, and certified nursing assistant. The average RN hourly rate currently is about $49.00 per hour while an LVN average is $30.00. Since state minimum staffing doesn’t dif- ferentiate between RN and LVN but just requires that nurses are counted, adminis- trators will obviously staff their facilities with only one RN for sometimes as many as 100 patients and use LVNs to cover the balance of the staffing requirements. The difference is that only RNs are allowed under their license to assess patients. Only RNs are allowed to create plans of care for patients. To become an LVN it only requires about one year of school while RNs take about three years. The financial savings can be as much as a million dollars a year in a large facility just by swapping out LVNs for RNs. But the quality of care suffers when only one nurse is licensed and trained to assess and plan the care for up to 100 patients at a time.

Another way senior living organization owners make significant money sourced from government funds is with liability insurance. Many large nursing home cor- porations are self-insured. They create their own insurance company. Each facility pays insurance premiums to their “captive” insurance company owned by none other than the same owner of the nursing home corporation. They often lie about their cov- erage. They purchase “fronting” policies to submit to their lenders and to fulfill their lease covenants. They answer discovery and say they have limited insurance based on the fronting policy, meanwhile they have millions in coverage because they purchase reinsurance at a substantially lessor rate than the premiums they are having the facilities pay. In discovery they produce a PMK on insurance who claims to have gotten all his information (the lies he is to tell) from the lawyer so one can’t question further. The PMK testifies only to the bare bones policy and states under oath that is all of the insurance available. Meanwhile the captive owner owned in- surance company is pocketing millions of dollars a year in premiums. And the entire system is designed to convince unknowing plaintiffs that there is limited insurance so serious cases are under settled within the fake policy limits.

The senior living owner often also owns the real estate as well and sometimes they even build and developed it. They get HUD loans with reduced rates and major tax benefits. They enter into Master Leases by creating wholly owned shell corpora- tions that then subleases the building to the facility at an exorbitant rate, making a tidy profit.

Further these senior living owners create their own supply companies, pharmacies, physical therapy companies, accounting firms, interior design, risk management companies etc. If it’s a service their nurs- ing homes can use to incur expenses, trust me, some nursing homeowner has created a separate self-owned corporation to use for that service. They even create their own separate employment companies to employ the nursing staff. Meanwhile each of these separate companies makes a profit. And the nursing homes often run in the red. These self-owned companies are called “related parties.” Up until recently there had been no real fiscal accountability for these entities. Senate Bill 650 which was approved by the Governor in October 2021 is a good start but is just a start. This bill requires, starting in December 2023 certain related parties to produce financial statements. But at present there are no requirements that those statements be audited. Moreover, the language re- quires such reporting for organizations that operates, conducts, owns, manages, or maintains a skilled nursing facility to prepare and file an annual consolidated financial report. This is destined to be problematic because entities deny they “manage” or “operate” even if they hire the administrator/executive director, deter- mine the administrator’s salary and bonus structure, do the administrator’s annual reviews, and decide if a raise is in order, participate in the setting of the facility budget, and secure the line of credit used to operate the facility. These entities will merely state they are “consultants” to the skilled nursing facility. And the owners will simply set up additional shell corpo- rations so they will argue there is nothing to report.

So, by the time it comes to paying for staff and supplies, facilities often are left to run on shoestring budgets. Senior care organizations would argue the budgets are prepared and approved at the facility level. What they leave out in their myopic analysis is the facility administrator had no say in the prepopulated items that showed up in their forecasted budget for items like their lease, insurance, 5-6% of revenue paid to their management/admin- istrative services company, and the other related party transactions. Even when the facility gets annual memorandums from the corporate office with expectations and assumptions about the budget, everyone denies in litigation those memorandums had any impact on their budget formula- tion. Even when the corporate office has put in place systems where variances to the budget are tracked and monitored daily, amazingly these senior care or- ganizations will maintain the facility administrator is 100 percent in control of the budget. Corporate offices deny that the administrator’s bonus being based on how much they saved off the budget had any influence or control over the facility. And despite the corporate office having 100 percent say in the operating credit and where the profits go, the party line is the corporate office doesn’t manage or control.

This, ladies and gentlemen is how senior care is creating billionaires. Yes, there are one thousand more layers to it beyond this. But at least this gives you enough general information to let you know buyer needs to beware. As such, any time you must make decisions relating to senior care, understand there may be a reality you won’t want to accept. We inherently want to believe people have good intentions. It’s hard to accept that people who chose to work in the arena of caring for elders would care more about money than people and humanity. But think again. Money is and continues to be the root of all evil.
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