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A system of affiliated businesses exploit nursing home loophole

On Behalf of | Apr 18, 2023 | Government Regulations, Healthcare Fraud, Medicare / Medicaid Fraud

The pandemic was difficult for many, but some unscrupulous business owners used that time to their advantage. The Villages of Orleans Health & Rehabilitation Center (VOHRC) in western New York paid its landlord $16 million in rent. However, the landlord was also the nursing home’s owner and operator. Of that money, $10 million went into the owners’ pockets as the facility fell into deep disrepair, causing injuries to staff and residents. Lack of staffing meant residents developed bedsores, sat in their own waste, or missed medications. This situation led State Attorney General Letitia James’s office to take action.

One of many doing it

It’s now coming to light that nearly half of the 600-plus nursing homes in New York use a similar approach of owning the property separately from operating the facilities. This enabled unscrupulous operating branches to take hundreds of millions of dollars in government-provided fiscal relief during the pandemic to pay themselves as landlords.

In VOHRC’s case, it funneled $10 million into the owners’ pockets while the facility was in disrepair. According to a local New York NPR affiliate, the corporations that used this affiliated system yielded a 27% profit margin that added up to $269 million in profits in 2020. It occurred during the COVID-19 pandemic when nursing homes were experiencing widespread deaths among residents and staff shortages.

These for-profit nursing home corporate arrangements are legal throughout the country. Moreover, federal regulators do not require operators to share who pays who and whether the rate is reasonable. So, along with paying rent to themselves, the owners will often move services to third parties to operate the facilities. This outsourcing enables them to overpay for services to affiliated corporations they control or invest in.

Regulatory changes likely

Attorney General James’s office is investigating a handful of nursing homes that engage in this behavior. The Centers for Medicare & Medicaid Services is also exploring potential regulations on using government-provided funds and payment to affiliated companies. As things stand, affiliated companies should be paid amounts that are similar rates to those of competitors.

Watch our space on this developing story.