Gray Panthers’ Statement on the American Nursing Home System: “Restructure the Industry and Defund the Existing System.”

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Dave Kingsley

Reissuing an Important & Elegantly Written Document by the National Council of Gray Panthers Networks.

    A couple of years ago, the Gray Panthers issued a statement on the nursing home industry in the United States.  Entitled “Restructure the Industry and Defund the Existing System,” it was elegantly written and to the point of what we need in public discourse regarding the suffering of institutionalized disabled and elderly Americans in long-term care – suffering due to the precedence of shareholder value over humane care.  Hence, the document is well worth reading today since recognized reform movements in Washington, D.C. over the past couple of years have been sympathetic to the industry and unwilling to confront the truth.

    The authors were too modest to take credit and list their names on the statement.  I assume that Jan Bendor, Art Persyko, Lydia Nunez, and Clint Smith had a hand in writing it.  But perhaps it involved more members or perhaps all of the GP Senior Housing Committee.

    The following are excerpts from the summary:

    “The ‘enemy’ is a monster created by federal policy, allowing for-profit corporations to own chains of long-term care facilities, and lavishing on the owners the incentives and benefits in our tax laws regardless of their performance in caregiving.”

    “These corporations are engaged in buying and selling of real estate with very favorable tax rewards.  The corporations can practice medicine and also profit from Medicare, Medicaid, and other programs that can be hijacked for the corporation’s benefit rather than for the benefit of those in their care.”

Problems & Recommendations

    In stating the problems on page 2, focus of the statement was on lack of accountability for the massive loss of life due to COVID, weak regulation by government agencies, underpaid staff in understaffed facilities, and the political clout of the industry through lobbying.  Recommendation appropriately included accounting of Medicare length of stay fraud, wrongful discharges that occur, accountability for misreporting of data regarding harm and finances, overuse of antipsychotics.

   Download the Gray Panther Statement on Nursing Homes Here:

2021-08-09-Nursing-Home-Crisis-Action-to-Restructure-NHI-3Download

If the U.S. Moved in the Direction the Gray Panthers are Suggesting, Americans May Not Hate the Thought of Needing Long-Term Care in a “Nursing Home.”

Inside the Washington, D.C. beltway reform efforts are beset with influence from the powerful forces that have a vested interest in keep the nursing home system the way it is. It is time for some honest discussion about why the status quo is only gaining strength with a small tweak here and there that serve as appearances and nothing more.

THE STATE OF NURSING HOME FINANCIAL REPORTING IN POST TRUTH-AMERICA.

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Dave Kingsley

American Tolerance of Corporate Deceit & Predatory Economics is Perplexing

    Misinformation can be harmful and even deadly. We have seen evidence of this maxim during the COVID crisis. We have seen it in the debate over climate change and in so many other critical issues confronting society. In post-truth America, it has become acceptable to put forth any mistruth or unverified and unverifiable claim and escape embarrassing denunciation, excoriation and censure. In no case is this more apparent than in the mistruths spread by for profit corporations in the nursing home business.

    It isn’t difficult to compile objective evidence that nursing home industry hardship pleas of low profits, thin margins, and other such claims are false and misleading.  The American Health Care Association/National Center for Independent Living, the industry’s lavishly funded propaganda organ, consistently spreads the narrative that corporations in the Medicaid and Medicare funded long-term care business are struggling financially and need a significant increase in reimbursements.

    A highly qualified financial sleuth isn’t needed for debunking the industry’s financial narrative of low profits and struggling investors.  Therefore, it may be difficult to understand how nursing home reform commissions and politicians escape public opprobrium for ignoring the patently obvious. However, it should be understandable that the finer points of nursing home finance isn’t on most peoples’ radar. We need to put it on everyone’s radar.

The Nursing Home Industry is Lying to the American People and Getting by with It

    The truth is that the federal and state governments allow for a charade in which facility-specific costs are submitted without any clarity about cash flowing to holding companies and parent corporations. We don’t really know how much Medicaid and Medicare revenue in the privatized nursing home system is extracted for dividends, and executive pay. ONE BIG EXCEPTION, HOWEVER, IS THE ENSIGN GROUP.

    With an annual revenue in 2022 of over $3 billion, the Ensign Group is the largest single provider of nursing home care in the United States.  It is also the only publicly listed company that earns revenue solely from Medicaid and Medicare funded long-term care.  More importantly for understanding the financial realities of the nursing home business, it is a publicly listed corporation and therefore must file financial reports with the Securities & Exchange Commission (SEC).

    The Ensign Group annual 2021 10-K report submitted to SEC notes a net income of 8.5 percent and earnings before interest, taxes, depreciation, and amortization (EBITDA) of 13.7 percent.  However, an examination of their six facilities in Kansas reveal a combined net revenue of $55,567,680 and a combined operating negative net of -3,201,123 (-5.7%).  Five of the six facilities reported a negative net income.

Facility-Specific Cost Reports:  How the Big Lie Works.

     A review of Ensign Group cost reports in one state, i.e., Kansas, provides insight into how the misleading state-specific and facility-specific financial  system works.  Ensign operates six facilities in the state of Kansas.  Comparing the facility-specific cost reports to the consolidated financial report submitted by Ensign to the SEC is instructive in demonstrating the inadequacy of the cost reports as a measure of financial performance.

    For instance, Table 1 contains cost report data from an Ensign owned facility known as Riverbend Nursing Home in Kansas City, Kansas (incorporated and licensed as Big Blue, LLC). The data indicates that the facility, with a slight negative net operating income, lost money (this is 2021 data). It is typical for facility cost reports to show a very low or negative income but that doesn’t reflect what parent corporations are earning from the operations.

Table 1:  Net Operating Margin

Form CMS 2540-10:  Home Office Allocation & Related Parties

    Parent Corporations with a chain of facilities incorporated as LLCs can claim an allocation to their home office based on corporate expenses for operating each facility.  The “home office allocation” appears to be a large allowance for expenditures that are not fully clarified, not decipherable by the public, and, I believe, not understood by state auditors.  For instance, Table 2, includes claims for Ensign home office allocation and payments to their subsidiaries paid for insurance and real estate.

Table 2: Part I, Riverbend Form CMS 2540-10

Corporate Hubris:  They Don’t Need to Answer Questions Required by Law

    A state auditor with whom I had a conversation recently asked me if I had any insight into the home office allocation that might be helpful for auditing purposes.  This person knew that I had been looking at cost reports across the U.S. and thought practices in other states might be something of a guide.  That the auditor wasn’t sure about how to evaluate funds extracted from revenue and sent up the chain of LLCs (often shell companies) to home offices tells us much.

    The auditor is in fact not the problem.  Statutes governing Part I of Form CMS-2540-10 (42 CFR 413.17) states that “such cost must not exceed the amount a prudent and cost conscious buyer would pay for comparable services, facilities, or supplies that could be purchased elsewhere.”  Commonsense suggests that pricing goods and services sold to related parties requires some sophisticated and extensive analyses. Do states have the regulatory capacity to do that?  Advocates and scholars need to raise that issue with legislators and demand to see any evidence supporting decisions to approve claimed expenditures to related parties.

Part II of Form CMS 2540-10:  How Vague Can They Be?

    Part II of Form CMS 2540-10 requires far more detail than shown in Table 2, which reflects the exact data submitted by the Ensign Group for its facilities. For instance, the statute requires that an entity listed in Column 4 “enter a percent of ownership in the provider.”  That may not be a logical question because Ensign corporate owns everything.  Gateway Healthcare is a shell company that merely hides the flow of capital, avoids taxes, and protects the facility from liability.  Theoretically, Gateway owns 100% of Riverbend, but Ensign owns 100% of Gateway (an LLC incorporated in Nevada).

Therefore, Ensign’s facility-specific cost reports merely ignore statutory reporting requirements. That appears to be acceptable to state auditors. This kind of “catch us if you can” hubris is typical when an industry has an extraordinary amount of money to spread around in Washington and the 50 state legislatures.

Table 3: Part II, Riverbend Form CMS 2540-10

Summary:  CMS Allows States to Regulate Nursing Homes & Looks the Other Way

    CMS is not likely to fix the corrupt and inadequate nursing home financial reporting system. They will noodle with advocates and mull over all sorts of well-founded and sensible proposals but without pressure from legislators to counter the industry’s power in Washington and in the 50 states, the status quo will prevail. 

The political will just isn’t there at the national level. We need to change that.  Advocates are likely to make more progress at the state level by compiling cost reports in their respective states and take their analyses to the media and state representatives.     The critical – life and death – nature of this problem should lead the public to revolt if they understand it and have the evidence to clearly see that the industry narrative is false.

  Lack of staff and poor quality of care leads to shortened lives and considerable suffering.  That could be fixed by stopping the excessive extraction of cash sent up the line to investors and executives. That will only be stopped by a narrative based on verifiable fact and a coordinated effort to spread that narrative in the media and among state legislators. Financial data may not seem interesting on the evening television news or in the print media.  But we are obligated to make it understandable, interesting.

The AHCA/NCAL & Brown University Long Term Care Data Cooperative: A Horrifying Move by the Nursing Home Industry to Control Nursing Home Data Analytics.

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What is the Long Term Care Data Cooperative?

    The lavishly funded American Health Care Association/National Center for Assisted Living publishes Provider Magazine – a very slick piece of propaganda, the purpose of which is promotion of the nursing home industry.  In the November/December 2022 issue, the magazine included an article entitled Where Innovation Meets Data: The Long Term Care Data Cooperative.

    This newly minted institution is, according to the author, “the first of its kind in the world.” The author provided – unwittingly, I’m certain – a scary and chilling description of this so-called “innovation:” “Formed in partnership by AHCA/NCAL and Brown University and funded by the National Institute of Aging, the Cooperative is an effort to improve the quality of care within skilled nursing care centers through a new – and collaborative – approach to gathering and sharing patient data.” 

    According to the article this is a “large-scale effort” in which any long-term or post-acute center can enroll.  The data will apparently come from multiple electronic record (EMR) software vendors “into a single repository of information.”

Who Gets the Data?

    Given the industry’s money and political power, advocates, researchers, and activists should be very wary of any flow of data through the health care system controlled by the AHCA/NCAL.  I can think of no other government data set collected from taxpayer funded contracts that is controlled by an industry as opposed to the funding agency.  This cooperative – industry front organization – will provide the data to “vetted federally funded researchers.” 

    And how will the vetting process work?  According to the article, it will work this way:  “Researchers will need to move through an extensive approval process to gain access to the Long Term Care Data Cooperative, which will include input from participating providers, who have the opportunity to review each application and decide on appropriate uses of data.”

Advocate, Researchers:  Reread the Above Quote and Think Seriously About It!

    If providers and the AHCA/NCAL decide who has access to the data and how it is used, this entire enterprise will benefit the industry without any commitment to evaluation of care on behalf of the U.S. taxpayers.  Those of us with an allegiance to science, integrity, and research ethics and who have had access to large government datasets, can quickly recognize how scientifically and ethically flawed this process is.

    Think about what the industry has been able to pull off with the imprimatur of Brown University and the National Institute of Aging.  A government agency is funding industry control over data that belong to the people of the United States.  This has huge scientific, democratic, and moral implications.  This is not the way the government should work, and as far as I know, has ever worked in relationships with qualified researchers.

Why is Hospital Data So Accessible While Nursing Home Data is So Inaccessible?

    My department chair at Kansas University Medical Center asked me to design a course on large datasets and statistics – essentially a data analytics course for PhD students.  I did that. In that endeavor, I used the H-CUP hospital dataset, which I purchased each year for $300 from the Agency for Health Quality & Research (AHRQ).  The file included approximately 200 variables and eight million cases (de-identified patient data).

    The process for obtaining this dataset is rather simple (see:  https://hcup-us.ahrq.gov/).  Researchers simply need a legitimate purpose for using the data and be willing to sign a data use agreement.  No hospital corporation had any role in vetting users of the data nor a say in the the nature of the research.  Although I retired from KUMC, I can continue to obtain the data and have indeed ordered it on occasion.

Democracy Requires Openness and Information to Which the Public Has Access

    When residents of a country are shut out of the flow of information critical to knowledge of how their taxes are utilized, they have no say in governance, and, therefore, no real democracy.  They cannot advocate intelligently and effectively for their rights as funders of programs that should benefit them.  When they are kept in the dark and subjected to what monied interests choose to tell them, they lose their right to expect a competently run program for which they are paying.

    When powerful industries withhold, misrepresent, and misuse data, the taxpaying public will of necessity be cheated.  In a democracy, residents have a right to know the results of programs which they need and for which they are paying.  However, as authoritarianism grows, concentrated wealth and power increasingly filter information. 

    The AHCA/NCAL misrepresents financial data on behalf of its corporate members with impunity.  They not only get a pass on their lack of integrity, their claims regarding providers’ financial hardships due to low Medicaid reimbursement are repeated by some well-known economists in peer reviewed journals.  Never have I seen evidence provided for these claims.  Conversely, I can produce, and have, produced an abundance of evidence to the contrary.

    It is critically important that advocates, activists, and, hopefully, journalists confront the industry’s misrepresentations.  Their propaganda is deadly.  Rather than provide adequate care, too many nursing homes extract maximum cash while providing minimal care.  It seems to me that AHCA/NCAL-Brown University data enterprise is configured to continue that unsavory characteristic of long-term care industry.

THE HEALTH CARE INDUSTRY:  CONCENTRATED WEALTH INEVITABLY TRANSFORMS INTO CONCENTRATED POWER

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It is estimated that healthcare expenditures in the United States have grown to twenty percent of GDP.  In 2022, the Bureau of Economic Analysis indicated that U.S. GDP had grown to $25.46 trillion (https://www.bea.gov/news/2023/gross-domestic-product-fourth-quarter-and-year-2022).  Hence, we can assume that in 2022, approximately $5 trillion was expended for U.S. healthcare.

In the taxpayer funded, privatized, medical care system in the United States, the growth of corporations with revenues from Medicare, Medicaid, Obamacare, and other tax subsidized healthcare (e.g., employer provided health insurance) has been astounding. The size and number of healthcare related corporations listed on the Fortune 500 top 30 in 2020 compared to 2000 is a reflection of the dominance and power of companies such as UnitedHealth, CVS, McKesson, Cardinal Health, and others appearing in the 2022 Fortune 500 top 30.

As the table below indicates, absolutely no healthcare related corporation was ranked among the top 30 corporations in revenue in 2000. In a mere two decades, nine of the 30 largest U.S. companies were in some facet of the medical/healthcare sector. Note the following corporations in the table and their Fortune 500 2022 ranking: CVS Health (4), UnitedHealth Group (5), McKesson (9), Amerisource Bergen (10), Cigna (12), Cardinal Health (15), Walgreen/Boots Alliance (18), Elevance Health (20), Centene Corporation (26).

Given the money in politics and decreasing capacity of government agencies to monitor and hold corporate behemoths accountable, the growth of health/medical related enterprises should be alarming. These are not capitalist enterprises. Rather, they are government sponsored enterprises much like Fannie Mae and Freddie Mac and should be regulated as such.

Furthermore, money is power and much of the “inside the Washington, D.C. beltway” activity related to studies, commissions, and general policymaking involving academics and other professionals has been rigged through power politics to insure the perpetuation and preservation of the participants – hence, preservation of the status quo. Let’s take the nonprofit Better Medicare Alliance as an example. This front group has roped in scholars, professional associations, and other duped entities in a cooperative effort to sell Medicare Advantage to the public on behalf of the industry.

Currently, the Biden Administration is attempting to reduce Medicare Advantage billing fraud that will save the Medicare Trust Fund billions. That legitimate and laudable effort on the President’s part was attacked in an ad during the last Super Bowl. The ad was paid for by Better Medicare Alliance. Check out this outfit’s “ally list” and its list of “scholars.” Conflicts of interest involving scholarship, corporate board service, and coopting of scientific institutions by superrich foundations with Wall Street leaning board members should be exposed along with a network of think tanks presenting a charade for the purpose of enhancing revenue from government programs.

FORTUNE 500 RANKINGS:  2000 & 2022
RANK
(2000)		CORPORATIONREVENUE*RANK (2022)CORPORATIONREVENUE*
1General Motors18.91Walmart572.8
2Walmart16.72Amazon469.8
3Exxon Mobile16.43Apple366.8
4Ford Motor Co16.34CVS Health292.1
5General Electric11.25UnitedHealth Group287.6
6IBM8.86Exxon-Mobile285.6
7Citigroup Inc8.27Berkshire Hathaway276.1
8AT&T6.28Alphabet257.6
9Phillip Morris Inc6.29McKesson238.2
10The Boeing Company5.810AmerisourceBergen214.0
11Bank of America5.111Costco195.9
12SBC Communications4.912Cigna174.1
13** 13AT&T168.9
14The Kroger Co4.514Microsoft168.1
15State Farm Insurance4.415Cardinal Health162.5
16Sears, Roebuck, & Co4.116Chevron162.5
17AIG4.117Home Depot151.2
18Enron4.018Walgreens/Boots Allian.148.6
19Teachers Insurance & Annuity3.919Marathon Petroleum141.0
20Compaq Computers3.820Elevance Health138.6
21Home Depot3.821Kroger137.9
22Lucent3.822Ford Motor Co136.3
23Procter & Gamble3.723Verizon133.6
24Hewlett-Packard3.724J.P. Morgan Chase127.2
25MCI World Com3.725General Motors127.0
26Fannie Mae3.726Centene126.0
27K Mart3.627Meta118.0
28Texaco3.628ComCast116.4
29Merrill-Lynch3.529Phillips 66114.9
30Mogan Stanley Dean Witter3.430Valero Energy108.3
* In Billions of dollars. **#Number 13 not noted on Fortune 500 list.

UnitedHealth Corporation is Piling Up Cash & Buying Back Stock. But the American Peoples’ Health for Which they are Paid to Improve is Deteriorating

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The Basics of UnitedHealth Financial Performance in 2022

With revenues of $324.2 billion in 2022, UnitedHealth (UH) is the fifth largest corporation in the United States (behind Walmart, Amazon, Apple, and CVS Health). Practically all of UH business is related to tax-funded health care such as Medicare and Medicaid. As one of the largest players in the move toward Medicare and Medicaid managed care, this company has had phenomenal growth in the past two decades (as have CVS Health and Centene Corporation).

UH revenue increased by 26% between 2020 and 2022 (from $257.1 billion to $324.2 billion). The company’s 2022 balance sheet notes $23.4 billion in cash and cash equivalents – an increase of $2 billion over 2021.

Capital Resources & Uses of Liquidity: No Indication of Allocation to Employee Wages & Working Conditions, R&D, or Improved Care

The Company’s 10-K states that “Increased cash flows provided by operating activities were primarily driven by changes in working capital accounts and increased net earnings.” (page 28). Given UH’s massive revenues from government expenditures and a robust operating margin of 8.8%, taxpayers, need to be aware of how the company’s surplus capital is allocated. Like any corporation, UH has debt obligations but expects to finance those from current operations. So, accumulated capital is available for other purposes.

On page 78, the 10-K indicates that he board of directors (which includes Washington, D.C. policy maven and healthcare influencer Gail Wilensky – see below) authorized expenditures of $7 billion for common stock repurchases in addition to $5 billion in 2021 and $4.5 billion in 2020. So, the company pumped up its share price during COVID-era by repurchases of stock totaling $16.5 billion.

In addition to a 2022 stock repurchase of $7 billion, UH increased the company’s quarterly cash dividend $5.80 per share to $6.60 per share. With 950 million share outstanding, approximately $6.27 billion in cash was paid to shareholders. Over 20% of the stock is owned by three asset management firms – Vanguard (8.44%), BlackRock (7.4%) and FMR LLC (5.165) – indeed, Institutional investors/asset managers own the bulk of the equities market. Retail investors own less than 10% of the equities traded on U.S. exchanges.

Stock Buy Backs Were Illegal in the U.S. Until 1982. They Should Still be Illegal – Especially When They Are Repurchased With Earnings From Tax Funded Medical Care

Stock repurchases are a thinly veiled form of stock manipulation and insider trading. Furthermore, this form of financialization of corporate activity benefits a small number of very wealthy Americans but is damaging to the overall economy. Earnings passed through to shareholders without retaining cash for employees, R&D, and long term investment puts downward pressure on economic growth and wages and fuels maldistribution of wealth, which has reached crisis proportions in the U.S.

Taxpayers have a right to fairness and equity in the use of capital earned through tax funded healthcare. They must demand that stock repurchases stop. Furthermore, the people of the U.S. have a right to a fair allocation of excess cash earned through healthcare for which they are taxed.

Board Members & Executives Should Be Held Accountable: It’s Not Their Money

Until the early 1980s, executives were compensated mostly in the form of salaries. As executive and board compensation has evolved, salary is now a small part of corporate compensation. Most executives and board members receive pay in the form of stock options and incentive stock awards. Philosophically, executives merit compensation if they enhance shareholder value and corporate financial success. As this philosophy has taken hold in the U.S. over the past 40 years, these rewards have become disconnected from productivity.

The boards and executives of healthcare corporations are focused on earnings and cash flow in the short term – not on reinvestment of excess earnings in long term improvement in the health of the U.S. population. As a matter of fact, life expectancy has been declining in the U.S. Although most states have contracted with these mammoth corporations to improve the cost and output of Medicaid systems, there is no substantial evidence that is happening. Furthermore, Medicaid, the poor peoples’ medicine they are charged with improving, is still stigmatizing and dehumanizing.

Each year, recipients are forced to run an administrative gauntlet of humiliating and frustrating reapplication that is much different than anything higher SES Americans experience in application for entitled health care. It appears that heart disease, poor prenatal care, diabetes, drug addiction, and other major chronic and acute diseases have not been reduced by Medicaid managed care. Nor is there evidence that a massive shift of U.S. healthcare dollars to corporations will lower the outrageous per capita cost of healthcare.

Despite failure to improve the overall healthcare of Americans, corporate boards continue to reward executives with lavish salaries and shareholders with high dividends. They justify that on financial grounds – not on success in improving overall health of the people.

Concentrated Wealth Leads Inevitably to Concentrated Power: Connecting Dots Inside the Washington, D.C. Beltway

Corporations are vying in the Washington, D.C. maze of politics, lobbying, and corruption to capture as much of the trillions in Medicaid, Medicare, Obamacare, and other forms of government healthcare expenditures. They can pay for the influence they need in chasing ever increasing expenditures for healthcare.

I noticed that one Gail Wilensky, PhD is a UH board member. This caught my attention because Dr. Wilensky is a very influential policy maven about town in Washington. She has a very thick resume consisting of scholarly publications, served as a chair of MedPAC, held other high level government positions, and is generally a highly respected healthcare influencer. However, she receives about a half million in compensation per year as a UH board member and has accumulated over 51,000 shares of UH stock, which closed at $481.90 today (3/27/2023). Hence, the stock that she hasn’t sold and is still holding is worth about $24.6 million.

Dr. Wilensky also serves on the board of Quest Diagnostics and a smaller healthcare corporation (ViewRay). The following is her biography appearing on the Quest Diagnostics website:

“Dr. Wilensky, is a Senior Fellow at Project HOPE, an international non-profit health foundation, which she joined in 1993. From 2008 through 2009, Dr. Wilensky served as President of the Defense Health Board, an advisory board in the Department of Defense. From 1997 to 2001, she was the chair of the Medicare Payment Advisory Commission. From 1995 to 1997, she chaired the Physician Payment Review Commission. In 1992 and 1993, Dr. Wilensky served as a deputy assistant to the President of the United States for policy development relating to health and welfare issues. From 1990 to 1992, she was the administrator of the Health Care Financing Administration where she directed the Medicare and Medicaid programs. Dr. Wilensky is a director of UnitedHealthcare Group and ViewRay, Inc. She served as a director of Manor Care Inc. from 1998 until 2009, Gentiva Health Services, Inc. from 2000 until 2009, Cephalon Inc. from 2002 to 2011 and SRA International, Inc. from 2005 to 2011. Dr. Wilensky also served as a Commissioner of the World Health Organization’s Commission on the Social Determinants of Health and as the Non-Department Co-Chair of the Defense Department’s Task Force on the Future of Military Health Care. She has been a director of Quest Diagnostics since January 1997. Dr. Wilensky has extensive experience, including in strategic planning, as a senior advisor to the U.S. government and private enterprises regarding healthcare issues and the operation of the U.S. healthcare system.”

Dr. Wilensky is merely one example, one individual among the ethically challenged thousands, caught up in the government-to-corporation-to government loop. Going from Senate staffer to the Senate Finance committee and on to K Street and a lobbying job for Big Pharma, United Health, or some other powerful Wall Street entity has become normalized. The American people are paying the price for the consequent maldistribution of power and wealth in taxes and poor health. The poor pay more.

Centene Corporation’s Annual Financial Report Indicates That Poverty is Profitable for Investors

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The Biggest Player in Poverty Medicine Had a Banner Year in 2022

    Among all U.S. corporations, Centene Corporation is ranked 20th in revenue. It is also a major player in the Medicaid Managed Care business.  The other leading corporations contracting with states in the $800 billion Medicaid program include United Health, Aetna/CVS, Anthem, and Molina. Most states have moved or will be moving to managed care and contracting with an MCO.  The big five have approximately half of that business now.  It is likely that the Medicaid MCO market will become increasingly concentrated and oligopolistic over the next few years.

    Centene can be said to be solely in the Medicaid managed care business.  According to its recently released annual 10-K report to the Securities and Exchange Commission, 97% of Centene 2022 revenues of $144 billion were derived from Medicaid and Medicare contracting – practically all of it from Medicaid.  The company’s cash flow statement notes $6.3 billion net cash from operating activities, which is a major indicator of “profitability.”  However, that is not the whole story regarding enhancement and protection of shareholder value.

Taking Care of Shareholders by Keeping Stock Price Propped Up

    Cash and cash equivalents on Centene’s balance sheet increased from $10.8 billion in 2020 – the early stages of the ongoing COVID pandemic – to $12.7 billion at the end of 2022. Taxpayers need to ask questions about how that hoard of cash is allocated.  I have tracked the company’s stock since late November of 2021 when the equities market began to tank.  It closed at $73.77 on November 29, 2021 and has been quite resilient despite the market decline since that time – trading in the high $70s and $80s.

    The strength of Centene’s stock price is most likely due to a $3 billion stock buyback. In 2022, the company’s board “authorized increases to the Company’s existing stock repurchase program, including $3.0 billion in June 2022 and an additional $2.0 billion in December 2022.” (see page, 34 of 10-K*).  With those increases, the Company was authorized to repurchase up to $6.0 billion.

    Stock repurchases, which are thinly disguised forms of stock manipulation/insider trading, were unfortunately deregulated during the Clinton Administration.  This financial maneuver benefits only shareholders and executives and does nothing for long-term investment in workers, R&D, patient quality, and other productive activities.  The benefits for executives and board members who have been awarded generous stock options involve strategies for exercising their right to sell stock based on insider knowledge (of which the public is unaware).

    Since the financial deregulation allowing loose rules about stock buybacks a corporate buyback frenzy has been underway. Free money handed out by the Federal Reserve from 2008 until Fed Chair Powell reversed course to quell inflation pumped $trillions into speculative finance, much of which was borrowed for stock repurchase. Consequently, the U.S. economy has been damaged and wealth has become increasingly maldistributed by the diversion of cash to a wealthy few that could be reinvested in long-term growth benefitting employees and overall economic growth. It seems to me to be the height of governmental irresponsibility to not regulate this kind of activity on the part of corporations which are rewarded for managing poor peoples’ health care.

Politically Powerful Board Members & Executive Board Compensation

    The revolving door from government to business is starkly obvious on the Centene board, which includes two powerful former congressmen – Tommy Thompson and Richard Gephardt. Mr. Thompson is also a former Secretary of Health and Human Services.  The Centene Proxy Statement for 2022 has not been issued to the public yet (we expect to see it within a month).  However, the 2021 Proxy Statement indicates that Mr. Thompson’s compensation in cash and stock totaled $403,046.  Mr. Gephardt’s compensation totaled $426,923.  The fine print below the compensation table states that both Mr. Thompson’s and Mr. Gephardt’s compensation included use of the company aircraft and other perks.

Executive Compensation

    The late Michael Neidorff had been Chief Executive and Chairman of the Board in 2019, 2020, and 2021 with compensation for those years of $26.4 million, $24.9 million, and $20.6 million respectively.  His replacement, Sarah M. London joined the board in 2021 as vice chairman and received 2021 compensation of $15.2 million.  The seven top executives received a total of $80 million in compensation in 2021.

Conclusion

    Medicaid expenditures in the U.S. will reach $1 trillion within the next few years.  Along with expenditure on military activities, this poverty program will remain one of the two biggest programs funded by U.S. income tax payers.  With expansion of Medicaid under the Affordable Care Act, we anticipate that growth of tax-funded  poverty medical care will be rapid in the years ahead.  This raises the question of evaluation of these expenditures and public discourse about the quality of care.

    My initial foray into availability of state and federal data regarding the effectiveness and regulation of MCOs leaves me with considerable doubt about what taxpayers and legislators know about outsourcing medical care for poor people.  It is not difficult for me to uncover the inordinate executive compensation packages, stock buyback information, and financial performance metrics reported by major providers.  However, medical and ethical, questions arise regarding the justification for cash out to investors and executives given the care provided.  I will be sharing my research pertaining to Medicaid expenditures on this blog in the weeks, months, and years ahead. 

*The Centene 10-K can be accessed at https://investors.centene.com/all-filings?cat=1.

THE ENSIGN GROUP 4TH QUARTER REPORT:  MARVELOUS IF YOU ARE AN INVESTOR (BUT NOT IF YOU ARE AN EMPLOYEE AND/OR A TAXPAYER).

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    As I noted a couple of days ago, The Ensign Group (Ensign) was scheduled to release its 4th quarter financial report and hold a conference call.  They did that. This blog post will provide a basic overview of their 4th quarter and annual results.[1] I will be reporting on the Centene Corporation and the real estate investment trusts in the weeks ahead.

    It is important to note that the late Roy Christensen, Ensign founder, and current/past Ensign executives were and are very sophisticated financiers.  Christensen founded Beverly Enterprises in the 1960s, sold it, and taught business at Brigham Young University until he founded the Ensign Group in 1999.  Most Ensign executives and board members have an association with the Marriot School of Business at BYU.  There is no other nursing home corporation like the complexly organized Ensign. It is becoming increasingly complex to the advantage of shareholders and executives but apparently not to taxpayers, patients, and employees (as I will demonstrate below).

Highlights of Ensign 4th Quarter Results

  • Earnings per share of $4.14 – an increase of 13.7% over the prior year.

  • Earnings per share for the quarter of $1.06 – an increase of 23.3%.

  • Consolidated revenues for the year were $3.025 billion – an increase of 398.5 million or 15.1% over the prior year.

  • Net income was $60.5 million for the quarter – an increase of 24.1% over the prior year quarter.

  • For the year, adjusted net income was $235.7 million – an increase of 13.8% over the prior year.  Given an annual 2022 revenue of 3.025 billion and a net income of $235.7 million, percent net income was 7.8%.  However, Earnings Before Interest, Taxes, Depreciation & Amortization EBITDA – a more important cash flow statistic – was $383.5 million or 12.6%).

  • The company’s liquidity is increasingly strong with $316 million in cash and cash equivalents on its balance sheet and a $593.3 million line of credit.

It’s All About the Real Estate

    Quarterly reports, annual reports, and proxy statements can become eye glazing for the public.  The way we need to look at Ensign and the rest of the nursing home industry is this:  Medicaid and Medicare (mostly Medicaid) provide revenue that sustains a real estate industry.  Hence, direct care services are robbed for the sake of shareholder interests.

    In the past couple of decades, tax code adjustments have resulted in a financial transformation of long-term and skilled nursing business.  Limited liability entities, private equity firms, real estate investment trusts, and individual/family trusts have blossomed like tulips in Springtime.  Ensign is a cutting-edge bellwether of financialization, and the tax arbitrage associated with it. Let’s take the separation of property from operations (OPCO/PROPCO).[2]  Property has been increasingly separated into  separate subsidiaries of parent corporations or sold to REITs and leased back.  However, Ensign has upped that game.  The following indicates the segmentation of the company into separate entities – most of which were not discussed in the quarterly report.

    The above graphic does not include a couple of later entities – Standard Bearer (a captive[3] REIT) and a captive insurance company.[4]  A spinoff has tax advantages for shareholders.  Added advantages for Ensign in its spinoff of property into CareTrust REIT include avoidance of capital gains taxes and increased corporate assets/value.  CareTrust is an “umbrella partnership real estate investment trust,” otherwise known as an UPREIT.  By transferring property to an UPREIT, rather than selling it, capital gains taxes are avoided, the transferee receives “operating units” (OPUs), and receives returns from the triple net leases to other nursing homes (under triple net leases, leasees pay insurance, maintenance, and taxes – what a deal!). 

    As the above diagram indicates, Ensign undertook a spinoff in 2016 by spinning out its assisted living facilities into the Pennant Group – an Ensign spinoff. Ensign leases property to the Pennant Group and retains a major share of the stock.  This model illustrates the OPCO/PROPCO set up in which property becomes a tradable commodity rather than a necessary tool for producing care.  Finance dominates production.

Financialization

    Financialization throughout the U.S. economy has dampened economic growth.  Furthermore, stagnant wages, a diminishing upwardly mobile middle-income class, wealth transfer to super-rich individuals and corporations, and a low-wage underclass are due to the separation of finance from productivity.[5]  Nowhere is that phenomenon more apparent than in the U.S. government-funded healthcare system.  The massive real estate substrate of industrialized medical care is draining resources from care.  There is no rational justification for exceedingly low pay, and poor care when so few are making so much from the trillions of dollars poured by Americans into the health care system.

Summary

    From a financial and technical perspective, this post has been somewhat superficial.  Nevertheless, we need to outline the overall financialized, industrialized, government-funded U.S. healthcare system and have a very serious public conversation about how the hardworking and patriotic people of the U.S. are being fleeced.  I will be clarifying and filling in the concepts that I have introduced in this post. In the future you will see more regarding UPREITs and OPUs, shell companies (Ensign has over 400 subsidiaries, all are LLCs, all incorporated in Nevada), and other financial machinations that are robbing American taxpayers.

[1] You can listen to the conference call and download the text of the call here:  https://investor.ensigngroup.net/news-releases/news-release-details/ensign-group-reports-fourth-quarter-and-fiscal-year-2022-results

[2] For a very good discussion of REITs, Financialization, and nursing homes, see Rosemary Batt & Eileen Applebaum (July 9th, 2022), “The Role of Public REITs in Financialization and Industry Restructuring.”  Working Paper No. 189.  Washington, D.C.:  Institute for New Economic Thinking.

[3] A REIT with the property of only one corporation – The Ensign Group in this case.

[4] An insurance company that underwrites only the entity that incorporates it.

[5] For a very good discussion of financialization, see:  Rana Foroohar (2017), Makers and Takers:  How Wall Street Destroyed Main Street.  New York:  Crown Publishing.

In 2016, the General Accounting Office Makes Recommendations Regarding Accurate and Reliable Nursing Home Financial Reports:  HHS Says “Thanks, but No Thanks.”

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    In 2016, the General Accounting Office (GAO) reported the results of its investigation into the reliability and validity of financial information submitted by nursing home corporations.  The GAO was tasked with determining how skilled nursing facilities “spend their Medicare and other revenues.”[1]  In its report, the GAO recommended that CMS undertake two actions: “ (1) improve public stakeholders’ ability to locate and use SNF expenditure data and (2) ensure the accuracy and completeness of the data.”[2] According to the report, “HHS concurred with the first but not the second recommendation, citing resource considerations.”[3]  The agency’s partial concurrence is farcical.  What is the benefit of making financial data available to the public if the data is inaccurate and unreliable?

    HHS disagreement with a reasonable recommendation by the GAO that CMS demand honest cost reports from contractors, should evoke the public into a profound and angry reaction. For an agency with a FY 2023 request for discretionary budget authority of $127 billion and $1.7 trillion in mandatory budget authority[4] a project for making financial data easily accessible to the public is de minimus in the overall scheme of its expenditures.  The cost of a reasonably accessible database containing well-audited cost reports from each facility would be a trivial expenditure – so trivial that it would have no meaningful impact on government deficits and debt.

    The problem is that the public has not been stunned by the rejection of the GAO investigators’ recommendations and their stated belief that  “CMS should provide reliable SNF expenditure data”[5] because the public has not been made aware of the report or what it contains.  That in itself is puzzling.  A government agency for the responsibility of nearly $2 trillion worth of federal expenditures is shirking its responsibility for informing the taxpayers – the funders – about how their money is spent – let alone whether it is effectively and efficiently spent.  This should be big news but advocates and activists have failed to take advantage of it.

    Consequently, the nursing home system remains a closed system that is troubling to most Americans, but they can’t articulate the financial machinations responsible for the lack of investment by corporations in an adequately paid workforce and quality of care.  Absence of openness in a complex social system funded by government inevitably leads to the bigger problem of corruption.

[1] “Skilled Nursing Facilities: CMS Should Improve Accessibility and Reliability of Expenditure Data,” (2016), Washington, D.C. General Accounting Office, Highlights of GAO-16-700.

[2] Ibid

[3] Ibid

[4] https://www.hhs.gov/about/budget/fy2023/index.html

[5] GAO, Op. Cit.

THE ENSIGN GROUP AND CENTENE CORPORATION ANNOUNCE DATES FOR PRESENTATION OF 4TH QUARTER, 2022 RESULTS

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    The Ensign Group and Centene Corporation have announced dates for presentation of 4th quarter, 2022 results – February 3rd and February 7th respectively.   Ensign and Centene are the two largest and the only publicly listed corporations earning the bulk of their revenue from Medicaid. The Ensign Group is engaged exclusively in long-term and skilled nursing care.  Centene primarily provides Medicaid managed care services to states.

    Given that Medicaid is means-tested and lower tier poverty medicine, it is notable that these two corporations have experienced rapid revenue growth and high earnings while lavishing executives with generous compensation packages.

    In this post, I will review Ensign Group’s 3rd Quarter, 2022, results, which will be a point of comparison for the upcoming 4th Quarter results and cover more of Centene’s financial performance and executive pay in a later post.  The purpose of this post is to focus attention on the dissonance between claims of industry-wide low earnings made by American Health Care Association – the nursing home industry’s propaganda organ – and public information available through the Securities and Exchange Commission.  The AHCA’s claims are not verifiable because closely held corporations aren’t required to make their consolidated financial statements public.


   Selected Ensign Group 3rd Quarter, 2022 Results

  • Revenue, Three Months Ended September 30: 
    $770,005,000 (compared to 668,530,000 2021 3rd Quarter).

  • Revenue, Nine Months Ended September 30:
    $2,215,936,000 (compared to $1,934,319 to 2021).

  • Net Income 3rd qtr. 2022:
    $56,242,000 (7.3%)
    Compared to $48,344,000 3rd qtr. 2021 (7.0%)

  • Net Income, Nine Months Ended 2022:
    $2,215,936,000 (compare to $1,934,319,000).

Executive Compensation

    We will not know Ensign executive compensation until the company releases its proxy statement in April.  The following are 2021 compensation data for executives:

  • Barry R. Port, CEO:  $7,421,472 (13.9% increase over 2020 compensation).

  • Suzanne Snapper, CFO: $6,532,955 (19.5% increase over 2020).

  • Chad Keech, CIO: $4,275,539 (17.7% increase over 2020).

  • Spencer Burton, President and Chief Operating Officer: $5,029,146 (9% increase over 2020)

Ensign Stock Has Been Increasing During Stock Market Down Year:

    Between late 2021 and the end of 2022, the NASDAQ had declined by 30%.  It was a bad year.  However, Ensign stock was trading at $77.20 on November 29, 2021.  It closed at $94.00 yesterday (February 1, 2023) – a 22% increase.

    Christopher Christensen, CEO Emeritus owns $1,478,499 shares of Ensign stock).  The value of Mr. Christensen’s stock increased in value by $24,838,783. 

    The three beneficial owners: BlackRock (15.1% or 8,340,870 shares), Wasatch Advisors (11.1% or 6,121,470 shares) and Vanguard (11% or 6,104,354 shares).

We must insist on truthful information from the industry receiving taxpayer funds for providing medical care to Americans experiencing poverty. As the only public information we are receiving suggests, investors and executives are excessively rewarded while wages and salaries for direct care workers remain seriously low. If the bulk of financial information is hidden behind a veil of secrecy, taxpayers and their representatives do not have a voice in determining what we should be receiving for what we are paying.

Misinformation About Social Security & Medicare is Harming America’s Elderly

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By:

Dave Kingsley

Scapegoating the Elderly for U.S. Budget Deficits & Debt

Pie charts, bar charts, tables, graphs, and other depictions of the federal budget abound in the media. These pictorial representations of what Congress budgets for such things as education, agriculture, health care, and so forth invariably include all of Social Security and Medicare. Hence, they are consistently wrong. None of the expenditures for Social Security are budgeted and have absolutely no impact on the budget or deficits. Less than half of Medicare expenditures are budgeted because beneficiaries pick up a large amount of the costs.

Social Security benefits are “earned” by beneficiaries who have paid in during their working years through a payroll tax. Benefits for each beneficiary are actuarily tracked and payouts are based on what is paid in.

Dr. Max Skidmore, University of Missouri Curators’ Distinguished Professor of Political Science (Emeritus) explains the history and functioning of Social Security in an accompanying blog post today. Dr. Skidmore is a leading expert on Social Security and colleague of those of us contributing to this blog (see e.g. his book Securing America’s Future: A Bold Plan to Preserve and Expand Social Security with a Foreword by former senator George McGovern).

Over Half of Medicare is Paid for by Beneficiaries Through Payroll Taxes, Premiums, and Out of Pocket Expenses. All of Social Security is Off Budget Because it is Earned by Beneficiaries.

In calendar year 2021, Medicare expended $839.3 billion, of which $405.4 billion (48.3%) was budgeted. None of the $1.14 trillion expended by Social Security for earned benefits are part of the federal budget. Hence, my estimation is that of an approximately $5.5 trillion 2022 FY budget, only $.405 trillion (7.4%) was budgeted for all of Social Security (0%) and Medicare (7.4%).

The Harm Done by Misinformation

Claims that the elderly are receiving the biggest share of the annual budget dampens the public’s support for much needed assistance with out-of-pocket Medicare costs, home health care, housing assistance (including assisted living), and other essential services and financial needs for daily living. Financial moguls such as the late multi-billionaire Peter G. Peterson and conservative politicians have been leading a propaganda war against Social Security and Medicare from their inception in the 1930s and 1960s.

Many seniors are suffering due to the cost of pharmaceuticals and co-pays, deductibles, and premiums. Transportation, housing, food, along with medical care and other costs for the needs of daily living are robbing a huge proportion of the growing 65+ population of a decent life in their elderhood. The blatant falsehoods coming from some super rich Wall Streeters and conservative politicians are causing pain for hardworking people who are being denied a decent quality of life. We intend to fight back!