By:

Max Skidmore

If an objective observer from outside were looking at America’s political economy for the first time just after the 2020 elections, several astonishing inconsistencies would be immediately apparent. In the presidential election, many supporters of the incumbent – the loser Donald Trump – had first voted for him in 2016 because they believed he was a “good businessman.” Yet under his presidency the economy was failing, his incompetence as a leader was manifest, and conditions under a pandemic literally were lethal, the worst in the world, because he had no idea how to deal with the emergency, nor did it even appear to concern him.

Mr. Trump had, in fact, never demonstrated skill at business; on the contrary, he consistently had failed. Having lost money in businesses, he shifted his attention to television where he appeared on a successful “reality” show, which provided him with a substantial income. In any case, the qualities required to run a business are far different from those needed to guide a government that exists not to profit from, but to benefit, the people.

Apart from Trump, voters often explained their support for Republicans because they believed Republican leadership would bring a strong economy. Yet in administration after administration, the business climate had been better when Democrats were in power, than it was under Republicans. The Republican reputation as better for the economy does not hold up under examination.

Republicans have come to claim that taxes inhibit the economy, and that tax reductions pay for themselves by increasing business activity. President Bill Clinton signed tax increases into law in spite of dire predictions that they would damage the economy, but the economy afterward improved at an astonishing level. His successor, George W. Bush, on the other hand, signed into law huge tax reductions, and what followed was the greatest economic catastrophe since the Great Depression. In other words, basic Republican assumptions are wrong. This does not mean that tax policies are good or bad, but that they do not routinely have the effects that Republicans claim for them. A cursory glance at the actual record makes that clear.

Although Republicans long stressed patriotism and love of country, they recently exposed their party’s thirst for power at the expense of America’s fundamental interests. In response to clear revelations of massive foreign interference in American elections, they tend to deny it, or shrug it off as unimportant if it happens under Republicans. At the same time, they generate fantasy scenarios to charge Democrats as “un-American,” and beholden to foreign powers. Many of the Republicans’ prominent office holders supported Donald Trump as he illegally sought to pressure Republican state officials to “find” nonexistent Trump votes and reverse the results of democratic elections, hoping to retain him in power by overturning the will of the voters. 

The most shocking example of “conservative” contradictions took place on the 6^th of January 2021, when Congress was scheduled to count the electoral vote totals that the states submitted. Donald Trump, still president despite considerable loss of the election, incited his followers to engage in a coup, to storm and take over the Capitol, keeping him in power despite his clear loss.

They did so in massive numbers, vandalizing the seat of national government, stealing items, and taking “selfies” in some of the most presumably secure places in the House and Senate chambers, and offices of the members. They were cleared out, gently, as many observers noted. This was in sharp contrast to the manner in which authorities dealt with civil-rights protests, when peaceful demonstrators were gassed, beaten, and sometimes killed. Quotations from some Capitol Police expressed astonishment, because  they had anticipated no trouble. Conservatives, they thought, did not engage in violence. Even the most cursory examination reveals that political violence in modern America almost always comes from the right¾from white nationalist, neo-Nazi, and other racist groups¾not the left.

Some authorities deny that the riot was actually a coup, because it was too disorganized. That is nonsense. The attempt was to take over the government. Some of the rioters had even constructed a gallows on the grounds of the Capitol, reportedly having planned to kidnap officeholders, conduct mock trials, and then hold public executions. The fact that they were incompetent and failed does not in any way mean that they had not attempted a government takeover¾which by definition was an attempted coup. All the while, Trump still the sitting president, was reported as having enjoyed the spectacle.

This was sufficiently outrageous that a few of Trump’s previously ardent supporters broke with him, and called for his removal, Nevertheless, his most fervent core of support remained, even though the actions violated what they had professed to be their principles. The fact that they had become supporters of Trump, personally (Heil Trump!), and not supporters of whatever principles they purported to profess, is demonstrated that the Republican National Convention, when it re-nominated Trump in 2020 for a second term, for the first time ever, did not even see fit to produce a party platform, merely expressing fealty to their cult leader.

As with deficits, when Republicans are in power, they create huge shortfalls flowing from, among other things, great tax cuts for the wealthy. Yet when Democrats are in power, Republicans become deficit hawks, masquerade as “fiscally responsible,”  and seek to impose austerity in order to block Democratic programs that would help the people. Witness the fervent Republican opposition to “Obamacare,” and the numerous Republican attempts to sabotage the program and keep it from functioning optimally.  

These are merely a few of the plethora of inconsistencies that would be apparent to our outside observer. Perhaps the most glaring of all, and the most irrational from a policy standpoint (as opposed to that of raw power), is the  conservative Republican reaction to Social Security. That warrants an article of its own.

By:

Max Skidmore

As I mentioned earlier, the reaction to Social Security is perhaps the most glaring and irrational of all the obvious irrationalities of Republican conservatives. The program is enormously efficient, with administrative costs less than one cent of each dollar it receives in income. It is arguably the most popular government program in American history, and is far more than a mere retirement program, because it also provides life insurance and coverage for disability.

Not only do some 64 million Americans receive Social Security checks, the checks help beneficiaries of all ages. Almost a third of America’s Social Security checks go to people younger than retirement age. Of retirees, about half of retired couples count on Social Security for half or more of the total income. Of retirees who are unmarried, even more, some 70% get half or more of their income from the system. To put it another way, almost 9 out of 10 Americans who are 65 or older receive Social Security benefits. More than a fifth of retired married couples, in fact, and almost half of elderly singles, receive almost no income except Social Security, which accounts for 90% or more of all their income.

Although there certainly are complexities involved, Social Security’s fundamental principles are quite simple. Wages in covered employment up to $142,800 (for 2021; it varies annually) are subject to a 6.2% tax (FICA). Most employment in the U.S. is covered. The employer matches the amount deducted from wages. That means that an amount equal to 12.4% of each employee’s wages goes into trust funds; a portion of that payment goes to the Disability Insurance Trust Fund, and the rest to the Old-Age and Survivors’ (OASI) Trust Fund. Benefits for eligible  retirees, eligible spouses, other dependents, and the disabled are paid out from the trust funds. The small administrative costs of the system also come from the trust funds. The remainder is invested in government bonds. Those bonds regularly pay interest back into the trust funds.

Remember this also: Social Security’s benefits are inflation protected. They do not lost value as prices rise, and keep pace with inflation, Moreover, one cannot “outlive” Social Security payments, as can happen with private savings. The payments continue, inflation protected, as long as the beneficiary lives.

Think of the enormous damage that would occur if  its opponents managed to do away with Social Security. Think of the millions of Americans who are kept above the poverty line because of Social Security. Among retirees, that figure is around 38%, or more than a third of all retirees in the United States, who would be thrust into extreme poverty without their Social Security.

By law, benefits must come from the trust funds. If the balances in the funds, including incoming monies, were ever inadequate, benefits would be reduced. If that were to happen, though, there would be so much pressure that Congress surely would boost FICA rates to cover the shortfall.

In no instance, do Social Security benefits come from general revenues. Thus, those budget hawks who argue for benefit reductions to help “balance the budget,” either do not understand how the system works, or are deliberately being deceptive. Under current law, reducing benefits would simply build up larger trust fund balances; it would not affect the deficit.

In other words, balancing the budget by reducing benefits would require a change in the law that would divert Social Security money away from the trust funds. That is, workers still would pay for Social Security, but instead of receiving promised benefits, their payments would go to subsidize the wealthy, who profit from steady reductions in their rates of taxation.

Those advocating austerity, if they even think about it, apparently consider this to be fair¾that is, low to middle income workers would be expected to have “skin in the game,” and do the lion’s share of reducing the deficit that results from continuing reductions of tax on the wealthy. That certainly would be wealth redistribution, but it would be redistribution upward; diverting income away from those who have less to those who control the vast majority of wealth in the American economy.

It is correct that for some years reported projections have called for the trust funds to be depleted, usually in the 2030s. The projections come from the annual reports of the Board of Trustees of the trust funds. The Board consists of four ex officio members: the secretaries of health and human services, of labor, and of the treasury along with the commissioner of Social Security. Additionally, the full board includes two more members appointed from the public. If the reported shortfalls were to materialize, at the worst, benefits could be reduced¾and the reduced benefits still would be greater than today’s benefits. Reductions could easily be avoided: taxes could be increased slightly, for example, or the cap on earnings subject to FICA could be raised. Better yet, the cap could be completely removed.

In any case, despite many of the experts, I submit that the worst scenario is unlikely to happen. All the reporting relies on the Trustees’ “Intermediate,” or “alternative II” projections. The reporting virtually never reveals that the reports each year include three projections, not merely the Intermediate. Alternative I is the “low-cost” projection, and it almost always calls for no shortfall. In the past, the performance of the trust funds have generally been closer to the low-cost projection¾the one that projects no shortfall¾than to the more pessimistic one. In fact, recently, even during the pandemic, the trust funds have performed better than the Intermediate projection would have it. Despite this, only the Intermediate projection, with its persistent shortfalls, forms the basis for virtually all reported information on the program’s future.

The Trustees, in fact, produce three separate projections. They say that the Intermediate one is the one they believe most likely to come to pass, but caution that these are simply estimates, not prophecies.

Their Alternative One, or “low-cost” projection, generally calls for no shortfall at all (to be precise, in the 2020 report, it does call for a small and brief shortfall in the 2080s, but that shortfall  quickly vanishes). Hardly anyone, though, has heard of a projection other than the Intermediate. One indication that the Intermediate Projections tend to be too pessimistic, is that even during the pandemic, the trust funds have performed far better than the reported projections have anticipated.

So the question of Social Security’s sustainability is certainly one of political will, not economics. The American economy can easily handle any feasible circumstance. The shortfall from Republican tax cuts, for example, is far greater than any of the Intermediate projections for Social Security.

Thus, the future appears quite bright. Most of what people hear about Social Security’s sustainability is influenced by conservative propaganda that reflects billions of dollars spent to convince the public that Social Security “won’t be there when you retire.” If you hear nonsense about immigrants, even illegal immigrants, come into the country and immediately begin to collect Social Security, what you are hearing is not only wrong, but it completely misrepresents how the program functions. No one collects Social Security unless it is based on a worker’s wages. All benefits are based on a worker’s having worked in covered employment. Ten years of wages are required.

 Social Security is not “going broke.” If the trust funds were depleted, there still would be money coming in to finance benefits. “Bankruptcy” is not an appropriate term for  a program of the federal government that cannot “go broke,” since it can create money as it needs it to pay any bills that it incurs. Remember, when you hear dire warnings about Social Security, those warnings are almost assuredly the result of well-financed propaganda from Social Security’s opponents. Ignore them.

By:

Dave Kingsley

Monetizing Health Care and the Commodity Fetish of Hyper-capitalism

In this age of hyper-capitalism, anything that can be monetized will be monetized.  Financiers are very good at finding ways to turn normal human activity into an investment.  There is no better example of this than A Place for Mom – a private equity-owned firm.  Although this company’s massive advertising blitz featuring Joan Lunden and her ilk have led the public to believe that it is a charitable service, it is a for profit enterprise paid by nursing homes to refer patients to them.

In addition to monetizing every facet of medical care and turning the elderly into commodities, corporations like A Place for Mom are allowed to operate unfettered and free to engage in deceptive advertising.  Due to a lack of regulation, they are also able to operate behind a veil of secrecy.

Free is not Free to Providers & Taxpayers

Essentially, A Place for Mom is paid the equivalent of one month of Medicaid reimbursement for every patient they refer to a facility. As a researcher, I called this outfit and asked if they would tell me the name of facilities to which they made referrals. As everyone knows, there are good, bad, and very bad nursing homes. They will tell me or any other member of the taxpaying public nothing – bupkus, nada.  The information I requested is not public and will not be made available to either potential customers or any citizen requesting it. It is important to know if these types of referral services have deals with specific facilities and what those arrangements would entail. 

Like the long-term care system in general, it is not possible to evaluate these services in practically all states except the state of Washington.  We don’t know if they have a pattern of referring to facilities with poor reputations and desperate for patients to fill beds.  Because their employees sit in cubicles and sell services, their knowledge of long-term care is unknowable.  I was told by one employee that she had only been on the job for one day and had no background in the field senior housing or elder care. That was a lucky break. I’m certain she was educated quickly on what she could reveal to callers.

Regulation & Transparency is Needed

Referral services are escaping regulation in most states. The State of Washington has enacted legislation with record keeping and reporting requirements (https://app.leg.wa.gov/rcw/default.aspx?cite=18.3308&full=true).  Disclosure and records of relationships with both patients and facilities are required by the statute. This could serve as model legislation for initial attempts to regulate and monitor referral services.

The Washington statute doesn’t appear to include public access to the records for investigative journalism, research, and other purposes.  That is, in my view, a weakness that needs to be overcome in future legislature.

Jobs Override the Health & Well-being of Elders & the Disabled

The state of Kansas has provided a $30 million subsidy to A Place for Mom’s shop in the vacated Sprint Campus in Overland Park.  The Gray Panthers of Kansas & Missouri pressured the governor’s office to either squelch these subsidies or support legislation that would force transparency and disclosure of relationships with providers and clients.  Governor Kelly has shown little interest in working with the Gray Panthers on monitoring referral services.  Her letter to the Gray Panthers indicates that the overriding issue for her are the jobs A Place for Mom will bring to Kansas.

By:

Dave Kingsley

Media, Image, & Distortion of Reality

The first known outbreak of COVID in the United States occurred at the Kirkland, Washington long-term care facility owned by Life Care Centers of America, Inc.  Consequently, the company has gained some fame in the mainstream media and has been treated sympathetically as a victim.  Coincidentally, the Kirkland facility also had a CMS Nursing Home Compare quality rating of 5 – the highest – which added credibility to the image of victimhood.  Here is how CBS 60 Minutes Correspondent Bill Whittaker introduced the company on the November 1, 2020 60 Minutes program:

“On the morning of February 29 the world turned its attention from news of the coronavirus in China and Europe, to the Seattle suburb of Kirkland. What was predicted by public health experts had arrived: the first COVID-19 outbreak in the United States. And it was spreading in the most vulnerable of places — transforming a 5-star, skilled nursing facility into the first hot-zone in the country.”

https://www.cbsnews.com/news/covid-19-outbreak-nursing-facility-kirkland-washington-60-minutes-2020-11-01/

The gist of an interview by Whittaker during the program with Nancy Butner, a Life Care Centers VP, was this: the federal government was at fault. When the company called the federal government and asked them to send nurses and other personnel, instead a team of inspectors was sent.  The feds didn’t ride to the rescue.  Given that Life Care Centers, Inc. is one of the largest long-term care chains in the U.S. and funded through Medicaid and Medicare to staff and manage its facilities, this is an odd defense.

Is Life Care Centers, Inc. a Five-Star Company?

Life Care Centers owns and operates 230 long-term care facilities and is typically listed by trade publications as one of the four or five largest chains in the United States.  The company is owned by one man – billionaire Forrest J. Preston – which is an anomaly among the biggest chains. Furthermore, it is the company’s responsibility to properly staff its facilities, implement infectious disease control protocols, and train employees.  It was well known in early January that a rapidly spreading novel virus was spreading in Asia and would most likely make its way to the United States.

A 5-Star rating in one or a few facilities should be considered in context of the Life Care Centers track record.  Out of seven Life Care Centers facilities in Kansas, four are rated 1 – the lowest rating.  However, the Andover facility is a “special focus facility,” which means it is worse than the lowest rating and is so bad that no one should be referred there.  The Overland Park facility has a 2 rating but a “red hand,” which means that patient had suffered abuse.  The Atchison facility has a 5 rating.  So, out seven facilities in one state, all but one has been rated 2 or below, with most being a 1or special focus facility. 

At this time, the Andover, special focus facility, still has half of its beds occupied, which makes one wonder why the state allows it to continue to operate.  Reading the inspection report will literally make you sick (Find Healthcare Providers: Compare Care Near You | Medicare). Furthermore, two of the largest COVID outbreaks attracting media attention in Kansas occurred at Burlington and Kansas City, Kansas Life Care Centers facilities.

Perhaps there is a modicum of validity to the CMS 5-Star rating system, but it is possible on a good day, with the right inspector, to luck out and receive a 5.  Perhaps the highest rating is deserved in one facility while most of the others are rated low.  However, treatment and prevention of infectious diseases should be a corporate-wide policy.  I would, therefore, take the 5 at Kirkland with a grain of salt.

A Huge Case of Fraud by Life Care Centers:  Settled by the Department of Justice for $145 Million

The best way to rob a long-term care facility is to own one.*  On Monday, October 24, 2016, the U.S. Department of Justice announced that it had “resolved allegations” that Life Care had “violated the False Claims Act by knowingly causing skilled nursing facilities to submit false claims to Medicare and TRICARE for rehabilitation therapy (https://www.justice.gov/opa/pr/life-care-centers-america-inc-agrees-pay-145-million-resolve-false-claims-act-allegations). It is impossible to know how many $millions Forrest L. Preston was able to pocket above and beyond the $145 million.

Nor do we know how widespread this type of fraud is in the long-term care industry.  The DOJ brought this action against Life Care Centers because of two whistle blower employees (the whistle blower reward was $29 million).

Given that white collar crime is not usually punished (see Professor Jennifer Traub, Big Dirty Money), it is likely that large amounts of fraudulent billing is robbing patients of funds for care and employees’ of pay. The message from these types of settlements is that there is not much risk or hazard in committing fraud. 

Dirty money flowing into the pockets of owners/investors expands pressure on federal and state budgets.  Consequently, it is more difficult in the legislative process to increase expenditures for actual care. So, a billionaire owning a chain of long-term care facilities and submitting fraudulent claims is not only robbing the government but is also robbing patients and employees.  That simple truth didn’t make it into the 60 Minutes idealized view of Life Care Centers of America, Inc.

*Expropriated from University of Missouri, Kansas City economics professor Bill Black who published a book entitled “The Best Way to Rob a Bank, is to Own One.”

By

Dave Kingsley

The best article to date on the COVID pandemic in long-term care facilities appeared this morning in the Wall Street Journal (Anna Wilde Mathews, Jason Douglas, Jon Kamp, and Dasi Yoon, “Covid-19 Took Deadly Aim At World’s Nursing Homes,” https://www.wsj.com/articles/covid-19-stalked-nursing-homes-around-the-world-11609436215?mod=searchresults_pos1&page=1). It is not another emotional story of some scandalous facility – the kind of stories we’ve had in the United States for 70 years. Rather it discusses the catastrophe in the broader context of system failure.

I believe the article could have gone further in its unmentioned but more or less implied critique of the various subsystems of the overall system, e.g. the industry, regulators, aging enterprises such as AARP, and legislators. These mutually reinforcing subsystems were not singled out for the type of scathing criticism they deserve. That’s a problem and weakness in the reporting. Nevertheless, the article was clear that most of the 120,000 estimated deaths was preventable.

The cross cultural comparison presented by the authors cited a study in the Journal of Post-Acute and Long-Term Medicine, in which a dozen member countries of the Organization for Economic Cooperation & Development were studied and compared. Not surprisingly, COVID-19 deaths were concentrated in long-term care facilities across the world. But some countries – mostly Asian countries – greatly reduced the effects of the scourge in their long-term care facilities.

As stated in the article:

The devastating toll wasn’t inevitable. Countries such as South Korea managed to limit the deaths among nursing home residents by avoiding widespread community outbreaks and moving quickly to prevent infections from spreading inside the facilities. Even as it faces a recent surge of Covid-19 cases, the entire east Asian nation has still reported only about 70 long-term care deaths.

Dr. Samir Sinha, Director of health policy and research and the National co-chair of the National institute of Aging said “We left the barn door open.” The authors continued to point out that most nations failed – especially the U.S. – in taking precautions and reacting slowly. It was well-known that infectious diseases are a significant threat to patients in long-term care facilities.

As I indicated, this article has its weakness by not focusing heavily on the industry’s gross negligence (by placing investors over stakeholders), or on lax regulation of the Center for Medicare and Medicaid Services and the various state agencies that appeared to be protecting and carrying water for the industry. Furthermore, the authors misrepresented the Trump Administration’s COVID in Nursing Homes Commission by stating that “it called for a more muscular response, including greater help for nursing homes with staffing, testing, and protective gear.” In fact, the Commission was a whitewash of the industry’s negligence and used by the Trump Administration as propaganda. Seema Verma issued a press release claiming it validated the great job done by the Administration.

Although the WSJ article was apparently not a call for an independent commission to determine why 120,000 mostly preventable deaths occurred, it should be a bit of help in motivating the public, legislators, and advocates to call for such an entity. The death of so many patients in long-term care is one of the greatest medical catastrophes in U.S. history. To not hold responsible parties accountable will present a grave danger to elderly and disabled patients in long-term care institutions.

By

Dave Kingsley

According to U.S. World & Reports the following five REITs are recommended as the best “health care REIT” investments for a retirement portfolio: Sabra, Welltower, VENTAS, National Health Investors, and The Long-Term Care ETF (https://money.usnews.com/investing/dividends/articles/best-health-care-reits-for-a-retirement-portfolio).   Some of the properties currently owned by these entities were picked up when private equity firms sold off properties from chains they bought out such as HCR Manor Care (taken over by The Carlyle Group) or Genesis (taken over by Formation Capital).

The five REITs listed by USN&WR are publicly traded; hence, their filings with the SEC (10-K, 10-Q, and Proxy statement) are available and provide a picture of their financial performances. I will be tracking these from quarter to quarter and from fiscal year to fiscal year.

VENTAS

Ventas stated in its third quarter 10-Q that as of September 30, it “owned or managed through unconsolidated joint ventures approximately 1200 properties (including properties held for sale), consisting of senior housing communities, medical office buildings (MOBs), research and innovation centers, inpatient rehabilitation facilities (IRFs) and long-term acute care facilities (LTACs).”

The Ventas 10-Q report also suggests that their revenues will equal or exceed 2019 revenues.  As of September 30, revenues were $2.7 billion – total 2019 revenue was $2.9 billion.  Total stockholder equity as of the end of the third quarter was $10.3 billion.  On their cash flow statement, they indicate net cash from operating activities of $1.2 billion.

COVID Relief Funds

The company has received a considerable amount of government assistance during the current COVID pandemic. They indicate that CARES Act and the Paycheck Protection Program and Health Care Enhancement Act distributions under Phase II “are expected to equal 2% of annual revenues from patient care, and to benefit the assisted living communities in the Company’s senior living operating business, as well as it NNN senior housing tenants.”

They indicate that they have applied for “approximately $35 million in grants under Phase II of the Provider Relief Fund on behalf of the assisted living communities in our senior living business.” Furthermore, they state that “substantially all” of their tenants with triple-net leases (NNN) applied for funding under Phase II.

By

Dave Kingsley

In public discourse about the damage wrought by private equity firms in the long-term care system, real estate investment trusts (REITs) have unfortunately been overlooked. REITs specializing in medical care facilities – including long-term care properties – are heavily subsidized by federal and state governments through tax codes, guaranteed revenue, and various supplemental payments from CMS. During the COVID tragedy, they have received funding from the CARES Act and other supplemental funds from CMS.

As pass through entities, they pay no corporate income taxes.  They are, however, required to distribute a specific percentage of their earnings to shareholders who pay capital gains taxes. These are significant tax expenditures and subsidies.

Other important features of REITs with a specialization in long-term care are: (1) they have more than a tenant-landlord relationship with their tenants/operators, i.e., they can exercise managerial control over and serve on boards of their operators, (2) their leases are “triple net” (NNN), which means tenants pay insurance, taxes, and maintenance on the property, or even “absolute net,” in which tenants pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance, and capital expenditures.

Along with private equity and other ownership structures, REITs play a major role in the financialized, extractive processes dominating the long-term care industry.  In other words, the mission of these entities is to extract as much value as possible from the business with as little reinvestment as possible in services to stakeholders.

As this country assesses the underlying causes of the COVID catastrophe, activists, advocates, and scholars must insist on transparency and disclosure of details regarding contractual relationships between REITs and operators, but also between networks of LLCs owned by holding companies, private equity firms, or other legal ownership structures. We need to empirically establish the actual level of extraction versus the appropriate level of extraction.

By

Dave Kingsley

The AARP is defending the indefensible.

Over 100,000 people in the care of nursing home corporations have succumbed to the COVID virus. Perhaps 150,000 have died of COVID in nursing homes – we don’t really know. Furthermore, we don’t know how many patients and employees who recovered from the disease will have life-long medical problems. This is one of the largest medical tragedies in U.S. history. Instead of demanding an investigation into the underlying management failure resulting in illnesses and death in long-term care facilities, the AARP is carrying water for the industry.

The AARP’s report on the “crisis” – written by a business writer – is better propaganda than real estate, finance, and nursing home lobbyists could hope for. Instead of demanding to know how the COVID tragedy could have happened, AARP commissioned Harris Meyer, a business journalist, to write a report regarding the nursing home industry’s performance in the COVID pandemic.  The report, “Nursing Homes’ Flawed Business Model Worsens COVIC Crisis” was posted on the AARP website (https://www.aarp.org/caregiving/health/info-2020/covid-19-nursing-homes-failing-business-model.html).

The AARP & Harris Meyer do not Understand the Nursing Home Industry

Meyer claims that the nursing home business is beset with a “flawed business model,” which in his view really isn’t the industry’s fault. As an explanation of the long-term care business, he provides nothing more than gibberish. I addressed some of the finance nonsense in Meyer’s report in a recent post (December 27th). He obviously doesn’t understand the industry and most of his claims in the article are not worth a comment. For instance, he claims that nursing homes “had an operating profit margin of negative 3 percent on patients paid for by Medicaid and other non-Medicare sources.”

Meyer doesn’t say where he found that information. Most nursing homes corporations are privately held and keep their financials close to the vest. Furthermore, he doesn’t indicate if he is referring to a mean or a median. Without a standard deviation and more information about the distribution of data on which a mean is based, an arithmetic average is meaningless. Without data by quartiles and a box plot to demonstrate distribution of data across each quartile, a median is nonsensical.

The Long-term Care Industry Devalues Human Life

There is so much about AARP’s whitewash that could be discussed, but suffice it to say that it is an embarrassment and should be grounds for an apology to the elderly and disabled people of America. The death and suffering of so many long-term care patients is simply due to the devaluation of the lives of disabled and elderly Americans in a system returning hefty value to investors at the expense of humane medical care.

By:

Dave Kingsley

A PUZZLING REPORT COMING FROM AN ADVOCACY ORGANIZATION

The AARP commissioned Harris Meyer, a business journalist, to write a report regarding the nursing home industry’s response to COVID.  The report, “Nursing Homes’ Flawed Business Model Worsens COVID Crisis” was posted on the AARP website (https://www.aarp.org/caregiving/health/info-2020/covid-19-nursing-homes-failing-business-model.html).

The advocacy work of the AARP during the COVID pandemic has been less than stellar. It will take more than one blog post to call out the AARP for a report that minimizes industry negligence and the size and scope of the COVID tragedy in U.S. home nursing homes. This is the first one.

The title of Meyer’s report might lead one to believe that the AARP is criticizing the industry and advocating for patients because of a “flawed business model,” which might be interpreted by ordinary taxpayers and stakeholders as “greed.”  Nothing could be further from the constructed reality presented in the report.  It is a delicate attempt to “carry water” for an industry that failed to protect patients entrusted to its care.

 By reducing the COVID tragedy in nursing homes to his perception of a “flawed business model,” and inadequate Medicaid reimbursement, Meyer gives more legs to a false narrative: nursing home corporations aren’t paid enough for providing the care elderly patients need and deserve. The flawed business model as he sees it has been imposed on corporations. That is untrue and unrelated to reality.

The report is full of misinformation and fails to address the dominance of finance and real estate driving the legal and financial structure and functioning of the nursing home system while Medical care is incidental.  Meyer even absurdly compares the daily Medicaid reimbursement rate to daily hotel rates of $200.  I know of no person, having checked into a hotel, was told they would be sharing a room with a stranger paying the same rate.

AARP – OSTENSIBLY AN ADVOCACY GROUP – IS TAKING ON A DEFENSE OF A NEGLIGENT INDUSTRY, WHICH NEEDS TO BE HELD ACCOUNTABLE

Meyer begins his article by taking the grossly negligent industry off the hook:

“It’s tempting to heap blame on the owners of America’s nursing homes—to argue that the pursuit of profits led to poor care and so many coronavirus-related deaths.” He claims that “The reality, however, is more complex.” He then makes a contradictory and untrue assertion: “Clearly most operators reacted to the pandemic as best they could. But what I found was that the industry’s complex and murky financial structure fails to safeguard the health of residents and staff.”

WHO IS RESPONSIBLE FOR THE “MURKY FINANCIAL STRUCTURE?”

Special interests representing real estate and finance are responsible for legislation that rewards high net worth individuals and institutional investors seeking shelter from the IRS and return on investment in medical care funded by federal and state governments.  Tax expenditures such as accelerated depreciation allowances, carried interest, pass through entities, interest deductions, and so on infuse cash into nursing home corporations that are above and beyond Medicaid/Medicare/Private Pay reimbursements.  There is no other industry rewarded as well by the tax codes as is the real estate industry.

GENESIS CORPORATION IS HARDLY AN EXEMPLAR FOR NURSING HOME CORPORATIONS

To determine how well corporations – paid to care for medically fragile and vulnerable patients – fulfilled their responsibilities, it is important to objectively examine evidence available from publicly listed corporations, but it is even more important to penetrate the opaque financial information behind the nursing home system’s veil of secrecy.  I have reported some of my examination in a recent post (e.g., on December 17, 2020 regarding The Ensign Group – a publicly traded company).  The ENSG has had rather robust earnings during the past three quarters compared to the same three quarters of 2019.

What Meyer doesn’t do is explain much about the financial structure he blames for (and what he minimizes as) the “COVID crisis” – one of the greatest medical tragedies in U.S. history. He uses the failing Genesis Healthcare Corporation as an exemplar of the industry.  Genesis, founded in the 1980s, grew into the largest chain of long-term care facilities in the U.S.  It was taken over – raided – by Formation Capital in 2007 and basically looted.  Formation sold off the property to Welltower – a player in the nursing home industry and publicly traded real estate investment trust (REIT) with over $4 billion in revenues.

The facilities were leased back to Genesis.  Triple net leases (tenant pays for maintenance, taxes, and insurance) are standard in the long-term care industry.  Meyer doesn’t understand that the variety of business models in the industry are conscious decisions of investors – they are not something over which corporate executives and investors have no control.  They choose how to structure their corporations, which is mostly for maximum extraction at the expense of care.

Genesis is basically a zombie company; its stock is practically worthless.  Here is what Welltower stated in their third quarter report:

“Genesis Healthcare Update As a result of Genesis Healthcare noting substantial doubt as to their ability to continue as a going concern we have written off all existing straight-line rent receivable balances and revised our method of revenue recognition to a cash-basis accounting method from a straight-line accounting method, effective July 1, 2020. Genesis Healthcare is current on all obligations to Welltower through October.”

MEDIAN NET OPERATOR EARNINGS ARE MISLEADING

Meyer cites a MedPAC report indicating a “operating profit margin of negative 3 percent on patients paid for by Medicaid and other non-Medicare sources.” This is a nonsensical statement.    Operators are at the bottom of the food chain in the nursing home system.  Much of what they are expensing is revenue that flows up the chain.  In the next post, I will discuss “net earnings” versus “earnings before interest, taxes, depreciation, and amortization” or “EBITDA.”  A financial metric that provides a much better picture of financial performance.

Also, I will be discussing a report paid for by the industry and produced by the major accounting firm Clifton, Larson, Allen (CLA).  This report also misleads the public and is used by the industry in its hardship pleas, which should be taken with a big grain of salt. Nevertheless, it contradicts and undermines Meyer’s report.