By:

Dave Kingsley

Macroeconomic Trends & Long-term Care Ownership

The long-term care industry reflects macroeconomic trends of the past half century.  With excess liquidity in the capital markets and increasing concentration of wealth in the hands of a small number of ultra-high net worth individuals, asset protection and finance have become major, if not dominant, purposes of corporate management.

An analysis of ownership structures in the nursing home business suggests that a large proportion of investment is driven by protection of personal/family, institutional, and corporate wealth. In the past few decades, state legislatures have passed legislation designed to provide secrecy and shelter from taxes, liability, and creditors.  Wealthy individuals avail themselves of these laws to keep their wealth intact and safe from the IRS and creditors during their lifetime and after their death.  Because of recent legislation, for example, South Dakota collects a large amount of fees for setting up the most protective of asset protection trusts.

States such as Nevada, Delaware, and Alaska are the most beneficial places to incorporate businesses and the shell companies (shell corporations have no offices and no employees) useful for hiding assets and keeping tax collectors and creditors at bay.  Long term care corporation ownership is mostly designed around processing funds through a network of Limited Liability corporations – many of which are shell companies.

Low- and middle-income Americans expend all their assets in long-term care before they find themselves in a position to ask for “welfare medicine,” i.e., Medicaid.   These are assets they would otherwise leave to their heirs. Personal and government funds are extracted by investors who use the tax codes to avoid meeting their obligations to support the public interest and repay the society enriching them.  A dollar in real estate related and other forms of tax avoidance is worth more than a dollar in operator profit.  Extraction from the mass of wage and salary workers by the wealthy exacerbates maldistribution and becomes a feedback loop in which inequity becomes continuously worse.  

The essence of the long-term care industry is the parking of capital owned by ultra-high net worth individuals in networks of entities designed for maintenance and enhancement of individual and family wealth.  Various forms of trusts are set up to protect and grow individual and family wealth.

By:

Max J. Skidmore

The election is over.  Joe Biden won.  But a serious issue related to the funding of Social Security is hanging over the Biden Administration and the next congress:  will the funds deferred from the payroll tax by President Trump be restored to the Social Security Trust Fund?

Background

The financing for America’s Social Security system comes from a payroll tax, FICA (the Federal Insurance Contributions Act) levied on wages up to $142,800 (for 2021; the amount changes yearly). Wages above that amount do not count for purposes of the system.

The tax is 6.2% deducted from the employee’s wages. The employer matches that amount, thus providing an additional 6.2%.

Those amounts go into trust funds. Benefit payments come out of those trust funds, as do the very small administrative costs. Those costs are extremely low, less than 1% of the amount collected, making Social Security the most efficient such system in the world. 

The rest of the amounts in the trust funds (that is, the amounts left over after paying benefits and paying administrative costs) are invested in government bonds. Those bonds are completely safe, and regularly pay interest back into the trust funds.

Under the law, all benefits must come from the trust funds. So long as FICA taxes keep coming into those funds, there will always be income to pay for some level of benefits. 

Under the Obama administration, during the financial crisis that President Obama inherited, FICA taxes were temporarily suspended in order to make more money available to workers. This did not affect the trust funds, however, because the government replaced the amounts that the trust funds would have received from FICA.

President Trump’s Executive Action Regarding Payroll Taxes

Last August, President Trump issued an executive order delaying the collection of FICA taxes for the rest of the year. This order did not reduce the taxes owed; it only delayed their collection. 

Employers and employees will have to pay the accumulated taxes after the first of the year, and therefore many employers are continuing to collect FICA taxes, and are holding them to provide them to the government when they come due. This prevents them, and their workers, from having to come up with large payments to catch up on the amounts owed. 

The reason for this rather confusing policy has not been made clear. It may reflect a misunderstanding by Mr. Trump regarding how Social Security’s financing operates. 

On the other hand, he may have been making a move toward eliminating the payroll tax, and thus eliminating Social Security. Mr. Trump suggested that this may be his preference, but this cannot happen without a change in the law. Such a change would only be possible if Mr. Trump is re-elected, and if Republicans keep control of the Senate, and gain control of the House.

If the law were to be changed, and the payroll tax eliminated, it would be only a few months before the trust funds would be completely exhausted, and Social Security would be eliminated. Mr. Trump has made no secret of his desire to kill the system, and many Republicans – probably most of those in Congress – agree. Since Republicans did not have the courage to oppose Donald Trump, even those who do not agree with Trump would almost assuredly vote to do whatever it was he proposed.

Democrats all desire to retain the system, and even to expand benefits. Thus, the November 4th election was crucial to Social Security’s future. 

For the system to continue, it was essential to vote Trump out of office, to retain Democrats in control of the House, and to elect more Democratic senators, so that Democrats will control the Senate as well as the House. Now we have some uncertainty due to the two senate races in Georgia.  Those races could be critical for restoration of deferred taxes to the Social Security Trust Fund.

It is impossible to overstate the importance of massive Democratic victories at all levels, if Social Security, Medicare, and many other essential programs are to continue, and if other much-needed programs are to be enacted.  We had some important victories, but not a massive blue wave that we were hoping for.  Now, saving the Social Security System will be a matter of activism and fighting hard for a system so many people depend on in retirement and in other ways.  It will be important to learn your senator’s and congressperson’s phone number and make yourself know to them.

By

Dave Kingsley

Definition of Socialism and its Application to Medicare

Socialism is defined simply as “an economic system in which government owns the means of production.” The Medicare system produces no products and provides no services. The system does not manufacture pharmaceuticals or medical devices, it owns no hospitals or long term care facilities. It employees no nurses or physicians or other health care professionals for the purpose of providing services in a medical care facility. It is a program for underwriting health care risks for individuals who pay into it.

There is nothing socialistic about government management of a pool of funds provided by current and future beneficiaries for the purpose of paying for their medical care. In 2019, the program spent nearly $800 billion. In the current political and economic context, approximately 60% of all funds expended by Medicare is derived from the people receiving care. The other 40% is transferred to the program from the U.S. Treasury. This transfer would be unnecessary if a corrupt political process were not allowing excessive charges for services and products.

For instance, the Medicare Modernization Act in 2003 created a prescription drug benefit (Part D) and included a provision that prohibited negotiation of pharmaceutical prices by the Center for Medicare and Medicaid Services. Through enforcement of proper management of costs by providers, and reasonable charges for costs, the 40% transferred by the Treasury could be eliminated, thereby making the program fully funded by the beneficiaries.

By Dave Kingsley

Private Equity is One Model in an Array of Business Models Comprising the Long-term Care Provider Subsystem.

It is practically de rigueur these days to focus on private equity ownership of “nursing home chains” as the leading culprit in lowering the quality long-term care.  I am noticing this tendency on the part of progressive politicians, researchers, advocates, and activists.  No doubt, major private equity buyouts of long-term care chains have proven lucrative to PE firms and their investors while they have been disastrous for patients, families, employees, taxpayers and communities.

    Nevertheless, complex, dynamic social systems cannot be reduced to a few variables.  In science that is known as reductionism – a fallacy.  Far too many factors are overlooked when systems are reduced to a few variables or a single subsystem.  The system of long-term care facilities is complex and dynamic with a large number of interacting and reinforcing subsystems. 

    The corporate subsystem itself is comprised of a variety of ownership structures.  In addition to PE firms, long-term care corporations are organized as publicly listed holding companies, Real Estate Investment Trusts, family trusts, family offices, and limited liability corporations.  Most of the firms operating long-term care facilities are closely held and the public has no access to their financial statements.

    Approximately 25% of long-term care corporations are 501(c)(3) nonprofit entities.  A small number of nonprofit run facilities are high quality facilities.  Although the nonprofits have, on average, slightly higher scores on measures of quality, e.g., higher RN hours, lower number of complaints, and abuse and neglect cases.  However, many nonprofit operations are substandard.  For instance, the Evangelical Lutheran Good Samaritan chain runs on of the largest chains in the United States and has a poor track record and lower than average scores on measures of quality.

Major Subsystems of the Long-term Care System

    In addition to corporations reimbursed for providing care, federal and state legislatures, government agencies, trade associations, and advocacy organizations are major subsystems of the long-term care system. My research and observations have led me to hypothesize that these systems interact in a manner that reinforces the fundamental model of care that has been standard since inception of publicly funded long-term care, which is “the total institution.”

    Evidence for this hypothesis will be presented over time on this blog.  Also, I believe that too much focus on the PE subsystem distracts from the impact of macroeconomic trends since the 1970s. Economic and managerial philosophy has shifted finance from an auxiliary role in corporate governance to the dominant role.  The purpose of corporations has become finance rather than production of goods and services.  The long-term care system is part of the larger economic system which has become increasing characterized by management that values investors and treats stakeholders as resources to be exploited.

    Furthermore, the legal structures of trusts and corporations are designed for tax avoidance, debt, and asset protection and enhancement.  High net worth individuals can utilize these structures to pass more of their wealth to heirs and keep it out of the grasp of the IRS.  Not only does this system allow wealthy individuals and families to extract middle- and low-income assets for their own benefit, it allows them to avoid their obligations to the society that enriches them.

By Dave Kingsley

It is Overwhelmingly Clear that Key “Nursing Home” Institutions Should Have Known What Was Coming.

CNN is reporting 274,121 COVID deaths in the U.S. as I write this post. It is estimated that 40% of these victims are long-term care patients and employees; hence, approximately 109,648 patients and staff in long-term care facilities have died from COVID throughout the pandemic.  Had  responsible parties in the system been prepared and acted responsibly, these deaths could have been prevented.

Decent medical care includes identification of possible and probable infectious diseases.  But that has been pervasively lacking in the profit and nonprofit long-term care system.  That is despicable and inexcusable.  If corporations extracting wealth from long-term care didn’t know a disease was coming that could kill a high proportion of people in their care, they should have known. “In the United States, in 2013, the Bill & Melinda Gates Foundation conducted a comprehensive review of worldwide data and predicted that a pandemic would occur during the next decade, most likely due to coronavirus.”[1]

The word was out in December of 2019 that a novel virus was spreading in China and causing some drastic government action by the Chinese government.  U.S. intelligence services were well aware of the spreading virus by late 2019.  By January of 2020, anyone reading major newspapers should have been aware that a global pandemic was probable.  Asian countries were aware of the spread of a coronavirus and taking extraordinary action to shut it down – which they did.

What did the U.S. long-term care industry do while China, Singapore, Hong Kong, Taiwan, and South Korea were taking action to block the spread of COVID?  Corporations extracting an extraordinary amount of cash from facilities for their investors continued business as usual. They did not have sufficient personal protective equipment stocked when the pandemic hit; they had no protocol in place for protecting patients and staff; they failed to put a testing program in place; and, they had no plan for acquiring separate buildings for quarantining infected patients and staff.  This lack of preparation for preventing an infectious disease under any circumstances is inexcusable, but in the face of a deadly, rapidly spreading pandemic, it is an atrocity.

Based on the architecture of long-term care facilities and the fragility of patients forced to live in close proximity, a tragedy was waiting to happen. Furthermore, staff continued to pass between the community and facilities without testing, PPE, and a clear understanding of the dangers involved with the disease.  Long-term care corporations set their patients up as “sitting ducks” in the spread of a highly contagious and novel virus for which no vaccine was available.  This deadly medical malpractice occurred with the acquiescence of the CMS, state regulatory agencies, and local health departments. 

    It was gross negligence for responsible parties not to recognize as early as December 2019 that COVID-19 would be a threat to the million plus patients in U.S. long term care facilities and take action to protect them.  All responsible parties, including long-term care providers and government agencies at the federal, state, and municipal level should be investigated and held accountable by a commission independent of those corporations and agencies.

[1] Solano, J. et al. (2020), “Public Health Strategies Contain and Mitigate COVID-19:  A Tale of Two Democracies.” The American Journal of Medicine, Vol 133, No 12, 1366. Renowned infectious disease expert Laurie Garrett and most other scientists involved with novel diseases – especially the coronavirus family of virus – were warning about the likelihood of the emergence of a virus like COVID-19.  See Laurie Garrett and The Coming Plague at https://www.lauriegarrett.com/the-coming-plague.

By: Dave Kingsley

Family Trusts and Other Legal Entities Are Major Investors in Skilled Nursing Facilities

There are many ways that vast amounts of wealth are being processed through nursing home financial plumbing for the purpose of shielding it from the IRS and adding value to accumulated capital.  Private equity has become the focus of discussion regarding nursing home ownership and neglect of patient care in in this process. Indeed, the notorious Carlyle Group takeover and bankrupting of HCR ManorCare will have a permanent place in nursing home lore.

    However, exclusive attention on private equity as the cause of shareholder over stakeholder management, distorts reality, which is this:   nursing home ownership is structured for shielding wealth of high net worth individuals (HINWIs – pronounced “hin wees) from taxes while adding value to their assets. Many financial structures are in place for making nursing home ownership a process piping system for avoiding taxes and creating more private wealth with public funds.

    I will be blogging about many forms of entities owning a share of the nursing home business in the United States. This post is about the “family trust.” In an analysis I have undertaken of owners listed by CMS for 344 long-term care facilities in Kansas, I found that 15% of the private, forprofit facilities had a family trust listed in the ownership hierarchy – several in some instances.  In researching NH ownership in various parts of the U.S., I have noticed that family trusts appear frequently as owners (usually indirect owners). 

    These legal entities allow wealthy individuals and families to shield their wealth from taxes and to pass assets tax free to heirs.  They also provide protection from creditors. So, taxpayers are denied their fair share of revenue from businesses they fund while wealth becomes increasingly maldistributed and concentrated in a tiny fraction of the U.S. population.

    As Nicholas Shaxson pointed in the The Finance Curse, transformation to a financialized economy received a boost in the 1970s through state and federal legislation. Legislatures created financial mechanisms such as the LLC for the purpose of tax avoidance, limited liability, and financial secrecy. Indeed, the state of Nevada has been dubbed “The Cayman Islands” of the United States.  It is not uncommon to find many LLCs in the network of operators, shell companies, and real estate incorporated in Nevada (or Delaware).

    In the 1990s, the state of South Dakota became the place to set up a family trust.  In a move to attract business, the state legislature passed laws that provide a haven for super-rich families to hide and protect wealth in a variety of trusts, e.g. “irrevocable family trusts.” However, the wealth sheltered in these trusts will be invested for obvious reasons (e.g., growing assets faster than inflation). So, the nursing home ownership networks frequently include one or more family trusts.

    Although trusts are a major type of investor in skilled nursing home facilities, there are others such as “the family office” (a financial manager for immensely wealthy individuals and their heirs), the Real Estate Investment Trust, and LLCs set up by wealthy individuals for purposes of tax avoidance, opaqueness, and, of course, earning a return on investment. This blog will be shining a light on the financial piping system set up to circulate wealth for tax avoidance and return on investment while frontline care is denied resources for high quality of care.

By Dave Kingsley

Dark Money Behind Court Nominations & Amicus Briefs Are Aimed at Deregulation

Senator Sheldon Whitehouse gave a brilliant presentation at the Senate hearing for Supreme Court nominee Amy Barrett that is must viewing for advocates concerned about regulation of the nursing home industry and protection of programs for the elderly. I’m uploading the video of his seminar on the flow of dark money into nominations and amicus briefs.

No one knows for certain where all the money flowing into nonprofits presenting amici briefs is originating, but there is considerable evidence that the Koch organization, and other wealthy pro-corporate organizations are providing much of it. Why? The majority on the court has a theocratic, radical free market and pro-corporation ideology. I would define them as a theocratic corporatocracy. They derogate the 1st Amendment separation of church and state while catering to conservative business organizations such as the Chamber of Commerce and a large number of other such organizations seeking deregulation.

The nursing home lobby fits comfortably into this mélange of business interests seeking restraints on the government’s power to protect customers, patients, communities, and the environment from profiteering predators – the way I would describe most nursing home corporations. Make no mistake about it, liability of operators will be greatly limited when employees and patients suffer due to their neglect. Cases before a theocratic-corporacratic 6 to 3 majority which involve damage to stakeholders will more often than not be decided in favor of corporations.

If you carefully listen to and watch this video, you will hear and see Senator Whitehouse explain that out of eighty cases involving corporate interests, eighty were decided by a 5 to 4 majority in favor corporations rather than in the best interests of citizens. When Barrett joins the court, it will become a 6 to 3 supermajority.

What We Can Expect: Looking Back, The Pattern is Clear

As stated above, the eighty cases analyzed by Senator Whitehouse were all decided in favor of the corporate-religious network by five to four. He has dubbed the five member majority as the “Roberts Five.” These cases fall within four categories: 1. Unlimited dark money in politics, 2. Denigration of the civil jury, which has an obligation to apply the law and not cater to monied interests, 3. Weakening of regulatory agencies, and 4. Voting rights.

No doubt, looking forward, Barrett will be expected to decide in favor of overturning Roe v. Wade, National Federation of Independent Business v. Sibelius ( ACA) and Obergefell v. Hodges (gay marriage). However, looking back at the pattern of the Roberts Five decisions, all four categories of cases impinge on the ability of advocates and activists to protect patients. Regulatory actions and laws designed to protect vulnerable elderly and disabled patients are likely to be found unconstitutional by the court as it has been reconstituted during the Trump administration. Suppression of voting rights will make it more difficult to elect state legislatures sympathetic to the cause of patients rather than investors.