Category Archives: SKILLED NURSING/LONG-TERM CARE

Analysis of the nursing home industry from a financial, macroeconomic, and political perspective.

The U.S. “Nursing Home System” Is Exceedingly Corrupt: Advocates, Activists, and the Media Need to Focus More on That

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Faux Capitalism Fueled by Political Contributions: “The Mother’s Milk of Politics”

Due to his aphorism that “money is the mother’s milk of politics,” most of us involved in California politics in the 1960s and 70s will never forget Jesse Unruh – the powerful leader of the California Assembly at the time. Little could we know to what extent that brutally honest insight would come to dominate American political processes.  Nor could we know that Eisenhower’s warning about the military-industrial complex would eventually be relevant to the medical care industry.

The so-called nursing home system is an exemplar of industry patronage dispensed to legislators for the purpose of cash extraction at the expense of quality care – care that all Americans deserve for the taxes they pay.  Unfortunately, this reality is not a factor in public political discourse. And it will not be a factor unless advocates and activists do more to press the issue.

The public is fed several myths about the fundamental nature of government funded long-term care in the United States.  The myth that providers are operating in a competitive, free market, system drives the propaganda disseminated by trade associations such as the American Health Care Association/National Center for Assisted Living (AHCA/NCAL).

The truth is that licensed providers – both privately held and publicly listed – are entities in a faux-capitalistic system in which prices are guaranteed by federal and state governments while wages and working conditions remain weakly regulated.  Price controls are advantageous to the industry.  Conversely, the lack of wage controls and employment protections are a disadvantage for workers.  Weak federal and state regulation of care is harmful to patients.

At Congressional Hearings, Advocates are Testifying to Legislators Who Receive Money from the Industry:  Both Democrats & Republicans

The toxic and perverse form of capitalism represented by the industrial medical system is maintained through a political juggernaut in the form of finance, real estate, hospital, nursing home, and other industrial lobbying groups often mistakenly called the medical-industrial complex.  Actually, those of us who advocate for enlightened skilled nursing care, are up against the Finance, Insurance, Real Estate (FIRE)-Industrial Complex.

Wall Street and its affiliated trade associations (e.g., AHCA/NCAL) distribute immense amounts of money to legislators to maintain the highest prices for the least amount of care in skilled nursing facilities.  Evidence to support this situation can be found through several sources.  For example, the website OpenSecrets (https://www.opensecrets.org/) does an outstanding job of exposing the flow of money through Washington, D.C.

Democrats are Favored by the AHCA/NCAL

In 2018 cycle, the AHCA/NCAL PAC distributed $610,616 to federal candidates (American Health Care Assn PAC Contributions to Federal Candidates • OpenSecrets).  Democrats received $401.616 (65.77%) and Republicans received $209,000 (34.23%). 

The top recipients of the industry’s patronage are some powerful legislators.  The top 10 contributions were dispensed to the following legislators:

Vernon Buchanan (R-Fla)$10,000
James E Clyburn (D-SC)$10,000
Ben R Lujan (D-NM)$10,000
Frank Pallone Jr. (D-NJ)$10,000
Nancy Pelosi (D-Calif)$10,000
Peter Roskam (R-Ill)$10,000
Steve Stivers (R-Ohio)$10,000
David Young (R-Iowa)$10,000
Carlos Curbelo (R-Fla)$8,500
Cathy McMorris Rodgers (R-Wash)$8,500
Top Recipients of AHCA/NCAL PAC Donations

A $10,000 contribution swings a lot of weight.  Both Democrats and Republicans receiving these contributions are among the most powerful members of the U.S. Congress.  If you go through the entire list, your idealism regarding some of the more liberal members of the House and Senate might be shaken somewhat.

In the next few posts, I will be sharing more data regarding AHCA/NCAL distribution of money to lobbyists and how the revolving door advantages providers over patients.  Staffers and former legislators make much better money on K Street than they can make serving the public.

Professional Conflicts of Interests

As I perused the list of donors to the PAC, I recognized some of the contributors.  For instance, I noticed that Medicalodges, a mid-size, closely held, chain in the Midwest, made repeated contributions.  I’m familiar with Medicalodges for several reasons.  Some of their facilities are located in Kansas – a state in which I have done a considerable amount of LTC ownership research.

The Medicalodges board of directors includes Professor Gayle Doll – head of the Kansas State University Gerontology Program.  This inappropriate paid service on a provider board of directors is not the only conflict of interest in which professor Doll is engaged.  She is also managing a State of Kansas Grant known as the PEAK program, which dispenses Medicaid bonuses for facilities that can demonstrate development of a “home-like culture.”

She should have no role in evaluating providers for the purpose of Medicaid uplifts.  The last time I checked the Kansas Department of Aging & Disability Services (KDADS) website (https://www.kdads.ks.gov/), no adequate evaluation of the PEAK program was available to the public.  I called professor Doll about this and was told to speak KDADS.  KDADS told me to speak to professor Doll’s office.  Nursing home employees I know tell me that the program is a sham.  Providers do a little window dressing, make no substantive changes, and still receive rather hefty uplifts on Medicaid reimbursements.

Corruption is Pervasive and Deeply Ingrained in the Faux-Capitalistic Long-Term Care system

I have only scratched the surface in connecting some dots related to the corruption rife in the “nursing home” system.  With collapse of the medical-moral-ethical underpinnings of our healthcare system, legislators have become corrupted by money and professional conflicts abound due to a developing weltanschauung of self-interest over the public interest. 

Many more dots can be connected. We will do that as we “follow the money” in future posts. People who need long-term care are not consumers and the industry will not bother to market to them. The industry’s customers are legislators in federal and state legislatures. That is who they need to sell.

The “Care For Our Seniors Act” is a Ruse Used by the Nursing Home Industry to Up Reimbursements

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LeadingAge & the AHCA/NCAL are Engaging in Harmful Propaganda:  They Need to Stop It!

Lobbyists for the nursing home industry, LeadingAge and AHCA/NCAL are promoting what they call “Care for Our Seniors Act,” which sets forth some laudable reforms they would like to see implemented along with an increase in funding (see:  https://leadingage.org/care-our-seniors-act).  I’m all for increasing Medicaid funding.  I’m all for some of the reforms they are pushing such as enhanced infection control preventionists, 24 hour registered nurses on staff, minimal personal protective equipment – all of which should have been in place before COVID. These are reforms that providers could have and should have provided and should now provide without more taxpayer funding that will be dedicated to increasing yield for investors.

Medicaid funding increases proposed by LA & AHCA/NCAL are all designed to increase reimbursement, e.g., “Enhanced Federal Medical Assistance Percentages (EFMAP).”  One of their ruses to get advocates on board is the proposal for a shift to private rooms by developing “a national study producing data on conversion costs and a recommended approach to make this shift.”  The study may happen, but the shift won’t unless the taxpayers are willing to pay for it – even though investors are extracting enough excess cash now to pay for these changes and still earn a respectable return on their investments.

The most despicable aspects of this proposal are the falsehoods used by LA and AHCA/NCAL for political framing.  For instance, their propaganda in the link cited above totally exonerates the industry and blames staff and government – not the real owners, i.e., investors, for lack of pandemic preparedness.  They fail to mention the generous COVID related federal and state subsidies provided to the industry, which were funneled into stock dividends and executive compensation.  This statement appeared in the latest issue of Provider, the industry’s trade publication: “With the majority of nursing homes already operating on a razor-thin margins, the cost of making improvements will not be possible without financial assistance.”

The nursing home industry and their lobbyist propagandists are treating advocates, activists, scholars, legislators, and the public in general with extraordinary disrespect. That needs to stop! If the industry is not willing to provide evidence to support their “razor thin margins” nonsense and stop treating us all like imbeciles, then their proposals should receive absolute zero credibility and no support from any of us.

The U.S. Nursing Home System Incurred Massive Fatalities Due to System Failure. Will We Forget it Happened?

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What Does the Death of 132,000 Institutionalized Patients Mean for the Past and the Future?

Officially 132,000 patients in the care of government funded and regulated skilled nursing facilities succumbed to the COVID-19 virus. The question with which we must now grapple is this: “Why did an unprecedented mass fatality occur to a specific institutionalized group of Americans?” Prior to COVID, the largest pandemic related sweep of death through an institution occurred in the military during WWI. Of the approximately 60,000 U.S. military deaths during the first World War, 40,000 were due to influenza.

Infectious disease experts warned us for decades that periodic pandemics would become the norm. In regard to COVID and the pandemics that preceded it, here is what Dr. Michael Osterholm and Mark Olshaker said in the preface to their new edition of Deadliest Enemy:

They all came as a surprise, and they shouldn’t have. Nor should the next one; and rest assured, there will be a next one and one after that, and on and on. And as we have outlined in this book, one of them will be even bigger and one or more orders of magnitude and more serious than COVID-19. Most likely, as we’ve written, it will be a novel influenza virus with the same devastating impact as the 1918-19 Great Influenza pandemic that killed between fifty and one hundred million people, but playing out in a world with three times the population, international commercial air travel, tinderbox. Third World megacities, encroachment of natural habitats that have brought animal reservoirs of disease to our doorsteps, hundreds of millions of humans and host animals living cheek by jowl, and a planet-wide just-in-time supply chain delivering everything from electronics and auto parts to lifesaving medicines without which the most advanced hospitals cease to function.

Michael Osterholm & Mark Olshaker, Deadliest Enemy, New York: Little, Brown, Spark

What Does One of the Few Few Experts on Presidents & Pandemics have to Say?

Max Skidmore, an expert on U.S. presidents, as well as my colleague and fellow author on this blog has written a book entitled Presidents, Pandemics, and Politics. Like so many other experts who tried to tell us what was likely to happen, Professor Skidmore presciently wrote this in 2016:

Presidents and Pandemics will argue that we must learn from past experience – mistakes and successes – in preparation for the future, and that future preparation vital to the maintenance of civilization, here and elsewhere. As critical as terrorism is in the modern world, including bioterrorism, an even greater threat comes from natural causes. It will be necessary to overcome the tendency to respond only to the most dramatic danger – the obscenities, say, of a scowling enemy decapitating a helpless captive, attacking innocent school children, or snarling evil intent that might take place here – as opposed to preparation also for what assuredly will take place here: ever more virulent pandemics.

Max J. Skidmore, Presidents, Pandemics, and Politics, New York: Palgrave Macmillan.

The U.S. Nursing Home System Was Warned and Didn’t Pay Heed to the Warning: That is Inexcusable

There appears to have been no preparation – no set of guidelines in place and enforced – to deter the rate of COVID-19 fatalities that occurred in U.S. skilled nursing facilities. If providers and agencies charged with regulating them didn’t know about guidelines for preventing mass fatalities due to a pandemic, they should have known.

Officials in Hong Kong knew about the devastation wrought by the 2003 SARS outbreak and took steps to prevent it from happening again. They issued a set of guidelines which required the following: (1) All facilities have an infection control officer, (2) Conduct annual outbreak drills, (3) Have a permanent 1- to 3-month stockpile of personal protective equipment (PPE) use, and (4) Establish visitation rules that address hygiene and PPE use, and procure technology to facilitate communication with families in case of an outbreak. Provisions were also made to externally quarantine infected residents and staff. (See: George A. Heckman, MD, et al., “Proceedings From an International Virtual Townhall: Reflecting on the COVID-19 Pandemic: Themes From Long-Term Care,” JAMDA, 28 April 2021, p. 2)

Seven Hundred and Sixty skilled nursing facilities in which 76,673 patients are ensconced are located in Hong Kong. It appears that approximately 30 patients in these facilities died because of COVID-19. In the U.S., it was not uncommon for a single facility to have 30 fatalities (e.g. Riverbend Rehab and Care in Kansas City Kansas owned by the Ensign Group, which had a phenomenally good year financially during 2020). Companies such as Life Care Centers of America, the Evangelical Lutheran Good Samaritan chain, and the Ensign Group had multiple facilities with 30 or more deaths. Fifty patients were killed in the Life Care Care Centers facility in Farmington, New Mexico, but there were many others in which excessive deaths occurred.

If There is No Accountability, the Next Natural Disaster in the Form of a Virus Will Result in Mass Fatalities of Institutionalized Skilled Nursing Patients

These days we are not hearing a call for a commission or even a strong move on capitol hill for serious investigative hearings. That is horrifying. The nursing home industry was well rewarded financially, but failed to discharge its responsibilities to care adequately for patients. My colleague Professor Charlene Harrington and I have conducted in depth research into the financial performance of publicly listed corporations deriving their revenue from public funds. They did quite well during 2020 and have as of yet not been called before congress to answer for their performance during 2020. We will continue to conduct that research and disseminate the results. (see: (See: Kingsley DE, Harrington C. “COVID-19 “Impact on publicly traded nursing home companies,” J Am Geriatr Soc. 2021; 1-4. https//doi.org/10.1111/jgs.17288.

Dave Kingsley

Moving on from The COVID-19 Tragedy: Dangers Ahead for Disabled Americans

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Medically Vulnerable Americans Should Have Been Protected from COVID: They Weren’t

During the 1918 flu pandemic, younger, healthier adults were the most likely people to die from the scourge sweeping across the world. During the COVID-19 pandemic the weakened immune systems of the frail elderly and other age groups with illnesses impacting immunity were the most likely to die from the disease.

Unlike 1918, by 2020 a major industry based on institutionalization of disabled individuals – most of whom are elderly – had developed. The euphemism for these institutions is “nursing homes,” but they are medical facilities designed for the care and treatment of individuals who need long-term skilled nursing care. The long-term care business is highly financialized and extractive. The primary objective of corporations providing skilled nursing is to protect and enhance shareholder value. Therefore, suppression of labor and other costs takes precedence over the quality of care provided to patients.

No real preparation for preventing the scourge from sweeping through long-term care facilities was undertaken by providers nor by the federal and state agencies responsible for regulating the industry. By virtue of the how these so called nursing homes are designed and managed, patients in them were more vulnerable than they would have been in their own homes. It is not surprising that approximately 30 to 40 percent of the 560,000 deaths from COVID in the U.S. have been patients in long-term care. Steps could have been taken to prevent what is no doubt one of the two largest mass mortalities of institutionalized individuals in U.S. history – the other being U.S. military troops during the 1918 flu pandemic.

As the COVID Pandemic Recedes Due to Vaccine, There is Little Interest in Accountability

The tragedy of mass mortality in long-term care institutions along with lack of interest in a major investigation into why it happened and who is responsible for it are directly related to the value placed on the lives of disabled Americans. Elderly people in general are among groups of U.S. citizens considered of little value to the economic system and to society in general. The same can be said about younger people with disabilities.

Therefore, institutionalizing people seen as noncontributing members of society places them in grave danger. This is especially the case when they are “out of sight and out of mind.” Corporations are paid plenty to provide them with an optimum quality of life, but through financialized management in a system they dominate they are able to extract cash from debilitating and life shortening care. That they have been able to carry on that business with impunity and cause the death of hundreds of thousands of people in their care should cause grave concern for the future well-being of disabled Americans.

Because the lives of elders and people with disabilities are devalued, there is no moral hazard to executives who neglect patients for the sake of cash flow. They will see no reason to seek innovation in care that would provide a healthier life for people in their care. Indeed, they will discover ever more innovative ways to enhance and protect shareholder value. Unfortunately, this will happen through collaboration with agencies of government.

Why Has Failed Nursing Home Mogul Joseph Schwartz Not Been Charged with a Crime for Stealing Millions from His Employees?

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Who Are the Real Criminals In the United States?

U.S. prisons are filled with people who shouldn’t be there. Their crimes are relatively minor.  However, the really big criminals who steal millions aren’t locked up.  They are the “white collar criminals.”  Let’s take Joseph Schwartz as an example of a white-collar criminal par excellence. Schwartz is well known in the nursing home system.  He was able to obtain licenses for over 100 skilled nursing facilities in 11 states.  He failed to pay vendors and employees as he pocketed Medicare and Medicaid funds and eventually drove his company – Skyline Healthcare – into insolvency.  In the process of creating a failed company with borrowed money, he stole millions from his nursing home employees. This theft happened several years ago and has been widely reported in the media[i] and yet no arrest has been made and no charges have been filed.

As the New York Times pointed out in an editorial a couple of days ago,

 “In New York, as in many other states, stealing more than $1000 is a felony. A person who grabs a new iPhone, can end up in prison, at public expense, for four years.

    In New Jersey, which has the most stringent standard in the United States, a person can be convicted of a felony for stealing more than $200 – a number that hasn’t changed since 1978.”

Serious Crime Doesn’t Seem to Matter if the Criminal is a Nursing Home Operator and Employees & Patients are the Victims

Schwartz deducted money from employee paychecks for health insurance.  Instead of buying the insurance, he pocketed the money.  As many as 1000 employees were victims of this criminal behavior in several states.  Kansas was one of those states.  I called the Kansas Attorney General’s office to find out if any investigation was underway.  On the second call, I was lucky enough to connect with someone who was kind enough to direct me to an investigator who said he was indeed conducting an investigation, but couldn’t tell me anything about it. 

It is hard for me to understand why an investigation into a crime that occurred years ago is still pending without an indictment or charges dismissed.  Either Schwartz took the money illegally or he didn’t.  It should not be hard to determine that.  Employees allowed him to deduct the money with the understanding he would buy health insurance.  He didn’t. 

If nursing home employees are caught stealing from an owner, I doubt if it would take years to charge them with a crime.  My guess is that they would be handcuffed and walked out of the building to jail.  According to media accounts the only justice available to employee victims of Schwartz is a lawsuit they, themselves, filed.

The Long-term Care System is Beset with White Collar Criminals Who Act with Impunity Because there are No Consequences

I know of no attorney general in any of the states in which Schwartz operated who has filed criminal charges against him. Given the seriousness of the crime and the amount involved, AGs in states like Kansas, Arkansas, Pennsylvania, and Massachusetts are dilatory in carrying out their responsibilities.

Furthermore, I’m appalled at the lack of advocates’ interest in redress for victimized employees of the notorious Skyline venture and its sleazy, criminal owner.  It seems to me that the AARP (not much of an advocacy organization) and other organizations such as Kansas Advocates for Better Care and individuals holding themselves out as advocates for patients and employees would be demanding answers from state AGs regarding the lack of action in holding Schwartz accountable. 

My suspicion is that every state which granted Skyline a license screwed up.  Had they done their due diligence, they would have found a trail of evidence screaming “don’t turn nursing homes over to this shady character.”  My research also suggests that he moved in on Golden Living nursing homes looted by a private equity firm and, like a vulture, treated them as his carrion – to be scavenged and left to rot. States were anxious to unload a bunch of facilities in receivership (left in the wake of private equity looting) and a predator was allowed to move in and create a tragedy on top of a tragedy.

What Does the Schwartz/Skyline Scandal Tell Us About How We View Patients & Employees of Nursing Homes?

During my career in industrial relations, I worked for corporations that considered employee pay sacrosanct.  To us, pay was near and dear – no one fooled with it.  Our hourly employees were valuable stakeholders in the enterprise. They came to work every day in good faith and deserved to be paid for what they did.  Without them, we could not grow the company and earn a reasonable return for shareholders.  We also had respect for the quality of our products and services. We did not cheat our customers.  Indeed, no self-respecting corporation did that. We were driven by a philosophy known as “managerial capitalism.”

The attitude of corporate management began to change in the 1980s.  A ridiculous and theoretically unsound management theory was foisted on the public by conservative economists.  As opposed to managerial capitalism, celebrity economist Milton Friedman and his cohorts convinced the business world and politicians that capitalism works best when corporate management (and government for that matter) attends to one objective:  protecting and enhancing shareholder value.  Friedman was even given a platform on PBS during the 1980s to sell his idea to the public – and they bought it.

This “agency theory” of management has been destructive for both U.S. capitalism and our culture and society.  It has elevated wealth and predatory behavior to an acceptable business strategy.  White collar criminals are only charged with a crime when they victimize other well-heeled white-collar individuals.

The main problem with the overriding value of money and shareholders is that other human beings are devalued.  The least powerful and poorest human beings are devalued the most.  They become prey for institutional needs.  They fill prisons and inhumane nursing homes either because they are seen as of no value or because they can add value to revenue producing real estate.

The goal of a Friedman capitalistic system is to suppress wages and exploit workers.  If they get cheated despite providing sincere hard work, too bad, it’s conducive to shareholder value and OK. One of the many problems with this situation is that the proponents of this form of hyper-capitalism also set about to destroy employee bargaining rights and have made great progress in that endeavor.

Patients and employees in nursing homes depend on government agencies and advocacy organizations for protection. If state AGs won’t hold predators accountable and advocates won’t demand that they do that, institutionalized elders and disabled individuals are defenseless. Furthermore, if operators have no moral hazard they will continue to abuse and exploit both workers and patients.

[i] See, e.g., David Porter, Associated Press  (February 5, 2020), “Failed nursing homes’ operators stole from employees,”; Star-Ledger (Newark, NJ) (February 7, 2020), “Nursing home operators stole $2M from employees’ paychecks, lawsuit claims”); U.S. Fed News (June 27, 2019), “Skyline Healthcare owner, 5 Massachusetts Nursing homes cited for wage theft”; Ann Neuman, The Guardian (July 30, 2020) “Seniors and staff caught in the middle of nursing homes’ quest for profit; The cycle of buying and selling care homes has led to shortcuts, closures, even fraud – and imperiled vulnerable residents’ health”; The Leavenworth Times (February 6, 2020), “Suit: Failed nursing homes’ operators stole from employees.”

The Long-Term Care Industry COVID Narrative: A Barrage of Unsubstantiated Claims & Falsehoods

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The Scope of the COVID Long-Term Care Tragedy & Lack of an Outcry for Accountability Is Horrifying

Compared to our peer countries in the advanced industrialized world, the United States has been a complete and utter failure in the protection of vulnerable long-term care patients from COVID.  At this time, we can only estimate the total loss of life in skilled nursing institutions, but the number of patient deaths has probably reached 200,000. 

Except for centuries-long assaults on the health of African Americans and Native Americans, and the flu pandemic of 1918, these deaths comprise the biggest medical tragedy in U.S. history.  Certainly, they constitute the most massive loss of life in one demographic group in such a short period of time. If experiences of other countries around the globe are any indication, a large proportion of these deaths were preventable. As I stated in an earlier blog, for instance, S. Korea has had less than 400 deaths from COVID in its long-term care facilities (more about other countries’ COVID losses will be on later posts and one accompanying this post).

An industry was entrusted by the federal and state governments with the care of at-risk elderly and disabled patients.  For the most part, the industry failed.  In addition to cross-cultural comparisons, evidence suggests that the industry was either incompetent, or greedy, and derelict. Nevertheless, there has been not been an outcry from the public, legislators, and regulatory agencies for accountability through some type of 9/11 commission.

The Industry Is on Offense. But What Exactly Does a Claim of $35 Billion Loss in Revenue Mean?

Passivity on the part of individuals and organizations one would expect to speak out about industry dereliction is not only horrifying, but it has also left the media playing field to the industry.  Consequently, the industry’s narrative, based on misinformation and no information, is designed to escape culpability as well as to squeeze a higher level of funding from Medicare and Medicaid.

Having observed industry television interviews, press releases, and print reports in publications such as the New York Times, I am beginning to surmise that the industry’s objective is to depict operators and, consequently, parent corporations, as victims of a natural disaster over which they had no control.  Their propaganda ignores preventative measures that could have been taken while it is focuses on exaggerated financial losses.  

 On February 10th, Alex Spanko reported in Skilled Nursing News that the American Health Care Association (AHCA) had made dire projections of financial losses incurred by the industry throughout the 2020 and 2021:

Nursing facilities will lose a total of $22.6 billion in revenue during 2021, according to a new projection from the American Health Care Association, as occupancy – the primary driver of income for facilities – remains low.

On top of an $11.3 billion decline already seen in 2020, that would brings [sic] the COVID-19 financial toll to $34 billion, or a decline of 24%, even as expenses related to staffing, personal protective equipment (PPE), sit at an estimated $30 billion per year for 2020 and 2021.

Nursing Home Industry Projects $34B in Revenue Losses, 1,800 Closures or Mergers Due to COVI – Skilled Nursing News

Let’s put these claims into perspective. If indeed, total two-year revenue loss of $34 billion could empirically be demonstrated as valid, the impact of that would be de minimis on an industry with revenues of hundreds of billions per year.  However, we need to see evidence supporting the AHCA claims.

More importantly, in evaluating corporate financial performance, factors other than total revenue are essential: (1) Net income may still be robust or even higher in conjunction with a reduction in revenue, and (2) Cash flow, the real metric investors are looking for, may actually be improved in a year in which revenue has dropped.  Furthermore, skilled nursing is often embedded in corporations in the broader senior housing industry. For instance, real estate investment trusts, private equity firms, and other corporations typically own a broad senior housing portfolio of continuous care retirement communities (CCRCs) in which independent and assisted living are combined with a skilled nursing facility, and stand-alone facilities providing apartment housing, assisted living, and skilled nursing.

I love to listen to Dr. Anthony Fauci speaking on behalf of the Biden Administration these days say, “let’s look at the science, let’s look at the data” regarding vaccines. It is a refreshing change from the previous administration.  Hopefully, we can do the same thing when we examine the financial impact of COVID on the long-term care industry.

You Can’t Trust Industry Research Reports

We are lacking sufficient information to substantiate industry claims while at the same time misinformation is distributed across the world of finance.  I do not claim to have my mind wrapped around the entirety of the long-term care industry – it is, after all – an industry that operates behind a veil of secrecy.  However, the data that I’m collecting suggests that the highly subsidized (maybe most subsidized) industry providing skilled nursing is doing well (see my post re: The Ensign Group today).

“Doing well” is my description of consolidate financial statements, including, but not limited to:  revenue growth over a period of years, net income, equity, and cash flow (liquidity, cash/equivalents, lending facilities, etc.).

You can find industry financial information that sells for a very high price.  Take it with a grain of salt.  For instance, IBISWorld, one of the leading sellers of industry information revealed its analysts’ ignorance of the long-term care industry by claiming that Genesis HealthCare, Inc and HCR ManorCare are the “biggest companies” in the “nursing care facilities industry in the U.S.” Beside that claim is a red lock icon, which means if you pay an excessive fee, you can see the data backing the claim (https://www.ibisworld.com/united-states/market-research-reports/nursing-care-facilities-industry/).

.  Don’t waste your money. Genesis is a zombie company that probably won’t survive much longer and has been reduced to a contract managing firm – its property and operating entities are now owned by a Real Estate Investment Trust (REIT).  Like Genesis, HCR ManorCare was bankrupted by a private equity firm and its property was sold to a REIT. These companies don’t represent the industry and analysts indicating that they do are providing bad information.

By Dave Kingsley

Real Estate Investment Trusts (REITs) Are Big Players in the Nursing Home Industry: That Should Concern All of Us.

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REITs Are the “New Kids on the Block,” and they Swing a Lot of Weight

You may be wondering how the Carlyle Group unloaded 338 facilities in 2010 as it dismantled HCR ManorCare and pocketed over $6 billion from the sale of real estate.  You also may be wondering why that’s important.  I’m suggesting in this post that it’s important because legal entities known as “real estate investment trusts” (REITs) have purchased significant amounts of senior housing properties in the past two decades and are fundamentally changing the structure of the industry. Indeed, HCP (now Healthpeak), an REIT, picked up the HCR ManorCare properties from Carlyle.  Because of these kinds of deals, REITs have been integrated into the fabric of for-profit nursing care in a big way.

PE takeovers and massive sell-off of long-term care property in the first and second decade of the 21st Century ushered in a new REIT era in nursing home ownership. REIT’s and PE firms have been a “hand and glove” phenomenon in what amounts to a revolution in nursing home ownership.  As I will demonstrate in this and later blog posts, REITs are the new, and now the big, kids on the block in the nursing home business.

Furthermore, the growth of REIT ownership of skilled nursing property has been fueled by well-established chains such as Brookdale that are selling property for an infusion of cash.  These chains typically sell their property to REITs and hold themselves out as management companies. REITs create LLCs as operators (100% owners) and place each property in a newly created LLC and contract with companies like Brookdale to manage the facility. 

What is an REIT?

I’m writing this post to make a very important point that will be expanded, illustrated, and clarified in the months and years ahead on this blog: the primary mission of the nursing home industry is not medical care, nor is it real estate; rather, the corporate function driving the business of long-term care is financial engineering. Finance is not an ancillary function of REITs – it is the function.  The same can be said about the rest of the industry – whether the ownership structures of facilities are embedded in REITs, private equity portfolios, family trusts, family offices, limited liability companies, publicly listed holding companies and privately held corporations in their various legal forms, the mission of providers is extraction of cash as expeditiously as possible.

The financialization of the American corporation has roots that can be traced beyond the take-off period of Reagan-Thatcher neo-liberalism and Chicago School theories of corporate management.  REIT’s became part of the U.S. financial landscape with President Eisenhower’s signature on legislation creating publicly listed real estate trusts.

This legislation provided an opportunity for the “average American” to invest in real estate trusts, which prior to that time was limited to wealthy investors.  REITs as corporations could issue IPOs, raise capital, and gain a listing on a public stock exchange.  There are considerable tax advantages to the REIT as a corporation because these entities pay no corporate income tax on net income distributed to shareholders.  They are, however, as REITs, required to distribute 90% of their income to common stockholders.

When REITs Entered the Senior Housing Industry

Until 1999, REITs were legally authorized to own, lease, and trade in real estate.  They could not create wholly owned taxable reit subsidies (TRSs) for the purpose of owning and managing licensed skilled nursing facilities.  That changed with passage of the “Ticket to Work and Incentives Improvement Act of 1999,” which was ostensibly “intended to amend the Social Security Act to expand the availability of health care coverage for working individuals with disabilities, to establish a Ticket to Work and Self-Sufficiency Program in the Social Security Administration to provide such individuals with meaningful opportunities to work,and for other purposes” (https://www.congress.go/bill/106th-congress/house-bill/180/text).

Often, major pieces of legislation include an assortment of items that have no relationship to the law at its introduction. Tucked into the “Ticket to Work and Incentives Improvement Act of 1999” was Title V (Tax Relief Extension Act of 1999), Subtitle C, Part II, subpart a – “treatment of income and services provided by taxable reit subsidiaries.” From the perspective of how the nursing home industry would be changed in the years ahead, this arcane piece of legislation is a big deal.

With this legislation, “healthcare REIT” entered the lexicon of long-term care. As a new legal corporate structure, healthcare REITs interacted with private equity and well-established chains in a way not yet comprehended by advocates, activists, legislators, and the public in general. A massive amount of skilled nursing real estate has been shifted to these entities that not only own property but also manage operations. Furthermore, financial engineering is in continuous motion with property acquisition and trading, formation of joint ventures, contracting with facility management services, and formation of ownership networks.

REITs Are Spreading their Tentacles throughout the Long-Term Care Industry

If you are familiar with the skilled nursing industry, you will recognize corporations such Sunrise Senior Living, Kindred Healthcare, Brookdale Senior Living, Genesis, and so forth. As you peruse the financial statements of the major REITS such as Welltower (the biggest), Ventas, Healthpeak and others, you will also see those well-know company names as managers of REIT facilities, as joint venture partners, and as buyers and sellers of real estate.

Furthermore, REITs entered the senior housing market in 1999 – not nursing home care alone. Many nursing home facilities are embedded in in Continuing Care Retirement Communities (CCRCs). Some of their properties and operations are stand alone assisted living facilities, or senior apartments.

Federal dollars Flowing into REITs Are Not Only From Medicare & Medicaid

It would be difficult to identify an industry that is as subsidized by federal and state government as the long-term care industry. REITs are subsidized through a steady stream of patients reimbursed through Medicare and Medicaid. With relief from corporate income taxes, and subsidies such as capital gains, depreciation allowances, and interest deductions, REITs are provided with major tax expenditures.

In future posts, I will explain why the amount of public funds flowing into REITs and other legal structures through Medicaid, Medicare, and tax subsidies enriches investors and executives but does nothing to improve conditions in long-term care facilities. It is important for advocates and activists to use financial information to rebut the industry’s claim that operators can’t afford to provide better care. It is probably the case that facility-level management can’t afford to provide higher quality of care. However, that can be attributed to extraction of funds by holding companies, REITs, and other endpoints in the flow of capital from the front door of the facility to the consolidated financial statements of the entities at the top of the chain.

By Dave Kingsley 2/14/2021

An Estimated 140,000 Long-term Care Patients Have Died from COVID. Who is Accountable?

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By:

Dave Kingsley

There Must be a Reckoning: Elderly and Disabled Citizens of America Need to Hear the Voices of Nursing Home Advocates

The long-term care industry and agencies charged with regulating owners of skilled nursing facilities have failed the elderly and disabled people of America. Medically fragile citizens were contained within the walls of poorly designed and managed institutions. Consequently, helpless patients were sitting ducks as a novel, deadly, and highly contagious virus swept through what should have been safe places. Perhaps more than 140,000 or more patients have died, and their families have endured untold suffering.  It should have been obvious to everyone that most so called “nursing homes,” under even the best of management circumstances, are conducive to spreading highly contagious diseases.

We do not need to revisit the issue of infectious disease management in these places.  We know that providers and their corporate owners and investors disregarded sensible and reasonable prevention efforts while they continued to pocket money from Medicaid and Medicare reimbursement.  We can noodle over the need for PPE and infectious disease protocols from now to eternity, but without accountability for the preventable death of so many, the elderly and disabled will be in extreme danger in the immediate future. 

Providers paid to care for medically fragile people failed to carry out their duties and no one made them do it. Any wankery about tweaking this god-awful system is nothing more than a distraction from reality – an effort to move on and bury the past. We must not let that happen.  We must demand that an investigative commission be set up to compile evidence and put the blame where it belongs.

The Phony CMS/Mitre Commission Was a Whitewash:  We Need an Honest Investigative Commission

Eloquent voices were warning us about Donald Trump for years before he lied to the public about the true nature of the COVID pandemic.  Masha Gessen, Anne Applebaum, Timothy Snyder, and others were explaining how populist fascist leaders on the rise across the globe were dangerous – how they used typical Goebbels-like tactics to manipulate the public.  As Gessen said in Surviving Autocracy: “Trump did not run for president, he ran for autocrat.” 

Who could not, through commonsense, see what these scholars – experts on autocratic movements – had been saying when less than a year ago the Trump controlled CMS called for volunteers to serve on a commission pertaining to COVID in nursing homes?  Who really believed that an obviously deranged demagogue would allow anything to come out of a commission that would be even slightly critical of him or agencies under his control? I was intensely critical and skeptical of this commission – outsourced to a private, for profit corporation – and expressed my belief when it was announced that it would be used for propaganda purposes but change nothing.

And, indeed, that is what happened. We got a whitewash endorsed by leading advocates. So, patients in understaffed, incompetently managed facilities continued to be victims of COVID and the system with responsibility for protecting them from it. Upon the release of the commission report, Seema Verma issued a press release in which she claimed the commission validated the great job carried out by the Trump Administration. So, elderly and disabled patients continue to die and suffer, and their families continue to endure the pain of seeing what is happening to their loved ones. The commission and its report provided cover for the industry and the Trump Administration to continue business as usual.

The media continues its reporting on this or that facility with this or that number of deaths.  Mark Parkinson – former governor of Kansas and head lobbyist for nursing homes – is given face time on CNN to propagandize on behalf of the industry without enduring any criticism whatsoever. Parkinson’s powerful and well-funded trade association – the America Health Care Association – will continue to spin on behalf of its corporate members.

The massive death toll in the long term care system was preventable.  Why and how it was preventable is the story that needs to be told by a distinguished commission with the mission of telling the truth.  There must be a reckoning. it is the moral and ethical duty of professionals holding themselves out as advocates and their organizations to demand that reckoning.  If we do not have accountability for the preventable COVID tragedy in the so-called “nursing home system,” then nothing will prevent owners and investors from further devaluing the lives of elders and disabled people in their care.

“RUNNING ON A THIN MARGIN” IS NOT A VALID ARGUMENT FOR LOW QUALITY NURSING HOME CARE: ADVOCATES NEED TO DEBUNK IT!

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Introduction

  As I watched Congressman Lloyd Doggett’s Ways & Means Subcommittee Hearing on June 25th, I noted Ms. Rebecca Gould, a nursing home administrator. spoke for the industry. Ms. Gould is the head executive of a small nonprofit operation with 120 beds and therefore a peculiar choice for representing the industry.  She made the following statement that is typically made by industry representatives at legislative hearings: “Nursing homes run on very thin margins.” 

    From the perspective of corporate finance, these kinds of statements are so misleading that they can be classified as propaganda.  I’m disappointed when advocates and experts fail to debunk them. Furthermore, in this case, nonprofits are not philosophically operating to make a “profit.”  Rather they are 501(c)(3)’s. Ms. Gould represents about one-fourth of the industry – a sector obligated to represent the best interests of stakeholders rather than shareholders.

    Private sector facilities are typically individually incorporated by parent corporations as limited liability corporations (LLCs).  Often one or more other subsidiaries or shell companies are in a ownership hierarchy, which serve as a cash pipeline to investors.  Furthermore, parent corporations often own subsidiaries or LLCs that provide ancillary services such as management services, pharmacies, and physical therapy. More importantly, the nursing home industry is more of a real estate and finance industry than a skilled nursing industry.

Cash Flow & Financialization: An Example

    Two major financial maneuvers often occur between the facility and the return earned by investors and executives:  (1) extraction of cash from Medicare, Medicaid, and private pay reimbursements –  through property leases, management contracts, and ancillary services (all of which are expenses on the operators’ balance sheets, i.e. the LLC’s balance sheet), and (2) upstream financial engineering designed to generate cash unrelated to the quality of service at the facility-LLC level.

    In this post, I want to simply illustrate some upstream manipulations in the flow of capital by briefly discussing recent financial reports of The Ensign Group, which owns a facility with the worst case of COVID-19 disease and deaths in the Kansas City area.  I am writing this because I’m on a mission to change the way we strategize and present testimony and respond to lobbyists and other spokespersons for the industry when they propagandize.

    The Ensign Group is a rapidly growing corporation that is classified as a holding company.  It claims to not own or operate any skilled nursing or other senior housing business.  That is a laughable legal fiction because it owns the subsidiaries that own the operations.  Without doubt, earnings after expenses – as well as a lot before – flows up the capital stream to the holding company, i.e. The Ensign Group.

     The holding company is not the most common model for organizing senior care real estate corporations.  Many are owned by private equity firms, one of the biggest skilled nursing businesses, Life Care Centers, is owned by a single billionaire, and some are typical publicly traded corporations such as Brookdale and Genesis corporations.  However, all corporations desire to enhance the “cash flow,” which is far more desired in the current “financialized” climate.

    I don’t need to get too deep into the weeds on “cash flow,” but if you’ve been hearing about stock buybacks in the past couple of years, that is one type of financial technique for increasing the value of a company’s stock and often enriches shareholders and executives who exercise stock options.  Furthermore, executives are often rewarded with bonuses by the board.  Although the “margin” might have been “thin” at The Ensign Group’s Kansas City facility in 2019, the table below indicates that the compensation of top executives was not thin.

    Although the salary of these executives hasn’t changed all that dramatically over the three-year period, total compensation increased by 250% for the chairman of the board between 2017 and the end of 2019.  The other top board members had similar increases in total compensation.  These five top executives also serve as members of the board.  Only two outside directors are on the board.  Therefore, the column labeled “Non-Equity Incentive Plan Compensation” is simply a bonus that these executives/board members awarded to themselves. 

    By buying back stock (a decision of the board), the stock price increased, therefore, they, the executives and board exercised their stock options. An award of stock was probably due to the creation of another subsidiary and the awarding of stock in that subsidiary to shareholders and executives.  As I wrote in an earlier email, and posted on the Kansas-Missouri Gray Panther website, The Ensign Group’s 2019 10-K reported very large increases in the price of the company’s stock  (https://kanmograypanthers.com/kansas-city-kansas-nursing-home-covid-19-poster-child-is-owned-by-a-profitable-multi-billion-dollar-corporation/).

Name and Principal PositionYearSalary ($)Option Awards($)(1)Stock Awards ($)(2)Non-Equity Incentive Plan Compensation ($)(3)All Other Compensation ($)Total ($)
        
        
Christopher R. Christensen2019 522,892 383,166 1,719,859 3,658,133 27,662 6,311,712 
Co-Founder, Executive Chairman2018 505,198 — 2,521,548 2,667,852 35,261 5,729,859 
and Chairman of Board (Since May 2019)2017 490,483 96,756 59,001 1,164,999 27,421 1,838,660 
Barry R. Port2019 368,962 306,533 1,634,259 3,658,133 14,634 5,982,521 
Chief Executive Officer (since May 2019)2018 356,477 — 1,752,454 2,112,766 14,742 4,236,439 
 2017 346,094 51,603 108,428 963,220 17,360 1,486,705 
Suzanne D. Snapper2019 347,782 287,374 1,677,269 3,493,724 4,228 5,810,377 
Chief Financial Officer2018 336,014 — 1,914,244 2,059,056 4,100 4,313,414 
and Executive Vice President2017 326,227 45,153 96,041 866,151 3,828 1,337,400 
Chad A. Keetch2019 320,770 191,583 1,149,950 2,014,043 3,018 3,679,364 
Chief Investment Officer2018 309,915 — 1,486,699 1,442,086 2,788 3,241,488 
and Executive Vice President and Secretary2017 300,889 45,153 87,260 692,395 3,377 1,129,074 
Spencer W. Burton, President and Chief Operating Officer, Ensign Services, Inc. (Since May 2019)2019 292,500 287,374 932,399 1,438,590 14,270 2,965,133 

Summary

    The forprofit nursing home industry would have you believe that it is hard to make money in the skilled nursing business.  That is not true.  Unfortunately, the industry has framed arguments and has created a narrative that keep advocates on the defensive and legislators and the public buying into “thin margin” hardship plea. 

    Unless advocates, activists, and scholars debunk the thin margin propaganda and go on offense, we will remain stuck playing rope a dope with the industry over cases of abuse, and neglectful practices.  One suggestion I have for advocacy groups is this:  find legal and financial experts that can serve on boards or at least assist with framing issues and developing a narrative that would expose the industry’s financial machinations and put them on the defensive.

    In this post, I have focused on executive compensation, which is one among a large number of finance-related techniques for extracting cash from the business of caring for patients in skilled nursing facilities.  In future posts, I will be exposing other corporations and other forms of financialization of the nursing home industry.