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.

By:

Dave Kingsley

The Chestnut Street Project

This is the first in a series of posts about the “Chestnut Street Project:” a group of citizens attempting to reclaim an African American neighborhood on the East side of Kansas City, MO. As part of the project, members of the group have undertaken research into residential property ownership in the area – neighborhoods abandoned and neglected by city government.  Property records reveal that thousands of homes are owned by either investors or the Kansas City Land Bank. 

The activists have set up a center of operations in a rehabbed house on the 3800 block of Chestnut Ave (see pictures below). The 32 houses on the block are for the most part in a state of abandonment and deterioration.  A few homeowners still living on the block and in the neighborhood have made valiant efforts to maintain their homes while investors and the Land Bank neglect property which devalues all homes in the area.

What’s Ghetto Property Worth to Investors?

Why would limited liability corporations (LLCs), private equity firms, real estate investment trusts (REITs) and other entities invest in houses surrounded by vacant and/or deteriorating property in a neighborhood with high levels of poverty and few city amenities?  High net worth individuals benefit in several ways from investing in dilapidated ghetto property.  Given that wealthy investors tend to prioritize sheltering income from the IRS, rental property provides tax advantages in addition to revenue.  For instance, residential homeowners living in their homes cannot take depreciation allowances in tax codes, but landlords can.

Second, low-income tenants often qualify for Section 8 housing subsidies.  Hence, property that investors pick up very cheaply produces revenue from HUD that outpaces the market value of the property.  Over the past few decades, HUD and city housing agencies have allowed slum lords to neglect property while they collect hefty rents. For example, one house on Chestnut Ave was owned by an Australian retirement fund.  A family with several children lived in the home.  People were dumping trash in the right of way directly behind the house about which the city and owner did nothing (even though we incessantly called the city about the problems).  Polluted water was incessantly draining from a leak in the street next to the home where children played. The house was in disrepair and the yard overgrown.

Third, private equity firms and investors in general purchase property and make investments with other peoples’ money (OPM).  Interest can be deducted from taxes – along with other business expenses. 

Fourth, LLCs are pass through entities and do not pay corporate income taxes.  Investors pay capital gains taxes, which are lower than taxes paid by many wage and salaried employees.  Furthermore, capital gains taxes are often lowered further by other sheltering devices such as family trusts.

Two private equity firms have each bought hundreds of homes from the Land Bank, rehabbed them for little cost, and moved tenants in.  This is a form of what one could call internal colonialism: out of state and out of country financial firms expropriate African American land, extract value from that land, and put little to no resources back into the neighborhoods.

Future posts will discuss the history of apartheid in Kansas City, the destruction of viable African American neighborhoods by federal, state, and city policy, and how ongoing city politics related to economic development is continuing to rob African American citizens of the wealth they have been able accumulate.

By:

Dave Kingsley

Here are some questions to ponder: Why would the Family Office of a Billionaire be a major investor in a nursing home located in the tiny Southeastern Kansas town of Cherryvale?   Why would TIAA-CREF – a teachers, insurance, and annuity program – be the biggest owner of land in the Mississippi/Arkansas Delta?  Why would the Harvard Endowment Fund buy up forest land in Europe? 

The answer to each of these questions is that the U.S. economic system has undergone radical change in the past fifty years.  Indeed, the economic ground has shifted under our feet.  This shift has been tectonic, global, and influences every institution of society.  Much of government responsibility for the “general welfare” has been privatized and provides opportunities for investors with an immense amount of accumulated capital.

 Regardless of the theory of political economy to which one subscribes, throughout the past fifty years, monetary, management, and regulatory theories have driven a merger of government and business into a wild, wild west of unfettered capitalism.  This corporatocracy has resulted in massive pools of wealth in the hands of ultra-high net worth individuals, corporations, and institutions such as universities and sovereign wealth, and retirement funds.

Like water naturally seeks its own level, capital flows toward return on investment. In addition to a high return, investors seek protection from taxes, creditors, and all forms of liability.  Many state legislatures have accommodated that tendency by enacting laws for protecting and hiding assets.

Among other things, these massive pools of capital have resulted in monetization of every societal issue from crime to end of life care. Indeed, as the previous post indicates, even housing in neglected, abandoned, and deteriorating neighborhoods have been attracting private equity funds and institutional investors.

 Revenue producing real estate has become central to the institutionalization of human commodities such as frail elders, prisoners, soldiers, and troubled youth. Government guaranteed revenues are transferred opaquely from middle- and low-income strata of society through captured agencies, and secretive networks of shell companies to family offices, holding companies, Real Estate Investment Trusts, and other investment vehicles.

It is important for those of us advocating for economic justice to focus on how the economic system works and what it portends for the future of institutionalized Americans and the future of democracy.  The COVID pandemic swept through long-term care facilities, meat packing plants, and prisons because in the current economic system management theory accords priority to investors over stakeholders.  Patients, customers, inmates, students, and communities are not the priority of management – finance and extraction of value for shareholders is the top priority of executives, and this aided and abetted by government.

By:

Dave Kingsley

Avocado Post-Acute Care in San Diego is a facility owned by a limited partnership – Eldorado Care Center LP. This facility came to the attention of the media because of a large number of COVID deaths, and a rating of 1 on the CMS Nursing Home Compare website.  I was contacted by a reporter for a local PBS station. She was attempting to trace ownership of the facility.

The “indirect ownership interest” (100%) is listed by CMS as the Jacob Graff Living Trust.  Living trusts are set up by wealthy individuals for managing and protecting their assets – usually a family’s wealth.  I won’t get into the weeds on trusts in this post.  Suffice it to say that trusts are financial vehicles for keeping wealth away from the IRS – especially from collection of inheritance taxes.  This is a problem because these types of financial machinations are fueling wealth maldistribution.  This is the reason I have been advising advocacy organizations to add attorneys and financiers who understand corporate ownership structuring and finance to their boards.

I checked the San Diego County property database and discovered that the building was owned by an LLC. Property records won’t reveal the owner of an LLC – neither will secretary of state business search databases. However, addresses on the documents and Jacob Graff’s signatures revealed that his real estate business is the owner.  The market value of the property was assessed at $11 million.  Indeed, the long-term care business is far more about real estate than it is long-term care.  This property LLC most certainly has a “triple net lease” with Eldorado Care Center LP.  Under a triple net lease, the leasees pay taxes, maintenance, and insurance.

Continued searching of records regarding Jacob Graff revealed that he owned four other long-term care facilities in California – all of which were under the umbrella of a real estate property management firm in Beverly Hills, California.  Furthermore, on February 14, 2013, McKnight’s reported this: “A federal jury recently assessed penalties of 28.1 million against the former owner of an Illinois nursing home on charges that include Medicare & Medicaid fraud.”

According to the article, the defendant was Jacob Graff.  Apparently, this case arose from two nurses who “blew the whistle” for substandard care and fraudulent billing.  The nurses were fired to “silence their complaints.” 

The facility, Momence Meadows Nursing Center (MMNC) in Kankakee, IL was fined more than $19 million for “filing more than 1,700 false or fraudulent claims to state and federal agencies.  “Additional fines were levied because the “worthless services” provided by the nursing home resulted in the government losing more than $3 million.”

How many owners like Jacob Graff can we find among owners of the 15,500 long-term care facilities in the U.S.? That is still unknown.  We need to determine that.  I keep discovering them as I search through murky ownership structures in the nursing home business.