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

By:

Dave Kingsley

American Tolerance of Corporate Deceit & Predatory Economics is Perplexing

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

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

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

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

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

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

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

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

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

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

Table 1:  Net Operating Margin

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


   Selected Ensign Group 3rd Quarter, 2022 Results

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

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

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

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

Executive Compensation

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

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

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

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

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

Ensign Stock Has Been Increasing During Stock Market Down Year:

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

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

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

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

The “medical industrial complex” is not capitalism, so let’s change the narrative.

By:

Dave Kingsley

Genuine Capitalist Enterprises are Not Operating in Anti-Competitive, Government Rigged, Systems.

As a proponent of capitalism, I resent the U.S. privatized, government-funded, health care system and the implication that it is a suitable representative of a capitalist system.  It is not.  The system of nursing homes, hospitals, and clinics through which patients pass for care is a financialized[1], corrupt, rigged, system.  Furthermore, some services important to society should not be industrialized under the farcical notion that return on capital will drive quality care.

Reformers have failed to create a narrative to defeat the financiers’ mantra that privatizing appropriate government services will increase quality and productivity.  History has taught us a very clear lesson:  industrialization and privatization of medical care and a host of other government services are unproductive and lead to excess extraction of capital, lower productivity, and reduction of innovation and reinvestment.

You Can’t Shame the Shameless

There is an unfounded belief that exposing bad operators in sensational mainstream media articles will force a change for the better in nursing homes and hospitals.  The misguided view that the medical-industrial complex will be moved by horror stories reminds me of an old T-Shirt in my closet with the following silkscreened on it: “We Don’t Care, We Don’t Have to Care, We’re EXXON.”  You could substitute the words medical-industrial complex, The American Health Care Association (AHCA), Ensign Group,” Welltower Corporation, Centene, United Health, and thousands of other corporate associations and entities for EXXON on such a T-Shirt.

Nursing home and hospital corporations don’t care about the shaming they deserve because politicians in federal and state legislatures have their backs.  Furthermore, they have captured the agencies charged with regulating them.  The Center for Medicare & Medicaid Services, and 50 state agencies are dominated by the industry and their well-financed lobbying organizations (not to mention the FDA, the FTC, the CFTC, etc.).  You can shame private equity as a business model, scurrilous operators, low wages/salaries, understaffing, and other outrageous practices, but financiers in the healthcare business are, for the most part, shameless. 

For at least a decade, I have been urging advocates to form a narrative and political strategy.  Playing rope, a dope with an industry that has a very well devised, effective, and well-funded narrative will change nothing.  The nursing home industry has a narrative based on falsehoods, which are comprised of frames related to the hardships endured by noble businessmen and investors.  Frames in which the industry purports to be suffering from low Medicare/Medicaid reimbursement, and low net income (profits) are blatantly false and misleading.  Regardless of how unbelievable the frames comprising industry propaganda, they are never seriously challenged by the constellation of nonprofit and government entities representing the elderly.  Furthermore, do-gooder commissions charged with studies of nursing homes, hospitals, and other health care subsystems generally whitewash and paper over the unethical, inhumane, and anti-democratic nature of the entire medical-industrial complex.[2]

Let’s Get Technical

I propose that advocates create frames that can be integrated into and support this narrative: “The privatized U.S. healthcare system is not fair, capitalistic, or ethical.”  Frames accusing industrialists of manipulation of markets, financial machinations, pay offs/bribes to legislators, and covering up corruption through well-funded lobbying entities such as the AHCA (nursing home lobby) are necessary but risky for professionals who want to go along to get along.

Industry moguls and their minions in government know from 70 years of history that their propagandistic efforts work well. They have been able to convince the public that privatized, for profit, services are better than non-profit and government services.  This mantra has gained traction and is embedded deeply in the American zeitgeist.  It will take a concerted effort across a broad array of nonprofit advocacy organizations to destroy a narrative based on industry lies and complex financial maneuvers.

However, before advocates can suitably frame messages for the media and legislators, a considerable amount of research, data collection, and analysis must be undertaken.  Data and evidence related to “rent seeking,”[3] “net operating income,” and “cash flow,” is necessary for debunking the “low net,” “thin margins,” and other hardship frames of the industry.  The nursing home system must be unraveled and explained as a network of capital flows from taxpayers and other sources through Real Estate Investment Trusts (REITs), private equity firms, LLCs/LLPs, and C-Corporations.

It is necessary to show how excessive capital flows through nursing homes and hospitals to investors and executives.  REITs have been existing under the radar and never discussed at legislative hearings (See my blog post: “Real Estate Investment Trusts (REITs) are Big Players in the Nursing Home Industry:  That Should Concern All of Us” February 13, 2021).  We must recognize how the entry of private equity and REITs around 2000 literally transformed the industry.

Advocacy research must include data from cost reports submitted by facilities to CMS and state agencies.  Falsehoods in these reports are pervasive.  Nevertheless, it is important to organize the data to make a case and support our frames pertaining to corruption and excessive extraction of capital at the expense of care.

We Are on It!

A team of people across the U.S. have come together to initiate solid, evidence-based, research.  With some help from the LTCCC and a lot of volunteer work, a group of us have been organizing data from cost reports and digging into financial machinations, ownership, and the flow of capital from various sources (including taxpayers) to investors, executives, and family wealth. 

We want to direct attention to more than horrendous examples of nursing home abuse and neglect.  The industry justifies poor care with a well-honed, richly funded, propaganda campaign. We should not respond to their “woe is me pleas for increased funding.”  Rather we should follow the money and make the trail available to legislators and journalists that we know will utilize it (think Senator Elizabeth Warren).  I don’t want to engage them in their claim that investors in the nursing home industry are suffering.  My only response to that is investors are not stupid.  If returns were no good in public-funded, skilled nursing care, investors would be investing somewhere else. 


[1] By labeling the system “financialized,” I mean that financial maneuvering for extracting cash takes precedence over increased productivity and quality of services.  Shareholder value is the primary mission of most healthcare private corporations.  Stakeholders are of secondary importance.  Often stakeholders suffer for the sake of enhancing and protecting shareholders’ interests.

[2] While COVID was surging in the Spring of 2020, CMS convened an “independent” commission the management of which was outsourced to the Mitre Corporation.  The report of this commission was a whitewash and papered over general neglect by the nursing home industry which resulted in 200,000 patient and employee deaths.  Contrary to suggesting accountability for lack of infection control and no preparation for a pandemic that scientists had been warning about for decades, the final report recommended more financial assistance for the industry.  Recently, a commission under the auspices of the National Academy of Sciences, Engineering, and Medicine (NASEM) in operation for a number of years entitled “National Imperative to Improve Nursing Home Quality” issued a report of their work. This commission tiptoed around the corruption, deceit, and excessive extraction of capital at the expense of quality care.

[3] “Rent seeking” has evolved in the field of economics to describe corporate efforts to extract wealth without a correlative increase in the production of goods and services.  The nursing home, finance, real estate, lobby is constantly hectoring legislators for an increase in reimbursement without any real, scientific, evidence that the cash flow and return on their investment is inadequate.

Nursing Home History as Pablum:  Creating a Comfortable Reality for the Powerful

By:

Dave Kingsley

A commission to study the nursing home system, conducted under the auspices of the National Academies, of Science, Engineering, & Medicine (NASEM), recently released its report entitled The National Imperative to Improve Nursing Home Quality: Honoring Our Commitment to Residents, Families, and Staff.[1] The report included a very brief history of the nursing home system – a 400-year history reduced to a couple of pages.  Furthermore, it is a history that will not upset officials, proprietors, investors, executives, politicians, and others who are benefitting from the status quo. 

Basically, the commission is feeding the public historical pablum.  Left out of the multi-century account are such salient features as ongoing and intensifying financialization, and pivot points such as the 1950s-60s’ development and codification of “the medically indigent,” the role of states’ rights, and the influence of racist, segregationists.  Also excised were many significant changes of 1980s-90s such the transformation of macroeconomic and corporate philosophy from managerial capitalism into what is known as “agency theory,” – basically meaning that shareholder value is not just the highest ethic of capitalist management but the only ethic.

Between the late 1990s and early 2000s, capital markets and tax codes were conducive for the entry of real estate investment trusts (REITs), private equity (PE), and other corporate legal structures (e.g., limited liability companies or LLCs) into the senior housing market.  Large pools of capital had been accumulating through pension, college endowment, sovereign wealth, and insurance funds that needed to flow into businesses that would provide desired yields and return on investment.  These funds are managed by institutional investors such as Vanguard and BlackRock.  The number and size of publicly listed companies have grown considerably over the past two decades as REITs have expanded their power and financial dominance in the senior housing market.  To ignore these players in the industry is to ignore the proverbial 800-pound gorilla in the room.

These changes have been accompanied by massive investments of cash into political campaigns and politicians’ coffers by PACs, Corporations, and lobbying firms representing the medical-industrial complex, Wall Street, and real estate.  What worthwhile history would tiptoe around the corruption wrought by money in politics?

It is easy to become known as a radical and marginalized. Taking a hardnosed stand regarding the truth is an annoyance.  History is written from a “point of view” of the powerful and their version of events. They choose the people, places, and things to include and exclude.  Challenging those points of view will typically evoke hostility.  This is currently noticeable in the backlash to “critical race theory.”  African Americans would benefit greatly from a factually accurate history of race in America, which would facilitate an honest look at institutional racism still pervasive in the United States – including in the nursing home system. It would also be helpful to the elderly to have a movement that could be called critical elder theory – perhaps CET would be an appropriate acronym.

Unfortunately, humans are beset with psychological defense mechanisms that serve the avoidance of truth and lend support to the creation of a comfortable reality.  There are many defense mechanisms recognized by psychoanalysts.  However, four main defenses in history: denial, rationalization, repression, and fantasy are essential for understanding how official bodies such as commissions paper over reality and prevent real change. 

Fantasy is seeing the world not as it is but as the way we would like it to be.  No American wants to think that the elderly, as humans, are only worth what the treatment in a typical nursing home would suggest.  We believe we are better than that.  Our creed does not permit widespread shortening of life and suffering because of financial considerations.  Somehow the incongruence between our creeds and our deeds must be reconciled.  So, we retreat into a fantasy world in which medically fragile and frail elderly and disabled persons are living in as system with a few tweaks can be fully staffed and made into a “home-like culture” (a vague term if ever there was one).

Fantasies can only be maintained through denial of reality (out of sight-out of mind), repression (just don’t think about it), and rationalization (Medicaid reimbursement is too low).  Human nature being what it is, these defenses operate mostly at a subconscious level. 

Window dressing called “home culture” as it has been conceived and implemented thus far will not substantively change the structure and function of the nursing home system as it has evolved.  However, it will assuage our consciences.


[1] National Academies of Sciences, Engineering, and Medicine 2022. The National

Imperative to Improve Nursing Home Quality: Honoring Our Commitment to

Residents, Families, and Staff. Washington, DC: The National Academies Press.

https://doi.org/10.17226/26526

DEMOCRACY, CORPORATE FINANCE, & MEDICAL ETHICS

Nursing Home Companies are Making Money but are Not Telling Taxpayers the Truth About it.  Our Deductive Reasoning Skills Can Easily Reveal the Truth.

Welltower Corporation is a major player in the nursing home industry. Indeed, it is the dominant player.  The major share of its $4.72 billion in 2021 revenue is provided by U.S. federal and state governments – from the taxpayers of America.  Their business is senior housing real estate and medical care for people residing in their nursing home properties. 

The public has a right to expect that medical care is the overriding mission of corporations involved in tax funded nursing care. That is not how Welltower executives view their role in the privatized, publicly funded, healthcare system.  In their 2021 annual report they stated, Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth (https://welltower.com/wp-content/uploads/2021/04/2020-Annual-Report.pdf, p. 2, accessed 5/21/2022).

Welltower is one of the few nursing home companies listed on a public stock exchange.  As their annual reports and the value of their stock in the current market crash indicate, they are achieving their financial objectives.  As the Dow, S&P, and NASDAQ have tanked in the past few months, shares of publicly listed nursing home-related corporations are at, near, or above their value in late November when the markets began to sink at significant and at times precipitous rates. 

These are solid corporations loaded up with commercial real estate, the value of which is enhanced by guaranteed revenue through Medicare, Medicaid, and generous tax advantages – gratis the U.S. taxpayers.  This is the reason asset managers such as BlackRock and Vanguard have guided $billions of pension, sovereign wealth, and family office, funds, overseen by institutional investors, into asset-laden nursing home companies. As the markets fall, they are not moving money out of these equities and seeking a safer haven (In a blog post today, I provide an analysis of the stock performance of nursing home and other government-funded medical care corporations between the end of November 2021 and the end of May 2022).

The Big Lie from the Nursing Home Industry: “We Aren’t Making Enough Money to Provide Medically Ethical & Humane Care.”

Thousands of privately held corporations in the form of Limited Liability Corporations, Limited Partnerships, and other legal structures own from a few to a hundred or more nursing homes. Examples include, the privately held Pruitt chain, Diversicare, and several other substantial chains operating in various parts the United States.  Years of interviewing employees, families of patients, reading inspection reports and media accounts, have convinced me that medical care in these facilities is substandard to nonexistent.  Abuse and neglect are pervasive.  Most of the care is provided by medically nonqualified and extremely low paid nursing assistants.  Generally speaking, these are inhumane institutions. The thought of ever ending up in one is horrifying to most people.

Industry Prevarication & Misinformation about High Investor Returns

Although, evidence overwhelmingly suggests that investors are reaping huge returns from shoddy care, the American Health Care Association (AHCA) –  the major industry lobbying firm and industry propaganda arm in Washington and the 50 states – successfully promotes a big lie:  “provider net income is so low that they can’t treat patients humanely or pay higher salaries and wages.” On its face, that is absurd. But apparently it hasn’t dawned on legislators, bureaucrats, and the media that investors wouldn’t be investing in a venture with low returns while so many opportunities for high returns are available in the financial markets.

My colleague, professor Charlene Harrington, and I have debunked that argument as it pertains to publicly listed companies. We, like the rest of the public, have access to financial statements required by the Securities and Exchange Commission (SEC).[1]  However, we do not have access to consolidated financial reports for privately held companies. We can’t see their income statements, balance sheets, or cash flow statements. Therefore it is very difficult to evaluate industry claims regarding earnings – difficult but not impossible.

Each of the approximately 13,000 facilities licensed to provide nursing care and certified to be reimbursed by Medicare and Medicaid are required to submit “cost reports, which include revenue, expenses, net income, and a host of other financial metrics.  With the exception of California, these CRs are difficult to obtain. But we have now gained access to every filed CR in the U.S.  Our analysis so far is telling us that the low net claim is a big lie; that fraud is rampant; and, that states are failing to audit the reports.

Low Risk, High Return Fueled by Government Funds with Little Financial Oversight: the Reality of Nursing Home Investing

As we pour over CRs – mostly in California, New York, North Carolina, and Kansa – we see reported net income as a fiction.  We have also come to believe that the low 2020 net of .5% claimed by AHCA and its hired propaganda accounting firm Clifton, Larson, and Allen (CLA) is scurrilous nonsense – unbecoming of the 8th largest accounting firm in the U.S.

 As one example, misinformation, if not outright fraud, is replete in the CRs of 25 Kansas facilities owned by Florida based private equity firm Windward Health Partners, LLC. Although the average net income reported by these facilities is 8.6% – far higher than the average claimed by AHCA & CLA – they are not reporting payments to their own property LLCs. Also, their chain goes goes by the name of Mission Health Communities. What they don’t note on their CR is that MHC is a related party – a management LLC set up as a company they own and are paying to manage their facilities. Hence their net is drastically lowered due to payments to other companies they own.

 Although Mission Health Communities is falsely noted as the owner of these facilities, it exists as the typical private equity squeeze forced on victim companies.  Mission Health Communities is paid a management fee but is, in reality, a separate LLC in the Windward Health Partners portfolio.  That payment, along with a lease payment to a property LLC, and perhaps other payments to Windward owned ancillary services such as therapy, are expensed on the income statement. In effect, these facilities are making payments to entities owned by their parent corporations and reducing their net income reported to the State of Kansas.

According to CRs submitted by Windward, Kansas taxpayers paid the company $103,403,493 in total 2020 revenue. Because of omitted information and opaqueness of the system, only company insiders know how much cash flowed out in the form of lease payments, management fees, and possible other ancillary services. The 25 facilities received an average of $249,063 in COVID relief payments. I say cash because these payments to itself is gravy for partners and limited partners in Windward Health Partners, LLC.

Democracy & Medical Ethics

The people of Kansas have no idea about how their tax dollars are flowing out of their state into investment firms like Skyway Capital Partners of Tampa Bay, Florida – the financial firm that has capitalized Windward Health Partners. That is not because Kansas residents are dumb. Rather they don’t know how government funds flow from facilities to parent corporations structured as private equity, LLCs, C and S corporations, and limited partnerships, because the system is designed to operate behind a veil of secrecy. For the most part, the Kansas legislature and state bureaucrats have been captured by the industry.

Employees at the Kansas Department of Aging & Disability Services are far more protective of industry financial secrecy than they are of the public’s right to know how their tax dollars are being utilized. The deck is stacked in favor of the industry. Getting substantive information from KDADS is like getting red meat out of a tiger cage.

Medical care is substandard in nursing homes across Kansas but shareholder value overrides medical ethics. Indeed, you will be hard pressed to find a physician around a nursing home at any given time. You will also be hard pressed to find more than a hand full of physicians who really give a damn about what goes on these institutions. The medical profession is silent, the bioethics profession is silent, and the voters are kept in the dark. That’s not how democracy is supposed to work.


[1]Kingsley D, Harrington C. (2021) “COVID-19 had little financial impact on publicly traded nursing home companies.) J Am Geriatr Soc. 2021;1–4. https://doi; Kingsley, D Harrington, C. “Financial and Quality Metrics of A Large, Publicly Traded U.S. Nursing Home Chain in the Age of Covid-19, International Journal of Health Services, 1-13, https://doi: 10.1177/00207314221077649.

What are the Causes of Outrageously Expensive U.S. Medical Care? Institutional Racism, Propaganda, & Privatization are Some Primary Causes.

By:

Dave Kingsley

Why Do Americans Put Up With Their Inferior, Costly, Medical Care System?

My colleague Kent Comfort’s post today is a story to which most Americans can relate – astounding and inexplicable charges for an emergency room visit or a seemingly simple procedure in a hospital or clinic.  Why do the American people put up with the most costly, inefficient, and corrupt medical system among countries with developed economies?

The simple answer is that we have been indoctrinated to believe that we have the best medical care system possible in the best of all possible worlds.  We are even told that we have the best medical care in the world.  The alternative, according to propagandists, is the dreaded socialism – never mind that the British National Health Service is government owned and operated, exceedingly fair to the population, and costs much less than U.S. medical care. Also, over the past few decades, London and the British Iles in general have become engines of global finance and capitalism.  While Margaret Thatcher was on her privatization tear, she made it very clear that she would not touch the NHS.

Propaganda and conditioning of people in nation states are ordinary across the globe.  Governments in advanced industrial nations are sophisticated and effective in selling policies and programs that are not in the public’s best interests. Although the British National Health Service is among the best in the world at a cost of $4,653 per capita compared to the U.S., paying $11,072 and struggling with a wasteful system failing a large part of the population, the ole “socialism is bad” propaganda rears its ugly head at the mention of a national, single payer system. What we are told (and far too many people believe) is that we can’t afford to do better. Apparently, we can only afford to pay more to do worse.

The real historical circumstances leading to the embarrassingly bad U.S. medical care system have nothing to do with “socialism.”

I will make the case that the current industrial medical system in the United States has its roots and initial conditions in Jim Crow, Southern Democrat opposition to health care equality for African Americans that would most certainly occur in a federally administered, single-payer, universal medical care system.  Furthermore, the American Medical Association, Northern Republicans, and Southern Democrats waged a rabid and successful war against President Truman’s single payer plan through a well-financed propaganda campaign.

The AMA would not even recognize the right of African American physicians to practice medicine and excluded them from its all-white, politically reactionary organization.  Furthermore, the AMA was a powerful force in state politics and could exercise considerable control over education and licensure, which are determinate of physician income.  Hence, a white supremacist and powerful group of physicians joined forces with other racist and reactionary forces to stymie Harry Truman’s national health care plan.

Had the Southern Democrats supported President Truman in his quest for a single-payer, universal health care system, it would have made it through congress and be as much a part of the U.S. government and economy as the National Health Service is an integral part of British society.  The Senators and Congressmen from the South were white populists and supportive of New Deal programs for whites such as Social Security (agricultural & domestic workers were excluded), the Hill Burton hospital construction program (hospitals funded under Hill-Burton were allowed to remain segregated well into the 1960s), and other programs that benefitted whites.

Poverty medicine, Medicaid, Exclusion, and Lower Tier Care

Under the leadership of Arkansas Congressman Wilbur Mills, one of the most powerful congressmen in U.S. history, the single payer Medicare system for the elderly was accompanied into law by the means-tested, poverty Medicaid system.  Mills was a bigot and signatory to the Southern Manifesto (signed by all Southern Democrats in congress), which was a protest against Brown v. Board of Education.

As Chairman of the House Ways & Means Committee, Mills maneuvered Medicaid into existence to prevent expansion of Medicare to younger age groups.  Furthermore, the states’ role in Medicaid would allow for harassment, stigmatization, and lower tier medicine, all of which would help keep African Americans in an inferior status in Southern states.

Privatization and the Monetization of Poverty

Poverty is paying off for some of the largest corporations in the United States. Medicaid is a cash cow for providers running for profit hospitals, nursing homes, and medical supply companies.  For instance, the Centene Corporation is in the business of managing Medicaid programs for states.  Centene executives were paid a combined $64 million in 2020.  The company’s CEO was one of the highest paid executives among the Fortune 500 executives.

In the weeks ahead, we will be further making the case that Americans have been conditioned to believe that the health care system they have is the best they can afford and deserve.  That’s false.  We will expose the corporations making excess earnings, paying high dividends, and providing poor care.

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

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