Nursing homes claim to lose money every year, but they stay in business and don’t close or file for bankruptcy. How is that possible? It’s possible because industry claims aren’t true. Nursing homes hide 62.9% of profits by paying inflated prices to related parties, primarily for real estate and management services.
In “Tunneling and Hidden Profits in Health Care,” economists Ashvin Gandhi and Andrew Olenski report that if nursing facilities spent their hidden profits on staffing, mean staffing ratios would significantly increase – by nearly 0.23 hours per resident day (HPRD) of registered nurse (RN) time, a 28.9% increase, or by 0.47 HPRD of certified nurse aide (CNA) hours per resident day, a 21.0% increase.
Moreover, if the hidden profits were spent on staffing, facilities would be much closer to complying with the staffing hours identified in the Biden Administration’s proposed staffing ratio rule. Compliance with the 0.45 HPRD RN requirements would rise from 55.2% to 75.6%; compliance with the proposed 2.55 HPRD certified nurse aide (CNA) standard would rise from 15.3% to 36.1%.
The researchers base their work on 24 years of nursing homes’ Medicaid cost reports in Illinois, which requires facilities to submit detailed Medicaid cost report information, including mandatory reporting of information about related parties. Gandhi suspects that hiding profits might be more common in states other than Illinois, “‘where it’s easier to not report the transactions.’”
March 14, 2024 – T. Edelman