Report | How Do Nursing Homes Spend the Reimbursement They Receive for Care?

As nursing homes continue to ask for more reimbursement, a number of states have begun to question more directly how facilities spend the reimbursement they already receive, with some states enacting legislation to require more transparency and accountability.[1]  Questions are also raised about how facilities have spent the many additional billions of dollars they received,[2] and continue to receive,[3] from federal and state governments during the coronavirus pandemic.  In December 2021, the Medicare Payment Advisory Commission (MedPAC) reported that Medicare margins for skilled nursing facilities in 2020 were 19.2% when Provider Relief Funds were counted (16.5% when Provider Relief Funds were not counted), the 20th consecutive year of Medicare margins above 10%.[4]  MedPAC also reported that facilities’ total margins (counting all payers, including Medicaid) increased from 0.6% in 2019 to 3% in 2020.[5]  An analysis of three large publicly-traded nursing home chains and eight real estate investment trusts similarly found that all but two of the companies reported higher net income in 2020 than 2019.[6]  In the absence of meaningful transparency about or accountability for facility spending, there is skepticism, among some states and residents’ advocates, about increasing public funding for nursing facilities.  A case filed by 238 of New York State’s 615 nursing homes and three New York State nursing home trade associations, which challenges new accountability provisions that the Center for Medicare Advocacy supports, sheds some light on facilities’ actual spending practices. 

As part of the state’s 2021-2022 budget, New York State enacted section 2828, which (1) requires facilities to spend 70% of their reimbursement on care for residents, including 40% on direct “resident-facing staff,” and (2) requires facilities whose “total operating revenue exceeds total operating and non-operating expenses by more than five percent” to “remit such excess revenue” to the state, which will deposit the funds in the state’s nursing home “quality pool.”[7]  The second provision essentially limits facility profits (or, for not-for-profit facilities, surplus) to 5%.  The budget law calls for the State to deposit the excess funds from both the 70/40 spending mandate and the 5% profit cap into the state’s quality pool.[8]  Under regulations of the Department of Health, the State distributes funds from the quality pool to eligible facilities according to a methodology described annually by the Department.  Based on criteria in the Nursing Home Quality Initiative, facilities in the top three quintiles (the top 60%) are eligible to receive funds from the quality pool.[9]  

The nursing home industry lawsuit, Home for the Aged of the Little Sisters of the Poor v. Mary T. Bassett, No. 1:21-cv-01384 (BKS/CFH) (N.D.N.Y., filed Dec. 29, 2021),[10] filed days before §2828 was scheduled to go into effect, alleges that if the two provisions had been in effect and applied in 2019,

the aggregate amount such facilities would have had to pay back to New York State would be approximately $824 million, of which $313 million would be attributable to the 5% profit/surplus cap spread among 176 facilities[11] including over $20 million from not-for-profit facilities. . . . [and] Approximately $511 million would be attributable to the 70%/40% spending mandate spread among 334 facilities,[12] including over $60 million from not-for-profit facilities.  Of the approximately $313 million that would have been taken back because of the 5% profit cap had this methodology been in place in 2019, approximately $230 million would have been taken from facilities that DOH itself recognized as “quality providers” under New York State’s Medicaid reimbursement methodology.

Complaint ¶7.  In other words, the plaintiff nursing facilities report that nursing facilities in New York State were paid more than eight hundred million dollars in 2019 for excess profits and spending not related to resident care, as those terms are defined by the state’s 2021-2022 budget law.  The facilities do not report how they spent the $824 million.

Most of the Complaint, Paragraphs 16-253, contains a facility-by-facility description of the amounts each facility would be forced to give up as a “penalty” under both the 5% profit cap and the 70%/40% spending mandate, based on revenues and expenses for 2019.

Under the Governor’s authority to suspend laws due to the health care emergency and citing severe staffing shortages in health care facilities, New York Governor Kathy Hochul delayed implementation of both challenged provisions through January 30, 2022.  Executive Order 4.4 (Dec. 31, 2021).[13] 

The Long Term Care Community Coalition (LTCCC), a New York-based national advocacy organization for residents, describes the lawsuit as admitting facilities’ diversion of $511 million from resident care.[14]  LTCCC finds that 36 of the plaintiff facilities (15%) that were Special Focus Facilities (SFF) or SFF candidates or that had overall ratings of one star (the lowest rating) admitted to receiving overpayments of $45 million; that 85% of the plaintiff facilities provide staffing below 4.1 hours per resident per day; and that 73% of the plaintiff facilities provide less than .75 hours of registered nurse coverage per resident per day.  LTCCC notes that the plaintiff facilities are not representative of facilities in the state: 95% of the plaintiff facilities are for-profit facilities, although the only 65% of New York State’s nursing facilities are operated on a for-profit basis.  Finally, LTCCC suggests how nursing facilities could have spent $511 million on staff – $511 million could have paid for an additional 5,577 registered nurses or 111,971 hours of nurse aide time. 

What else do we know about these facilities?  The Center for Medicare Advocacy finds that some of the plaintiff facilities are Special Focus Facilities or candidates for the SFF program and some were sued in June 2021 by the U.S. Attorney for the Southern District of New York for allegedly overbilling the Medicare program, in violation of the federal False Claims Act.

Special Focus Facilities

The Centers for Medicare & Medicaid Services (CMS) identifies about 88 nursing facilities – generally one to two facilities per state – that are among the most poorly performing facilities in the country.  These nursing facilities, which CMS calls Special Focus Facilities (SFFs), have “more problems” than other facilities, “more serious problems” than other facilities, and “a pattern of serious problems that has persisted over a long period of time” (i.e., the prior three years).[15]  CMS describes these especially troubled facilities as making “enough improvements in the presenting problems” to be found in substantial compliance.  However, at the next survey, they are again cited as out of compliance because they failed to address “underlying systemic problems.”[16]  CMS established the SFF initiative in order to address these “yo-yo” facilities.  Since 2019, CMS has also a published a list of “candidates,” facilities that meet the criteria for the SFF program but are not included due to lack of resources.

As of the most recent SFF lists, dated December 8, 2021, CMS identifies three SFFs in New York.  One of them, Pontiac Care and Rehabilitation Center, is an SFF that has improved after eight months as an SFF.  In the Complaint (¶232), Pontiac Care and Rehabilitation Center reports that it would have had to pay $151,876, under the 70/40 rule.  It also describes itself as in the fifth (bottom) quintile, ineligible to receive funding from New York State’s quality pool.

In addition, five of the 15 New York candidates for the SFF program are plaintiffs in the provider litigation.  None is eligible to receive payments from the quality pool.

Plaintiff Facilities that Are SFF Candidates, as of December 8, 2021

Information provided by the five SFF candidates in the Complaint, displayed in the chart above, shows that all five facilities spent too little of their reimbursement on care for residents, under New York state’s 2021 law (and, as a result, all of them would have had overpayments, ranging from $212,352 to $4,975,291) and all five facilities were ineligible for payments under the state’s quality pool (all of them were in the lowest two quartiles (40%) of facilities in the state).

Buffalo Center for Rehabilitation and Nursing reported the largest overpayment of the SFF candidates, $4,975,291.  The federal website Care Compare reports the following information about the facility, as of January 14, 2022.  The Buffalo Center has one of five stars in health inspections, two stars in staffing, and three stars in quality measures (on a five-point scale for each measure, with one the lowest and five the highest).  Its overall rating is one star.  The website also displays an icon indicating that the facility was cited for resident abuse.

At the most recent standard (annual) survey on July 20, 2021, which was also a complaint survey, the facility was cited with 13 deficiencies, higher than the average number of deficiencies cited in New York State (4.9) and the average number of deficiencies cited in the United States (8.2). 

A complaint survey on May 3, 2021, cited an immediate jeopardy deficiency (the highest of four levels of noncompliance) for insufficient staffing.[17]  The Statement of Deficiencies included 4½ pages describing the deficiency.  Surveyors wrote that actual staffing at the facility was below the staffing numbers that the facility identified as necessary:

The facility Daily Census dated 5/1/21 documented a census of 170 residents. The actual staffing for the 5/1/21 11:00 PM to 7:00 AM shift was 5 LPNs and 3 CNAs (down 7 CNAs); the 5/2/21 7:00 AM to 3:00 PM shift was 5 LPNs and 11 CNAs (down 3 LPN’s and 9 CNAs). The scheduled staffing for the 5/2/21 3:00 PM to 11:00 PM shift was 3 LPNs, 8.5 CNAs (down 5 LPN’s and 7.5 CNAs).[18]

As a result of insufficient staffing, surveyors documented care that was not provided to residents.  One resident, identified as Resident 1, was observed at 6:14 a.m. on May 2, “lying in bed on soiled linens wearing an incontinent brief and a soiled gown. The resident was covered in a foul smelling yellow/brown liquid like substance from their head to their knees. There were areas of this foul-smelling substance drying on the linens.”[19]

Resident 1’s care plan indicated that the resident needed two staff members and extensive assistance with toileting.  However, the certified nurse aide (CNA) told surveyors that she and a licensed practical nurse were the only staff on the night shift (11:00 p.m. to 7:00 a.m.) on May 1-2 for the 53 residents on the fourth floor, a designated dementia unit, making it impossible for the resident to receive the care she required.  The minimal staff could not provide one-on-one care to Resident 2, as required by her care plan, or to Resident 3, who, unknown to staff, left the building (“eloped”), although her care plan required that she be supervised while walking in the corridor. 

As of January 14, 2022, three federal civil money penalties had been imposed against the facility in the prior three years: July 20, 2021: $8,037; May 3, 2021: $20,423; and April 30, 2020: $50,869.  The federal fines totaled $79,329.

False Claims Act litigation filed by U.S. Attorney

In June 2021, the U.S. Attorney for the Southern District of New York filed a lawsuit against 11 skilled nursing facilities (and their management company and owner) for fraudulently billing Medicare for unnecessary services, in violation of the federal False Claims Act.[20]  The U.S. Attorney alleges that between at least January 2010 through September 2019, defendant facilities “systematically kept patients at the Facilities longer than necessary in order to maximize the amount billed to Medicare for the patients’ stays” and “systematically put patients on higher levels of rehabilitation therapy than necessary based on their actual clinical needs in order to bill Medicare at the highest rate.” 

Seven of the 11 defendant facilities sued by the U.S. Attorney are plaintiffs in the provider litigation.

Plaintiff Facilities, Sued by the U.S. Attorney, Southern District of New York,
in June 2021 for Allegedly Overbilling the Medicare Program

Information provided by the seven facilities in the Complaint, displayed in the chart above,

shows that all seven facilities spent too little of their reimbursement on care for residents, under New York state’s 2021 law (and, as a result, all of them would have had overpayments, ranging from $145,250 to $1,969,16) and two of the seven facilities were ineligible for payments under the state’s quality pool (the two facilities were in the lowest two quartiles (40%) of facilities in the state).

Conclusion

In their lawsuit against the state, New York State nursing facilities describe their spending.  They report that in 2019, they spent hundreds of millions of dollars that the State, in 2021 legislation, does not consider related to resident care and on profits in excess of 5%.  The five SFF candidates report large overpayments and poor quality care, as reflected in their ineligibility for payments from the state’s quality pool.  Facilities sued by the U.S. Attorney for allegedly overbilling Medicare similarly show large overpayments, although five of seven qualified for payments from the quality pool.

Nursing facilities receiving reimbursement from the Medicare and Medicaid programs are coming under increasing scrutiny for how they spend their reimbursement.  The New York provider lawsuit shows that nursing facilities already receive hundreds of millions of dollars that they could redirect to care of residents.  Policy makers must require greater transparency and accountability in how facilities spend the money they receive for care before they consider increasing payments to facilities.

January 2022 – T. Edelman

[1] New Jersey enacted a “direct care ratio,” requiring that at least 90% of a facility’s aggregate revenue be spent on care of residents, P.L. 2020, Chapter 89 (Sep. 16, 2020), https://legiscan.com/NJ/text/A4482/id/2212711; New Jersey also requires specific disclosures, and requirements for prior state approval, of transfers of ownership of nursing facilities and “substantial management control,” P.L. 2021, Chapter 95 (May 12, 2021),  https://www.njleg.state.nj.us/Bills/2020/PL21/95_.PDF; California enacted  the Corporate Transparency in Elder Care Act of 2021, SB650, https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB650, which requires organizations that operate, conduct, own, manage, or maintain a skilled nursing facility to prepare and submit to the state an annual consolidated financial report for related parties (with 5% or more ownership or control interest) and for unrelated parties (that are paid more than $200,000 by the skilled nursing facility); legislation pending in Florida, HB539, https://www.flsenate.gov/Session/Bill/2022/539/BillText/Filed/PDF, and an identical companion state Senate bill, SB1324, https://m.flsenate.gov/session/bill/2022/1324/billtext/filed/html, requires facilities to submitted audited financial information.

[2] Center for Medicare Advocacy, “Special Report: Nursing Facilities Have Received Billions of Dollars in Direct Financial and Non-Financial Support During Coronavirus Pandemic” (Mar. 17, 2021), https://medicareadvocacy.org/report-snf-financial-support-during-covid/; “Center Report: Billions of Dollars to Nursing Homes in Covid-19 Relief” (CMA Alert, Mar. 25, 2021), https://medicareadvocacy.org/center-report-billions-of-dollars-to-nursing-homes-in-covid-19-relief/.  The HHS Office of Inspector General (OIG) announced that it will “identify how nursing homes used the [COVID-19 Provider Relief] funds to support their COVID-19 response, improve infection control practices, and assess selected outcomes from that use of funds.”  OIG, “COVID-19 Pandemic Relief Funding and Its Effects on Nursing Homes: Case Study,” https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000634.asp.  OIG anticipates that it will release the report, “COVID-19 Pandemic Relief Fundings and Its Effects on Nursing Homes: Case Study,” OEI-06-22-00040, in 2023.  

[3] Minnesota’s Governor announced that the state of Human Services will exercise emergency authority to expedite Medicaid funding of $83 million to nursing homes and direct services providers to address staffing and that nursing facilities will receive “a temporary 5% increase on average in state [Medicaid] payment rates” (about $52 million).  Governor Tim Walz, “Governor Walz Announces Expedited Funding to Address Staffing Shortages at Hard-Hit Nursing Homes and Services for People with Disabilities” (News Release, Jan. 11, 2022), https://mn.gov/governor/news/#/detail/appId/1/id/515208; Pennsylvania launched an $80.5 million grant program, Department of Health, “LTC RISE (Long-Term Care Resiliency, Infrastructure Supports and Empowerment),” https://www.health.pa.gov/topics/disease/coronavirus/Pages/LTC-RISE.aspx; Kimberly Bonvissuto, “$80.5 million grant meant to help providers address lingering pandemic effects,” McKnight’s Senior Living (Jan. 12, 2022),  https://www.mcknightsseniorliving.com/home/news/80-5-million-grant-meant-to-help-providers-address-lingering-pandemic-effects/

[4] Carol Carter, MedPAC, “Assessing payment adequacy and updating payments: Skilled nursing facility services,” slide 11 (PowerPoint, Dec. 10, 2021), https://www.medpac.gov/wp-content/uploads/2021/09/SNF-update-MedPAC-Dec-2021.pdf. 

[5] Id. slide 9                           

[6] David E. Kingsley and Charlene Harrington, “COVID-19 had little financial impact on publicly traded nursing home companies,” Journal of the American Geriatrics Society, Vol. 69, Issue 8, pp 2099-2102 (2021), https://agsjournals.onlinelibrary.wiley.com/doi/10.1111/jgs.17288

[7] New York State Budget for State Fiscal Year 2021-22, §2828 (Residential health care facilities; minimum direct resident care spending), https://www.nysenate.gov/legislation/laws/PBH/2828

[8] Id. §2828(c)

[9] The New York Nursing Home Quality Pool, 10 N.Y.C.R.R. §8602.42, https://regs.health.ny.gov/volume-2-title-10/1954015388/section-86-242-residential-health-care-facility-quality-pool, provides financial incentives to nursing facilities receiving Medicaid reimbursement.  Based on a methodology updated and described annually, the Department of Health distributes a budget-neutral $50 million pool to facilities in the top three quintiles (the top 60%) based on their performance on certain quality measures in the Nursing Home Quality Initiative.  Facilities in the top quintile receive approximately 44.4% of the total Quality Pool; facilities in the second quintile receive 33.3%; and facilities in the third quantile receive 22.2%.  See New York State Department of Health, “Nursing Home Quality Initiative,” https://www.health.ny.gov/health_care/medicaid/redesign/nursing_home_quality_initiative.htm.  The 2021-22 Budget law also requires the State to deposit facilities’ excess funds due to the 70/40 spending mandate and 5% profit cap into the quality pool.  See Department of Health, “Dear Administrator” letter (Dec. 2, 2021), https://www.health.ny.gov/facilities/long_term_care/reimbursement/letters/2021-12-02_dal.htm

[10] The Complaint is available at https://medicareadvocacy.org/wp-content/uploads/2022/01/Nursing-homes-NY-nh-case-21-cv-1384-BKS-CFH-complaint-U.S.-District-Court-NYND-2.pdf

[11] This number – 176 – is different from the 239 facilities that filed the lawsuit.  The Complaint does not describe how the remaining plaintiff facilities would have been affected by the 5% profit cap.

[12] This number – 334 – is different from the 239 facilities that filed the lawsuit.  The Complaint does not identify the additional facilities that would have had to pay back money to the State because of the 70/40 spending mandate.

[13] https://www.governor.ny.gov/sites/default/files/2021-12/EO%204.4.pdf

[14] LTCCC, “LTCCC Alert: NY Nursing Homes Admit Excess Profits” (Alert, Jan. 22, 2022), https://nursinghome411.org/nys-provider-lawsuit/

[15] CMS, “Special Focus Facility (“SFF”) Initiative,” https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/CertificationandComplianc/Downloads/SFFList.pdf

[16] Id.

[17] The deficiency report is at https://www.medicare.gov/care-compare/inspections/pdf/nursing-home/335638/health/complaint?date=2021-05-03

[18] Id. p. 10

[19] Id. p. 11

[20] U.S. Attorney, “Manhattan U.S. Attorney Files Suit Against Eleven Skilled Nursing Facilities And their Management Company, Owner, and A Senior Employee For Fraudulently Billing Medicare for Unnecessary Services” (News Release, Jun. 2, 2021), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-files-suit-against-eleven-skilled-nursing-facilities-and-their