On July 29, 2022, the Centers for Medicare & Medicaid Services (CMS) published proposed rules for the physician fee schedule for Medicare and Medicaid. The same day, it released final rules with annual updates to Part A payments for skilled nursing facilities (SNFs) under Medicare. The proposed and final rules reflect dramatically different CMS views of the nursing home industry.
In the fee schedule proposed rule, CMS proposes changing the categorical designation of SNFs (for purposes of reviewing initial applications and revalidation applications for Medicare reimbursement) from the limited-risk screening category under 42 CFR §424.518 to the high level of risk, citing “The disconcerting number of recent cases involving fraud and improper billing by nursing home owners and operators, as well as the OIG [Office of Inspector General] and GAO [Government Accountability Office] reports concerning patient abuse at the nursing homes these individuals oversee [which] requires, in our view, strengthened protections of the Medicare program and its nursing home beneficiaries.” CMS identifies multiple reports by the GAO and OIG about “patient abuse” (“CMS in recent years has become increasingly concerned about certain problems within the SNF community, particularly potential and actual criminal behavior,” including patient abuse) and cases of financial “fraud or improper billing among nursing home owners or operators.”
In final rules updating Medicare reimbursement rates for skilled nursing facilities, however, CMS announces that it is increasing Medicare Part A payment rates by $904 million, reversing proposed rules, published in May, that would have reduced Part A rates by $320 million. In the Press Release describing the final rules, CMS expresses concern about the ongoing public health emergency, which, it says, has negatively affected the nursing home industry and threatens facility closures. Although the rate increase comes with no strings attached, CMS describes the reimbursement rules as furthering the Administration’s “commitment to ensuring the safety of both nursing homes residents and staff, and improving the quality of services.”
CMS’s two simultaneous actions – designating SNFs as at high risk because of abuse of residents and financial fraud versus adding almost a billion dollars in Medicare reimbursement – are hard to reconcile.
The Center will discuss the various provisions of the final rule in a later Alert.
Real Estate Investment Trusts and Nursing Homes: A Bad Deal for Residents and Taxpayers
A new Working Paper by the Institute for New Economic Thinking documents the negative role that real estate investment trusts (REITs) have had on nursing home residents’ care. While a “legal fiction” describes REITs as passive investors in real estate, the analysis documents that “they are actually financial actors that aggressively buy up property assets and manage them to extract wealth at taxpayers’ expense.”
Two case studies in the nursing home area – one involving HCR ManorCare, HCP, and Carlyle Partners and the second, Genesis Healthcare, Health Care REIT, and Formation Capital – illustrate the effects of REIT ownership of nursing homes. In both case studies, a private equity firm (Carlyle and Formation Capital) bought a nursing home chain. Each sold the real estate portion of the company to a REIT. The REIT that owned the HCR ManorCare real estate raised the rents on the nursing homes, forcing the company into bankruptcy. In a 2018 article, The Washington Post documented the dramatically declining care at ManorCare facilities as they cut staff to pay increasing rents. Formation Capital sold the real estate to a REIT for more than it paid for the entire company; it bought Genesis Healthcare for about two billion dollars and sold the real estate for $2.4 billion.
The separation of the real estate from the operations of the facilities, a consequence of these financial transactions, “poses serious risks and dangers for patient care” because “the strategic interests of the real estate company are not aligned with the operating company and may lead to lower investment in maintaining or investing in nursing home facilities.”
Federal tax law defines REITs as “passive investors” that pay no federal taxes “if they invest at least 75 percent of their assets in real estate, derive 75 percent of their gross income from real property, and pay out at least 90 percent of taxable income (excluding capital gains) as shareholder dividends each year.”
Kaiser Health News/National Public Radio Report on Nursing Home Lawsuits Against Families and Others for Residents’ Nursing Home Debt
As part of their ongoing study of medical debt in the United States, Kaiser Health News (KHN) and National Public Radio (NPR) report that nursing homes are suing families and friends of nursing home residents to collect residents’ nursing home debts. They find that between 2018 and 2021, 24 licensed nursing facilities in Monroe County, New York filed 238 debt collection actions, seeking $7.6 million. Nearly two-thirds of the cases targeted a friend or relative of the resident and nearly one-third of the cases resulted in a default judgment against the friend or relative.
The practice is not limited to New York. Consumer attorneys in California, Illinois, Kentucky, Massachusetts, New York, and Ohio told KHN/NPR that they regularly see nursing home lawsuits filed against family and friends.
What is most shocking about the KHN/NPR report is that the 1987 federal Nursing Home Reform Law explicitly prohibits nursing facilities from requiring third parties to guarantee payment for residents’ care (so-called responsible parties contracts). The Reform Law permits facilities to ask individuals to sign admissions contracts solely in a representative capacity (“without incurring personal financial liability”) and only if they have legal access to the resident’s income or resources, which they use to pay for the resident’s care.
August 2022 – T. Edelman
 87 Fed. Reg. 45860, 46235 (Jul. 29, 2022), https://www.govinfo.gov/content/pkg/FR-2022-07-29/pdf/2022-14562.pdf
 CMS, CMS, Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities; Updates to the Quality Reporting Program and Value-Based Purchasing Program for Federal Fiscal Year 2023; Changes to the Requirements for the Director of Food and Nutrition Services and Physical Environment Requirements in Long-Term Care Facilities,“ CMS-1765-F and CMS-3347-F (Aug. 3, 2022), https://www.govinfo.gov/content/pkg/FR-2022-08-03/pdf/2022-16457.pdf. See “CMS Acts to Improve the Safety and Quality of Care in the Nation’s Nursing Homes” (Press Release, Jul. 29, 2022), https://www.cms.gov/newsroom/press-releases/cms-acts-improve-safety-and-quality-care-nations-nursing-homes
 Rosemary Batt and Eileen Applebaum, with Tamar Katz, “The Role of Public REITs in Financialization and Industry Restructuring,” The Institute for New Economic Thinking, Working Paper No. 189 (Jul. 9, 2022), https://www.ineteconomics.org/uploads/papers/WP_189-Batt-Appelbaum-Public-REITS1.pdf
 Id. 1
 The Working Paper also looks at hospital and hotels
 Rosemary Batt and Eileen Applebaum, with Tamar Katz, “The Role of Public REITs in Financialization and Industry Restructuring,” Working Paper No. 189, p. 34 (Jul. 9, 2022), https://www.ineteconomics.org/uploads/papers/WP_189-Batt-Appelbaum-Public-REITS1.pdf
 Peter Whorisky and Dan Keating, “Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable,” The Washington Post (Nov. 25, 2018), https://www.washingtonpost.com/business/economy/opioid-overdoses-bedsores-and-broken-bones-what-happened-when-a-private-equity-firm-sought-profits-in-caring-for-societys-most-vulnerable/2018/11/25/09089a4a-ed14-11e8-baac-2a674e91502b_story.html
 Rosemary Batt and Eileen Applebaum, with Tamar Katz, “The Role of Public REITs in Financialization and Industry Restructuring,” Working Paper No. 189, p. 31 (Jul. 9, 2022), https://www.ineteconomics.org/uploads/papers/WP_189-Batt-Appelbaum-Public-REITS1.pdf
 Id. p. 23
 Eileen Appelbaum and Rosemary Batt, “How Public Real Estate Investment Trusts Extract Wealth from Nursing Homes and Hospitals,” (Aug. 1, 2022), https://www.ineteconomics.org/perspectives/blog/the-role-of-public-reits-in-financialization-and-industry-restructuring
 Noam N. Levey, KHN/NPR, “Nursing Homes Are Suing the Friends and Family of Residents to Collect Debts” (Jul. 28, 2022), https://khn.org/news/article/diagnosis-debt-nursing-home-lawsuits-third-party-debt-collection/
 Facilities may “not require a third party guarantee of payment to the facility as a condition of admission (or expedited admissions) to, or continued stay in, the facility.”42 U.S.C. §§1395i-3(c)(5)(A)(ii), 1396r(c)(5)(A)(ii), Medicare and Medicaid, respectively; 42 C.F.R. §483.15(a)(3)
 “Contracts with legal representatives. Subparagraph (A)(ii) shall not be construed as preventing a facility from requiring an individual, who has legal access to a resident’s income or resources available to pay for care in the facility, to sign a contract (without incurring personal financial liability) to provide payment from the resident’s income or resources for such care.” 42 U.S.C. §§1395i-3(c)(5)(B)(ii), 1396r(c)(5)(B)(ii); 42 C.F.R. §483.15(a)(3)