Nursing Homes and Medicare: Higher Needs Equals Higher Reimbursement
Much discussion in the health care and elder care industry lately revolves around the subject of nursing homes, private equity companies, and Medicare. More specifically, this talk involves the relationship between private equity companies potentially taking advantage of Medicare in order to turn a bigger profit after acquiring a nursing home. Although this is only one of the many negative consequences of private equity-owned nursing facilities, it’s a big one and deserves a deeper discussion.
A November 2021 study from Weill Cornell Medicine about private equity companies and nursing homes found a link between the increase in investment and an increase in hospitalizations, emergency room visits, and Medicare costs. The researchers note the “pressure to generate high, short-term profits could lead private equity-owned (PE) nursing homes to reduce staffing, services, supplies or equipment, which may have an adverse association with quality of care…such firms seek annual returns of 20 percent or more.”
One of the ways PE-owned nursing homes can secure these types of returns and profits is through Medicare reimbursement, as well as avoiding liability (more on that in a moment). The Weill Cornell study shows that PE-owned nursing homes have nearly 4% higher Medicare costs than other types of privately-owned homes and facilities.
Read: Private Equity, Nursing Homes, and Decline in Care: The Connection
More Medicare patients in the home equals more money in the pocket
A recent New Yorker article notes that cutting staff decreases costs, but increasing occupancy increases profits: “Medicare pays five hundred and eighty-five dollars per patient per day; Medicaid pays two hundred and forty-five. Neither adjusts the rate for quality, resident satisfaction, or reputation. If a nursing home can bring costs below the daily rates of Medicare and Medicaid, it can pocket the difference.”
What does this mean?
First, Medicaid pays less than Medicare regardless of the needs of the patients. For these private equity companies, it is good business sense to fill their beds with Medicare patients.
However, Medicare generally doesn’t cover long-term care in a nursing home; what it does cover is skilled nursing. Skilled nursing costs more money, which means the facility can bill more to Medicare. As such, the owners want to secure more Medicare patients with significant health needs so they can bill for much more money, while still performing drastic cost-cutting measures allows a nursing home to make a tidy profit – at the cost of abusing and neglecting their residents. The New Yorker discusses the Portopiccolo Group in particular, which purchased and rebranded the Richmond nursing home formerly called St. Joseph’s Home for the Aged in June 2021.
As the article explains, when Portopiccolo took over the beloved St. Joseph’s, “The home was renamed Karolwood Gardens, and the new management filed for a license to admit higher-needs residents, who can be billed at higher rates through Medicare.”
The logical conclusion, of course, would be that accepting higher-needs residents would mean a higher level of care, as Medicare would be providing a higher rate of reimbursement. As residents and their families soon found out, however, standard of care dropped quickly and patients suffered. Some died, and loved ones insist their relatives’ deaths were not due to natural causes. One patient, Bertha Cumber, died in her sleep after an alleged overdose of morphine. Six residents died from COVID in four months. Others suffered from falls, malnutrition, dehydration, bedsores, and other issues.
Dr. Mark Unruh, an associate professor of population health science at Weill Cornell Medicine, said, “The majority of revenue that pays for care in nursing facilities comes from public sources. After private equity acquisition, quality of care declines and Medicare spending goes up for residents, and that should be a concern for policymakers.”
Private equity firms are increasing mortality rates at nursing homes
What happened to the patients at St. Joseph during COVID was, sadly, part of a much larger pattern. Nursing homes throughout the country saw substantial increases in patient mortality for a number of reasons. But putting the pandemic aside, nursing homes that are owned by private equity firms are experienced much higher rates of mortality among their patients. Per Vox:
Researchers from Penn, NYU, and the University of Chicago studied Medicare data that covers more than 18,000 nursing home facilities, about 1,700 of which were bought by private equity from 2000 to 2017…. The researchers studied patients who stayed at a skilled nursing facility after an acute episode at a hospital, looking at deaths that fell within the 90-day period after they left the nursing home. They found that going to a private equity-owned nursing home increased mortality for patients by 10 percent against the overall average.
Or to put it another way: “This estimate implies about 20,150 Medicare lives lost due to [private equity] ownership of nursing homes during our sample period” of 12 years…. That’s more than 1,000 deaths every year, on average.
You can download their working paper, produced with the support of the National Bureau of Economic Research (NBER), for more information.
Furthermore, it is not the sickest patients who are dying. It’s the healthier ones. The reason for this, Vox explains, is that healthier patients are affected more when there are changes in management, staff, and care. A person who is terminally ill, for example, is to “have more regimented treatment that will be adhered to no matter who owns the facility,” so the mortality rates stay the same. But for healthier residents, less direct care (often the result of stuff cuts) means a greater risk of new symptoms being missed, or infections being left untreated.
It also increases the chances that remaining staff will take unnecessary risks to get their work done. The NBER study “detected a 50 percent increase in the use of antipsychotic drugs for nursing home patients under private equity” ownership. This use of chemical restraints is not only negligent; it is dangerous, “because antipsychotics are known to be associated with higher mortality in elderly people.”
How nursing homes avoid liability for their actions
The New Yorker calls this liability avoidance a “risk mitigation strategy” and notes that many PE-owned nursing homes prioritize this strategy over patient care. To wit, up until June 2021, St. Joseph’s in Richmond was owned and run by the nuns at Little Sisters of the Poor. Now, it’s nearly impossible to unpeel the layers to even find a company to hold liable for injuries and suffering caused to residents.
Before the private equity acquisition, St. Joseph’s was a nonprofit nursing home. After, Simcha Hyman (the CEO of Portopiccolo) and Naftali Zanziper (the president of Portopiccolo) formed two different companies. Per the New Yorker:
They formed one company for the home’s property (called Henrico Va PropCo L.L.C.) and another for the home’s operations (Henrico Va OpCo L.L.C.). Accordius Health was the management company. The Portopiccolo Group, at the very top, was insulated from the nursing home by at least two corporate layers. In the event of a lawsuit, the nursing home would “dissolve into this welter of different legal entities,” [attorney John] Hughes said. “It’s like a sandcastle—when you touch it, it starts to break apart.”
The most important conclusions from the Weill Cornell study are that the public needs more transparency from nursing homes – not only what happens to our local nursing homes when private equity companies take over, but also who actually owns the nursing homes and making that information public to families searching for providers.
Making a claim for damages for nursing home neglect and abuse
As you can see, negligence lawsuits against nursing homes will never be cut-and-dried; this is complex litigation, and working with an attorney can benefit you and your loved one. The Richmond-based injury lawyers of Phelan Petty not only have the skills and resources needed to take on these private equity firms; we have the experience you want when it comes to building a case to present to a jury. Whether you and your elderly loved one live in Virginia, or one of you lives out of state, we can help you. The nursing home, the private equity owner, and even its subsidiaries may all share liability for the harm your loved one suffers. Our team or trial lawyers can help you file a lawsuit for medical expenses, pain and suffering, and other applicable damages.
Nursing home abuse and neglect is shameful, and your loved ones deserve better. If you believe your family member is experiencing neglect, abuse, or negligence, you can seek redress through the civil justice system. The Phelan Petty attorneys serve clients and families in Richmond and throughout the state. To set up a free consultation, call our office at 804-980-7100, or fill out our contact form.
Related Content:
- Medical Malpractice Claims and the Matter of Intent to Harm
- We Need Staff Mandates in Our Nation’s Nursing Homes
- Nursing Home Neglect and Abuse: Learn How to Protect Your Loved Ones
Since 2004, Jonathan Petty has applied the deep knowledge and experience he gained working on the defense side of litigation to represent ordinary people injured by car accidents and truck accidents, medical malpractice, and defective products in Virginia. He has successfully tried medical malpractice and personal injury cases to verdict in courts throughout Virginia, and he has handled cases on behalf of both plaintiffs and defendants in state and federal courts across the country.