MEMPHIS, Tenn. — When one of Martha Jane Pierce’s sons peeled back the white sock that had been covering his 82-year-old mother’s right foot for a month, he discovered rotting flesh.
“It looked like a piece of black charcoal” and smelled “like death,” her daughter Cindy Hatfield later testified. After Pierce, a patient at a Memphis nursing home, was transferred to a hospital, a surgeon had to amputate much of her leg.
One explanation for Pierce’s lackluster care, according to financial records and testimony in a lawsuit brought by the Pierce family, is that her nursing home, Allenbrooke Nursing and Rehabilitation Center, appeared to be severely underfunded at the time, with a $2 million deficit on its books in 2009 and a scarcity of nurses and aides. “Sometimes we’d be short of diapers, sheets, linens,” one nurse testified.
That same year, $2.8 million of the facility’s $12 million in operating expenses went to a constellation of corporations controlled by two Long Island accountants who, court records show, owned Allenbrooke and 32 other nursing homes. The homes paid the men’s other companies to provide physical therapy, management, drugs and other services, from which the owners reaped profits, according to court records.
In what has become an increasingly common business arrangement, owners of nursing homes outsource a wide variety of goods and services to companies in which they have a financial interest or that they control. Nearly three-quarters of nursing homes in the United States — more than 11,000 — have such business dealings, known as related party transactions, according to an analysis of nursing home financial records by Kaiser Health News. Some homes even contract out basic functions like management or rent their own building from a sister corporation, saying it is simply an efficient way of running their businesses and can help minimize taxes.
But these arrangements offer another advantage: Owners can establish highly favorable contracts in which their nursing homes pay more than they might in a competitive market. Owners then siphon off higher profits, which are not recorded on the nursing home’s accounts.
The two Long Island men, Donald Denz and Norbert Bennett, and their families’ trusts collected distributions totaling $40 million from their chain’s $145 million in revenue over eight years — a 28 percent margin, according to the judge’s findings of fact. In 2014 alone, Denz earned $13 million and Bennett made $12 million, principally from their nursing home companies, according to personal income tax filings presented in court.
Martha Jane Pierce and husband Billie Mac Pierce Sr. lived at the same Memphis nursing home during his final years. While there, Martha Jane had her leg amputated after an infection went untreated for weeks. Her family spent seven years trying to hold the home’s owners responsible. (Courtesy of Cindy Hatfield)
Allenbrooke Nursing and Rehabilitation Center in Memphis, Tenn., was understaffed and ran at a deficit at the same time its owners were earning millions of dollars from their chain of nursing homes. (Jordan Rau/Kaiser Health News)
Typical nursing home profits are “in the 3 to 4 percent range,” said Bill Ulrich, a nursing home financial consultant.
In 2015, nursing homes paid related companies $11 billion, a tenth of their spending, according to financial disclosures the homes submitted to Medicare.
In California, the state auditor is examining related party transactions at another nursing home chain, Brius Healthcare Services. Rental prices to the chain’s real estate entities were a third higher than rates paid by other for-profit nursing homes in the same counties, according to an analysis by the National Union of Healthcare Workers.
Such corporate webs bring owners a legal benefit, too: When a nursing home is sued, injured residents and their families have a much harder time collecting money from the related companies — the ones with the full coffers.
After the Pierce family won an initial verdict against the nursing home, Denz and Bennett appealed, and their lawyer, Craig Conley, said they would not discuss details of the case or their business while the appeal was pending.
“For more than a decade, Allenbrooke’s caregivers have promoted the health, safety and welfare of their residents,” Conley wrote in an email.
Dr. Michael Wasserman, the head of the management company for the Brius nursing homes, called corporate structures a “nonissue” and said, “What matters at the end of the day is what the care being delivered is about.”
Networks of jointly owned limited liability corporations are fully legal and used widely by other businesses, such as restaurants and retailers. Nonprofit nursing homes sometimes use them as well. Owners can have more control over operations — and better allocate resources — if they own all the companies. In many cases, industry consultants say, a commonly owned company will charge a nursing home lower fees than an independent contractor might, leaving the chain with more resources.
“You don’t want to pay for someone else to make money off of you,” Ulrich said. “You want to retain that within your organization.”
But a Kaiser Health News analysis of federal inspection and quality records reveals that nursing homes that outsource to related organizations tend to have significant shortcomings: They have fewer nurses and aides per patient, they have higher rates of patient injuries and unsafe practices, and they are the subject of complaints almost twice as often as independent homes.
“Almost every single one of these chains is doing the same thing,” said Charlene Harrington, a professor emeritus of the School of Nursing at the University of California-San Francisco. “They’re just pulling money away from staffing.”
Early Signs Of Trouble
Martha Jane Pierce moved to Allenbrooke in 2008 in the early stages of dementia. According to testimony in the family’s lawsuit, her children often discovered her unwashed when they visited, with an uneaten, cold meal sitting beside her bed. Hatfield said in court that she had frequently found her mother’s bed soaked in urine. The front desk was sometimes vacant, her brother Glenn Pierce testified.
“If you went in on the weekend, you’d be lucky to find one nurse there,” he said in an interview.
After a stroke, Pierce became partly paralyzed and nonverbal, but the nursing home did not increase the attention she received, said Carey Acerra, one of Pierce’s lawyers. When Pierce’s children visited, they rarely saw aides reposition her in bed every two hours, the standard practice to prevent bedsores.
“Not having enough staffing, we can’t — we weren’t actually able to go and do that,” one nurse, Cheryl Gatlin-Andrews, testified in a deposition.
Kaiser Health News’s analysis of federal inspection, staffing and financial records nationwide found shortcomings at other homes with similar corporate structures:
- Homes that did business with sister companies employed, on average, 8 percent fewer nurses and aides.
- As a group, these homes were 9 percent more likely to have hurt residents or put them in immediate jeopardy of harm, and amassed 53 validated complaints for every 1,000 beds, compared with the 32 per 1,000 that inspectors found credible at independent homes.
- Homes with related companies were fined 22 percent more often for serious health violations than were independent homes, and penalties averaged $24,441 — 7 percent higher.
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For-profit nursing homes employ these related corporations more frequently than nonprofits do, and have fared worse than independent for-profit homes in fines, complaints and staffing, the analysis found. Their fines averaged $25,345, which was 10 percent higher than fines for independent for-profits, and the homes received 24 percent more substantiated complaints from residents. Overall staffing was 4 percent lower than at independent for-profits.
Ernest Tosh, a plaintiffs’ lawyer in Texas who helps other lawyers untangle nursing company finances, said owners often exerted control by setting tight budgets that restricted the number of nurses the homes could employ. Meanwhile, “money is siphoned out to these related parties,” he said. “The cash flow gets really obscured through the related party transactions.”
The American Health Care Association, which represents nursing homes, disputed any link between related businesses and poor care. “Our members strive to provide quality care at an affordable cost to every resident,” the group said in a statement. “There will always be examples of exceptions, but those few do not represent the majority of our profession.”
‘Piercing The Corporate Veil’
The model of placing nursing homes and related businesses in separate limited liability corporations and partnerships has gained popularity as the industry has consolidated through purchases by publicly traded companies, private investors and private equity firms. A 2003 article in the Journal of Health Law encouraged owners to separate their nursing home business into detached entities to protect themselves if the government tried to recoup overpayments or if juries levied large negligence judgments.
“Holding the real estate in a separate real-property entity that leases the nursing home to the operating entity protects the assets by making the real estate unavailable for collection by judgment creditors of the operating entity,” the authors wrote. Such restructuring, they added, was probably not worth it just for “administrative simplicity.”
In 2009, Harvard Medical School researchers found the practice had flourished among nursing homes in Texas, which they studied because of the availability of state data. Owners had also inserted additional corporations between them and their nursing homes, with many separated by three layers.
To bring related companies into a lawsuit, attorneys must persuade judges that all the companies were essentially acting as one entity and that the nursing home could not make its own decisions. Often that requires getting access to internal company documents and emails. Even harder is holding owners personally responsible for the actions of a corporation — known as “piercing the corporate veil.”
At a 2012 Nashville conference for executives in the long-term health care industry, a presentation slide from nursing home attorneys titled “Pros of Complex Corporate Structure” stated: “Many plaintiffs’ attorneys will never conduct corporate structure discovery because it’s too expensive and time consuming.” The presentation noted another advantage: “Financial statement in punitive damages phase shows less income and assets.”
A lawyer in Alabama, Barry Walker, is still fighting an 11-year-old case against another nursing home then owned by Denz and Bennett, according to court records. Walker traced the ownership of Fairfield Nursing and Rehabilitation Center back to the men, but he said the judge had allowed him to introduce the ownership information only after the Alabama Supreme Court ordered him. That trial ended with a hung jury, and Walker said a subsequent judge had not let him present all the information to two other juries, and he dropped the men from the lawsuit. The home closed a few years ago but the case is still ongoing despite two mistrials.
“The former trial judge and the current trial judge quite frankly don’t seem to understand piercing the corporate veil,” he said. “My firm invested more in the case than we can ever hope to recover. Sometimes it’s a matter of principle.”
The complexity of the ownership in Pierce’s case was a major reason it took six years to get to a trial, said Ken Connor, one of the lawyers for her family. “It requires a lot of digging to unearth what’s really going on,” he said. “Most lawyers can’t afford to do that.”
The research paid off in a rare result: In 2016, the jury issued a $30 million verdict for negligence, of which Denz and Bennett were personally liable for $20 million. The men’s own tax returns bolstered the case against them. They claimed during trial they delegated daily responsibilities for residents to the home’s administrators, but they reported on their tax returns that they “actively” participated in the management. The jury did not find the nursing home responsible for her death later in 2009.
The fight is not over. Denz and Bennett are appealing the verdict, the damages, their inclusion and the trial judge’s decisions. They argue that Tennessee courts should not have jurisdiction over them since they spent little time in the state and neither was involved in the daily operations of the home or in setting staffing levels. Their lawyers said jurors should never have heard from nurses who hadn’t cared directly for Pierce.
“No way did I oversee resident care issues,” Bennett testified in a deposition.
Deficient In The End
Whoever was responsible for Pierce’s care, her family had no doubt it was inadequate. Her son Bill Pierce was so horrified when he finally saw the wound on his mother’s foot, he immediately insisted that she go to the hospital.
“The surgeon said he had never seen anything like it,” Hatfield said in an interview. “He amputated 60 percent of the leg, above the knee.”
After her amputation, Pierce returned to the nursing home because her family did not want to separate her from her husband, who was also there.
At the trial, the nursing home’s lawyers argued that Pierce’s leg had deteriorated not because of the infection but because her blood vessels had become damaged from a decline in circulation. The jury was unpersuaded after nurses and aides testified about how Allenbrooke would add staffing for state inspections while the rest of the time their pleas for more support went unheeded.
Workers also testified that supervisors had told them to fill in blanks in medical records regardless of accuracy. One example: Allenbrooke’s records indicated that Pierce had eaten a full meal the day after she died.
Data journalist Elizabeth Lucas contributed to this report.
The federal government Thursday lowered a year’s worth of Medicare payments to 751 hospitals to penalize them for having the highest rates of patient injuries.
More than half also were punished last year through the penalty, which was created by the Affordable Care Act and began four years ago. The program is designed as a financial incentive for hospitals to avoid infections and other mishaps, such as blood clots and bed sores.
The penalties again fell heavily on teaching hospitals, although less than before. A third of them were punished this year, a Kaiser Health News analysis of the penalties found. Last year the penalty was levied on nearly half of the nation’s teaching hospitals.
The 115 penalized academic medical centers this year include Denver Health Medical Center, Grady Memorial Hospital in Atlanta, The Mount Sinai Hospital in New York City, Northwestern Memorial Hospital in Chicago, Stanford Health Care hospitals in California and the University of California, San Francisco Medical Center, according to federal records.
“Academic medical centers serve patients with more-complex conditions who are at greater risk of hospital-acquired infections (HAIs) compared to community health care providers,” Stanford Health Care said in a written statement. “Hospitals with a high rate of immunocompromised patients will always seem to have higher HAIs.”
Hospitals that treat large proportions of low-income people also were fined more than hospitals with a more affluent patient base, the analysis found. About a third of those safety net hospitals were penalized, roughly the same as last year.
The penalties have been controversial from the beginning. The hospital industry faults them as unfairly punishing hospitals that treat sicker patients and those that do a better job of identifying infections and other patient complications. Patient advocates say that while not perfect, the penalties have been a valuable prod to make hospital executives consider more than the bottom line.
“The program has been very instrumental in focusing hospitals on the problems of patient safety and improved quality,” said Dr. Kevin Kavanagh, board chairman of Health Watch USA, a patient advocacy group. However, he said, the financial uncertainty created by the Republican efforts to revoke the Affordable Care Act has not helped.
“Right now it’s hard for hospitals to improve patient safety when there’s been so much turmoil in the health care market,” he said, adding, “The hospitals have the tools and knowledge to make it better, and they should do so.”
Dr. Atul Grover, executive vice president at the Association of American Medical Colleges, said that while teaching hospitals as a group fared better than last year, “we are still disproportionately affected.”
There were 336 hospitals that lost money a year ago but were spared this time, the analysis showed. They include Barnes Jewish Hospital in St. Louis, Brigham and Women’s Hospital in Boston, Cedars-Sinai Medical Center in Los Angeles, the Cleveland Clinic, Geisinger Medical Center in Danville, Penn., Hospital of the University of Pennsylvania in Philadelphia, Intermountain Medical Center in Murray, Utah, and the University of Michigan Health System in Ann Arbor.
Medicare penalized 425 hospitals that it also had punished last year. For all the penalized hospitals, the reductions will retroactively apply to Medicare payments from the beginning of the federal fiscal year in October and through the end of September 2018. Medicare will cut by 1 percent its payments for each patient’s stay as well as the amount of money hospitals get to teach medical residents and to care for low-income people. The total amount for each hospital depends on how much they end up billing Medicare.
The factors considered in the Hospital-Acquired Condition Reduction Program include rates of infections from hysterectomies, colon surgeries, urinary tract catheters and central line tubes inserted into veins. It also encompasses rates of methicillin-resistant Staphylococcus aureus, or MRSA, and Clostridium difficile, known as C-diff. Medicare also takes into account the frequency of 10 types of in-hospital injuries, including bed sores, hip fractures, blood clots, sepsis and post-surgical wound ruptures. Together, these kinds of potentially avoidable events are known as hospital-acquired conditions, or HACs.
While the Centers for Medicaid & Medicaid Services had tweaked its methods for assessing payments, the hospital industry remained displeased with the core design of the penalty. Congress decreed that Medicare penalize the worst performing quarter of general hospitals each year, guaranteeing that more than about 750 hospitals lose money every year even if they had improved their safety records.
In some cases, the difference between penalized hospitals and those that escaped punishment was negligible, said Nancy Foster, vice president for quality and patient safety at the American Hospital Association. “It’s a ‘HACidental’ payment policy,” she said. “It’s frustrating that you know that many hospitals end up getting a significant penalty when their performance is not different from other hospitals.”
Several types of hospitals are excluded from being considered for penalties. They include hospitals that treat psychiatric patients, veterans or children. Also exempted are hospitals with the “critical access” designation for being the only provider in an area. Maryland hospitals are excluded from the program because Medicare has a separate method of paying them.
The ongoing uncertainty about congressional changes to the health law — and their impact on insurance and the online marketplaces — continues to raise questions among consumers. Here are answers to recent queries.
Q: Does the GOP tax bill affect health savings accounts?
At this time, there are no changes aimed specifically at HSAs. These are savings accounts linked to high-deductible plans and exempt from tax liability.
Congressional Republicans have been very interested in expanding the use of these tax-free accounts, and bills to repeal and replace the Affordable Care Act last summer included provisions to increase the maximum amount people could contribute to them or to allow people to use them to pay their health insurance premiums, among other things. The GOP promotes the plans as a way to help consumers play a larger role in controlling their health spending and says that the tax advantages help people afford care.
The GOP tax legislation doesn’t incorporate any of those changes, said Roy Ramthun, president of HSA Consulting Services.
Some analysts say it’s still possible that HSA changes could be attached to other pieces of legislation, such as a spending bill or a bill to extend the Children’s Health Insurance Program.
“The GOP would like to get some of these HSA expansion provisions into one of these bills,” said Dorian Smith, a partner at human resources consultant Mercer.
Q: Republicans are seeking to repeal the individual mandate as part of the tax bill. Would that go into effect next year?
Probably not. The joint bill that House and Senate negotiators have agreed to doesn’t repeal the ACA’s requirement that most people have health insurance, called the individual mandate. But it does repeal the penalty for not having coverage. That change wouldn’t take effect until 2019, however.
So, assuming the bill is enacted, most people will face a penalty if they don’t have health insurance next year of the greater of 2.5 percent of household income or $695 per adult.
Many people, however, qualify for one of several exemptions to the mandate. Those include people who have suffered a hardship like eviction or bankruptcy and those whose earnings are low enough that health insurance is considered unaffordable.
In 2017, health insurance is considered unaffordable if the cheapest comprehensive coverage you can find would cost more than 8.16 percent of your household income.
“Because premiums have gone up so high in 2017 and 2018, there will be more people who qualify for the affordability exemption,” said Timothy Jost, an emeritus professor of law at Washington and Lee University in Virginia who is an expert on health law.
If you’re pondering whether to “go bare” next year, it’s worth noting that the Internal Revenue Service won’t accept electronically filed returns unless you indicate whether you had coverage, an exemption or will pay the penalty.
Q: None of the marketplace plans in my area offer out-of-state coverage or any coverage for non-network providers. Why would an insurer limit what’s offered in that way?
Plans with broad provider networks have been steadily shrinking. Nearly three-quarters of plans sold on the ACA’s marketplaces in 2018 have restrictive networks, according to an analysis by the consulting firm Avalere Health. The percentage of such plans has steadily increased since 2015, when it was 54 percent, the analysis found.
Health maintenance organization (HMO) plans and exclusive provider organization (EPO) plans were categorized as restrictive because they typically have relatively fewer providers and don’t provide coverage for out-of-network care. Preferred provider organization (PPO) and point-of-service plans, on the other hand, were considered less restrictive because they generally have broader networks of providers and offer some out-of-network coverage.
The reason plans with restrictive networks are proliferating is because they help reduce costs, said Chris Sloan, a senior manager at Avalere.
“One of the ways to do that is to have a narrower network,” he said.
But there may be an upside for consumers. “It’s not just reducing costs for the sake of costs, it’s also to slow the premium growth,” he said.
In the American health care debate, “single-payer” is hardly a new concept.
The idea has grabbed headlines and sparked countless political and policy discussions, not to mention campaign advertisements. Other countries with single-payer systems include South Korea and Taiwan. But “single-payer” merely means that the government pays all the bills. The mechanics can vary from country to country.
Sen. Bernie Sanders (I-Vt.) recently visited Canada, touting that system’s benefits. How much do you really know about it?
Take KHN’s interactive challenge to test your understanding.
ANSWER: FALSE. The Commonwealth Fund, an American nonprofit, ranks Canada’s system above America’s — but it fares poorly compared with some others, placing ninth out of 11 Western systems. (The United States is in last place.) The Commonwealth Fund used metrics such as equity, access to health care and outcomes in its rankings.
“It’s unclear to me that the Canadian model is necessarily the solution the United States wants. And I think there may be other models that can be considered,” said Dr. Peter Cram, an internal medicine doctor and health care researcher who recently moved from Iowa to Toronto. “The narrow focus on the Canadian system — it shortchanges the array of options.”
ANSWER: FALSE. For hospitals and doctors, Canadian patients won’t pay a dollar out-of-pocket. But Canada doesn’t cover dental and vision care, prescription medications, psychotherapists and physical therapy. About two-thirds of Canadians get private insurance to supplement Canadian “Medicare,” as it’s known, which accounts for about 70 percent of Canada’s health spending.
“I’ve had patients who could not afford their diabetic medications, so they would become acutely unwell,” said Dr. Ali Damji, a family medicine resident in Toronto. “They would become sick enough to go to the hospital, and [then] we would pay for the treatment.”
That being said, Canada does have price controls for medications. So, compared to the United States, prescription drugs tend to be far cheaper.
ANSWER: TRUE. The Canadian Institute for Health Information estimates that in 2017 the country will have spent about 11.5 percent of its gross domestic product on health care. The United States, by contrast, spends about 18 percent. And life expectancy up north is greater, according to the World Health Organization. This constitutes one of Sen. Bernie Sanders’ favorite talking points. But Canadian officials still want to bring down the nation’s health care spending, especially as the population ages.
“We are seeing increased costs,” said Ontario Premier Kathleen Wynne, whose administration is testing new programs to address health spending.
ANSWER: FALSE. On the 2016 campaign trail, then-candidate Donald Trump said, “When they need a big operation, when something happens, they come into the United States in many cases, because their system is so slow.” This doesn’t appear to be the case.
No evidence suggests Canadians are fleeing en masse for treatment in the United States. A recent report suggesting this has come under scrutiny, with experts raising serious methodology concerns.
There are certainly circumstances when the Canadian government will transport a patient out of the country for care that is not available — or unavailable in a timely manner — in Canada. When this happens, it is covered by Canadian Medicare.
ANSWER: FALSE. Wait times in Canada are typically longer for non-emergency, specialty procedures — think knee surgeries, diagnostic MRIs or cataract surgery. But emergency care is prioritized and usually placed at the front of the line. In fact, research suggests that when Canadians are sick most experience wait times comparable to those of their American neighbors.
“That’s one falsehood: that there’s these ridiculous wait times,” said Nate Kreiswirth, a dual citizen who lives in Toronto. “If you actually have something that’s a serious condition, or something that is urgent, you’re not going to wait. You are not going to die because you’re waiting.”
Comparing Canadian and U.S. wait times is difficult and an often-politicized discussion, Cram noted. The United States also doesn’t track wait times as rigorously as its northern neighbor — especially for people who can’t afford medical care — so it’s difficult to truly compare.
ANSWER: TRUE. Everyone is equal under the eyes of Canadian Medicare. It’s illegal to buy private insurance that competes with the government’s, so wealthier Canadians can’t buy their way ahead of the queue. (In other countries with universal health care, such as Germany and Great Britain, people can opt out of national systems and buy privately.)
Of course, theory and practice aren’t in perfect sync. Research suggests low-income Canadians may have more difficulty getting timely primary care, even though the single-payer system doesn’t give doctors a reason to prefer wealthier patients. It’s unclear how widespread this is. But, says Dr. Irfan Dhalla, a Toronto-based health quality researcher and general internist, insurance alone can’t fix that.
“Humans are humans and there are always — in any system — humans with discriminatory attitudes toward indigenous people, or people who are low-income,” Dhalla said.
ANSWER: FALSE. Primary care doctors work for themselves, but their fees are negotiated and paid by the government.
There was a serious exodus of Canadian doctors in the 1990s, but that has since reversed. In the mid-2000s, more Canadian doctors were returning from the United States than leaving. At this point, research suggests, southern migration is negligible.
And 2014 data from the Canadian Medical Association suggests that more doctors may be moving the other way, leaving the United States to practice in Canada, to avoid headaches like insurance paperwork and claims processing necessary south of the border.
ANSWER: FALSE. Canada spends far less on health care than does the United States, but it too is grappling with the climbing cost of medical treatment. Health care accounts for almost 40 percent of provincial budgets.
“The government gives provincial governments a bunch of money, and they pay the doctors and say, ‘As long as people aren’t dying, and voters are happy, we’re OK,’” said Dr. Kaveh Shojania, a Toronto-based internist who researches patient safety and health care quality. “Now they’re starting to realize there’s more that needs to be done.”
Meanwhile, left-leaning advocates are pushing to expand the single-payer system so that Canada also covers prescription drugs.
Since 2015, opinions about the federal government’s handling of several major issues have become less positive and much more partisan.
Minnesota successfully reduced the rate of diabetes-related hospitalizations by 22 percent between 2006 and 2014.
Hundreds of children in greater Minnesota have a better chance at health in 2018 and beyond thanks to a new series of grants from the Minnesota Department of Health (MDH).
While the future of the Affordable Care Act is in question, the American public increasingly thinks the law has had a positive impact on the country.
America’s confidence in the scientific community appears to be relatively strong. But the degree of public trust in scientists across climate, food and medical issues varies, and many express moderate rather than strongly positive views.
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