A Conversation with Marissa Espinoza ’23

Holding Nursing Homes Accountable

In her note “Shadow Nursing Home Ownership: How a Failure in Government Oversight of For-Profit Nursing Homes in New York Has Allowed Profits to Balloon and Standards of Care to Plummet,” 28 Cardozo Journal of Equal Rights and Social Justice __ (forthcoming 2022) Marissa Espinoza ’23 examines how owners of for-profit nursing homes create byzantine ownership structures that shield them from regulation, liability, and public scrutiny, increasing profits at the expense of vulnerable patients and their families.

How is nursing home ownership generally structured, and how does that drive profits to the owners?
In problematic nursing homes, critical functions, such as laundry, are outsourced to outside LLCs, which are owned by relatives or close associates. The relative’s company sets prices for the service, which is paid for by the nursing home’s LLC.

The trouble with this dynamic is that approximately 70 percent of nursing home revenue stems from Medicare and Medicaid—taxpayer-funded programs. So, these subsidiary LLCs set their prices knowing that the nursing home LLC isn’t going to challenge them.

In one nursing home I examined, relatives both ran the facility and owned the land it was built on. The nursing home held a long-term lease with an outrageously high rent, allowing the family to funnel the nursing home’s rental expenses back into their profits.

How do nursing home owners avoid laws and policies already in place to protect nursing home patients?
Public attention focuses on ensuring there is adequate staffing for nursing home residents and proper medical attention paid when patients require it. While those factors are critically important, the issue of patient care goes hand in hand with resolving how easy it is for private equity investors to siphon money from facilities, instead of increasing patient care and raising standards of living.

Nursing homes have also become savvy at adapting their accounting methods and legal structures to evade trouble. For instance, New York prevents the kinds of massive corporate nursing home structures that you see elsewhere in the country, but what you have in practice is shadow corporate nursing home networks run by the same owners—just using multiple LLCs. These owners buy up nursing home facilities and find ways to extract profit—either through exorbitant consulting or administrative fees or by directing contracts to LLCs that their relatives own. The attorney general’s report on COVID-19 and nursing homes acknowledged this problem but noted nothing in state law prevents it.

The issue of patient care goes hand in hand with resolving how easy it is for private equity investors to siphon money from facilities, instead of increasing patient care and raising standards of living.

How has the COVID-19 pandemic exacerbated the problems with for-profit nursing homes?
COVID-19, which so severely impacted large portions of the nursing home population, exacerbated long-existing problems the industry has with meeting baseline standards of care. When the pandemic hit, these facilities, some of which are run by private equity investors with no true medical expertise, were totally unprepared. Some nursing homes didn’t even have serious emergency plans in place, despite laws explicitly requiring them.

The nursing home lobby came annually to Albany requesting an increase in the Medicaid reimbursement rate due to rising costs. Yet, when you examine the cost reports, you see that nursing homes are not paying staff more, but aggressively diverting money into LLCs owned by relatives and expensive consulting contracts.

In 2021, New York state passed legislation establishing a direct care ratio, which mandates that nursing homes spend a minimum percentage of revenue on patient care. What steps can state regulators take to ensure that nursing homes comply with the new laws, both in letter and in spirit?
One step that the New York State Department of Health (DOH) can immediately take is to narrowly define what costs are allowable toward the direct care ratio requirement as costs that specifically impact residential care and preclude exorbitant administrative costs. In addition, the DOH should scrutinize costs from companies that share principals with the nursing home operator or whose principals are related to the nursing home operation.

The most troubling aspect of this new law is that it allows the DOH commissioner the exclusive authority to waive this direct care ratio requirement in nursing homes that purport to experience “exceptional circumstances.” To address this loophole, the state legislature can remove this portion of the statute or the DOH can promulgate a regulation fleshing out transparent steps the commissioner must take before waiving this requirement.

Marissa Espinoza ’23, a part-time student at the Law School, is director of communications for New York State Senator James Gaughran. As a Fulbright scholar, she developed an index to measure financial stability within Ecuador’s economy. She received her bachelor’s degree in economics from Hofstra University.