Watchdogs: Michigan nursing homes may be hiding profits as residents suffer

• Four nursing home chains may hide profits by creating affiliate companies, new report alleges
• Many of the Michigan nursing homes in those chains have faced a ‘disproportionate’ number of care complaints in recent years, the reports authors say
• Together, the chains operate 98 skilled nursing facilities, or more than 1 in 5 of Michigan’s nursing homes

Michigan’s nursing home industry may be hiding millions of dollars in profits by farming out services to their own affiliates, even as complaints about care and staffing levels increase, according to a new report by consumer watchdogs.

The report, released by the Michigan Elder Justice Initiative, a legal rights group, echoes national reports and consumer complaints in recent years about a lack of transparency over profits in the nursing home industry, particularly in the face of what authors say is “widespread substandard care, neglect, and understaffing” in those same homes.

The Michigan report focuses on four for-profit nursing home chains and their practice of making payments to “related parties,” or companies which may be owned or controlled by the nursing home operators to do business inside the facilities, such as providing meals.  The four nursing home chains, which operate more than 1 in 5 Michigan nursing homes, are Ciena Healthcare, Mission Point Healthcare Services, SKLD, and Villa Healthcare.

The Health Care Association of Michigan, the industry lobby, released a statement to Bridge calling the report “unsubstantiated and purely speculative.. 

According to the report, the chains paid themselves more than a half-billion dollars over three years — a finding the authors describe as a “clarion call for more transparency and accountability. 

While the money may have paid for services provided by the internal companies, such as food or therapy, it’s unclear how much of it may have been profit, even as residents suffer the consequences of chronically low staffing, according to the authors, who released the report during a three-hour event in Lansing Wednesday.

It’s about “millions of dollars that are moving around and going into someone's pocket, and that all this public funding is opaque,” Sarah Slocum, public policy advocate for the Michigan Elder Justice Initiative, told Bridge Michigan. “You cannot really tell exactly how much is being used for care, exactly how much is being (spent.) ”

(Editor’s note: Arnold Ventures, which is a Bridge Michigan funder, helped fund some research for the report. Arnold Ventures had no role in conceiving, writing or reporting this story.) 

The US nursing home industry relies heavily on Medicaid and Medicare, which together paid nearly $70 billion in care in 2022, according to a federal report late last year.

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Three of the four nursing home chains did not respond to repeated messages for comment. A representative for Southfield-based Ciena told Bridge Michigan by email that Ciena would not comment on the report “that is based on conjecture and speculation.”

It said its focus instead is on bargaining with SEIU Healthcare, a labor union representing some staff at five Ciena facilities to reach agreements “that provide our employees with fair and competitive wages and benefits so that our employees can continue to provide high quality care to our residents.”

“We stand by our employees, and we are proud of the care they provide every day to our residents,” the statement read.

The Health Care Association of Michigan, in a statement attributed to President and CEO Melissa Samuel, noted that reimbursements to nursing facilities are based on “rates set by the state of Michigan and the federal government.”

“Existing Medicaid and Medicare cost reporting requirements ensure the allocation of these funds are appropriate and accounted for through the audit process,” the statement read.

“These audits are conducted by the Michigan Department of Health and Human Services annually for every nursing facility in the state with a high level of scrutiny,” the statement continued. Whatever the corporate structure, “only fully-audited allowable costs are reimbursed with public funds.”

Further, it said, other health care businesses use related parties “in order to delineate brick and mortar from operations,” and related parties “create efficiencies and streamline services to seniors.”

Facing complaints

A lack of clarity in the industry’s financing is frustrating because of chronic understaffing and care conditions at nationwide nursing homes, Alison Hirschel, program director and managing attorney of the Michigan Elder Justice Initiative and co-author of the report, told a group of consumer advocates and others in Lansing Wednesday.

Each of the four chains named in the report has faced complaints against them — residents who wait for meals that have gone cold, who suffer the indignities and dangers of poor care by staff or because of understaffing, and at times live in dirty conditions with signs of rodents and insects, according to a Bridge review of some of those complaints. 

The homes in the four chains aren’t alone in facing complaints. In fact, federal inspectors cited more than 15,000 “deficiencies” at Michigan’s more than 400 nursing homes over a three-year period. 

“For years and years and years, we've had extraordinarily vulnerable people living in nursing homes where they experience neglect, substandard care, and abuse,” Hirschel told Bridge. 

“We have to solve the problem of this pervasive substandard care in not all, but in many, nursing homes across the state.”

Related parties, thin margins

By establishing related businesses, nursing homes are “padding industry profits” instead of improving quality of care, according to a 2023 report by The National Consumer Voice for Quality Long-Term Care, a consumer rights nonprofit that piloted the report.

Slocum, at the Michigan Elder Justice Initiative, is the chair of Consumer Voice’s leadership council.

It’s not a new concern. In another report, two economists who studied detailed financial reports of Illinois nursing homes last year calculated that 68% of nursing home profits nationally were hidden by “tunneling” to related parties. 

Some nursing homes are “essentially moving money from their left pocket to their right, and then showing their left pocket to the regulator and saying ‘Hey look, my pocket’s empty,” said one of the authors, Andrew Olenski, of Lehigh University’s College of Business.

The nursing home industry has long argued that their profit margins are thin, the result of “workforce shortages, increasing inflation and operational costs, and chronic government underfunding,” according to a report by the American Health Care Association and National Center for Assisted Living

“Medicaid currently fails to cover the actual cost of nursing home care, at an average of 82 cents for every dollar,” according to an issue brief by the same industry group. “This underfunding makes it difficult for nursing homes to invest in their workforce, care services, and modernization efforts.”

Since 2020, at least 774 nursing homes have closed nationally, displacing 28,421 residents, according to the group.

And each year, every nursing home must submit to the state a complicated and detailed cost report.

Certainly, businesses need a profit to continue operating, Slocum and Hirschel acknowledge. 

And both are clear: Many nursing homes offer high-quality care, and front line staff serve vulnerable populations with complex conditions in emotionally exacting situations. Moreover, profits at the corporate office may not always be passed down to local facilities.

The frustration, they said, is the lack of transparency.

It’s a matter of accountability, too, they said. The long-term care industry relies heavily on taxpayer dollars, including Medicaid, the primary source of coverage for nearly 2 of 3 nursing home residents.

Four chains, 98 homes

The four Michigan chains in the report own 98 homes in Michigan, or more than 1 in 5 of the state’s skilled nursing facilities. And each faces “a disproportionate number” of  complaints, according to the Michigan Elder Justice Initiative report.

The authors then examined three years of cost reports, identifying $544 million in expenditures to related parties, they said.

During that same time, according to the report,  the average staffing level in the chains’ nursing homes was “well below” the state average in all of Michigan’s nursing homes — was 3.53 hours per resident, per day compared to 3.99 hours per day in all nursing homes. 

The difference was even more pronounced when compared against nonprofit facilities. Staffing levels at the four chains were 38% lower than staffing levels at non-profit homes, which logged about 4.73 hours per resident, per day.

Drawing from ombudsman reports, authors list waiting times for several residents — in two instances, more than three hours after a resident hit a call light. One resident said she waits for staff that sometimes “never come.” 

“I sit here with poop on me and get no help,” the resident of a Ciena home reported. “Oftentimes we don’t even get water,” the report quoted a resident of a SKLD home saying.

‘We still don’t know where the money is going’

To be clear, the related party transactions paid for care and services, Hirschel and Slocum said. The issue is the lack of transparency in how much of those payments were profit at a time when understaffing contributes to poor care, the authors said.

“We were frustrated, because — whenever we raised those issues (related to care and staffing) — we were told there wasn't enough money” for improvements, Hirschel said.

“What the study showed us is that we still don't know where the money is going,” Hirschel said.