As more nursing homes close and others are bought by out-of-state private equity companies, Connecticut lawmakers want to scrutinize more closely how nursing homes are spending millions of dollars in Medicaid funds — and require that more of it be used for resident care.
Transparency is a key issue this legislative session, particularly concerning nursing homes’ annual financial reports, which are supposed to offer a detailed accounting of how every facility spends its money. Some legislators worry providers are funneling money that is supposed to go toward resident care into limited liability companies or businesses in which they own a share, and that rents and management fees are being inflated.
Gov. Ned Lamont introduced a bill that would authorize the use of forensic audits when the Department of Social Services reviews nursing homes’ annual financial reports. Forensic audits provide a deeper examination of fiscal records to highlight areas of risk or potential fraud or gather evidence that may be used in a legal proceeding.
Senate President Pro Tem Martin Looney co-sponsored a measure that would require nursing facilities to spend at least 80% of their Medicaid funds on the direct care of residents, including feeding, bathing and dressing, although that bill was amended last week to require a study of the issue. Connecticut nursing homes currently spend 51%.
And leaders of the Aging Committee plan to form a working group of financial experts to comb through nursing homes’ records and question owners about how the money is being spent.
“We need to make sure no one is profit-gouging and [that] our tax dollars are going to direct care,” Looney said. “It’s something that would really help allay some of the fears and anxiety of patients and their families as to the quality of care in our nursing homes.”
Andrea Barton-Reeves, the state’s social services commissioner, said her department’s ability to conduct audits is limited.
“Nursing homes can, under the current statute, say, ‘We don’t necessarily have to give you all of the things that you’re looking for,’” she said. “The ability to conduct a forensic audit would allow us to do a much more expansive look into finances, where we would be able to ask for records such as bank statements or a list of vendors who may have overdue payments.”
The proposals raised this year go beyond reforms legislators enacted in 2023, which require providers to submit narrative summaries of profit and loss statements going back three years, total revenue and expenditures, assets, liabilities, short- and long-term debt, and cash flows from investing and financing.
Despite those changes, “we did not go deep enough,” said Rep. Mitch Bolinsky, ranking Republican on the Aging Committee.
Bolinsky said part of this year’s effort should focus on “sharpening” previous legislation.
“Right now, we don’t have visibility into the layers. We have to figure that out,” he said. “If we take away somebody’s ability to shelter money in one way, but we don’t have the transparency and reporting to see what their next move is, they’ll just stick it into the next bucket. Forensically, there has to be reporting, and there has to be some mechanism for enforcement.”
An analysis by The Connecticut Mirror of all cost reports filed with Connecticut’s Department of Social Services for the state’s nearly 200 nursing homes in 2022 — the most recent year available — reveals that many providers collected millions of dollars in rents and administrative fees, but the documents don’t show whether those rents or fees are going toward mortgages, capital costs, salaries or elsewhere.
The analysis found that the owners of the buildings at 139 of the state’s roughly 200 nursing homes charged the operators rent. At many of those facilities, the owners of the buildings also owned the nursing home operations.
For many of them, rent is one of the largest expenses on the financial records. At some facilities, property owners set up secondary companies that collected rents from nursing home operators, ranging from a high of $8.9 million annually at the Advanced Center for Nursing & Rehabilitation in New Haven to a low of $1,833 at the Reservoir Care and Rehabilitation Center in West Hartford.
The CT Mirror also reviewed administrative fees that each provider claimed on cost reports. Records show that owners at 115 facilities, or about 70% of nursing homes, collected administrative fees, ranging from a high of $2.1 million at the Frances Warde Towers in West Haven to a low of $15,600 at Fairview in Groton.
The rents and administrative fees are reported under “related party transactions” on financial records, along with insurance payments, pension costs, pharmaceutical costs and other expenses.
But the documents give little information about what the administrative fees entail or how rents are calculated. Several legislators and industry experts say because the federal government isn’t carefully reviewing the records, that responsibility falls to the states.
Sen. Jan Hochadel, D-Meriden, co-chair of the Aging Committee, said the Centers for Medicare & Medicaid Services are collecting the data but not scrutinizing it.
“We have to take ownership,” she said. “What are other states doing? What should we be doing in Connecticut? This is going to be a continual problem, and we have to start” investigating.
But one key effort — Looney’s move to increase the percentage of Medicaid funding spent on direct care — recently got pushed off this year’s agenda.
Lawmakers and advocates said Looney’s bill, which would mandate that nursing home owners spend at least 80% of Medicaid funds on direct care, was a good next step, but leaders of the Aging Committee on Tuesday amended the measure to instead require a study of the issue, saying they needed more information.
A nine-member task force will be appointed to study whether the state should require nursing homes to spend a certain percentage of Medicaid funds on direct care and “whether to expand transparency requirements relating to how nursing facilities expend revenue and prioritize resident care,” the amended bill states.
Looney said revisiting the issue of a Medicaid spending requirement will be a top priority next year.
“What we need to do is make sure the resources are really focused on care, rather than just skimming off the top to increase the profits of the nursing home owners,” he said. “This is a step in the right direction. It’s a significant step toward passing legislation, which I hope we will do as our neighboring states already have.
“We put the issue on the radar screen. By introducing the bill this year, and there’s going to be a study, I think it should be pretty well teed up for action next year.”
The push for transparency
Matthew Barrett, president and CEO of the Connecticut Association of Health Care Facilities, which represents more than 100 for-profit nursing homes, said facility leaders already provide “a great deal” of information in their financial reports and are open to discussions about further reforms.
He disagreed with characterizations of fraudulent spending.
“We don’t agree that longstanding, legitimate health care business arrangements should always be characterized as nefarious and wrong and relate to poor quality without much more review on that claim,” Barrett said. “It’s one of the reasons we’re supporting additional studies.
“We have a long, credible history of being good collaborators and stakeholders in improving transparency in Connecticut.”
But some nursing home executives acknowledged the industry needs to do better with financial transparency.
Matthew Lew, the newly appointed CEO of Athena Health Care Systems, one of Connecticut’s largest nursing homes chains, said legislators are raising questions because the sector in general hasn’t done a good enough job of being open about its financial dealings.
“If you want to drive more talent into this industry, you’ve got to improve the reputation by taking away the stigma that it’s an entanglement of profit-seeking people who are hiding stuff,” Lew said.
Lew, whose background as a forensic accountant is in reviving struggling health care companies, was recently named the CEO of Athena, replacing Lawrence Santilli, who will remain president of the nursing home chain he started 40 years ago.
Athena’s financial troubles led Santilli in the span of a few months late in 2023 to close nursing homes in Manchester and Middletown. Nearly 120 residents were relocated.
Santilli told state officials that the company lost more than $9 million running the two nursing homes over the first eight months of the year. He did not break down the reasons for the losses in his petitions to the state Department of Social Services to close the Crestfield Rehabilitation Center or the Middlesex Health Care Center, and the agency did not ask for details — quickly approving both last October and December.
The year prior, cost reports show that while Middlesex lost nearly $4 million, Crestfield was one of the few nursing homes in the Athena chain to turn a profit that year.
A review of all 21 of Athena’s nursing home financial reports filed in 2022 show that Athena, with Santilli listed as the majority owner, paid more than $11 million in rent at its nursing homes and another $5 million in administrative fees.
In an interview at the company’s headquarters in Farmington, Santilli said he does not keep any of the rent money.
“If you list $11 million in rent, obviously you want to know where it went, and the 14 facilities that are [now] owned by Athena have mortgages held by major financial institutions that are all backed by a government agency,” Santilli said. “In our case, it’s debt service payments, whether it’s the actual loan itself, or whether it’s any replacement reserve, all that money comes in, and not $1 goes out to me.”
Santilli said part of the problem with the financial records is how the rent is reported.
“The issue with the way we report the rents is there is no way of you knowing or anybody else knowing — is this rent, or is this profit?” he said. “In other states, we file a report for the landlord, and I have no idea why Connecticut doesn’t do that.”
Santilli said his annual salary of $324,000 comes out of the administrative fees, but other than that, there are “no distributions to me or any other owner of Athena.”
The administrative fees cover information technology costs, operational fees, fees to financial experts and salaries of regional department heads, Lew said.
The nursing home industry has created a lot of its own problems because it hasn’t been as transparent as it should be, Lew said, and the idea that owners are hiding their profits has made it difficult to recruit people to work in the field.
Apple Health Care Inc., another large nursing home chain, operates 20 facilities across Connecticut. A review of the company’s 2022 financial records shows two owners — Brian Foley and Ryan Vess, Foley’s son-in-law.
Foley charged his facilities more than $7.75 million rent and $5.6 million in administrative fees in 2022, according to the records.
Apple executives declined an interview and instead answered questions by email.
“Apple’s management fees include all corporate management services necessary to facilitate the ongoing operations of our portfolio of skilled nursing homes,” Vess wrote. “These services include but are not limited to operations, clinical oversight, accounting, human resources, accounts receivable/payable, legal support, maintenance and other essential areas.”
Vess did not answer questions about the salaries of Apple’s top executives or related parties listed on their cost reports.
He noted that the state imposes caps on administrative salaries as part of its Medicaid reimbursement calculations and said Apple adheres to those caps.
Vess also said rent is capped by DSS, and any amount exceeding that is not reimbursed through Medicaid.
Stronger audits?
During a legislative hearing last week about nursing home funding, Nicole Godburn, director of reimbursement of certification for the social services department, said the state has “a fair rental value system” that caps what the state will reimburse for rent.
More than 70% of nursing home care in Connecticut is covered by Medicaid. But the facilities also receive money through Medicare, insurance and private pay.
“They can go ahead and report whatever they want to report for rent … but we’re not going to pay that. We’re instead going to pay the calculation of fair rent as it reads in our regulations,” she said. “So they can ask for $5 million in rent. That doesn’t mean we’re going to pay that, because we have a fair rental value system in place.”
Providers must submit financial records to the state in February. Godburn said her staff reviews them before posting them online.
“Every single cost report goes through what’s known as a desk review process, and it’s what I consider an audit-lite,” Godburn said. “We’re going through all the cost reports and just doing a glance and seeing if there’s anything that pops out to us, seeing if there’s a page that was not filled out correctly.”
The reports are then sent to the department’s Quality Assurance Division, which handles full-scale audits to ensure the nursing homes are using Medicaid funds properly.
“Some states don’t have this extensive of an audit process,” Godburn said. “We have a very extensive audit process where we’ll catch if things are happening.”
The department audits about 60 nursing homes’ financial records a year, meaning a facility will be audited roughly once every three or four years.
But advocates say the audits don’t do enough to show how money is being spent and that Lamont’s proposal for forensic auditing should be supported.
“Many nursing homes operate under complicated ownership structures that limit financial transparency and make it difficult to understand how facilities are spending billions of dollars in state and federal taxpayer money each year,” said Anna Doroghazi, government affairs director for AARP. “Nearly 75% of nursing homes regularly use related-party transactions to provide services such as property management, nursing and therapy services, consulting, and pharmacy services.
“‘Related parties’ are businesses owned by the nursing home owner or someone close to the owner that provide goods or services to the facility. Because of related party transactions, a nursing home may appear to operate at a loss while its owner is enjoying profits from one or more of the related companies that transact with the facility.”
“We will not be able to improve the quality of care in nursing homes until we first address the financial practices that some nursing home owners use to divert money from patient care in order to make their facilities more profitable,” Doroghazi said. “Giving the Department of Social Services the option of ordering a forensic audit provides the state with an additional tool to use in its pursuit of financial transparency and fiscal accountability.”
Nursing home leaders said they do not oppose the idea of forensic audits, but the language in the bill is too broad.
“A more specific agency finding should be required initially before a costly forensic audit is initiated,” Barrett said, adding: “As drafted, the facility may have to bear the substantial costs of a forensic audit that is unilaterally directed by the agency without any input or recourse from the provider.”
Less direct care spending than some other states
Lawmakers and advocates raised concerns about Connecticut’s current spending on direct care. Looney noted the amount is far less than what some nearby states require.
In New York, providers must spend 70% of their overall revenue on direct care. New Jersey’s law requires its nursing homes to spend at least 90% of revenue on patient care, and Massachusetts issued rules requiring nursing home facilities to spend at least 75% of revenue on resident care.
AARP officials said at least six states — Illinois, Pennsylvania, Massachusetts, California, New Jersey and New York — have set requirements for the minimum percentage of nursing home payments that must be spent on direct care, with varying percentages at or higher than 70%.
Nursing facility leaders opposed Connecticut’s bill, saying that spending 80% on direct care would not leave enough money for other expenses.
“We recognize the concerns which led to this proposal, however, we believe it will lead to unintended operational challenges which do not acknowledge the realities of nursing home care and services,” said Mag Morelli, president of LeadingAge Connecticut.
But Looney said he is skeptical about what providers report.
“The only way to stop any bad actors is to set a requirement of where they spend our Medicaid dollars, and I would suggest expanding it to the other revenue streams as well so that people know money is going to quality care of their loved ones,” he said.
Sam Brooks, director of public policy for National Consumer Voice, a long-term care advocacy organization, said there are areas aside from rent and administrative fees where providers don’t fully report if they are involved. Nationally, providers can have a hand in anything from laundry services to employment companies, where they are part owners of a company that they pay for those services, he said.
That is the case with Athena and Santilli, who for many years was part-owner of a pharmacy based in Long Island, according to state records.
Santilli reported owning at least a 50% share of a pharmaceutical company called Procare LTC that is registered to do business in Farmingdale, N.Y., according to 2022 cost reports filed by Athena for several of its nursing home.
But when asked about that number, Santilli and Michael Mosier, the company’s chief financial officer, said Santilli currently only owns less than 3% of the pharmaceutical supplier and hasn’t received a dividend from it for years.
Procare is the only provider of drugs to all 19 of Athena’s nursing homes, and Athena paid the company more than $10 million in 2022, records show.
During that time, several vendors filed lawsuits against Athena alleging they weren’t being paid. Last November, Santilli sent a memo to staff acknowledging the company was at least six months behind in funding employee health care claims.
The nonpayment of benefits left some of the company’s 2,500 employees with medical debt and forced others to cancel medical procedures or doctor visits due to unpaid bills, employees have told the CT Mirror.
Santilli also has fallen behind on his taxes owed to several municipalities where Athena’s facilities are located — records show they owe more than $750,000 in overdue municipal taxes.
Lew said Athena is working through its financial issues and is exploring all options. Funding the employees’ health claims is a top priority, he said.
“It’s a big issue we’re trying to work through right now,” Lew said. “But what we can say is that a lot of the things that are being reported as ‘sort of profits’ into people’s pockets are not understood at the level we wanted to provide.”
Mom and pops
Brooks said one area that needs to be explored in more detail is what happens to quality of care if large sums of money are going toward related party expenses and not direct care.
He estimated that about 75% of for-profit nursing homes in the United States use related party transactions “to hide the profits they are making.”
“It also allows them to at least give the illusion that their facilities are losing money, because all these transactions show up as expenses on these reports,” Brooks said.
At a national level, Brooks said the less money that goes to direct care, the more likely a nursing home is to have catastrophic events.
“Many times, when we see low-quality care, low staffing — if you look at their cost reports, money is being diverted away into management fees, home office costs and capital costs,” he said.
Mairead Painter, Connecticut’s long-term care ombudsman, said her staff hasn’t had the time to study whether there is a correlation between direct care spending and quality of care.
“But one thing I can say is the smaller mom and pops — where you have less overhead and more of the investment right in the building — that’s where we see better quality of care, because the owners are there,” she said. “There’s less overhead, and more of the money goes right to the care and services of the residents, and we see higher staffing levels.”
Care in Connecticut’s nursing facilities has been in the spotlight over the past year.
Serious violations known as immediate jeopardy orders — findings that indicate violations in a nursing home caused or were likely to cause harm or death to residents — were on the rise in 2023. An analysis of 93 immediate jeopardy findings issued by the state’s public health department since January 2018 reveals that cases also appear to have become more egregious. In 2018, for example, none of the immediate jeopardy cases involved deaths, and six facilities were cited for failing to properly clean glucometers. By 2022 and 2023, homes were cited for resident drug overdoses, renovation work that led to asbestos exposure, understaffing that caused neglect, and the alleged sexual assault of a patient by an employee.
Missing ‘wander guard’
One of those immediate jeopardy orders was issued against the Advanced Center for Nursing & Rehabilitation when a patient walked out of the building and was missing for 12 hours.
Nurses told DPH investigators they didn’t have enough “wander guard bracelets” — electronic devices that warn staff when someone leaves the property — for all of the residents.
The immediate jeopardy report said the resident had tried to leave the building at least three times prior to the incident on May 19, 2023. A nurse told DPH investigators that on one of the earlier occasions, they went to find a wander guard but none were available. Another nurse said the facility needed to purchase more wander guards.
On May 19 at 1:02 a.m., staff members were unable to locate the resident within the facility. Employees conducted a search in and around the community until the resident was found and brought them back around 1:30 p.m., records show. The report does not indicate where the resident was found, only that it was about a mile from the facility.
The nursing home is one of six owned by Essential Healthcare, whose CEO is Manajem Salamon, according to state records. Overall, Essential Healthcare collected more than $13 million in rent across its facilities in 2022, according to financial reports.
Salamon said most of the money that comes in for rent at Advanced Center for Nursing & Rehabilitation has gone into upgrading the building, which is one of the largest in the state. He said the renovations make it “one of the best facilities in the state.”
A closer look at finances
Leaders of the Aging Committee plan to form a working group this year with financial experts who can closely review nursing home financial reports and question owners on how money is being spent.
“Most of their funding comes from public money, and we should be getting more transparency,” said Rep. Jane Garibay, D-Windsor, co-chair of the committee. “All we hear is that the nursing homes need more to operate, yet they are making profits.”
Brooks said more states need to do what the Centers for Medicare & Medicaid Services haven’t — take a closer look at what is and is not listed in the financial records.
“States need to pick up the slack where the federal government fails, because this is costing them. The cost to states for these types of practices is just immense, not just in increased funding, but also in what it costs to treat folks who are harmed and what it costs when a facility closes down,” he said. “States could require increased disclosure through their own cost reports. They could require that owners show where the money is.”
One thing states should consider is auditing — or more frequent auditing — of nursing home finances, he said.
“We don’t submit fraudulent tax returns, because we know we might get audited. The IRS doesn’t audit everybody, but they audit some people, and that helps people self-police,” Brooks said.
Garibay said the working group will also make recommendations on how the legislature can sharpen its requirements for financial disclosures.
“We want to uncover what’s really happening,” she said. “Some things are secretive and hidden; it’s hard to find out who owns what part in some of these. Someone could have their husband on the payroll, for example, and he shows up one day a week for three hours, but he’s making $200,000 a year. You wouldn’t know.
“This is public money we’re putting into our nursing homes. They have to be transparent. This issue is not going away.”
This story was originally published by The Connecticut Mirror March 17, 2024.