The Shame of our Nursing Homes
Privatized nursing homes have other, less direct ways of raiding the public treasury. Until recently, the big money for conglomerates like Beverly has been in what are considered ancillary services--drugs, diapers, ventilators, speech therapy and other supplies and care that nursing-home patients often need. Medicare billings for physical and occupational therapy, for example, rose to $7 billion in 1996--double the 1993 rate and six times the 1990 rate. Such hefty reimbursements gave Beverly and other companies an incentive to create subsidiary firms to supply ancillary services to their own nursing homes. That way, they could bill taxpayers for the retail prices they pay their subsidiaries, rather than the lower costs the companies actually incur.
"These services typically are provided by outside contractors or through wholly-owned subsidiaries of nursing home companies that focused on maximizing revenues, not pursuing cost-effective care," Beverly notes in its latest annual report. Although the company says a new Medicare plan that caps some payments has prompted it to hire its own staff therapists, it acknowledges in the report that "there has been little incentive to reduce costs or pursue operating efficiencies, even though the result is higher costs for the federal government and other payors."
"Higher costs" for taxpayers means "higher profits" for Beverly. An internal company report on rehabilitative therapy shows the company has made much larger returns on ancillary services than cost reports for individual nursing homes indicate. In the first eleven months of 1994, according to the report, Beverly made revenues of $671 million on rehabilitative therapy--yet the services cost the company only $360 million. That's an annual return of 46 percent on revenues. In 1994 Beverly cleared more than $1 million on therapy every day--and almost all of it came from taxpayers.
"It's big money, and it's hidden money," says Elma Holder, founder of the National Citizens Coalition for Nursing Home Reform. "They have a set of books that show they're losing money on one side, and yet they're making money hand over fist on the other side."
Other internal documents show similar profit rates, even in homes where Beverly claims it has been unable to make money. In Texas, for example, the chain paid $100,000 to settle claims at a home where a resident's sore foot had been ignored for forty-three days until it rotted off her leg. In another case a judge awarded $55 million to the estate of a woman who died in 1994 from an infection caused by bedsores, including a bone-deep wound the size of a grapefruit at her tailbone. In 1997, calling the regulatory environment in Texas "punitive," Beverly sold its forty-nine nursing homes in that state to a company called Complete Care Services for $143 million in cash. But what Beverly claimed was a dry well looked more like a gusher to the new owners. According to internal documents, one investor who contributed $6 million expected to make $3.5 million in cash, management fees and interest in the first year--an immediate return of nearly 58 percent.
Nursing homes can enjoy even higher returns, of course, if they simply provide no services at all in return for government subsidies. A 1996 report by the GAO on Medicare payments to nursing homes found that "fraud and abusive billing practices are frequent and widespread." The federal government, the report added, allows homes to bill Medicare without confirming that "the care or items were necessary or were delivered as claimed. As a result, the program is highly vulnerable to exploitation."
A recent government audit showed that nursing homes billed Medicare for more than $3 billion in improper claims in 1996 and 1997. Another report estimated that taxpayers may be losing 11 cents of every Medicare dollar to fraud. In one case a Georgia company was certified to bill the insurance program for therapy services even though it had no salaried therapists. A clerical employee in a storefront office simply served as a shell company that subcontracted with two uncertified providers, adding a markup of 80 percent on every bill. Another company was a "paper organization" with no staff at all, enabling its "owner" to add $170,000 in administrative costs to Medicare bills over a six-month period.