by James C. Sherlock

“This nursing home information is confusing, mindbending, and scary.  Please draw us a picture to clarify.” Well, readers are right. It is all three of those things. It is meant to be so by some people in the system.

Virginia has some excellent nursing homes and chains, but those are not the subject of this article.  

I offer below a chart of a fictional 12-facility chain whose structure permits bad things to happen, often by design. It shows a commercial real estate structure on which some nursing home chains are modeled. Indeed, many of them have been founded by people with their roots in real estate, partnered with others licensed as nursing home administrators and with an accountant. The structure was designed by the real estate industry to generate fees and to protect assets in court.  

It is used by the worst of nursing home chain owners to bleed money from the operating companies, leaving little for staffing, building repairs, and other necessities. Annual profits have been seen to exceed 20%. That beats anything else in real estate.

First, the big picture, and then the explanation.

The top level of management is real, meaning those are real people. Each chain has a CFO, a real estate guy, and an operations guy. Many have a separate consulting LLC that can be real or virtual. Each LLC on the chart is typically owned by the same people, hidden behind LLC constructs.  

The “can be virtual” boxes mean these functions, if executed at all, can be done from the chain headquarters. They may be nothing more than charge numbers on the timecards of headquarters personnel.

Other notes:

• The legal business name of each nursing home is that of its operating company LLC.
• Each operating company LLC and real estate (RE) LLC is registered first in Delaware and then in the state in which the nursing home operates. That takes advantage of Delaware’s very LLC-friendly laws and Chancery courts. In corporation commission records of other states, the operating and real estate LLCs are recorded as “foreign” entities. The upper echelon LLCs are generally registered in Delaware only.
• The name consumers see on the sign outside is called the Provider Name in government records.
• Each LLC, whether virtual or real, receives fees paid by the operating LLCs from cash flows. The bulk of the cash flow comes from Medicare and Medicaid funds.
• The real estate (RE) LLCs, often virtual, receive rents from the operating LLCs.
• The tenant LLCs manage and receive rents from other tenants on the properties. Tenants can include other LLCs.
• The regional ops teams are the enforcers of chain policy.

Naming and misdirection. Consumers know each nursing home by the provider name on the sign outside, not its legal business name. CMS records use provider names and assign each facility a CMS Certification Number (CCN) that stays with the property when it is sold and the name is changed, or both. It is the only way to keep track of a facility.

Nursing home chains can change their names and the names of their facilities once a week if they choose. With a chain name change, they often advertise “under new management” when that is not true. That happened at Colonial Heights Rehabilitation and Nursing Center immediately after the December 2024 raid and scandal. The “new management” was the instant chain Lifeworks Rehab. The “old” management was Medical Facilities of America, now dropped from CMS records. The same guys ran both. They also ran Innovative Healthcare Management, which is still listed as a separate chain. That, too, appears defunct, existing only in CMS records. All of the facility websites sport the Lifeworks Rehab logo.

Holdcos. I see Holdco echelons in eight-facility chains across the Mid-Atlantic and the Midwest. Really.

Real estate LLCs. Real estate LLCs separate from the operating LLCs are required by the very favorable HUD/FHA nursing home loan program authorized under Section 232 of the Federal Housing Act.  

We know a lot about how easy it is to run a single-property RE LLC from the data on real estate investment trusts (REITS) that specialize in nursing homes. An example is Strawberry Fields (STRW). The company is estimated to have nine full-time employees managing 141 healthcare facilities with an aggregate of 15,400+ beds. Most of those nine deal with investors, the exchanges, and the SEC.  

So all three levels of real estate management claimed by some chains: individual RE LLCs, RE Holdcos, and Master RE Holdcos, can be assumed to be virtual at best, given the small number of properties managed. STRW yields 5% after all the bills are paid, including management salaries, benefits, and withholding, office costs, and operating reserves. That shows the earnings power of the real estate even when it is not co-owned by the operating companies.

Tenant LLCs. Tenant LLCs manage the tenants of the real estate other than the operating companies. This is another abused feature. Each healthcare provider that bills Medicare or Medicaid, before it can be paid, must register with CMS to get a unique ten-digit National Provider Identifier (NPI) number. Each nursing operating company has one. When they receive money from Medicare or Medicaid, the payments are assigned to that NPI. But some charges are not covered by the capitated payments. For example, patients often need services such as Durable Medical Equipment & Medical Supplies and Non-emergency Medical Transport (VAN). Those services are often set up as tenants on the nursing home properties as LLCs with different NPI numbers. They are owned by the same people who own the facilities. The nursing home LLC can request services from those tenants, and the tenants bill Medicare and Medicaid separately. No payment system identifies co-ownership, so the bills are paid without the regulator understanding the relationship.

Regional Ops and Nursing teams. These are the enforcers of corporate policy that directly oversee the operating companies. If the corporate policies are ethical, they enforce them. If they are unethical, they enforce those too. It is the regional team that hires and fires the administrator and Director of Nursing. It is the regional team that oversees the work of chain regional employees, like a Medical Director, who, in an independent nursing home, would work directly for the operating company. If the DON of a facility in an unethical chain sends “too many” people back to the hospital, which can result in a decrease in government payments, but she thinks it is necessary to protect the residents, he or she risks being fired by the regional ops officer.

What is CMS trying to do to understand chains? CMS has a new rule that went into effect last year. It requires disclosure of the following information:

• Each member of the SNF’s governing body, irrespective of the SNF’s business structure (e.g., LLC, corporation, etc.).
• Each person or entity who is an officer, director, member, partner, trustee, or managing employee (as defined in § 424.502) of the SNF, regardless of percentage of ownership. Each person or entity who is an additional disclosable party (“ADP”) of the SNF.
• The organizational structure (emphasis added) of each ADP of the SNF and a description of the relationship of each ADP to the facility and to one another.

While it shows that CMS gets it that they are being scammed, I have seen no evidence that the rule is being complied with by the chains that have the most to lose. It is also not clear whether they face any sanction for “incomplete” information.

Staffing. How should we assess the bad actors? The answer to that is also clear. There are easily discernible patterns in government data showing extremely high occupancy rates and gross understaffing compared not to some metric, but rather to their peers in the rest of the nation and in the same markets in Virginia. 

Those in the industry know that a nursing home administrator has absolute control over the staffing rating, on which the staffing is judged relative to hours per resident per day of key nursing positions. It is specifically focused on registered nurses who lead the medical care and certified nurse assistants (CNAs) who support each resident’s need for assistance in the activities of daily living. Staffing requirements are adjusted automatically in CMS computers to account for resident needs reported by the nursing home itself.  

Each facility administrator not only can, but is expected by the federal government to, voluntarily stop accepting new patients when the facility reaches the limit of its staffing capacity to care for them. Facility administrators in the worst chains would not last a week if they did so. Once a bad actor management identifies a compliant administrator, his job is safe.

Both nursing home chains that limit staffing and maximize occupancy as a business model, and long-serving administrators of their facilities, are easily identifiable from government records.  

Bottom Line. Failure to act against this real and present danger is not an ideological issue.  It has been going on in at least the last three administrations. It is not an authority issue. VDH already has licensing authority. It is a government organizational design and focus issue.  

CMS, VDH, and DMAS are set up to regulate individual facilities. That has understandably been their focus. Virginia’s weak nursing home legislation includes not a word about chains.   

But the current Virginia Department of Health and Human Resources and VDH get it and have done their own research. They understand that past failures to act against the licenses of the worst chains have caused thousands of residents to suffer and die wracked deaths as a result of negligence and abuse directly traceable to ritual understaffing in their facilities. They have also discovered that a few other states have figured out the chain problem and hope to emulate them. That lit torch will be passed to the new administration in January.

I hope that VDH will act going forward to use its licensing power:

• to ban additional sales of Virginia nursing homes to the worst chains; and
• to ban from operating in Virginia the individuals who operate the worst chains and the administrators who run their facilities here.  

Finally, the men who run XYZ above are guilty of Medicare and Medicaid fraud if they:

• pay all the fees, rents, and owner draws — effectively all go to themselves and their investors;
• fill the facilities to the rafters with residents without concern for staffing shortfalls; and
• fail to spend enough money to staff the facilities to provide frail and sick people with the care for which the government has paid.  

I understand that the appropriate committees of Congress and law enforcement agencies all over Washington and Richmond may be beginning to understand that now as well.