Bloomberg News

For-Profit Nursing Homes Lead in Overcharging While Care Suffers

December 31, 2012

For-Profit Nursing Homes Lead in Overcharging While Care Suffers

At nursing homes, 78 percent of $105 billion in revenues went to for-profits in 2010, up from 72 percent in 2002, according to the latest available government breakdowns. Photographer: Getty Images

A report by federal health care inspectors in November said the U.S. nursing home industry overbills Medicare $1.5 billion a year for treatments patients don’t need or never receive.

Not disclosed was how much worse it is when providers have a profit motive. Thirty per cent of claims sampled from for- profit homes were deemed improper, compared to just 12 percent from non-profits, according to data Bloomberg News obtained from the inspector general’s office of the U.S. Department of Health and Human Services via a Freedom of Information Act request.

The figures add to the case -- advanced by health care researchers and Medicare overseers in at least six government and academic studies in the last three years -- that the rise of for-profit providers is fueling waste, fraud and patient harm in the $2.8 trillion U.S health care sector. At nursing homes, 78 percent of $105 billion in revenues went to for-profits in 2010, up from 72 percent in 2002, according to the latest available government breakdowns.

“Research shows for-profits are more likely to pursue money in all kinds of ways than non-profits are, even by pushing the legal envelope,” says Jill Horwitz, a professor at the School of Law at the University of California, Los Angeles, who has written 30 papers on health care.

Federal prosecutors brought 120 now-resolved civil and criminal cases against nursing homes and related individuals from 2008 to 2012, twice the number of the prior five years, said Gary Cantrell, deputy inspector general of the U.S. Department of Health and Human Services. That compares to a 60 percent rise in all department cases, Cantrell said.

Criminal Charges

At a nursing home in South Carolina owned by Life Care Centers of America Inc., an 80-year-old woman who couldn’t control her head or keep her eyes open was placed in a standing frame for 84 minutes of physical and occupational therapy just two days before she died -- one in a number of Life Care overcharges for unnecessary care, according to civil fraud allegations filed in November by the U.S. Justice Department in federal court in Chattanooga.

Closely-held Life Care, based in Cleveland, Tennessee, has denied wrongdoing. With over 30,000 beds, it’s the third-biggest U.S. nursing chain, according to the trade magazine Provider.

Skilled Healthcare Group Inc. (SKH:US), which operates 75 U.S. sites, was charged in state court in October with 11 criminal counts of elder abuse at a nursing home in Eureka, California. The company has said it intends to “vigorously defend” itself against the charges.

Death Settlements

The company settled six wrongful death lawsuits brought against its homes in California’s Humboldt County between 2005 and 2012 after denying the allegations. Terms weren’t disclosed.

The incidents alleged in the criminal case occurred at a home in Eureka, one of 22 company sites that were found by a state-court civil jury in 2010 to have skimped on staff to save money. That jury returned a $677 million judgment, which was later reduced to $63 million in a settlement. Patients at the homes were left unattended for hours in soiled clothing, denied meals and baths and suffered infections and malnutrition, according to evidence in the class-action trial.

From nursing homes to walk-in medical clinics, dentistry to dialysis and hospice care, for-profit providers “dominate most health care sectors,” according to a 2012 report by the Medicare Payment Advisory Commission, or Medpac, an arm of the U.S. Congress.

For-Profit Growth

For-profits operate 96 percent of the nation’s outpatient surgery centers, a sector that has grown by more than a third since 2004, according to Medpac. The number of for-profit hospices grew 10 times faster than non-profits from 2004 through 2009, and now exceed half the U.S. total. For-profits operate 84 percent of home-health care agencies and 85 percent of dialysis clinics for kidney patients.

A notable exception to this trend is hospitals, where nonprofits and government-operated facilities had 88 percent of revenue in 2010, according to the U.S. Census Bureau. That has helped non-profit medical providers maintain parity with for- profits in overall health care spending.

Private investment in health care expands choices for patients, spurs innovation and boosts economic output, proponents argue. Nursing homes employ more than 1.6 million workers, second only to hospitals in the health care sector, according to the Alliance for Quality Nursing Home Care, the trade group representing for-profit facilities.

Baby Teeth

For-profit dental management companies, surgery and cancer clinics say they have created competition for traditional hospitals and medical practices and helped patients on Medicaid get more care.

The rising influence of for-profits has led to tensions with doctors, insurers and regulators on several fronts.

Investigators in Texas, Arizona and California have been examining complaints that dentists linked to dental management companies, a sector backed by at least 25 private equity firms, were responsible for overbilling Medicaid programs for unnecessary treatment, including children receiving unneeded drilling on baby teeth. The companies have said they are expanding care for poor populations and that instances of mistaken work are rare.

Insurer Aetna Inc. (AET:US) is suing surgery centers in California, Texas and New York for alleged price gouging fueled by profit- sharing deals with surgeons who send them patients. UnitedHealth Group Inc. (UNH:US) has filed a similar California suit. Aetna says one California center charged $53,000 for bunion surgery that normally costs $4,000. The centers have denied the allegations and said the insurers are trying to drive down prices.

Hospice Companies

In the past three years, The U.S. Justice Department has settled civil fraud complaints against eight hospice companies that allegedly enrolled or retained patients who weren’t dying.

Federal investigators and Florida’s attorney general are looking into similar issues at the nation’s largest hospice chain, Chemed Corp. (CHE:US)’s Vitas unit, Chemed said in a regulatory filing in November. Chemed says it’s discussing the matter with the Florida and federal authorities.

For-profits have eclipsed non-profits in some sectors by zeroing in on services where the government reimbursement rates are high or increasing, Medpac has said.

“Wherever you’ve got government spending huge funds, it incubates growth,” said Scott Becker, a Chicago lawyer who publishes Becker’s Hospital Review.

Private equity investors have recently taken aim at hospitals, too, because their size and community roots make them “the best politically situated” to thrive under the Patient Protection and Affordable Care Act, Becker said.

Improper Bills

The 2010 law, a hallmark of President Barack Obama’s first term, encourages health providers to form “accountable care organizations” that combine doctor practices with hospital groups, which could add to their pricing power.

Private equity investors completed more than 450 hospital transactions in the past decade valued at nearly $50 billion, according to Pitchbook Data, a Seattle-based market research firm. Major hospital buyouts include Cerberus Capital’s $830 million acquisition of Caritas Christi’s six hospitals in Massachusetts in 2010, and Blackstone Group’s $1.3 billion purchase of Detroit Medical Center the same year.

The November study that found $1.5 billion in improper nursing-home bills -- equivalent to about 5 percent of total Medicare outlays to the facilities -- was by the U.S. Department of Health and Human Services office of inspector general. It followed a 2010 OIG report that found for-profit nursing homes were nearly twice as likely as nonprofits to bill Medicare at the highest rate for patients of similar ages and diagnoses.

Profit Margins

Investor-owned facilities earn a 20 percent profit margin on Medicare patients compared to 9 percent for nonprofit operators, according to Medpac. Medicare pays nursing homes about a third of their revenues, while Medicaid, the state- federal health insurance program for the poor, accounts for roughly 50 percent. The bulk of the rest is from private payers.

The 10 largest for-profit nursing-home chains employed 37 percent fewer registered nurses per patient-day between 2003 and 2008 -- and received 59 percent more deficiency notices from government inspectors -- than nonprofits did, according to a study published last year in the journal Health Services Research. The study was led by Charlene Harrington, a University of California, San Francisco, professor who has been an expert witness in cases against nursing homes, and testified for the plaintiffs in the civil suit against Skilled Healthcare. Harrington said she received a $3,000 research grant from a labor union in 2003, though no union funding for the 2011 study.

Greg Crist, spokesman for American Health Care Association, which represents 9,500 nursing homes, said for-profits have improved their patient care in recent years by increasing the ratio of nurses who are registered and winning higher ratings in Medicare’s rating system for overall quality since 2009.

‘Quality Initiatives’

“Quality is something that means a lot to our sector,” Crist said. “We launched more quality initiatives in 2012. We’re not resting.”

In a civil complaint unsealed last month, U.S. prosecutors accused Life Care of billing Medicare for unnecessary and sometimes harmful treatments at its 230 nursing homes between 2006 and 2012. It was at the chain’s Columbia, South Carolina, facility where the woman near death was allegedly braced upright for physical therapy in 2006, according to the complaint.

Therapists billed over two hours of physical, occupational and speech therapy for a 92-year-old patient with lung cancer on the same day he spat up blood at Life Care’s Orlando, Florida, facility, the suit alleges. He died two days later. Because Life Care billed for such lengthy sessions, it was able to charge Medicare at the top rate of more than $500 a day for the therapies, the Justice Department says in its lawsuit.

‘Clinically Inappropriate’

The entire rehabilitation staff at Life Care’s Estero, Florida, home told their boss in 2007 that “we have been encouraged to maximize reimbursement even when clinically inappropriate,” according to the U.S. suit. Forrest Preston, the company’s chairman, founder and owner, forbade his compliance officers from visiting facilities unannounced, the suit alleges.

Life Care “strongly disagrees with the allegations and will vigorously defend its therapy program,” according to its website. The company saves the government money by helping patients improve quickly so they spend fewer days in nursing homes, its online statement says. Beecher Hunter, a Life Care spokesman, declined to comment.

When Ruby Gene Papania, 77, was admitted to Skilled Healthcare’s Granada nursing home in Eureka in September 2010, nurses noted in her chart that she had a high risk of falls and needed extra assistance moving around, according to a lawsuit filed by Papania’s daughters last year.

Bed Sores

Papania’s care plan said transfers from bed and to the toilet required two staff members as a precaution, or the use of a mechanical lift, the suit said.

Before her death seven months later, Papania fell three times, broke and re-broke her hip, underwent two hip surgeries and an amputation and contracted several urinary tract infections, bed sores, malnutrition and pneumonia because the facility was understaffed “to reduce labor costs and to increase profits,” according to the daughters’ suit, which alleged elder abuse, fraud and wrongful death.

The company settled the litigation under undisclosed terms and denied the allegations.

The charges filed by California’s attorney general against Skilled Healthcare’s Eureka nursing home recalled allegations against that same home in the 2010 class-action lawsuit against the company that led to the $63 million settlement.

Company E-Mails

The jury found Skilled Healthcare, based in Foothill Ranch, California, refused to hire enough nurses to meet the state’s requirement that enough should be on hand to provide at least 3.2 hours of care per patient each day. The company fell short of the mandate on more than 1.2 million patient days between 2003 and 2009, the jurors calculated.

“You can’t make people lie in their own filth because you’re too focused on profits to hire enough nurses,” said Bob Hart, a retired mechanic and the jury’s foreman.

Roland Rapp, Skilled Healthcare’s general counsel, said California regulators had never issued clear guidance on what positions counted in the nursing requirement.

“Our facilities did not compromise care to achieve any particular staffing metric,” he said.

The 250,000 company e-mails produced in the case showed repeated tensions between controlling costs and caring for patients inside the company.

“It feels like we’re a three-legged dog whose owner thinks a little finger shaking and kicking will grow that other leg,” wrote the administrator of the company’s Granada, California, nursing home after his staff’s overtime hours were cut.

‘Back Door’

Jose Lynch, Skilled Healthcare’s president, made managers at individual homes report labor expenses daily, and praised them when they fell -- even when there weren’t enough nurses on hand to meet state requirements, according to the e-mails.

In June 2004, he responded to an e-mailed update saying four of the company’s five nursing homes in Humboldt County were below the minimum by telling regional managers, “Nice hours control. Keep on that overtime.” The company declined to make Lynch available for comment.

In November 2005, after an unexpected rise in patient discharges, he e-mailed executives, including Chief Executive Officer Boyd Hendrickson, warning, “Bad news and VERY bad weekend.” In the same note, Lynch asked two of his managers to have their team “really watch the back door,” nursing-home jargon for patient discharges.

‘Pushing Patients’

Rapp, the company’s general counsel, declined to comment on the e-mails. “Clinicians are always balancing the interests of the federal government in managing costs at a reasonable level and providing the best possible care to the patient,” he said.

Kelly Atkins, who ran the company’s California division, forwarded Lynch’s warning to her team, telling them to “watch labor and overtime rigorously!!” and to “push” patient lengths of stay and Medicare reimbursement levels. She told one of the clinical supervisors to have all quality-assurance nurses “review back door and give report.”

“Will do,” the supervisor responded, asking in the same e-mail if any specific facilities “had a lot of discharges during the last 2 weeks?”

Seven days later, Lynch e-mailed again, saying he was “shocked” by the latest census, or patient count, adding, “Thanks for helping dig with your people this week on whether intake volume is not coming in like they are reporting or if we can have Clinical help on the discharge side.”

‘Visibly Soiled’

Trial evidence and state health records show staff was chronically short at the company’s Eureka Healthcare and Rehabilitation Center, where the unnamed patients in California’s criminal complaint resided.

A 77-year-old mentally impaired woman choked to death on her dinner in 2005 when she was left unsupervised in the dining hall, according to a state disciplinary citation. A nursing aide passing out food trays had left the room in search of other employees to help feed the patients, the report said. Rapp said Skilled Healthcare may have appealed the citation but that he couldn’t recall the resolution.

Just two weeks before the woman’s death, state inspectors had found 28 care deficiencies at the Eureka home, including one for failing to meet the minimum nursing requirement on more than 70 percent of the days in the previous two months, according to court records in another case.

Patients would line the halls in their wheelchairs “visibly soiled” because the Eureka facility didn’t have enough nurses to take them to the toilet, according to court testimony from Sheila Newell, who ran the nursing home’s social services department from 2003 through 2007.

Still Investigating

Some of the larger patients had to choose between spending the day in their wheelchairs in soiled clothing, or being hoisted back into bed to have their garments changed, which meant staying in bed the rest of the day because there weren’t enough nurses to transfer them back to their chairs, according to Newell.

“If they went to bed, they had to stay in bed,” she testified.

When state health inspectors showed up, usually around lunchtime, Eureka’s public address system announced “Dr. Arnold is in the building,” which meant all managers had to rush to the dining hall and appear to be helping patients eat their lunch, Newell testified.

State and federal prosecutors have said in court motions that they’re continuing to investigate the company for other possible violations stemming from facts uncovered in the class- action trial. Rapp said it’s unfair that prosecutors are still investigating the company for the issues covered in the trial.

To contact the reporter responsible for this story: Peter Waldman in San Francisco at pwaldman@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net


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Companies Mentioned

  • SKH
    (Skilled Healthcare Group Inc)
    • $6.75 USD
    • -0.29
    • -4.3%
  • AET
    (Aetna Inc)
    • $83.15 USD
    • -0.20
    • -0.24%
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