Profits Over People: How Nursing Home Operators Funnel Cash

Across the U.S., nursing homes are under scrutiny for diverting Medicaid funds away from resident care and into the pockets of nursing home owners through related-party transactions. These practices involve inflating costs paid to businesses owned by the same individuals controlling the nursing home. This legal yet unethical tactic leaves residents in understaffed and under-resourced facilities. Cases like South Jersey Extended Care highlight how owners prioritized profits over care, leading to unsafe environments for vulnerable residents.

The “Tunneling” of Public Funds

Over 70 percent of nursing homes across the country are owned and operated by for-profit corporations, a system that makes it easier to legally divert funds from patient care into various other businesses. These transactions (an estimated 63 percent) are disclosed in regulatory filings, but the system still lacks transparency and oversight. As a result, operators can extract millions from taxpayer-funded programs. This complexity makes it difficult for regulators to trace the flow of funds and enforce accountability.

An example of this is: A nursing home might rent its building from one company, pay management fees to another, and hire a third for services like physical therapy, all owned by the same party. While the nursing home shows losses on paper, these side businesses generate profits for the owners.

The Human Cost of Understaffing and Neglect

Inadequate staffing levels directly affect the quality of care. Facilities that engage in these aggressive profit-seeking methods tend to underinvest in staff and resources, leading to higher resident injuries and neglect rates. In extreme cases like South Jersey Extended Care, millions of dollars were “siphoned” from Medicaid funds to side businesses, “leaving residents to live in a dismal, understaffed, and under-resourced facility.”

Tosh, the Texas attorney, said staffing levels are an indicator of the quality of care. “If the number is too low, you’ve killed off a number of old people.” Highlighting the devastating impact of prioritizing financial gain over resident safety. Nursing homes outsourcing to related organizations “have fewer nurses and aides per patient, higher rates of patient injuries and unsafe practices, and are the subject of complaints almost twice as often as independent homes.”

Failures in Oversight and Accountability

Federal and state regulators face significant challenges in monitoring nursing homes. Despite clear evidence of financial manipulation, cost report audits are rare, inspections are delayed, and oversight is weakened by understaffing at the regulatory level. This lack of enforcement allows operators to continue harmful practices unchecked, with little incentive to improve care.

Over 20 percent of the nation’s 15,000 nursing homes are behind on annual inspections, with one in ten not receiving an inspection in two or more years. Understaffing not only affects aides within the resident homes but also the regulatory agencies, with a 2023 Senate report finding that more than half of inspector jobs are left unfilled in nine states.

Solutions: Prioritizing Resident Care Over Profits

Nursing home advocates fight for significant reform to ensure resident welfare takes precedence over profit margins. Current regulations have repeatedly failed to prevent the “funneling” of funds meant for patient care to related business entities owned by the same operators. These advocates call attention to remedy systemic issues and protect vulnerable residents:

• Establish Federal Minimum Spending Requirements: For resident care, including allocations for food, staffing, and essential services based on resident needs
• Implement Random Financial Audits: To verify proper use of Medicare and Medicaid funds
• Create Active Monitoring System For Cost Reports: Rather than passive collection of data in databases
• Increase Inspection Frequency and Quality with particular focus on facilities with history of violations or those with complex ownership structures
• Address Chronic Understaffing: By providing adequate funding for inspector/aide positions and training
• Require Transparency In Ownership Structures: For private equity-owned facilities that currently operate with minimal public disclosure
• Develop clear guidelines on Medicare Related-Party Costs: Close loopholes that allow inflated charges to sister companies
• Establish Consequences for facilities That Divert Excessive Funds: Including resident care to management fees, real estate, or other related businesses
• Mandate Public Reporting of Staffing Ratios: To ensure facilities are properly staffed based on residents’ actual medical needs
• Create a Database of Nursing Home Ownership: Tracking cross-state operations and identifying operators with histories of poor care

Do Not Fight Your Legal Battle Alone. Get the Justice Your Loved One Deserves

The devastating impact of nursing home understaffing cannot be ignored. Every day, vulnerable seniors suffer neglect and abuse when facilities funnel Medicaid funds to related businesses, prioritizing their bottom line over resident care. These are not accidents—they represent systematic failures abused to maximize profits.

At PKSD, our experienced attorneys understand the complex web of nursing home ownership and how operators hide money through related party transactions. We fight aggressively to hold these facilities accountable for the harm they cause to your loved ones.

Do not let your loved one suffer in silence. Contact PKSD today for a free consultation or filling out our confidential case evaluation form.

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