In The News: “Staggering Hidden Profits”

Transparency and accountability continue to be issues at the forefront of the nursing home improvement cause. If we don’t know the full extent of the core problems, we can’t fix them. And, once again, shocking numbers are being uncovered. This time, regarding hidden profits. A recent study released by UCLA examined the ways that nursing facility owners “tunnel” in order to “covertly extract profit” revealing staggering hidden profits. Here’s what you need to know.

PC: Eyestetix Studio via Unsplash

Hidden Profits

A few months ago CMS released their Final Rule on nursing home ownership, among which is the requirement that “each person or entity who is an additional disclosable party of the facility” is made known.

Furthermore, it is required that “the organizational structure of each additional disclosable party of the facility and a description of the relationship of each such additional disclosable party to the facility and to one another” be made public. 

This would ensure that it is public knowledge who owns—and therefore profits from—the outside organizations linked to each nursing facility.

The practice of tunneling essentially works like this: the owner of the nursing home creates or buys other organizations that provide services to the nursing home, therefore ensuring that any money coming from the nursing home for those services goes right back into the owner’s pockets. This obviously adds incentives for the nursing home to only use those services provided by the owner’s other companies. And it also locks the nursing home into whatever prices those related organizations choose.

According to the authors of the hidden profits study, this practice:

  • encourages the state and federal governments to increase Medicare and Medicaid payments to nursing homes;
  • dissuades legislators and regulators from imposing stricter quality standards; and
  • shields assets from malpractice liability risk.

The Problem

There are some obvious problems with this broken system of nursing home ownership. Among those problems is the fact that there is no incentive to provide quality services or to economize for the benefit of keeping living prices low. 

In fact, the study found that when nursing facilities use these related organizations for their services “costs increased substantially, with no increase in quality or quantity.” 


“Masking profits as costs, thereby obscuring true profitability, may dissuade regulators from imposing stricter quality standards and encourage public payers to increase reimbursement rates. Likewise, tunneling effectively “shields” assets from malpractice liability risk, by moving them off the firm’s balance sheet.”

But perhaps the biggest problem discovered in this latest study is the fact that nursing homes across the country hide 63% of their profits via tunneling practices. Not only does this protect nursing homes from liability, it ensures inflated costs without any commiserate increase of quality care.

Essentially, profit hiding equals poorer care and less accountability.

If you or a loved one have been the victim of nursing home abuse or neglect, call Gharibian Law (877-460-1187) today for a FREE consultation and the best legal representation.