Nursing Home Ownership Structures

Nursing homes must be licensed by the states in which they operate in  order to participate in Medicare or Medicaid. 1.) While some of the acquisitions involved entire nursing home  chains—which included both the operations and any owned real estate— other acquisitions involved only real estate. About 1,900 Unique Nursing Homes Were Acquired by Private Investment from 1998 through 2008

We identified 77 acquisitions of nursing homes by PI firms from 1998  through 2008, involving a total of 1,876 unique nursing homes. In other cases, nursing homes  were acquired more than once by different PI firms. The 10  firms accounted for 89 percent of the 1,876 unique nursing homes acquired  by PI firms during the period. Officials from all four of these firms reported  holding seats on the chains’ corporate boards of directors. PECOS Data on PI Ownership and Chain Affiliation Are Hard to Decipher, Incomplete, and Difficult for CMS to Verify

PECOS provided a confusing picture of the ownership structures and  chain affiliations of the six PI-owned nursing home chains we reviewed. CMS’s ability to determine the accuracy and  completeness of ownership data reported by nursing homes is limited. PI ownership was often not readily apparent in PECOS. In  some cases, associating these entities with the PI firm was relatively  straightforward, as the entities had names that were readily identifiable  with the PI firms. PECOS Data for a PI Firm That Acquired Real Estate Only Were Incomplete and PECOS Chain Ownership Information Was Not Collected in a Straightforward Manner

In addition to the challenges in identifying PI owners in PECOS data, we  found that the data were sometimes incomplete and that the information  on chain ownership was not collected in a straightforward manner,  making chain associations difficult to identify. HHS Has Made Limited Use of Ownership Data, but State Survey Agencies and Others Expressed Interest in Nationwide Data to Improve Nursing Home Oversight

The use of PECOS nursing home ownership data has generally been  limited to the Medicare enrollment process and only CMS’s Division of  Provider and Supplier Enrollment has routine access to the database. To  date, the division has focused primarily, but not exclusively, on populating  PECOS and has not developed any standardized internal reports on  nursing home ownership data that could be shared within HHS. A CMS official from the agency’s  Financial Management Systems Group told us that the agency was just  starting a workgroup to examine the PECOS interests of other groups  within CMS and how to provide access to accommodate those groups’  needs. Each state is  responsible for establishing its own licensing requirements. Recognizing the growing interest in PECOS data, CMS is  considering whether and how it could provide access to external parties,  such as states. As the Secretary of HHS develops regulations to implement the expanded  nursing home ownership reporting and disclosure requirements contained  in the Patient Protection and Affordable Care Act, we recommend that the  Secretary, given the complex arrangements under which nursing homes  can be acquired and operated, consider requiring the reporting of the  following five types of information:  the organizational structure and the relationships to the facility and to one  another of all persons or entities with direct or indirect ownership or  control interests in the provider (as defined in the act), such that the  hierarchy of all intermediate persons and entities from the provider level  up to the chain and the ultimate owner is described; for entities reported as having ownership or control interests, specify  whether or not the entities have an operational role; for example, special  purpose entities created solely for the purpose of acquiring the nursing  home but having no operational role should be identified as such; the percentage ownership interest in the provider for all entities and  individuals who have an ownership or control interest (as defined in the  act);  the names and titles of the members of the chains’ governing body; and the organizational affiliation of individuals with an ownership or control  interest (as defined in the act). Specifically, CMS said that it would    consider mandating the reporting of the five types of information we  specified in our recommendations, such as the names and titles of the  members of the nursing home chain’s governing body, when developing  regulations to implement the expanded ownership disclosure and  reporting requirements in the Patient Protection and Affordable Care Act;  require reporting of the holders of a security interest in a provider and  identifying all the homes belonging to the same chain through revisions to  the Medicare enrollment application and instructions;   develop a strategy for examining the wider dissemination of ownership  information, as well as an action plan for contacting states about their  collection and dissemination of ownership and chain information;   conduct additional monitoring of CMS contractors to include, but not be  limited to, evaluating the ownership and control information submitted  with enrollment applications as part of annual reviews of the enrollment  process, other focused reviews of provider enrollment, and general  contract oversight; and   periodically review the Medicare enrollment application to ensure it is  updated to reflect complete reporting of nursing home ownership  information consistent with the statute. Portrayal of PI firms. PI firms’ PECOS data. While leasing arrangements with nursing home  operators may have the potential to influence the operations of the homes,  firms that acquired a chain reported that they were more involved in  nursing home operations than firms that acquired real estate only. In general, they characterized their involvement as related to the  strategic direction of the chain and indicated that they are not involved in  day-to-day operations. After examining the data, the board  discusses how to address problems.
Why GAO Did This Study

Since 2007, attention has been focused on nursing home ownership by private investment (PI) firms. Nursing home providers are required to disclose parties with an ownership or control interest in order to participate in Medicare or Medicaid. CMS, the HHS agency responsible for managing these two programs, maintains ownership and chain data in its Provider Enrollment, Chain, and Ownership System (PECOS). GAO examined (1) the extent of PI nursing home ownership and firms' involvement in homes' operations, (2) whether PECOS reflects PI ownership, and (3) how HHS and states use ownership data for oversight. GAO identified PI ownership using a proprietary database and analyzed data from six PI firms about their interest and involvement in nursing homes. GAO examined PECOS data for selected PI-owned nursing home chains and discussed ownership data with officials from HHS, CMS, and six states that also collect data.

What GAO Found

GAO found that 1,876 unique nursing homes were acquired by PI firms from 1998 through 2008. While some of the acquisitions involved entire nursing home chains, which included both the operations and any owned real estate, other acquisitions involved only the real estate. Sometimes the same nursing homes were acquired more than once. Ten PI firms accounted for 89 percent of the 1,876 unique nursing homes acquired by PI firms during this period. Of the six PI firms from which GAO collected information, those that acquired a chain reported being more involved in nursing home operations than those that only acquired the real estate. These firms had representatives on the nursing home chain's board of directors, but they generally characterized their involvement as related to the chain's strategic direction rather than day-to-day operations. PI firms that acquired real estate only had no representation on the boards of the operating companies, but officials at one PI firm observed that some leasing arrangements have the potential to affect operations. PECOS provided a confusing picture of the complex ownership structures and chain affiliations of the six PI-owned nursing home chains GAO reviewed. The database did not provide any indication of the hierarchy or relationships among the numerous organizational owners listed for PI-owned nursing homes. Further, PI ownership was often not readily apparent in the data, which could be the result of (1) PI firms not being required to be reported because of how they structured their acquisitions, (2) provider confusion about the reporting requirements, or (3) related entities that were reported but were not easily identifiable with the PI firms. Finally, PECOS chain information was not straightforward and was sometimes incomplete, making it difficult to link all the homes in a chain. Compounding these shortcomings, CMS's ability to determine the accuracy and completeness of the reported ownership data is limited. HHS has made limited use of PECOS ownership data. The only CMS division with routine access to PECOS data has been largely focused on populating the database and has not developed any standardized reports on nursing home ownership that it could share with interested parties. Some states collect their own ownership information but it can be limited to owners that operate in their state. As a result, tracking compliance problems among commonly owned homes or multistate chains can be ad hoc. State officials and others expressed interest in nationwide ownership data, such as PECOS, to improve nursing home oversight. Recognizing the growing interest in PECOS data, CMS has established a workgroup to consider how to accommodate the PECOS interests of other groups within the agency and is considering whether and how to provide access to external parties such as states. The implementation of the Patient Protection and Affordable Care Act provides CMS with an opportunity to address shortcomings in the current PECOS database and to make ownership information available to states and consumers in a more intelligible way.

What GAO Recommends

GAO recommends that the Secretary of HHS and CMS Administrator consider requiring the reporting of certain information to make nursing home ownership structures more understandable and take other actions to improve the accuracy and dissemination of these data as HHS implements new ownership reporting requirements in the 2010 Patient Protection and Affordable Care Act. HHS concurred with all of GAO's recommendations.