How Nursing Homes Hide Profits

The title of this MLive story is misleading, or at least inadequate.  It actually describes how nursing homes - and many other medical establishments - milk their publicly regulated operations to conceal profit levels from the regulators and the public.  This kind of transfer pricing game began in the auto manufacturing industry in the 1970's and "poor mouthing" is now an established practice in American business:

https://www.mlive.com/public-interest/2025/06/how-much-money-do-nursing-homes-really-make-new-report-claims-operators-hide-profits.html

How much money do nursing homes really make? New report claims operators hide profits
By Matthew Miller | June 06, 2025

Using side businesses to provide management, housekeeping, food and other services enabled nursing home owners to generate nearly $3 billion over and above the actual costs of those services in 2023, data shows.

The house at 1369 Londonberry Place in the Hollywood Hills has six bedrooms, 10 bathrooms and a double-decker glass-bottomed swimming pool with a swim-up bar; a sensory deprivation tank and a hot yoga room with living plant walls.

It’s 14,000 square feet with 30-foot ceilings. Real estate listings call it “the sexiest Sunset Strip modern and privately-gated compound ever conceived.”

It was purchased for $26 million in the thick of the coronavirus pandemic by a limited liability corporation tied to Ciena Healthcare, which operates more than 80 nursing homes, mostly in Michigan and Ohio.

Which prompted an executive from McKnight’s Long-Term Care News to scold Ciena founder Mohammad Qazi in print for a buying spree “that would embarrass Arabian Peninsula monarchs,” saying it undercut the notion that the nursing home sector “needs financial assistance in a really big way.”

“The optics here are not good,” John O’Connor wrote in a 2022 column. “In fact, this is just the sort of thing that could give taxpayers and lawmakers the wrong idea.”

Or maybe the right idea.

More than half of the nation’s 15,000 nursing homes reported operating at a loss in 2023, according to an analysis of the annual cost reports they file with the Centers for Medicare and Medicaid Services. Many others report razor-thin profit margins.

But nursing home operators also spend billions of dollars each year essentially doing business with themselves, paying separate companies that they also own or control for everything from rent to management services to physical therapy. Any profits earned by those sister companies don’t have to be reported to the federal government.

The practice is called tunneling by industry experts or, in more extreme cases, skimming. It’s legal, and it’s common.

And it makes determining whether nursing homes are siphoning away public dollars for private gain frustratingly difficult, according to a report released Wednesday by the Michigan Elder Justice Initiative and The National Consumer Voice for Quality Long-Term Care.

Medicare and Medicaid pay nursing homes $70 billion a year to care for nursing home residents.

“Despite requirements that nursing homes file state and federal cost reports each year, we still really can’t tell where all that taxpayer money going,” said Alison Hirschel, director and managing attorney of the Michigan Elder Justice Initiative, also called MEJI. “We don’t know if it’s being squirreled away in excessive profits or whether it’s actually being used completely appropriately to meet very vulnerable people’s needs.

“The lack of transparency,” she added, “means we aren’t able to be good stewards of billions of dollars of taxpayer funds.”

The report found that, between 2021 and 2023, Michigan nursing homes alone paid nearly $1.2 billion to what are called related parties, companies owned or controlled by the same people who own the nursing homes they’re doing business with.

Ciena accounts for more than $300 million of that, according to the report, which features Ciena as one of four Michigan companies that did significant business with related parties while “simultaneously providing substandard care and staffing to thousands of vulnerable nursing home residents across the state.”

David Parker, the CEO of Ciena, said in a statement that the company was “not going to comment on a report that is based on conjecture and speculation.”

On its own, the fact that a nursing home engages in such transactions with related parties isn’t evidence that it is prioritizing profits over patient care.

But, when there is poor quality care in nursing homes, “siphoning and fraud” is frequently evident, said New Jersey State Comptroller Kevin Walsh, speaking to legislators, advocates and representatives from state agencies at a Wednesday event in Lansing where the report was released.

One solution, the report argues, is to require nursing home operators to provide more financial information about where the money they pay to sister companies actually goes.

Strike

Music was blaring at the corner of Vernor Highway and Chene Street in Detroit. It was a Wednesday in mid-May, and two dozen Ciena employees were striking on the street outside the Regency at Chene, a Ciena nursing home.

They were waving signs at passing cars. One said, “Respect us, protect us, pay us.”

Qazi, who founded Ciena in 1998, stepped down as CEO last year. He remains the company’s president, and he was still the man strikers were talking about.

“He wants us to do the work under poor working conditions,” said Elvin Smith, a certified nursing assistant who has worked at Ciena for 18 years.

Staffing at the home where she works is inadequate, she said, along with lots of other things.

“We don’t have the right cleaning supplies,” Smith said. “The residents’ food is not enough. We don’t have towels and linen like we should have. Yesterday, I worked, and we didn’t even have paper cups to give them ice water.”

“Does he give a damn about these residents?” she asked. Qazi, she said, would rather “live high on the hog.”

Larry Alcoff, a negotiator with Service Employees International Union, which represents more than 5,000 nursing home employees in Michigan, including workers at 18 Ciena facilities, put it differently.

“You don’t make profit in nursing homes unless you are intentionally trying to take money away from the bedside and away from the care of residents and away from investing in the workforce that provides that care,” he said.

Ciena operates 48 nursing homes in Michigan. It reported earning a total profit of $2 million for those homes between 2021 and 2023, according to the report from MEJI and Consumer Voice.

That’s less than $15,000 per nursing home per year, not exactly high-on-the-hog money.

Ciena paid related-party companies $301.1 million in those same years, according to the report, mostly for rent, but also for management services and medical supplies.

There’s nothing in federal cost reports to indicate how much of that $301 million might be profit. The fact that an external observer can’t tell one way or another is the point, according to critics.

What is clear, the report said, is that Ciena’s quality ratings from the Centers for Medicare & Medicaid Services are “lackluster” and staffing levels in the company’s homes “fall well below what many clinical experts believe is necessary to protect all residents.”

If Ciena’s CEO declined to respond to the report, he did address the ongoing contract negotiations that had brought about the strike at five of its facilities.

“Ciena is determined and will continue to bargain at all available opportunities to reach final agreements that provide our employees with fair and competitive wages and benefits,” Parker said in a statement, “so that our employees can continue to provide high quality of care to our residents.”

‘Purely speculative’

Melissa Samuel, president and CEO of the Health Care Association of Michigan, which lobbies on behalf of the state’s for-profit nursing homes, called the report “unsubstantiated and purely speculative.”

“Existing Medicaid and Medicare cost reporting requirements ensure the allocation of these funds are appropriate and accounted for through the audit process,” she said in a statement released Thursday.

She noted that “both federal and state governments allow the entire health care sector, including nursing facility operators, to use related parties” and that they “often create efficiencies and streamline services to seniors.”

Related: Michigan used to shut down its worst nursing homes. Then it stopped.

Other industry advocates have gone as far as to say they’re essential.

“The sad truth is that, because long term care is chronically underfunded, ancillary services sometimes help keep these nursing homes afloat,” said Martin Allen, senior vice president of reimbursement at The American Health Care Association/National Center for Assisted Living, a trade organization that represents more than 14,000 nursing homes and long-term care facilities.

But one of the puzzles about nursing homes, according to Ashvin Gandhi, an economist at the University of California, Los Angeles, is that, while they report consistently meager profits, they sell for huge amounts of money, often on the order of $100,000 a bed.

“Why would sophisticated financial acquirers like private equity be willing to buy facilities that are extremely unprofitable for such high prices?” he asked, speaking at the Wednesday legislative event.

He and Lehigh University economist Andrew Olenski offered an answer of sorts in a paper published last year by the National Bureau of Economic Research: the average for-profit nursing home is hiding an estimated $379,382 per year in profits through related-party transactions.

Using cost reports from Illinois, where nursing homes have been required to report related-party transactions for more than two decades, they found that, when homes start doing business with sister companies, they start paying much higher prices for the same services, 20% higher for real estate and nearly 25% higher for management.

Extrapolating from those markups, they estimated that, in 2019, 63% of nursing home profit margins were “hidden and tunneled to related parties through inflated transfer prices.”

“When you take into account these hidden profits, all of a sudden the return on investment for buying these nursing homes at $100,000 per bed starts looking a lot more attractive,” Gandhi said.

Hidden profits

Why hide profits in the first place?

Experts say the practice of structuring nursing homes as multiple companies began as an effort to limit legal liability. It’s less fruitful to sue a nursing home if it doesn’t make much money or own its own building.

The other reason has to do with the fact that taxpayer money – through Medicare and Medicaid - pays for the majority of nursing home care.

Olenski noted in an interview that, in the recent debates over federal efforts to set minimum staffing levels, nursing home owners argued that they simply couldn’t afford to pay enough staff members to meet the proposed standard “and as evidence of this claim, they point to the low profit margins that they report in both their Medicare and Medicaid cost reports.”

The federal government doesn’t audit the cost reports that nursing homes submit. There is, in practice, no penalty for leaving out information or filing incorrect information.

But the profit margins reported there “are really influential in determining how much we pay these facilities,” Olenski said, “meaning how we spend taxpayer dollars, as well as how much quality regulation we want to impose on them.”

In the past, pleas of poverty have been a stumbling block for patient advocates, Hirschel said.

“Our advocacy always hit a dead end when we were told there’s not enough money to do better,” she said.

What changed, she said, was the realization that individual nursing homes might lack resources but that it was often due to decisions made at the corporate level.

“Those decisions affect how long it takes for staff to answer a call bell when a resident has an urgent need for help,” she said, “Those decisions affect whether the nursing home has enough oxygen or washcloths or wipes. Those decisions affect how much money is spent on food for residents each day.”

The goal, she said, is “to understand what happens to the money between the time it gets paid to the corporations and when it trickles down to the facilities and hasn’t been enough to pay for the residents’ most basic needs.”

And, to do that, MEJI is encouraging legislators to increase the financial reporting requirements for related party companies, to give state and federal watchdogs more resources to audit cost reports, even to bar providers with histories of providing bad care from owning more nursing homes.

“There is a lot that states can do,” said Sarah Slocum, systemic public policy advisor for MEJI, and other states like California, New Jersey, Illinois and Minnesota have already begun.

Walsh, New Jersey’s state comptroller, said reform and effective oversight begin “with transparency and access to information.”

“What we found is that scams proliferate when the government and advocates don’t know what’s going on,” he said.

But knowing enough to separate the bad actors from the good is just the start, he added.

“We need to use the information to keep out bad actors, to throw out bad actors, to reveal the scams, to deter the scams,” he said, “and to recover the money.”