It’s every family’s worst nightmare. You place a loved one in a nursing home, trusting that the facility you’ve chosen will provide the kind of quality care they need. But after a few months, you realize that, instead of providing excellent care, the nursing home is plagued with neglect, chronically understaffed, and filled with residents whose needs are barely being met. What’s going on here?

According to this eye-opening report in a recent New York Times issue, part of this crisis in care almost appears intentional. A growing number of nursing home owners have set up an opaque network of financial dealings in which the homes they own contract out many critical services to companies that are actually owned (or controlled) by the very same owners. In the words of the New York Times, “In what has become an increasingly common business arrangement, owners of nursing homes outsource a wide variety of goods and services to companies in which they have a financial interest or that they control.” These tidy in-house relationships, known as “related party transactions,” now involve more than 11,000 nursing homes, about three-quarters of U.S. nursing care facilities.  (This is based on an analysis of financial records by Kaiser Health News.)

The New York Times article says that the owners claim this kind of outsourcing – which can even extend to a nursing home renting their own building from a sister corporation – is efficient and helps reduce tax liability. But it seems like the practice has gotten out of hand: “Contracts with related companies accounted for $11 billion of nursing home spending in 2015,” says the article. According to Medicare analysis, that represents one-tenth of their earnings

These related party transactions, which are typically hidden behind a web of shell corporations and holding companies, represent a gold mine for nursing home owners. As the New York Times puts it, “Owners can arrange highly favorable contracts in which their nursing homes pay more than they might in a competitive market. Owners then siphon off higher profits, which are not recorded on the nursing home’s accounts.” In one example citing a California-based chain, the nursing homes owned by the company were paying rents to another related company, rents that were one-third higher than comparable rates in the same counties.  This firm, called Brius Healthcare Services, is currently being audited by the State of California.

Besides being fiscally lucrative, these related party transactions also bring legal benefits to the nursing home owners. “When a nursing home is sued,” says the Times, “injured residents and their families have a much harder time collecting money from the related companies — the ones with the full coffers.” Many aggrieved residents and their families give up in frustration. No wonder nursing home owners like these arrangements so much.

These legal and financial arrangements are not illegal, but they definitely have a negative impact on care, according to the Times article.  Kaiser Health News reported that “nursing homes that outsource to related organizations…have fewer nurses and aides per patient, they have higher rates of patient injuries and unsafe practices, and they are the subject of complaints almost twice as often as independent homes.” One nursing professor familiar with the set-up said, “Almost every single one of these chains is doing the same thing. They’re just pulling money away from staffing.”  The statistics uncovered by Kaiser were damning:

• Homes that outsource to sister companies employed 8 percent fewer nurses and aides.
• These homes were 9 percent more likely to have hurt or jeopardized residents.
• These homes racked up 53 substantiated complaints for every 1,000 beds, 65 percent more than their financially independent counterparts.
• Homes practicing related party transactions were fined 22 percent more often for serious health violations than independent homes, and penalties averaged $24,441 — 7 percent higher.

At AgingOptions, we have heard more horror stories than we can count about family members receiving poor, overpriced care at nursing homes. Does that mean all these facilities are substandard? Definitely not – but it does mean that families have to do their homework before they make any sort of commitment to long-term nursing care. We know that most seniors dream of aging in their own homes, but the vast majority will not be able to achieve that goal and will end up in some other type of housing. According to some statistics, about 25 percent of all seniors age 65-plus will someday spend time in a nursing home. If you’re blessed with real longevity – reaching age 95 – the odds that you’ll live in a nursing home are close to 50 percent.  That means many of our AgingOptions radio listeners and blog readers will be faced with the challenge of evaluating a care facility for themselves, a spouse or a loved one.  If you’ll contact us, we can put you in touch with excellent resources such as our recommended partner Better Care Management who can guide you through the evaluation and selection process.

When it comes to needing a guide, the professionals at AgingOptions are standing by to guide you into the type of retirement you’ve always hoped for. You’ll find that there’s much more to planning for retirement than making the right housing choices: a comprehensive plan also means your finances, legal affairs, medical protection and family communication all need to be included as well. There’s only one type of plan that encompasses all these: a LifePlan from AgingOptions. If you’d like to learn more, please accept this invitation to join Rajiv Nagaich at an upcoming LifePlanning Seminar, an information-packed few hours that will change your view of retirement forever. There’s no cost, and no obligation.

For dates, times and locations, click here where you can register online for the seminar of your choice (or call us for assistance during the week). We’ll look forward to meeting you!

(Originally reported at www.nytimes.com)