Building with large H sign for hospital
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There are lots of reasons many community hospitals and nursing homes are at risk of bankruptcy. Thanks to healthcare cuts in the Big Beautiful Bill, many of these institutions are caring for an increasing number of people who no longer have adequate insurance. In addition, unless the institutions are part of a large multi-hospital company, they have difficulty negotiating generous reimbursement from insurers.
Oh, and one more thing. Sometimes the very entities owning these hospitals and nursing homes are purposely bankrupting them, pillaging them of their value to maximize the owners’ profits.
It is a type of self-dealing known as “related-party earnings,” and here is how it works.
An organization – perhaps a private equity firm or real estate company – buys a hospital. It creates a series of “independent” companies. One of them buys the hospital’s land, at a steep discount. It’s easy to get a good price when you’re buying from yourself. The landowning company then rents the property back to the hospital, at a high price. The hospital starts losing money while the landowning company cashes in on the rental income.
Pretty awful. But it’s even worse than that. Sometimes the owner hires an “outside” firm to manage the hospital. But, of course, it owns the management company, too, the hospital effectively functioning as a piggy bank. When the hospital eventually goes bankrupt, the owners still come out with a tidy profit from their related companies.
A group of scholars recently wrote about this problem in the New England Journal of Medicine. They look specifically at nursing homes in Illinois and discovered that two thirds of profits were redirected to owners through these related-party transactions. Is it any wonder that one of the largest nursing home chains, Genesis Healthcare, just filed for bankruptcy?
These actions make me long for the simple old days of credit default swaps!
Fortunately, the authors of the study point out several things states can and should do to prevent these kinds of financial shell games. States should require more transparency about hospital and nursing home ownership, including whether the same group of owners also control real estate and management contracts. States should step up their efforts to audit hospitals and nursing homes, to determine whether profits are being purposefully siphoned to related parties. And when those audits uncover false financial claims, typically about the dire financial situation of the clinical organization, states should take appropriate legal measures.
Hospitals and nursing homes exist to help people out in some of life’s most difficult circumstances. Their ability to help should not be undermined by corporations determined to bleed them dry.