Can Careful Structuring of a Business Impact Accountability for Quality of Patient Care in Nursing Homes?

I have long been concerned about how quality of care in nursing homes and other long-term care enterprises can be negatively impacted by ways in which daily operations are funded, staffed, supervised, and reported in certain types of enterprises, and especially within certain types of corporate “structures.”  I’m not the only one worried about accountability — and the worries are only becoming more intense the more I talk with individuals, families and their representatives. 

In November 2023, the U.S. Office of Behavioral Health, Disability, and Aging Policy issued a report focusing on several key factual findings from a study of for-profit nursing homes over a multi-year period, from 2013 to 2022:

• The report opened with background facts:  “The nursing home sector has been predominantly for-profit for decades with  approximately 69% of nursing homes owned by for-profit operators. In addition to lower occupancy rates and higher percent Medicaid financing, for-profit facilities generally have been found to have lower staffing and worse
  quality of care.”
• Further, the structures of such enterprises have become more complicated, or as the report summarized: “Moreover, the role of complex ownership structures and their relationship with quality of care has become a growing policy concern. Driven by liability trends, financial pressures, and profit seeking, nursing home assets have become increasingly complex as private equity (PE) and real estate investment trust (REIT) entities have pursued investments in the sector.”
• The report noted that with private investors, the likelihood of worse outcomes for patients increased:  “In our difference-in-differences analyses examining the impact of PE and REIT investment in nursing homes, we find that PE investment results in a 12% relative decline in registered nurse (RN) hours per resident day (HPRD) compared to other for-profit facilities and a 14% relative increase (i.e., worsening) in their deficiency score index. We see a similar pattern for REIT invested facilities, with a 7% relative decline in RN HPRD and a 14% relative increase in deficiency score index.” 

Thus, recent research demonstrates the potential for reduced quality of care, where nursing homes are run by enterprises that seek to increase or even maximize “profit” for investors. 

During the last year, I’ve been following what appears to be an important case involving a variation on concerns about corporations involved in long term care. 

The case involves two levels of corporate involvement, called in this particular instance, “operating” companies and “management” companies.  In addition, while the patient was in residence at the particular nursing home in question, the ownership changed — from one “set” of management/operating companies, to a different “set” with the  same structure.  In the old days, we would often analyze the case to see whether there were grounds to  “pierce” the corporate veil of what was, in fact, a parent/subsidiary relationship.  But, here, the management companies argue they are entirely separate enterprises with no day-to-day responsibilities for operation.  

In the case captioned Newlin et al  v. Vita Healthcare Group, et al., now going up on appeal to the Superior Court, a key issue arises from the decision of the trial court to grant post-trial relief by dismissing all claims against the two “management” companies that were found by the jury to be 65% at fault for the death of a 70 year-old patient in the for-profit nursing home.  Only the “operating” companies — arguably under-insured and owning few assets —  were left to shoulder liability, but they were found by the jury to be only 35% at fault for the resident’s injuries and death. 

Is this outcome proper as a matter of corporate law?  Is it an outcome that further incentivizes companies to create a whole new level of complexity in structures, so as to allow upstreaming of income — the “profit” — while insulating the “management” company from accountability for their management services?   Is this decision a proper reading of prior Pennsylvania corporate case law, especially a line of cases that includes Scampione v. Highland Park Care Center LLC, 57 A.3d 582 (PA 2012) (remanding case to determine whether both management company and nursing home operating company were liable, requiring review of evidence about the resident-entity relationships).  

There is more to this story — and more to come here.