Corporate neglect in nursing homes: over the years, government agencies and independent investigators have found rampant abuse and neglect in nursing homes. So far, nursing home owners have evaded responsibility, but that may be starting to change.

We think of nursing homes as safe havens, places where people go when they can no longer be cared for at home. Federal law--and common decency--demands that these homes provide their residents with a comfortable and dignified existence. (1) While many facilities do live up to this nurturing ideal, too many others have failed.

In lawsuits and newspaper articles, stories about ill treatment and shoddy medical care at nursing homes are making regular appearances. How did this sad situation come about?

To its residents, a nursing home is home; but to the owner, it is a business. These two propositions do not necessarily have to conflict with each other, but many owners have put their desire for profits over the residents' needs, and the result is unnecessary suffering.

Most of today's nursing homes are operated by for-profit companies owned by large corporate chains. According to the American Health Care Association, in December 2007, there were 15,772 certified nursing homes in the United States, housing 1.4 million residents. (2) June 2008 data shows that for-profit nursing homes account for 67 percent of all facilities, and 53.3 percent are owned by multi-facility organizations (chains). (3)

This was not always the case. Before 1965, most nursing homes were mom-and-pop operations. In 1965, Congress passed Medicare and Medicaid legislation and allowed these services to pay for residential care, giving nursing homes an influx of government money that caught the eye of investors. This was the genesis of corporate investment in the nursing home industry, a presence that dominates the field today.

Last year, Ronald Silva, president of an investment firm that recently purchased one of the larger corporate nursing home chains in the country, told the New York Times that "there's essentially unlimited consumer demand as the baby boomers age.... I've never seen a surer bet." (4) As of June 2008, Medicaid paid for the care of 63.8 percent of all nursing home residents, and Medicare covered the care of 13.9 percent. This means that federal and state tax dollars paid for the care of nearly 78 percent of all residents. (5)

Congress enacted regulations for nursing homes in the late 1960s and early 1970s. These largely focused on the homes' structural capacity to provide care and not on the quality of resident care. In the mid-1970s, reports of sub-standard care, fraud, and abuse began to surface. In 1986, the Institute of Medicine (IOM) issued a study of nursing homes that recommended several legislative changes to ensure better care. (6)

In 1987, many of the IOM recommendations became law. Regulations promulgated under the Omnibus Budget Reconciliation Act of 1987 (OBRA 87) stated that residents are entitled "to attain or maintain the highest practicable physical, mental, and psychosocial well-being." Any nursing home that receives Medicare or Medicaid funds must abide by the regulations, and violators are subject to sanctions. (7)

Other provisions forbid the use of physical or chemical restraints for discipline or convenience and outlaw clinically avoidable pressure

sores or contractures (loss of motion). (8) The rules mandated nutritional standards that would maintain a resident's bodyweight and hydration at healthy levels and established the standard that all facilities have sufficient staff to ensure the delivery of these services.

Perpetual problems

The laws look good on paper, but reports by many government and non-profit organizations have indicated that serious problems still exist in nursing homes. In July 2003, the Government Accountability Office (GAO) told Congress that the proportion of nursing homes with serious quality problems was "unacceptably high." (9) And in March 2007, the GAO reported that efforts to strengthen federal enforcement of nursing home regulations had not deterred some homes from repeatedly harming residents. (10) Exposes about nursing home abuse have become regular features in newspapers and on television.

Many of these problems are not hard to fix. The most common injuries to residents--pressure sores, contractures, malnutrition, dehydration, falls, and injuries due to medication errors--could easily be avoided if the nursing homes complied with the federal regulations and were sufficiently staffed.

In a June 2002 report to the Senate Committees on Aging and Finance, the GAO determined that the quality of care in nursing homes is related more to staffing than to spending. (11) "In the states we examined," the report said, "nursing hours per resident day--especially nurses' aide hours--were related to quality-of-care deficiencies, with homes providing more nursing hours being less likely to have identified quality problems than homes providing fewer nursing hours."

Researchers at the University of California, San Francisco, analyzed nursing home staffing from 1999 through 2005 and found that the average number of hours per resident day for registered nurses had declined from 0.8 in 1999 to 0.6 in 2005, while the average number of hours per resident day for licensed practical nurses remained constant at 0.7 during the same time period. The average number of nursing aide hours increased, from 2.1 to 2.3. In 2005, the number of nursing staff hours per resident day totaled 3.7. (12)

That same analysis showed that the average number of deficiencies per facility increased from 5.7 in 1999 to 9.2 in 2004, but then decreased to 7.1 in 2005. The average number of nursing hours has remained essentially flat, while the quality of care has not improved--or has decreased.

Evidence points to a link between the number of staff hours and problems at nursing homes. Put simply, the higher the number of staff hours, the better the care, and the lower the number of staff hours, the worse the care.

In testimony before the Senate Special Committee on Aging in 2002, the GAO said the number of nursing "homes cited for deficiencies involving actual harm to residents or placing them at risk of death or serious injury remained unacceptably high." (13) In another report to Congress that same year, the GAO said more could be done to protect residents from abuse, specifically physical and sexual abuse. (14)

The Office of the Inspector General of the U.S. Department of Health and Human Services found that in 2001, 89 percent of nursing homes were cited for at least one deficiency, an increase of 8 percent from 1998. Even more alarming, the proportion of nursing homes that received a deficiency citation in any of the three "quality of care" categories increased from 70 percent in 1998 to 78 percent in 2001. (15)

The obvious question is: Why don't nursing homes just hire more staff and provide better care? It seems a simple solution. The answer is simple, too: profits. The two largest items in a nursing home's budget are its number of residents (or census) on the revenue side and nurse and nurse aide staffing on the expense side. Since staffing is the easiest expense to control, a nursing home owner can make money quickly and easily by reducing the size or hours of its nursing staff. A dollar not spent or budgeted for staffing falls directly to the bottom line.

A facility that does not have adequate staff can refuse to admit more residents or discharge some of its residents. The law requires that facilities accept or keep residents only when they can provide for their needs. (16) But nursing homes are reluctant to do this because they would give up the revenue that the residents bring in. So the result is that the homes continue to take in more residents without hiring more staff.

A study commissioned by Congress in 2002 concluded that an increase in Medicare payments--aimed specifically at spurring more hiring in nursing homes--resulted in very slight changes in staffing levels.

The nursing home industry claims it is not making enough money to beef up its staff. In 2006, the Centers for Medicare and Medicaid Services (CMS) estimated that $124.9 billion was spent on nursing home care. Of this, $78.1 billion was paid by the federal government and $46.8 billion by private funds.

In comparison, in 1970, CMS estimated that the money spent on nursing home care totaled only $4 billion. Surely an increase of more than $120 billion should be adequate for the industry to provide care that meets government standards and also to make a reasonable profit.

In 2002, U.S. News and World Report conducted an investigation of nursing homes' claims that their expenses out-stripped their profits. The magazine found that many nursing homes had healthy profit margins--often 20 percent to 30 percent--and that substantial portions of their revenues were diverted into subsidiary or related companies. As much as $3.4 billion went into these so-called related-party transactions, which typically involve exporting profits to a nursing home's parent company, allocating some of the parent company's costs to the nursing home, and purchasing goods and services from related-parties. US. News determined that this self-dealing was widespread, with 7 out of 10 homes engaged in such practices. (17)

The investigation also uncovered the fact that much of the money pumped into nursing homes by the federal government had not been spent on staffing increases.

The corporate shell game

Since big business started running nursing homes, there has been a constant struggle among the corporations, the regulators, and the residents, but increasingly, the profit motive has been winning out. And nursing home owners have discovered ways to avoid responsibility when abuse is discovered. Many, for instance, set up myriad "buffer" corporations to insulate the real decision-makers from liability and hide corporate assets.

In the fall of 2003, the Journal of Health Law published an article for its readers in the industry describing how to work this corporate shell game. (18) As the article noted, nursing homes face serious potential risks: exclusion from Medicare and Medicaid, financial liability for government overpayments, and tort claims. The article advised nursing home owners to set up multiple corporations, separating the real estate investment from the nursing home operation and creating a limited liability corporation for each individual nursing home in the corporate chain.

Under this scenario, the corporation that owns and operates the nursing home would lease the real estate from the corporation that owns the real estate. The authors recommended doing this for each home in the corporate chain, leading to endless layers of managerial responsibility. And since some homes may be connected to hundreds of separate corporations, this manipulation makes it appear that the nursing home has no substantial assets, meaning it cannot reimburse the government for any Medicare or Medicaid overpayments, and it cannot pay damages to the victims of its neglect.

To make matters worse, many corporations that were once publicly held have become private, making it even more difficult to determine who is really running the show and is ultimately responsible for bad decisions. Many of these corporations no longer carry any liability insurance; some carry inadequate amounts. Lawyers representing injured residents and their families face an enormous challenge pinning down exactly who should be held accountable for abuse or neglect.

Recently, the New York Times examined data collected by government agencies from 2000 to 2006 and concluded that some nursing homes that were acquired by large private investors had cut staff and other expenses to levels below the legal minimum requirements. And many of these homes scored worse than the national averages in 12 of 14 indicators that regulators use to track ailments of nursing home residents. (19)

In the past, the liability of these parent corporations or individual decision-makers was predicated on the legal theory of piercing the corporate veil. While this theory may still work in some instances, corporate defense attorneys have developed solid strategies to defeat it, so your best approach is to pursue alternative liability theories.

The strongest cause of action in these circumstances is an action for direct liability against a parent corporation and its executive decision-makers. Executives who know that residents are being neglected--know that adequate resources, including staff, are not being provided--and reward administrators for increasing profits instead of providing good care can and must be held responsible.

One recent case that illustrates this principle of direct liability well, although it is not a nursing home case, is Forsythe v. Clark USA, Inc. (20) A parent company, an oil refiner, instructed one of its subsidiaries to use a budget strategy that required the subsidiary to cut operating costs for training, maintenance, supervision, and safety. As a direct result, unqualified and untrained employees caused a fire that killed two people.

The Illinois Supreme Court held that "a parent corporation can be held liable if, for its own benefit, it directs or authorizes the manner in which its subsidiary's budget is implemented, disregarding the discretion and interests of the subsidiary, and thereby creating dangerous conditions." (21)

In nursing homes, the link between staffing and quality of care is clear. If cuts in staff and resources in a nursing home lead to harm, then whoever made the decision to make those cuts should be held accountable to those harmed by it.

One observer summed up eloquently the challenges plaintiff lawyers face in nursing home litigation:

   Care in the health field is a word with a
   double meaning: It means to provide for
   the needs of the patient, but it also means
   to care what becomes of another human
   being. Caring does not come naturally to
   the businessmen who run nursing homes,
   not to bureaucrats either; one cannot legislate
   caring. Why should we care? Not, I
   believe, for the money alone. Most of this
   book has been about the money--the profits
   nursing home operators make on the
   tax revenues guaranteed to them by government.
   It is important for the public to
   know the facts set forth here, but that is not
   all of it. If it were, we could respond that,
   well, it's only money, and other industries
   are stealing from us on a vaster scale. But
   the nursing homes are stealing more from
   us--they are stealing lives, not just money.
   At the very heart of things, then, the message
   of this book is about people.

Considering the recent interest in nursing home regulation and the rise in litigation, you might think this passage was written recently. But the excerpt is from Mary Adelaide Mendelson's book Tender Loving Greed, published in 1974. (22)

Unfortunately, the problems that Mendelson documented still exist today. They may even be growing.

As lawyers who care about people, and who want to hold the greedy accountable for stealing lives, it is up to us to see that they stop. It is up to us to see that these problems do not continue for yet another generation.

AAJ Resources

More on nursing homes

Visit the Web links below for additional information.

* AAJ Education seminar: "Litigating Nursing Home Cases," October 3-4 in Austin, Texas

www.justice.org/education

* Litigation packets: "Nursing Home Litigation: Beverly Enterprises, Inc.," and "Nursing Home Litigation: Nursing Errors"

www.justice.org/exchange

(click on "Litigation Packets")

* Nursing Homes Litigation Group

www.justice.org/litgroups

RELATED ARTICLE: Nursing home death shows need to ban mandatory arbitration.

When William Kurth entered the Mount Carmel Medical and Rehabilitation Center in Burlington, Wisconsin, his family believed he would be well cared for in his old age. Eight months later he was dead, after suffering broken bones, infections, and bedsores that were treated negligently--or not at all--by nursing home staff.

"Mr. Kurth died with more than 10 pressure ulcers, severe malnutrition, and dehydration. The nursing home's behavior was egregious," said Jason Studinski of Portage, Wisconsin, who represents Kurth's widow, Elaine, and his children, David and Kim, in their wrongful death lawsuit against Mount Carmel's parent company, Kindred Healthcare, Inc.

"From the outset, Elaine Kurth remined me with one simple directive: We have to shine a light on their terrible care and fraudulent practices so that this won't happen to anyone ever again," he said.

That goal has been thwarted because Elaine unwittingly signed a mandatory arbitration contract when admitting her husband to the facility, Studinski said. In March, a trial court rejected the Kurths' argument that the agreement was unenforceable and ordered the case to arbitration.

While the case is on appeal, the family has taken their story to another forum: the U.S. Senate. Studinski saw the case as clearly demonstrating the need for the Fairness in Nursing Home Arbitration Act of 2008 (S. 2838), sponsored by Sens. Mel Martinez (R-Fla.) and Herb Kohl (D-Wis.). The legislation would ensure that arbitration is voluntary by prohibiting the enforcement of mandatory, predispute arbitration clauses.

David Kurth spoke for the family at a June hearing on the bill. "The practice of coercing our senior citizens who enter nursing homes to sign binding mandatory arbitration clauses has allowed nursing home corporations to minimize the level of care they provide.

It also allows them to do so without anyone finding out about it," he told members of the Judiciary Subcommittee on Antitrust, Competition, and Consumer Rights and the Special Committee on Aging.

Kurth testified that his father fell and broke his hip at the nursing home. After a hospital stay, he returned to the home, where his leg was broken again during improper physical therapy. He then contracted an antibiotic-resistant staph infection. Despite the infection, he was placed in a "filthy" room in the Medicaid wing of the facility, where he shared an equally unclean bathroom with three other men. Nursing home staff took no precautions to protect roommates, visitors, or themselves from the communicable infection.

Meanwhile, a doctor on a monthly visit found two or three small bedsores and recommended follow-up by the facility's wound care team. However, as a cost-cutting measure, the team had been disbanded, and the work was left to one nurse, who failed to attend to Kurth's wounds.

While at the nursing home, Kurth was kept heavily sedated and not provided food or even water for days at a time, David Kurth testified. When the doctor returned on another monthly visit, he found William Kurth in dire shape and sent him to the hospital emergency room. "He told us how shocked he was at the poor care my father had received at the nursing facility," said David Kurth. Shortly after, his father died from sepsis due to infections caused by multiple bedsores that ran deep into his hip and pelvic bones.

"This is not the most shocking part," David Kurth told the senators. "My father's ordeal is being hidden from the light of day by an arbitration clause which he himself never signed. My mother was instructed to sign it by the admission clerk at the nursing home. The parent corporation of the nursing home.., is hiding behind this document to prevent the light of truth from being shed on [its] corrupt management policies for nursing homes."

Kurth urged the committee to pass the arbitration bill. "Without these contracts to hide behind, nursing homes will have a greater incentive to provide the quality of care that families and legislators expect from them," he said. "The entire industry will have to reassess [its] poor practices and actually provide the care [it is] paid to give."

"The Kurth family has worked tirelessly against overwhelming odds to open the courthouse doors for future claimants," Studinksi said. "Elaine Kurth did what her husband would have wanted her to do. She has worked and will continue to work to inform her community about these agreements and the crisis of care in our nursing homes, protect the public from similar wrongs, and avenge her husband's tragic death."

The bill is currently pending in the Senate Judiciary Committee.

--REBECCA PORTER

Notes

(1.) See 42 C.F.R. [section]483.10 (2008).

(2.) Am. Health Care Assn., Trends in Nursing Facility Characteristics 3 (Dec. 2007), www.ahcancal. org/research_data/trends_statistics/Documents/ trends_nursing_facilities_characteristics_Dec 2007.pdf.

(3.) Am. Health Care Assn., Nursing Facility Ownership: CMS-OSCAR Data Current Surveys, June 2008 (June 2008), www.ahcancal.org/ research_data/oscar_data/Nursing%20Facility %20Operational%20Characteristics/Nursing _Facility_OwnershipJun2008.pdf.

(4.) Charles Duhigg, At Many Homes, More Profit and Less Nursing, N.Y. Times (Sept. 23, 2007).

(5.) Am. Health Care Assn., Nursing Facility Patients by Payor-Percentage of Patients: CMS-OSCAR Data Current Surveys, June 2008 (June 2008), www.ahcancal.org/research_data/oscar_data/ NursingFacilityPatientCharacteristics/patients_ payer_Jun2008.pdf.

(6.) Inst. of Med., Improving the Quality of Care in Nursing Homes 203-10 (Natl. Acad. Press 1986).

(7.) 42 C.F.R. [section]483.25 (2008).

(8.) 42 C.F.R. [section][section]483.13(a), 483.25(c)(1), 483.25(e) (1) (2008).

(9.) GAO, Nursing Home Quality:Prevalence of Serious Problems, While Declining, Reinforces Importance of Enhanced Oversight 1 (Pub. No. GAO-03-561,2003), www.gao.gov/new.items/d03561. pdf.

(10.) GAO, Nursing Homes: Efforts to Strengthen Federal Enforcement Have Not Deterred Some Homes from Repeatedly Harming Residents (Pub. No. GAO-07-241, 2007), www.gao.gov/new.items/d07241. pdf.

(11.) GAO, Nursing Homes: Quality of Care More Related to Staffing than Spending (Pub. No. GAO-02431R, 2002), www.gao.gov/new.items/d02431r. pdf.

(12.) Charlene Harrington et al., Nursing Facilities, Staffing, Residents, and facility Deficiencies, 1999 through 2005 tbl. 31, at 73 (U. Cal., San Francisco Sept. 2006),www.pascenter.org/documents/ OSCAR2005.pdf.

(13.) GAO, Nursing Homes: Many Shortcomings Exist in Efforts to Protect Residents from Abuse 1 (Pub. No. GAO-02-448T, 2002), www.gao.gov/ new.items/d02448t.pdf.

(14.) GAO, Nursing Homes: More Can Be Done to Protect Residents from Abuse 4 (Pub. No. GAO-02-312, 2002), www.gao.gov/new.items/d02312. pdf.

(15.) U.S. Dept. Health & Human Servs., Off. of the Inspector Gen., Nursing Home Deficiency Trends and Survey and Certification Process Consistency 7 (Pub. No. OEI-02-01-00600, 2003),www. oig.hhs.gov/oei/reports/oei-02-01-00600.pdf.

(16.) See e.g. 42 C.F.R. [section]483.25 (2008).

(17.) Christopher Schmitt, The New Math of Old Age: Why the Nursing Home Industry's Cries of Poverty Don't Add Up, U.S. News & World Rep. (Sept. 22, 2002).

(18.) Joseph E. Casson & Julia McMillen, Protecting Nursing Home Companies: Limiting Liability through Corporate Restructuring, 36 J. Health L. 577 (2003).

(19.) Duhigg, supra n. 4.

(20.) 864 N.E.2d 227 (Ill. 2007).

(21.) Id. at 299.

(22.) Mary Adelaide Mendelson, Tender Loving Greed: How the Incredibly Lucrative Nursing Home Industry Is Exploiting America's Old People and Defrauding Us All (Knopf 1974).

DAVID COUCH is a lawyer in Little Rock, Arkansas. He can be reached at [e-mail].