Tackling The Problem Of Nursing Home Shell Companies

Nursing Home

The provision of a safe and nurturing home for the elderly or those who are in some way incapacitated, is the purpose for the development of nursing homes. To ensure that their relatives are offered the best care possible, family members pay large sums of money to nursing homes. In return the residents are offered good meals, somewhere comfortable to sleep, and the opportunity to engage in different activities each day. This is not the situation in all nursing homes however, as some residents experience abuse, whether verbal or physical by staffers or aides, and sometimes they are not allowed to move freely and their money or personal possessions are stolen. The unforgivable acts are sometimes even worse, and this is merely a generalization of the reality. Since the homes are responsible for any acts by their staffers, or any failure to act, they are subject to litigation. The principle used in this case is called “respondeat superior”, where the home can be faced with lawsuits, as a result of their being deemed to have displayed negligence in the hiring of the wrongdoer. The nursing homes have avoided paying however, by employing unique strategies, and this has been evident in several states, such as New York, otherwise known as NYC.

The operators of nursing homes in New York City, according to the explanation on a website which is committed to long-term care and assisted living, in essence use their legal entity status as protection. A term which is commonly used in the media is “shell corporation”. A  shell corporation exists when there is the creation of a legal entity, for the sole purpose of the execution of transactions, while the entity itself does not function as a real company with significant assets. This allows for companies to avoid taxes or being publicly connected with particular transactions. A similar strategy has been followed by nursing homes in NYC, where they set up shell entities, and therefore are able to avoid some taxes, and keep these shells separate from any assets. Since they appear to be asset-less entities, they are considered to not have the ability to pay any damages that may result from a judgment or settlement.  By utilizing this strategy, they are able to avoid suits, and this also makes it extremely difficult for them to be overseen by federal and state agencies, as ownership is attached to a shell entity.


Federal and State Fixes

To tackle nursing homes’ “duck and cover”, there are laws being developed at the federal level in some states. Included in the Patient Protection and Affordable Care Act, which is also referred to as “Obamacare“, there is the Nursing Home Transparency and Improvement Act. This Act provides for the improvement of the quality of care, received by residents in these nursing homes, that receive federal funding through both the Medicare and Medicaid programs. Government and state agencies will also be able, under the Act  to oversee the homes more effectively. The homes that receive federal dollars, will also be required to disclose any information, about the ownership interests of the nursing home operators as well as details on the managers of the operations of the home.  This will address the issue of shell entities in particular. Some of the additional information that will be required includes the finances, overall governance and the operations of the nursing homes. In Connecticut, they have endeavored to encourage transparency, by introducing a new bill in the legislature, that would require companies performing contract work, such as nursing homes that provide rehabilitation services,  to report on their finances.

If the reporting on financing and operations relationships by operators of the homes is strongly enforced, then the apparent tangled web of entities, will be removed, and some degree of transparency will be achieved. Both the government and the public will better understand what the liabilities of these entities are. This will assist in the monitoring of these entities, and the development of measures to alleviate this problem.

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