North Coast Assemblymember Jim Wood is again trying to ensure that more of government funds allocated to care for some of California’s most vulnerable residents are actually spent on patient care.
Wood announced Feb. 27 that he had introduced Assembly Bill 1537, which would require that skilled nursing facilities (SNFs) spend a minimum of 85 percent of all non-Medicare revenue on the direct care of their residents. The bill is almost identical to one Wood introduced last year that passed the Legislature only to be vetoed by Gov. Gavin Newsom.
In a press release, Wood noted that California’s estimated 1,200 skilled nursing facilities receive revenues approaching $11 billion annually and care for nearly 100,000 patients, saying “we have a responsibility to ensure that they are receiving the best care and given the dignity they deserve.”
As the Journal has reported (“Profit … and Pain,” Nov. 17), state reports indicate that Humboldt County’s four primary skilled nursing facilities — all owned by Shlomo Rechnitz’s Brius Healthcare, which operates nearly 80 facilities throughout California — have increasingly used a complex web of so-called “related-party transactions” to rack up profits. These transactions allow a company to purchase goods or services from another company under the same ownership. Perhaps the most notable example of this in Humboldt County is Brius’ practice of having its individual facilities pay rent to occupy their properties, which are owned outright by related company. At the same time, state inspection and complaint investigation reports indicate the Humboldt facilities have struggled with short-staffing and provided substandard care.
In his press release, Wood notes this is a statewide problem, with nearly $1 billion in skilled nursing homes’ revenue in 2020 paid to these “related parties.”
“About 60 percent of SNFs are owned or leased by multi-facility organizations that have increasingly complex ownership structures, including related-party companies,” he said. “These complex business structures allow SNF owners to pay themselves, and even their family members, rent on buildings they already own, to charge their SNFs hundreds of thousands of dollars for undefined management fees and administrative services and to loan themselves money that may never be repaid.”
A Journal analysis of spending by Humboldt County’s four Brius facilities found they paid $31.5 million to affiliated companies between 2018 and 2021, with related-party transactions accounting for about 44 percent of their spending. This included each facility paying flat fees of $42,000 to a Rechnitz-owned company for “office expenses,” them combining to pay a workers’ compensation company based in the Cayman Islands $3.5 million and each paying roughly $1 million to lease their properties from a Rechnitz-controlled third-party. The list goes on.
Tony Chicotel, a staff attorney for the nonprofit advocacy group California Advocates for Nursing Home Reform (CANHR), applauded Wood for again bringing his bill forward, though he doubts it will have a significant impact.
CANHR supported an initial version of Wood’s bill last year that would have required SNFs spend at least 85 percent of their total revenue on direct patient care but switched its stance to “neutral” after its language was changed to remove MediCare revenue — about 25 percent of the facilities’ total revenue — from the percentage of money to be dedicated to patient care. Chicotel said the neutral stance was intended, in part, to reflect the organization’s “opposition to the changes” — changes he believes were made as an overreaction to nebulous California Department of Public Health concerns that the across-the-board 85-percent requirement might run afoul of federal pre-emption laws that prevent a state from directing how federal dollars can be spent.
When it comes to the Wood’s new proposal, Chicotel said CANHR hadn’t developed an official stance, though he expects the organization will ultimately support the bill. But he expects its impact will be limited.
Explaining why, he said the average SNF in the state takes in about $10 million annually in revenue from all sources and, according to data from the California department of Health Care Access and Information, currently spends about 64 percent ($6.4 million) of that directly on patient care, with the remaining 36 percent spent on other things. If Wood’s bill applied to all the facility’s revenue, it would raise the amount required to be spent directly on patient care by more than $2 million. But exempting Medicare from the calculation, Chicotel said, means the facility would only be required to pay about $6.4 million on direct patient care, which the data indicates is pretty much the status quo, though he stressed the bill would likely raise the bar for some of the worst offending facilities.
The truth, Chicotel said, is that SNF operators will continue to work on ways to game the system, extracting profits through related parties — doing things like purchasing insurance policies with premiums larger than the coverage itself — while crying poor and lobbying the Legislature for more funding and other organizations for higher reimbursement rates.
“It’s the kind of stuff that screams of fraud,” he said.
Wood’s bill does take some steps to reign in the potential abuses of related-party transactions, though. For example, it only allows a facility’s rent to qualify as a direct patient-related expense up to its “fair rental value” as calculated by CDPH, and similarly would only allow professional liability insurance costs to count as “adjusted by the department for profit elimination.”
“SNFs owners are using related-party companies to make themselves millions, hiding profits in other companies they own, while at the same time decreasing staffing in facilities and risking the lives of residents,” Wood in the release. “This bill will require that a larger percentage of revenues – keep in mind the bulk of which are government funds – go directly to patient care, and prevent unethical SNF owners from reaping excessive profits at the expense of California’s most vulnerable residents.”
The problem with the current system, Chicotel said, is that regulators are forced to keep attaching more strings to funding and requiring more transparency as operators find new loopholes to exploit until they’re closed, at which point they’ll find and exploit another.
“For me, the major reform, the one that I’ve been thinking about more and more, is to reduce the government’s role in paying nursing homes directly,” he said. “I think the government is a terrible consumer of long-term care. They’re disassociated with the actual product. They’re paying for a product that they don’t understand, and the consumer is getting a product that they have no control over.”
A potential solution, he said, is the creation of a voucher system that would allow a patient needing care to shop for it directly, whether that be at a SNF or through in-home care givers, cooperatives or other models. Chicotel says he feels skilled nursing homes are a dying model — one that no one wants but has become the status quo. But absent some kind of seismic reform, he said efforts like Wood’s at reform are welcome.
“I applaud Assemblymember Wood for coming back to nursing homes again and again, and trying to help residents,” he said. “It’s a big deal. We just don’t have a lot of legislators who are committed to this population the way Assemblymember Wood is. I’m a little critical of the bill, but the fact that he’s introducing it again says a lot to me.”
Find the full press release from Wood’s office copied below and find text of his bill here.
Assemblymember Jim Wood Introduces Bill to
Maximize Skilled Nursing Facility Revenues Spent on Residents’ Care
Bill establishes a direct care spending requirement of 85 percent
SACRAMENTO–Assemblymember Jim Wood (D-Healdsburg) has introduced AB 1537 to ensure that skilled nursing facilities (SNFs) spend a minimum of 85 percent of non-Medicare health revenues from all payer sources in each fiscal year on direct care services for residents.
“Revenues for skilled nursing facilities in California approach $11 billion and these facilities are home to nearly 100,000 of our most vulnerable Californians,” said Wood. “We have a responsibility to ensure that they are receiving the best care and given the dignity they deserve.”
According to California Department of Health Care Access and Information (HCAI) data, SNFs spend an average of approximately 64 percent of revenues on direct care services and 36 percent on non-direct care services.
“The goal of AB 1537 is to ensure that skilled nursing facility revenues spend a dedicated percentage of their revenues on the direct care of residents, and while there are some financial controls on Medi-Cal spending, there are no controls on spending for private payers,” said Wood.
In 2020, nearly $1 billion in revenues was paid to what is referred to as “related-party” companies for services provided to SNFs, according to HCAI data. Related-party companies all share a percentage of common ownership or control with the SNF owner.
“About 60 percent of SNFs are owned or leased by multi-facility organizations that have increasingly complex ownership structures, including related-party companies,” said Wood. “These complex business structures allow SNF owners to pay themselves, and even their family members, rent on buildings they already own, to charge their SNFs hundreds of thousands of dollars for undefined management fees and administrative services and to loan themselves money that may never be repaid.”
“If this bill had been law in 2020, it would have shifted more than 20 percent of the nearly $11 billion in nursing home revenues to direct care services and away from owner profits and administration, allowing the money to be spent on taking better care of residents by increasing staffing levels and improving other services.” said Charlene Harrington, RN, PhD, professor emeritus at the University of California, San Francisco and noted scholar and author in the field of long-term care, and a member of the Geriatric Circle.
“SNFs owners are using related-party companies to make themselves millions, hiding profits in other companies they own, while at the same time decreasing staffing in facilities and risking the lives of residents,” said Wood. “This bill will require that a larger percentage of revenues – keep in mind the bulk of which are government funds – go directly to patient care, and prevent unethical SNF owners from reaping excessive profits at the expense of California’s most vulnerable residents.”
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This article appears in the Journal’s 2023 Pet Photo Contest.
Why was it vetoed?
Please support the seniors and disabled in our local nursing homes…they deserve better and this man (Sholomo) is making millions and millions off the backs of our seniors. Send Assemblyman Wood a quick email supporting this bill.