SPECIAL: How a ‘Tangled Web’ of Ownership Conceals Nursing Home Fraud and Neglect

“[Related-party transactions] allows operators to avoid potential financial liability, and some operators use it to siphon funds.” — Lindsay Heckler, supervising attorney at the Center for Elder Law and Justice.

By Steve Wishnia

Editor’s Note: This is part one of a special two-part Work-Bites series on New York State’s nursing home crisis.

A growing business model among nursing-home owners is connected to worse care, worse conditions, and worse pay for workers — and its structure makes it much harder to regulate.

Two-thirds of New York State’s 604 nursing-homes engage in what’s known as “related-party transactions,” in which the operator, the landlord, the administrator, and more are all separate companies, but owned by the same group of people or their associates. According to state Medicaid cost-report figures from 2021, more than three-fourths of the 392 for-profit nursing homes have related companies, as do more than half the 184 nonprofit facilities.

That business model has emerged as a problem in New York State over the past decade or so, says 1199SEIU policy analyst Dennis Short. Its structure sometimes has legitimate economy-of-scale purposes, he notes: A chain that owns five nursing homes doesn’t have to have separate payroll-processing staff at each one. But it is often a way for owners to funnel Medicare and Medicaid payments intended for residents’ care to other companies they own, and blur who is responsible for what.

“It allows operators to avoid potential financial liability, and some operators use it to siphon funds,” says Lindsay Heckler, supervising attorney at the Center for Elder Law and Justice in Buffalo. “It’s really a tangled web.”

The result, says Richard Mollot, executive director of the Manhattan-based Long-Term Community Care Coalition, has been a decrease in quality “across the board,” as “bloated administrative costs” and low staffing are “ways to maximize income.”

Private-equity ownership has not had much of an impact in New York, he says, but its business model “has pervaded the industry” over the past 10 years. For-profit nursing homes in the state, he explains, now tend to be owned by groups of private investors, such as the networks centered around Benjamin Landa and Ephram Lahasky, which each own well over 100 nursing homes, spread across several states.

When these investor groups acquire nursing homes, they typically sell the land it’s located on to a real-estate company they or related investors own, and rent it back to the operator. “You can charge yourself as much rent as you can get away with,” says Short. They usually hire another related company to administer the business. Sometimes, they even hire staff through a related employment agency, says Grace Bogdanove, 1199SEIU’s vice president for nursing homes in Western New York.

The Cold Spring Hills nursing home in Woodbury, Long Island, which state Attorney General Letitia James sued for fraud last December, had 13 related companies. The Attorney General accused the owners of the 588-bed facility of using that structure to divert $22.6 million in Medicaid and Medicare funds intended for resident care through “self-dealing,” while cutting staffing.

Those 13 companies included Cold Spring Realty Acquisition, which the suit said had fraudulently collected more than $15.3 million in rent from 2017 to 2021; three consulting companies; three insurance brokers; and Comprehensive Care Solutions, which was hired to provide services and supplies. It also alleged that the main owner had listed his two daughters as straw owners.

The results, it charged, were that “residents were routinely left sitting in soiled briefs and were not bathed for long periods of time,” and the facility failed to prevent sores and wounds or provide proper care for them. One diabetic man, it said, died from an infection he developed after having to drag his feet on the floor because he was given a wheelchair without footrests.

Benjamin Landa and his daughter Esther Farkovits were listed as co-owners of Cold Spring Hills. Landa and his son-in-law Joshua Farkovits are also co-owners of Ephram Lahasky’s The Villages at Orleans, a nursing home east of Buffalo which James sued on similar grounds last November. Lahasky and Joshua Farkovits each own 19% of Comprehensive Care at Williamsville, a nursing home in the Buffalo suburbs whose owners overlap with those of The Villages.

Lahasky and two other co-owners of Williamsville and The Villages, David Gast and Sam Halper, jointly own Comprehensive Healthcare Management Services, which the two facilities hired to handle administrative services.

Williamsville, where workers demanding better pay and more staffing went on strike for 24 hours in mid-May, has the highest turnover rate of any nursing home in Erie County, Buffalo and its suburbs, says Bogdanove. With 100 residents, she adds, it should have at least 18 full-time staff, from licensed practical nurses to housekeeping.

Williamsville has only five, supplemented by temporary workers, she says.

‘Extremely poor’ oversight

“We’ve always had bad owners,” says Mollot, but the new breed of investor groups “just suck the money out.” Nursing homes are ripe fruit for predatory owners, “because the customer can’t leave,” and they provide steady income because Medicaid and Medicare pay set daily amounts for each patient.

“Extremely poor oversight,” he adds, means “you can do a lot less than what the law calls for and still get paid a lot of money.”

Finding out where the money is going, however, is difficult, because “there are so many levels of ownership” and “not a lot of transparency.” It’s very difficult to get information on who actually owns a limited-liability corporation, Mollot explains.

“We just don’t know” the nature of the ownership of many nursing homes and their major contractors, he adds.

A blatant indicator of how much money is not going to care, however, came in December 2021, when the owners of 239 nursing homes in New York filed a lawsuit in federal court to block a new state law that limited operators to a 5% annual profit and required them to spend 70% of revenue on care for residents.

That law, they argued, would have “confiscated” $510 million from them if it had been in effect in 2019, with each individual plaintiff listing the “penalty” they claimed they would have to pay under the profit limits and care minimums.

That money, Mollot says, would have been enough for them to hire almost 5,000 more registered nurses. More than five-sixths of the facilities in the suit did not meet the minimum nursing-care staffing standards, the Long-Term Community Care Coalition said, and 36 of them had either gotten a one-star rating from the federal government, its lowest, or been singled out for “a history of serious quality issues.”

That lawsuit “really did highlight how much money is not going to care,” says Scott. “The objection to that law is not ‘we’re going to have to spend more.’ It’s ‘we’re going to have to change our priorities.’”