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Nursing homes complain they’ll lose $500M under profit cap. Watchdog says it just proves money 'is not going to resident care’

Bronx nursing home resident James Galbert receives his first dose of the COVID-19 vaccine in December of 20200.
New York State Department of Financial Services
Bronx nursing home resident James Galbert, 67, receives his first dose of the COVID-19 vaccine in December of 2020.

A recent lawsuit shows New York nursing homes would have to pay back over a half-billion dollars in excess profits under the state’s new profit cap law, but industry critics say the disclosure just proves nursing homes aren’t spending enough on resident care.

The profit cap, passed as part of last year’s state budget, will limit nursing home profit margins to 5% and mandate at least 70% of revenue go toward caring for residents. It was supposed to take effect Jan. 1, but was paused by Gov. Kathy Hochul on New Year’s Eve due to a statewide shortage of health care workers.

Two days before the pause, nursing homes across New York filed a federal lawsuit against the profit cap, alleging it’s unconstitutional for the state to confiscate their excess revenue.

Buried within the 130-page complaint was a disclosure from every plaintiff nursing home about how much money they would have had to pay back to the state had the profit cap been in effect in 2019.

Altogether, they disclosed over a half-billion dollars in annual excess profits, at a time when the industry claims it’s struggling financially.

“I think it should be a wake-up call,” said Richard Mollot, executive director of the Long Term Care Community Coalition, a New York City-based watchdog group that advocates for better nursing home care.

LTCCC analyzed the figures from the lawsuit and found 238 plaintiff nursing homes disclosed a total of $510 million. The complaint itself estimates that the approximately 600 nursing homes statewide would pay back a total of $824 million.

Mollot said this disclosure is a big deal. These kinds of figures are not publicly available, and may contradict nursing homes’ argument that they’re struggling financially and need more taxpayer-funded Medicaid dollars.

“The industry is claiming that it's razor-thin margins, or sometimes even claiming that they're losing money,” he said. “When in fact, we have a lot of nursing homes that are coming out and saying that if they had to do a 5% margin, they'd be out hundreds of thousands, if not even more, per year. Wow.”

LTCCC’s estimates that the $510 million in excess profits could have been used to hire over 5,600 additional registered nurses, and was the equivalent of over 26 million additional hours of nurse aide care.

“It's really been an eye opener, and I hope that it's an eye opener for people in the legislature and for the governor as well that there is a lot of money floating around here that is going to nursing homes, but not going to resident care,” Mollot said.

However, LTCCC’s report, titled “NY nursing homes admit excess profits,” is getting pushback from the nursing home industry.

“I can't imagine that our lawsuit admitted excess profits,” said Neil Murray, an Albany-based attorney who filed the lawsuit on behalf of nursing homes. He added facilities only disclosed their profits to show just how much the profit cap will hurt their bottom lines.

The biggest problem with the profit cap, Murray argued, is it punishes all for-profit nursing homes, regardless of the quality of care they provide.

“The target here should not be, ‘Oh, let's ding a facility because they made a profit.’ They should be aiming with a rifle as opposed to a shotgun,” he said. “You don't go after facilities that are doing OK.”

It’s true that plenty of highly-rated nursing homes are involved in the suit. In fact, the upstate nursing home that disclosed the most profit is considered the highest quality by the federal government.

Autumn View Health Care Facility in Hamburg is rated five out of five stars, but says it still would have had to give back $7 million had the cap been in effect in 2019. That was the most money of any Western New York nursing home involved in the suit, and the most of any nursing home outside of New York City.

Autumn View’s owner, Edward Farbenblum, said in a written statement that the profit cap will negatively impact well-run nursing homes, while not addressing low Medicaid reimbursement rates and the health care workforce shortage. He added the profit cap, which mandates at least 40% of revenue be spent on care staff, will force high-quality nursing homes to “poach additional staff it doesn't need to run a quality operation from surrounding facilities who might indeed need that staff.”

Farbenblum also highlighted Autumn View’s status as a five-star nursing home, saying it’s the only New York nursing home west of Syracuse to get consecutive five-star ratings since the inception of the rating system in 2008.

“A facility that’s 5-star rated is one that’s reflective of a deep-seated commitment to quality at every level,” he said.

But Mollot said star ratings don’t tell the whole story. He noted Autumn View, for example, is rated five stars overall, but is rated just two stars, meaning below average, when it comes to staffing levels.

Mollot said just because a for-profit nursing home is highly rated, it doesn't automatically mean it's providing the best care it possibly can.

“Because the state does a poor job in identifying problems, a lot of facilities have higher ratings for their survey than is really indicative of the quality and safety they're providing,” he said. “If a facility has one, two or three stars, you can be pretty well assured that there are some serious problems there. However, if a facility has four or five stars, that doesn't necessarily mean that it's providing good care. You can have a five- or four-star and that does not mean you're going to get good quality care, unfortunately.”

On Sunday, Hochul extended her pause on the profit cap for another 30 days until March 1. As for the lawsuit, Murray said he doesn’t expect any major developments until at least the end of March.

Tom Dinki joined WBFO in August 2019 to cover issues affecting older adults.
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