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Tackling the Problem of Nursing Home Shell Companies

The purpose of nursing homes is to provide a safe and nurturing home for the elderly or otherwise incapacitated individuals. Residents or their families often pay handsome sums of money to nursing homes to take care of the residents – to ensure they eat well, sleep comfortably, and have opportunities to be active and engage in various activities if they wish on a daily basis. However, in some nursing homes residents suffer the opposite. Staffers or aids abuse the residents in some cases by not giving them food, keeping them immobile, and even physically or verbally abusing them, or even stealing their money. This is a mere generalization of the often unforgiveable acts that go on at some nursing homes, and the abuse can be varied and far worse. Nursing homes open themselves up to litigation, as they are responsible for the acts, or failures to act, of their staffers. This is through a principle known as “respondeat superior,” and a lawsuit can also be brought on the basis of negligent hiring of the wrongdoer. Nursing homes, however, have strategized in a unique way to avoid paying up. This has occurred in various states.

As explained on a website dedicated to long-term care and assisted living, operators of nursing homes essentially hide behind their legal entity status. A fairly common term seen in the news is “shell corporation.” A shell corporation exists where a legal entity is created for the purpose of conducting transactions, while the entity itself does not actually hold significant (or any) assets and essentially does not operate as a real company. It allows companies to avoid certain taxes or to prevent notable public association with certain transactions. Nursing homes have effectively adopted this same strategy. Nursing home operators set up shell entities that have the same benefit of avoiding certain taxes, and essentially keep assets away from these shells. In doing so, these owners hide behind an asset-less entity that could not pay a damages judgment or settlement amount. By being judgment proof, they essentially cover themselves from being sued. This also makes federal and state oversight more complicated as ownership resides in a shell entity.

Federal and State Fixes
At the federal level and in certain states, laws are here or on the way to combat nursing homes’ “duck and cover.” The Patient Protection and Affordable Care Act, otherwise known colloquially as “Obamacare,” included within it the Nursing Home Transparency and Improvement Act. Its provisions are meant to improve the quality of care for residents of nursing homes that are recipients of federal dollars through Medicare and Medicaid programs. The law also provided for stronger oversight of nursing homes by both federal and state agencies. Particularly relevant to the issue of shell entities, nursing homes receiving federal dollars to disclose information about the ownership interests in the nursing home operators as well as who manages the homes’ operations. Additional required information involves finances, operations and overall governance. Certain states also have sought to encourage transparency, such as in Connecticut where a new bill in the legislature would require reporting on the finances of companies that do contract work, such as in rehabilitation services, with nursing homes.

By enforcing reporting by nursing home operators on their financial and operations relationships to other entities, the tangled web of entities that shield the operators from liability can be at least somewhat untangled and better known and understood by the government and the public. This will help bolster oversight and possibly pave the way for fixes to this problem.

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