Understanding the Nursing Home’s Corporate Structure
Who really owns and controls a nursing home? Complex corporate structures often hide the people and companies responsible for resident care. Understanding these relationships is key to proving accountability. In this week’s episode, nursing home abuse lawyer Rob Schenk welcomes guest Dave Devereaux to explain how nursing home corporate structures work and why they matter in abuse and neglect cases.
Intro
Schenk:
If you’ve ever tried to figure out who actually owns a nursing home, then you may have discovered it’s easier to track down which one of your kids is the one opening the cans of Coke and not finishing them. I’m attorney Rob Schenk. This is the Justice for Residents podcast, and this week I’m talking to Dave Devereaux, longtime nursing home executive and testifying expert on nursing home corporate structures.
We’re discussing mancos, opcos, propcos, and why nursing homes sometimes resemble one of those little nesting dolls. Stick around.
Yee-haw. I I kinda dig that jingle. I think that’s a good one. Good job, AI. You won this week. Talking this week about corporate structure and how nursing homes are able to minimize liability through different corporate setups. If you wanna know more about this subject, then I recommend that you go back to episode 229, where we talk about nursing home corporate structure and proving liability in a court of law.
We did that with Attorney Scott Distasio. That was back in December of ’24 episode 229. Also, I would say also, like extra credit, would be go to episode 214, which came out in 2024, episode 214, and we had Ernie Toshon talking about cost reports. Now, cost reports are essentially the tax returns for nursing homes, and they have a ton of information about what we’re gonna be talking about today, which in, in, it is in part is about related parties, related entities to the nursing home.
So episode 229, episode 214, and that’s your homework and extra credit.
Guest Intro
Schenk:
All right, so let’s talk about Dave Devereaux for a second. Dave Devereaux is the author of Beyond Bed Rails and Bingo: Myths, Truths, and the Future of America’s Nursing Home, which was recently rated number one release for books on nursing home care by Amazon.
So I’m gonna have a link to the show notes. This is what it looks like All right, so be sure to check this book out. Dave is a nationally recognized leader in the field of long-term care, with a career spanning more than 45 years of service, innovation, and advocacy. From his early days as a teenage housekeeper in a nursing home to senior executive roles overseeing multi-state healthcare organizations, Dave has dedicated his career to improving systems of care and the lives of those they serve.
Explore Dave Devereaux’s writing and professional work on his official website.
He holds a BS from Cornell University and an MBA from Temple University. Beyond his professional accomplishments, Dave is known for his philanthropic vision and enduring commitment to education and healthcare delivery. He endowed the chair of Temple University’s Nursing Department in 2006 and established the Visionary Research Fund for Temple’s College of Public Health in 2012.
Together with his wife, Patrice, he founded the University of Georgia Music Therapy Graduate Fellowship and Vision Centers Executive Faculty Development Initiative. In recognition of his leadership and impact, Dave was named a Centennial Honoree by Temple University’s Fox School of Business in 2018. A native of northeastern Pennsylvania, Dave now resides in the south, in south Georgia, with his wife Patrice, continuing to inspire innovation and compassion across the long-term care community.
Follow Dave Devereaux Writes on Facebook for updates and educational content related to long-term care.
We’re really happy to have him on the show, and his bio mentioned that he’s a testifying expert, and he actually has some recent success in California in a 100 million-plus lawsuit against a nursing home chain, and he was a, an expert for the plaintiff’s attorney or the plaintiffs in that particular case.
And you can tell as, as I speak with him that he is a testifying expert because he can break down very complex ideas into very simple bite-sized information that even somebody like a numbskull like me can understand. So I’m really I’m really excited that we had the opportunity to talk. Dave, easy question right off the bat.
What Is the Typical Corporate Structure for a Nursing Home?
Schenk:
I say easy, I’m not the one having to answer it. But first question right off the bat is, can you describe the typical corporate structure in the nursing home setting?
Devereaux:
Yes, sure. The typical structure in a nursing home operation is gonna involve three entities, and the first is the operating company or the licensee, and what I refer to many times is that, that’s called the opco And they’re responsible for the day-to-day operation of the nursing home, taking care of patients, and doing the things that people traditionally associate with a nursing home.
But that’s only the first. There are two others, and the second one is the landlord, or what I refer to as the prop co or a property company, and they own the physical structure, and they own the moving equipment of the nursing home. And everybody says who’s the owner of the nursing home?” The prop co is the owner of the nursing home.
And then you have the people who supervise the people in the op co, or the people that provide direction or provide services to the operating company or the op co, and that’s usually a management company, which is separate and distinct from the op co and the prop co. And the op co, the operating company, will pay a management fee to that management company for things that they do.
Review publicly available ownership information for skilled nursing facilities on the impact of preventive health measures in elderly populations.
For example, when I was a director of operations supervising eight nursing homes, or when I was a vice president supervising 50 nursing homes, or when I was a, a president and chief operating officer supervising 700 nursing homes, I was an employee of a management company. I was not affiliated with an op co.
I was not the landlord or a prop co. I was paid directly through a management company, and the f- management fees were paid by the op co to that management company for the scope of services that they provided. It will differ. It’s gonna differ sometimes. The o- the structure will differ. Sometimes if there is a for-profit company that’s publicly held or a non-for-profit company that has a foundate- a foundation associated with it, private companies versus public companies, there will be some derivatives, but at its core, you’re gonna find those, those three elements.
The one exception that I could talk about though, Rob, is also not every company is traditionally structured that way because they pay rent to a landlord or a real estate investment trust. In that organizational design, you won’t see a prop co. You’ll see a REIT, and they’ll pay rent to the REIT, and the REIT is the landlord, and they stay tangential, interested but tangential to the op co and the man co.
And just a, just as an example, I had a case where I was expert for the plaintiff, and it was pretty contentious. It took several years to go through, but with all the holding companies and the arrangements between op co, prop co, and man co, there were 19 different LLCs involved, which becomes unwieldy, difficult to follow sometimes, but it can get pretty involved in an out- in an overall structure.
Why Do Nursing Homes Create Multiple LLCs and Related Entities?
Schenk:
What you’ve described, Dave, thank you for that. What you’ve described seems fairly simple, but then you’ve described something where there’s 19 other companies. My question is how does that work and why would the individuals ultimately benefiting from this, in whatever way they benefit, where w- what is the purpose of having that many entities and what function do they perform?
Devereaux:
I think the, the idea behind it structurally is to provide insulation around people, that let’s just say that there is a, there’s a wrongful death or a pressure injury or a fall that cr- that results in a lawsuit. Who do you sue? And people say you sue the nursing home.” Okay, great.
And who exactly is that? Are you gonna sue the opco? All they do is provide people. You gonna su- are you going to sue the propco? All they are is the landlord. They don’t have any responsibility for the day-to-day, the day-to-day operation. Are you gonna sue the manco? The manco really doesn’t treat any patients, and yet they continue to build insulation so that they can do business in a whole variety of ways, and funnel payments through these structures to shareholders or to partners or members or managers.
So there’s, there is a, an insulation structure in terms of liability, personal and professional, and then there’s also a structure where there are certain tax advantages depending on where you are, how you operate, and how you’re organized, and that’s really why this became in vogue many years ago, to provide adequate insulation from challenges for behaviors that result in people getting injured.
Learn how ownership transparency affects resident care on the impact of preventive health measures in elderly populations.
Schenk:
So if I understand correctly, it’s basically the… n- it’s not necessarily the more companies you have the more shielding the owners have. It’s how the… it’s kinda how they’re structured and how they work together. But I guess what I’m trying to understand is we have all these companies and again, we have the, the core structure is management, the operating company, and the property company.
Why Is Common Ownership Across Related Entities Significant?
Schenk:
Are, is it typically, at least in your experience, that the individual owners of those companies, if let’s say they’re all LLCs, if there’s three LLCs ultimately, it’s all owned by the same people or the same company? Is that the idea, in other words?
Devereaux:
Many times, yes. And there will be people, for example, in a prop co that will take on another partner because they bring a lot of money to the table far beyond what the creators of the op co and the man co, because they’re not capitally intensive.
Those two companies aren’t capitally intensive, but somebody will bring heavy weight to a prop co. So their percentage of ownership may differ, and then you may bring another partner, or you may bring family and friends, or you may bring, in some cases that I’ve seen and I’ve written about, a competitor and say, “Okay, listen, I want you to invest three or 4 or 5% in my company, and I will do the same in yours.
And what we’ll agree to do is not compete. We’ll go on the field to play, but we won’t compete to win. We’re gonna try and compete to build, to take advantage of a larger pie within the marketplace. So it at its core, yes, you will see common ownership in those entities, but they will also bring family and friends to build market leverage and also give people a taste of opportunity for financial gain in the long run, especially when those entities are sold.
Explore legal perspectives on nursing home ownership structures on the impact of preventive health measures in elderly populations.
What Documents Are Typically Used to Establish the Relationship Between Ownership, the Licensee and the Related Parties?
Schenk:
Setting aside REITs, for example for right now, just the, the, the old school typical setup as you’ve described, are there any particular documents that w- we… are either publicly available or that you would get through litigation that would establish these relationships as you’re describing them?
Devereaux:
Sure. And what I look for when I do work, I’m gonna look for the articles of organization. Is it a real business? And then I’m gonna look for the operating agreement which flows through after the articles of organization are completed. And that operating agreement is gonna describe the nature of the business, the purpose of the business, the managers of the business, members possibly, and they will also state a capitalization table.
So how much does someone’s family office or someone’s estate, or as an individual, how much do they own of the business, for starters. And then it describes all the other elements that you would typically see in an operating agreement. And they’re long. They can be very long, and they can also be very dry, but as you go through them and you start to set aside the op co, the prop co, the man co, and others in discovery, there are a lot of themes that become very clear in terms of- Ownership, or in many cases what I’ve seen, the managers of all three companies are the same, and that’s when clarity starts to develop very quickly.
Financial records often reveal valuable evidence, as discussed in Critical Pieces of Data From Nursing Home Cost Reports.
Schenk:
It’s not uncommon, and I’ve had this before, where I will set in front of an individual the management agreement between the facility or the oper- the op- the opco and the management company that, And it’s both signature lines are the same dude. And I go through the i- the, the, through the process of questioning like, “Have you ever bought a car before?”
“Of course.” And it’s like, “Okay when you’re buying a car, the dude selling the car to you wants what?” He wants to get the most he can for the car, right?” “Yes.” “And the person buying the car wants to buy the car for the, the least, right? Like, how does that work when it’s the dude selling the car to himself?”
And they don’t, they don’t have a answer for that, but I… I- do you find that in your experience? You, like I guess you just described it. How can something be an arm’s-length transaction if it’s the same people on both sides?
Devereaux:
I first I absolutely see that. You see the same signature of the same two people routinely for every LLC and there’s no evidence of any other parties around that whole organization.
Yeah. And then you’ll also see, “Is there a board?” “Oh, we don’t need a board.” “Is there any governance?” “No, we don’t need any governance.” How do you govern?” There’s, there’s the two of us, and then there’s a couple other people who are owners of greater than 5%” or it’s, “It’s my cousin Vinnie,” or, things like that.
And you say, all right this is an inside game. It really isn’t a real company. It’s designed with legal documents. But then you start getting into what I refer to oftentimes as the behavior. So the behavior is nowhere near arm’s length because there’s no, no ability to distinguish when people are behaving, are they behaving on behalf of the opco?
Are they behaving on behalf of the propco? Are they behaving on behalf of the manco? And I’ll get a look from people and they say I wear multiple hats.” You only have one head, so at what time, which hat are you wearing? Why? And most importantly, how would I know? And that’s when there becomes prolonged silence about those questions.
And they’re not difficult questions to answer. They’re just ones that people have difficulty with because their behaviors start to fall across all those lines when it’s in direct conflict with the, the agreements that are created and signed, just as you said, by the same dude.
Question of the Week
Schenk:
I interrupt this interview to bring you the Nursing Home Regulation Question of the Week.
This week, I think the difficulty level is medium. So if you get this right, you are allowed to order pizza even though you’ve got leftovers in the refrigerator. I am permitting you to get the pizza guilt-free. Don’t worry about the leftovers. You’re not gonna eat them anyway
Under 42 CFR 483.20, the nursing home’s comprehensive assessment must, as in is required, to include assessment of the following: A, vision, B, religious preferences, or C, criminal background
And that answer is A. One of the categories of assessment on the comprehensive assessment that resi- that nursing homes must conduct on every resident requires an assessment of vision. That is one of the required categories.
How Do Payments Typically Flow From CMS to the Licensee and to the Related Parties?
Schenk:
Tell me about, A, a nursing home is going to take money from CMS, reimbursement for services provided, right?
Can you talk to me about when we’re dealing with… and again, we’ll just keep it the simplified structure. The management company, the property company, and the operating company. How does the money flow from Medicare, Medicaid to ultimately where it goes, to the owners? How does, how is that…what is that path?
Devereaux:
There, there are two, two paths. And the first path is directly from the payer to the licensee or to the opco. So I’m running a nursing home, and I take care of a patient for a month, and at the end of the month, I’m gonna send an invoice to Medicare for a Party A patient, or I’m gonna send them to Medicaid or a Medicare Advantage payer, and they’re gonna pay me directly.
Okay. And then as a nursing home, I am going to pay rent. So I’m gonna pay rent directly to the propco, and I’m gonna pay management fee directly to manco. And then I have satisfied my obligations of service Receipt of pay, billing and receipt of payment, and then I’m taking care of the other two entities.
The other wrinkle that, that often accompanies this is when you get into related party businesses, which is very common and organized in the same way that we were discussing earlier. So let’s say got a therapy company or a hospice company or a dialysis company and there’s a vast array of arrangements that are created between the opco and those related party entities, many times at the direction of the people who sign those documents that you were referencing a little while ago.
In those cases, the nursing home will then also pay the related party entity. So it’s writing three checks. If for PT or OT or speech, for example, if that Medicare Part A patient is requiring those services, I’m gonna bill Part A, I’m gonna bill Medicare, they’re gonna pay me, and after I pay my rent and after I pay my management fee, I’m gonna pay the therapy company.
And all of that money remains within the domain of the people who are signing the agreements in multiple places. The second path is a little bit different, and what the nursing home does is they allow access, and access only, to that related party company. S- so you’ve got a medical equipment company, for example, or you have a transportation company where they are not being paid directly by the nursing home, but the nursing home provides them access to the patient based on a scope of services that were negotiated at one point or assigned at one point in time.
And in those instances, the related party ancillary company bills directly to Medicare or a fiscal inter- intermediary or Medicaid or a private insurance company, and they receive payment directly from them as opposed to The nursing home billing it, receiving payment, and then subsequently paying those related parties.
So it becomes a little tricky because the related party company is governed well outside of the nursing home, and the only thing, as I said just a moment ago, the only thing the nursing home really has to do is provide them access to the patients. That’s it.
Gain a better understanding of healthcare administration on the impact of preventive health measures in elderly populations.
How Do Owners Exert Control Without Appearing in the Documents?
Schenk:
I think that we can all agree that society is better off having the legal fiction of LLCs and corporations to shield ownership from the liabilities of the company.
I think that’s… it’s a great idea. It’s how, it’s how we have things, right? Think the problem comes when there is the intent to use the legal fiction to unfairly shield yourself from those liabilities. And in many of my cases, you have the owners, the individuals, the unseen people that are creating all these companies.
You’ll bring in the management company, you’ll bring in the, the prop co, you’ll bring in maybe even the owner’s individual. They go, “No, we don’t have any– we, we’re passive. We have nothing to do with anything.” But in reality, they’re saying, “You need to maintain this budget. You need to maintain this many heads in beds.
You need to make sure that your labor doesn’t exceed this, and this,” and that’s control, right? And in, in your experience even though that those things that the opco has to do at the direction of the owners, the unseen owners, that might not be in those documents that we described the contracts between the two companies.
How does that information typically get relayed? How is it that the administrator knows that on high, they need to do X, Y, and Z?
Devereaux:
It used to be conversation and telephone only, but today we have email, we have texts, we have Zoom, like we’re on right now, where calls are recorded.
And there is a, there’s a treasure chest of information that really defines the behavior of the parties. And the real trick is, does the behavior of the parties line up with the contractual limitations on the parties? And more often than not, that doesn’t occur, especially when you have emotion, timing, money, personalities, power, leverage, all those elements.
And the And what usually comes to the surface is that through discovery and through testimony, people start to answer questions like, “Who’s the owner?” by name. “Who’s the boss?” by name. “Who do you work for, Mr. or Ms. or Mrs. Administrator?” And they are not thinking or they are not taught about some of the to- some of the topics you and I are discussing, and they’re gonna give you the most honest answer at that moment when you ask them.
And then after that, the other questions begin to follow. What also becomes very interesting is when you start to ask questions of ManCo employees, and, “Who do you work…” I, I work for the nursing home.” What do you mean you work for the nursing home?” So keeping your story straight and having symmetry with your behavior it’s not an easy thing.
Understanding the different types of nursing home staff can help families identify who is responsible for providing daily care.
And when, as, as I think some of your listeners know, I spent almost 50 years in the nursing home business, and you learn a lot of lessons through your experiences. And when you don’t see, when you don’t see governance established, practiced, and documented, that’s when you know that things are very likely to unravel.
And when you also look at entities that don’t have constructive compliance, most companies have a chief compliance officer. Okay. What do you look at? I, I look at the nursing home. I f- take a look at the nursing… okay, as, as your, as the chief compliance officer, do you ever get into the intricacies involving the PropCo?
Oh, no. How about the ManCo? No. How about the related party entities? Do you do any, any compliance work as chief compliance officer for a company that’s providing PT, OT, and speech to all the, all the people that are being treated in your nursing home? No I really don’t do that.
Why don’t you? It’s an enterprise. You need enterprise-wide compliance. You need enterprise-wide governance. And where those breakdowns occur is where people who are being asked pretty important questions about how things are done that result in people being injured, they start to come up short because what they say they, what they say they’re going to do and what they’d like you to believe that they do are nothing closely related to what they actually are doing.
If you’re wondering what daily life is like for residents, read our guide on what a typical day is like for a nursing home resident.
Other Than Limiting Potential Liability, What Are the Pros of Creating Related Parties?
Schenk:
It’s very well said. Other than, I w- I would imagine other than reducing the potential for liability what is, what are these complex corporate structures or creating, related party entities d- w- what else can they… what are the other benefits for the ownership?
Devereaux:
I can talk about when it’s done well, and when it’s done well, you have integrated, you have an integrated care model.
You have people who speak a common language, who are very well known to each other, and with the right governance and right, with the right oversight and compliance structure, you are able to put the patient at the center of the conversation. That’s rare, but it does happen, and I have witnessed that myself.
The other advantage is that you have an integrated business model. You know who you’re doing business with. You can work together on things related to building quality, building consistency, building replicability, so that when you go into a nursing home, these are the expectations you can have from these service lines.
Discover how complex business entities may shield operators in Episode 46: How a Nursing Home Uses Shell Companies to Hide Liability.
But Rob, candidly the greatest benefit overall of these structures is that by having related party businesses, it’s a financial force multiplier. You are using, you are using a person who you are taking care of in a nursing home as an opportunity to generate additional revenue in a whole host of other businesses.
So for as much as we can talk about an integrated model of care and an integrated business model, it’s undeniable and there’s plenty of public disclosure from brokers, from bankers, from people who acquire nursing homes, that many times the advantage of scale is that there’s more opportunity to grow these related party businesses beyond whatever the census of a nursing home can generate.
Learn who regulates nursing homes in Georgia and how oversight agencies help protect residents.
How Does Intercompany Auditing and Compliance Work Across Related Entities?
Schenk:
Okay, so you kinda talked a little bit about compliance and oversight in a large enterprise. But ta- talk a little bit more about that, like intercompany auditing and how they h- theoretically how they would keep each other in check.
Devereaux:
As, as we know, if you are a publicly held company, you are subject to audit in several ways.
And some of the biggest breakdowns in public companies historically have been because there has been, oh- A lack of segregation of duties in the audit function. When you look at private companies, and private companies that are organized around the way that we’ve talked about earlier today, there, th- there is a belief that if there is an audit by an agency that pays you, that’s about as far as the audit goes.
There are others that do accounting audits, especially related to cost reports or a third-party auditor that comes in and does that on behalf of the, the companies plural. Okay, but that’s also selected by the companies. Where you really see excellence is where you are reaching out to audit the process and the integrity of the behaviors that are going on between Opco, PropCo, ManCo, and the related party businesses, and that’s rare, very rare.
Families seeking advocacy can learn more about the Georgia Long-Term Care Ombudsman Program.
Either because people don’t wanna pay the money or they lack the expertise administratively or at an executive level, or they just don’t wanna do it because, hey, that’s a company that bills separately, they’ve got their own provider number. I’m not gonna ask for any auditory, I’m not gonna ask for any integrity related information around that, any governance.
Th- that’s their problem. It may be, but it’s still the nursing home’s patient. Still the nursing home’s patient every day, and you’re on the hook for taking care of that patient and everything about them. And I’ll just give you one example I’m doing business with a related party who did direct billing, or they were a candidate to be a party that was gonna do business with me.
And I said, “Explain to me your business model.” Dave, this is what we do. You give us access to your patients, and we’re gonna, we’re gonna treat your patients, and then we’re gonna create a certificate of medical necessity, and we’re gonna send that in with our billing.” “Okay. And then what’s your audit function?”
“We don’t have an audit function.” “All right. Where do you, how do you manage integrity?” If the certificate of medical necessity doesn’t shake out well with the payer, they just won’t pay us, and that’s it.” That’s it? But wait a second. All that means is that a patient was treated where treatment wasn’t necessary.”
Yeah, but we take the financial hit on that.” “W- f- okay, great. What about the patient?”
You’re giving them s- you’re giving them something that they either really didn’t need, or they needed something different. That was when I lost them. I and I pretty much got the answer, “Dave, I don’t know what the hell you’re talking about.”
I said, “I believe you. I bel- I believe you don’t know what I’m talking about.” So that’s evidence of what can happen in this business when you don’t have, when you don’t have priorities and alignment, and you also don’t have incentives aligned. And too often, and unfortunately the patient is the beneficiary of that, that behavior, and that’s unfortunate.
Learn how ownership structures can affect liability in Proving Liability Through Nursing Home Corporate Structures.
Schenk:
Very well said. Dave, we very much appreciate you coming on the show and sharing your knowledge with us today.
Devereaux:
Thank you, Rob. Pleasure being here.
Schenk:
Folks, I hope that you found this episode educational. If you have an idea for a topic that you would like for me to talk about, let me know. If you have an idea for someone you’d like for me to talk to, please let me know that as well.
New episodes of the Justice for Residents podcast come out every single Monday. And with that, folks, we’ll see you next time.
Thanks for tuning in to the Justice for Residents podcast. Nothing said on this podcast, either by the host or the guest, should be construed as legal or medical advice, nor is intended to create an attorney-client relationship between the listener and either the host or any guest. New episodes are published every Monday and are available on all your favorite podcast apps, as well as on YouTube and our website, justiceforresidents.com.
Again, that’s justiceforresidents.com. The Justice for Residents podcast is hosted by Rob Schenk, a trial lawyer representing victims of nursing home abuse neglect throughout the state of Georgia. We’ll see you next Monday.