Lawsuit Takes Aim at State Regulators and Nursing Home Management

Glendale attorney, Russ Balisok, alleges on behalf of his clients California Advocates for Nursing Home Reform, in a new lawsuit, that state regulators allow nursing home companies to siphon money away from patient care and send it to the wallets of the corporations that manage the facilities.

Current state law allows nursing homes to outsource their management to third party corporations. The company that owns the nursing facility can shop around different management companies and pay them a fee to control the day to day operations. The management company designates a portion of its pay towards managing the facility and another portion as a management fee. The management company also receives a portion of the revenues from the home(s) it operates. These agreements are state approved agreements.

Balisok argues that the percentage the management companies takes off the top deprives the nursing homes of vital revenue needed to ensure quality care and services for the patients. The management companies do not operate for the good of the patients, but instead collect money off the top of the revenues and run the nursing facilities for as low a cost as possible.

Opponents of this state regulation say that this situation leads to sub-par quality of care. The management companies take their percentage first, regardless of the total revenue or total amount needed to operate the facility. The fees in some cases are 5% of the total revenue. Opponents claim this cripples some facilities, leading to cutbacks in care and facility upgrades.

These management companies are state approved. Mark Reagan, general counsel for the California Association of Health Facilities, claims Balisok’s arguments are “far-fetched.” Reagan points out that these companies are following the law after seeking state approval. The companies are not hiding these management contracts. Reagan argues that these funds are paid to the management companies for operating the facilities. He claims that there is no evidence that these contracts detract from the quality of care provided at these facilities.

From a business standpoint, the management companies argue that they operate the facilities in a more efficient manner, thus justifying the management fees. The nursing facilities’ owners can focus on other elements of the facility while the management company handles day to day operations. The same business argument goes against the management companies as well. These companies are focused on maximizing profit and cutting costs, not providing the highest quality of care for the patients. This could lead to additional instances of nursing home neglect or abuse.

Part of Balisok’s argument is that Federal Law prohibits nursing homes from being managed and operated by outside companies. He argues that Federal Law should trump State Law in this instance. However, the California State Department of Health argues that it is responsible for implementing such regulations that affect health care facilities. They are merely enforcing State Law.

Another twist in the lawsuit is that nursing homes are awarded government funding through Medicare and Medi-Cal. A portion of these funds ends up in the management companies’ pockets and does not go directly to patient care.This case could have larger implications for nursing homes across the state of California depending on the outcome.

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