In the most complete revision of its nursing home rules in at least 25 years, the Pennsylvania Department of Health last month proposed new regulations that would require more scrutiny of homes’ prospective owners.

For the first time, regulators would analyze the financial strength and past performance of owners — including individuals, not just legal entities — and related companies that seek to take over nursing homes in the state. Historically, officials have effectively rubber-stamped license applications, critics said.

The new regulations are part of the first full revision of the rules for the state’s more than 600 nursing homes since 1997. The process started before the pandemic, but took on more urgency as the coronavirus pandemic laid bare the sector’s weakness. Nursing home residents have accounted for roughly one in six COVID-19 deaths in the United States, a Health Affairs study said last week.

» READ MORE: Nursing-home industry fights proposed staffing requirements.

The state health department said the new rules on nursing home sales and licensing of buyers are needed because nursing home ownership has become increasingly complex, as for-profit operators have taken over the majority of the sector. For-profits typically split real estate from the core business and often house management in a separate related consulting firm.

That complicated structure makes it hard to know “who exactly is responsible for the care of residents in the facility” and “difficult for residents, their families, and even regulators to hold owners accountable for the health and safety of residents,” the department said in the introduction to its proposed regulations.

» READ MORE: The collapse of Skyline Healthcare was a warning for regulators.

The department cited the collapse of Joseph Schwartz’s Skyline Healthcare LLC as evidence that tougher scrutiny was needed. Skyline accumulated more than 100 nursing homes across the country in less than two years and then underwent a rapid-fire collapse during the spring of 2018 as the company ran out of cash. Regulators in Pennsylvania and several other states put emergency operators in place to protect thousands of residents.

The changes to nursing home ownership disclosures are part of the health department’s third of four tranches of proposed regulations. The first proposed significantly increased staffing requirements. The second included updates on rules for renovating nursing homes.

The proposed regulations are under review, and wouldn’t go into effect until that stage was completed. That process could take several years.

Health department proposal falls short

Advocates for the elderly said the department’s new approach goes in the right direction, but falls short. They want a public notice of proposed ownership changes and a chance to weigh in, plus specific criteria for disqualification from getting a license and a requirement that nursing home companies produce consolidated financial statements in a bid to keep them from hiding profits.

“A huge part of the problem is that this has been completely nontransparent up until now,” said Pam Walz, a supervising lawyer who specializes in issues involving the elderly at Community Legal Services of Philadelphia. “We really just want to get all of this opened up, so that the public knows and can weigh in.”

Even LeadingAge PA, a trade group for nonprofit nursing-home and other senior-care providers, said in comments on the health departments proposal that it favored public notice of applications for ownership changes.

The Pennsylvania Health Care Association, which represents the for-profit arm of the industry, said it recognized “the need for a more robust application and review process” for ownership changes. Both trade groups asked for review deadlines to ensure that sales don’t get bogged down.

The money problem

The nursing home industry has claimed for years that Medicaid, which covers a large share of nursing home residents, severely underpays for care.

Experts, including a National Academies of Sciences, Engineering, and Medicine panel that this month published a 604-page analysis on changes needed in nursing homes, said the convoluted ownership structures make “it extremely difficult to assess the adequacy of current Medicaid payments.”

That’s why patient advocates, who worry that companies hide profits or overpay related companies, want Pennsylvania and other regulators to require consolidated financial reporting, which would take into account how much money is being paid to related companies for rent, management, staffing, and pharmaceutical services.

Pennsylvania State Sens. Maria Collett, who represents parts of Montgomery and Bucks Counties, and Nikil Saval, of Philadelphia, both Democrats, plan to introduce bills that would require consolidated financial reporting and other measures they hope will ensure care and bring more transparency to the industry.

» READ MORE: Long-term shift toward for-profit nursing home ownership.

“We need to understand what the financial challenges are that are facing our nursing homes, so that we can figure out if they do need more federal or state funding,” she said. “When we’re talking about being good stewards of Pennsylvania taxpayer funds, I think it’s incumbent on the legislature to require transparency. We’ve got to know where these dollars are going.”

Philadelphia’s transparency law

Working with health care labor unions, City Councilmember Isaiah Thomas sponsored legislation last year requiring advance notice of hospital and nursing home ownership changes, including the names of individuals behind the companies, to City Council, the Philadelphia Department of Public Health, employees, and patient families.

The law is also supposed to give city officials the chance to assess the finances of prospective owners, with the goal of preventing a collapse like the one that closed Hahnemann University Hospital in the summer of 2019.

Two Philadelphia nursing homes have changed hands since the law took effect last June, according to a city web site that is supposed to list notices of ownership changes of long-term care facilities and hospitals.

In those first two cases, involving Somerton Nursing and Rehabilitation Center, in Northeast Philadelphia, and Restore Health at University City, the law didn’t generate the intended notice to employees and families. The buyers filed deal notices in early January, but they were lost in the shuffle of the Philadelphia Department of Public Health’s dealing with the omicron surge, officials said.

Dave Maynard, Thomas’ policy advisor, said he has since helped the city’s public health department work out a better process. He heard about the sale of Somerton, now called Accela Rehab & Care Center, from SEIU Healthcare Pennsylvania officials, and then went back to fund the notice at the health department.

The city holds little direct authority over nursing homes, but the law can still make a difference. “I believe it sends a reasonable signal to the industry that if you’ve got a shady, third-rate deal, you might not want to put it in the city,” he said.