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The New Rules of Nursing Home Lawsuits

In the 1990s, nursing home companies generally were structured as one corporate entity that owned the real estate upon which its many facilities operated, owned the facilities' equipment, operated with one license number for state law and Medicare/aid billing purposes and maintained written budgets.

Now in 2011, nursing home owners have wholly changed those operational structures for two reasons: 1) to limit negative consequences of nursing home Medicare/aid fraud and 2) to limit the consequences of tort actions by making themselves "judgment proof."

These complex organizations do not exist for any business purpose. Nothing in the nursing home industry changed since the 1990s to make today's nursing home organizational structure competitively advantageous. The changes were made for legal reasons.

Nursing home owners employed shrewd corporate attorney who taught them how to separate out the legal entities that own the real estate, hold the nursing home license, and manage the company from each other and the ownership to limit their exposure to liability and subsequent judgments. Owners nowoperate their business for the same purpose.

Today's nursing home licensee owns no real property, nor equipment. Sometimes, it does not even hold the right to collect receivables which could be collected upon if a judgment were entered against the licensee.

Today's nursing home licensee is an empty shell holding nothing more than a license to operate a nursing home and the bare minimum liability insurance policy, which is almost always a wasting policy out of which the licensee's attorney is paid.

The nursing home industry's strategic restructuring has been wildly successful. The U.S. government has recently recognized that the restructuring has hampered its Medicare/aid fraud prosecution efforts and has begun to take steps in response. A U.S. Government Accountability Office report is the first government's first step in recognizing and combating the problem.

In addition, nursing home negligence victims are experiencing increasing difficulty obtaining fair compensation for their injuries and most plaintiff's personal injury lawyers now refuse to represent nursing home negligence victims.

It appears, however, that the tide is very slowly turning against nursing home owners who unjustly benefit from this current state of affairs. The U.S. Government Accountability Office (GAO) report to Congress in September, 2010 analyzes the aforementioned issues and calls for increased transparency and clarity in nursing home ownership and corporate structure.

In addition to the GAO, Congress itself has recognized nursing homes' attempts to hide management and ownership structures so as to avoid liability for Medicare/Medicaid fraud and judgment proof the owners in the face of tort liability.

Congress's intent to require increased transparency is evidenced by the subtitles of the nation's new health care law as well as its requirements:

The Patient Protection and Affordable Care Act, 42 U.S.C. §18001 is subtitled: "Nursing Home Transparency and Improvement." Part I, is titled "Improving Transparency of Information," and requires that the following information be made available to federal and state agencies and later to the public:
(ii) The identity of and information on--
(I) each member of the governing body of the facility, including the name, title, and period of service of each such member;
(II) each person or entity who is an officer, director, member, partner, trustee, or managing employee of the facility, including the name, title, and period of service of each such person or entity; and
(III) each person or entity who is an additional disclosable party of the facility.

(iii) The organizational structure of each additional disclosable party of the facility and a description of the relationship of each such additional disclosable party to the facility and to one another.

It is against this backdrop of underinsured, judgment proofed, shell-corporation licensees that the Federal government and personal injury plaintiffs seek to discover nursing homes' ownership and control structures to hold them accountable for their Medicare/aid fraud and nursing negligence.

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