Nursing Home Related-Party Profits: A Low Margin Can Leave the Owner Well Paid

Nursing home related-party profits can sit outside a facility’s accounts, while Medicare margins reflect the revenue and costs allocated to that payer. The operating company records rent and management fees as expenses. The businesses receiving those payments may have the same owners. If you see the facility’s books and the landlord’s receipts, you can see money that a thin facility margin leaves out of view.

The question is where the care payment went. When owners divert taxpayer money meant for care, residents lose the care that money was supposed to buy. The facility’s bottom line stops at the facility. An insider’s knowledge can reach across that boundary.

Medicare FFS Margin Versus All-Payer Nursing Home Margin Allocation

Medicare fee-for-service margin measures that program’s revenue against the costs allocated to those patients. All-payer nursing home margin covers the facility’s wider reported finances. They answer different questions about the same business.

The Medicare Payment Advisory Commission’s March 2026 report puts the aggregate freestanding Medicare fee-for-service margin at 24.4% for 2024. Its all-payer total margin for that year was 2.1%.

Outside Medicare fee-for-service, the margin was negative 2.3%. That result spans several payers, so calling it a Medicaid loss puts the whole shortfall on one program.

A dually certified nursing home can serve a short Medicare skilled-care stay and a long Medicaid-funded residence. The payer follows the resident and the service. The building’s rent and workforce support that mixed business, which is why assigning costs to a payer matters so much to the resulting margin.

The Allocation Changed Without Changing Total Profit

MedPAC’s 2025 allocation revision changed how costs were divided between Medicare fee-for-service and other payers, using the Patient Driven Payment Model to reflect patients’ care needs. The facility’s overall margin stayed the same. A higher Medicare margin after that revision did not mean new money had arrived in the facility’s bank account.

How Related-Party Rent and Management Fees Change the Facility Account

When a nursing home facility loses money while a related landlord receives rent, the facility’s loss and the landlord’s receipts belong to separate accounts. The next question is what the landlord spent and retained. The same comparison applies to a management company receiving fees from an operating home.

The operating company receives care payments. The property company collects rent. A management company may receive a fee, and therapy, staffing or pharmacy businesses may receive payment for services. Common ownership can keep those receipts inside the wider business while the facility records the payments as expenses.

Consolidated accounts show why simply adding the companies’ revenue gives the wrong answer. The Ensign Group’s financial statements eliminate internal rent and service revenue when combining the group’s accounts. Adding a landlord’s receipts to the care revenue that funded the rent can count the same money twice.

For Medicare cost reporting, the related organization’s underlying cost matters. The related-party rules described in the Inspector General’s audit generally allow the supplier’s cost, capped at the price of comparable services or supplies available elsewhere. The relationship can come from shared ownership or control exercised through another business.

Worksheet A-8-1 compares the facility’s related-party expenses with the supplier’s underlying costs and records the adjustments needed to reach allowable cost. The supplier’s accounts give it substance: the costs it actually incurred, the work it did for the home and the basis for allocating shared expenses.

That distinction reaches beyond the lease. The audit examined therapy, medical equipment, pharmacy, management, nursing and hospitality arrangements. Laundry, linen, housekeeping and dietary services can sit behind a hospitality charge. The name on the expense line tells only part of the story.

What the Illinois Study Found Beyond the Facility’s Books

An Illinois working paper estimated that 68% of nursing-home profits were shifted to related parties. The National Bureau of Economic Research working paper, revised in September 2025 examined the gap between the facility account and returns elsewhere in the ownership structure.

Its modeled typical investment return rose from 4.83% to 13.11% after accounting for estimated hidden profits and assets.

The study also associated adoption of a related-party landlord with $1,744 more in annual real-estate spending per bed. That is a concrete expense line an insider would recognize: a change in the property’s ownership relationship can accompany a larger charge to the operating home.

The finding gives a financial reader a reason to look beyond the reported facility return. The lease, management contract and recipient’s costs can explain why an owner continues to earn money from a home whose own account shows little left over.

What the Government Found in Related-Party Cost Reports

The Inspector General found both undisclosed relationships and profits left in reported costs. In its December 2024 audit of fourteen selected skilled nursing facilities, seven had failed to adjust some related-party costs properly, overstating costs by $1,703,734. Three had failed to disclose related parties properly.

The failures were specific. One facility had not told its cost-report preparer about payments to a commonly owned medical equipment supplier. Another facility said its therapy provider charged only enough to cover expenses. The auditors found that the charge included a profit margin that the facility had not removed.

The review process had missed the issue. The HHS Office of Inspector General reported:

The owners’ profit could remain buried in a cost line that the payment contractors never examined. The auditors compared facility records with the recipient businesses’ finances, property records and state business registrations.

The audit identified overstated costs. Medicare generally pays these facilities a predetermined daily amount based on the patient’s classification, rather than reimbursing each expense as it appears. The cost reports still matter because the Centers for Medicare & Medicaid Services uses them to update future payment rates. A profit left inside an allowable-cost figure can therefore affect the information used to set those rates.

The Lease, the Landlord and the Care Payment

Lease terms can show where money goes, and control records can show who decided where it would go. The Centers and Saratoga matters put those questions inside government enforcement cases. A landlord’s own financial reporting supplies a separate lesson about what a reported receipt means.

Centers and the Buffalo Rent Change

Centers Health Care’s Buffalo facility told New York’s Department of Health that annual rent would be $600,000. According to the Attorney General’s account of the alleged scheme, the buyers signed a lease requiring $2 million annually a few months later, when they acquired the facility and its real estate.

The state’s allegations connected inflated rent with money diverted from homes operating with insufficient staff. In the signed Centers agreement, the Attorney General also described payments to related-party vendors for goods or services that were never provided or cost far more than their value. The agreement recorded allegations of false statements and omissions in annual cost reports.

The rent proposed to regulators, the signed lease and the money paid to the landlord answer different parts of that allegation. A staffing budget viewed alone would leave the property transaction out of the picture.

Saratoga and the People Controlling the Account

Saratoga Center shows why the licensed operator’s name can leave actual control out of view. The Justice Department alleged that, after a financial dispute, the landlord required the licensed operators to surrender control and installed unlicensed management.

The landlord and former operators agreed to pay $7,168,000 to resolve allegations that Medicaid paid for worthless care while residents suffered medication errors and pressure ulcers in an inadequately staffed home. Here the alleged connection ran from a landlord’s intervention in operations to the care for which Medicaid paid.

A Landlord’s Rental Income and Cash Rent

Omega Healthcare Investors’ July 2025 disclosure about a restructured lease reported $3.1 million in monthly contractual rent and $3.6 million in monthly straight-line rental income.

The landlord spreads rental income across the lease term, so the income it reports can differ from the payment currently due from the home. The lease and bank receipts connect the facility’s rent expense to what the landlord actually received.

The Records That Connect the Margin to a Whistleblower Case

The useful evidence connects the facility’s payment records to the businesses receiving its money and to the care billed to the government. A finance employee may know which invoices the facility paid. A cost-report preparer may know which ownership relationships management disclosed. An administrator may know who controlled spending while payroll and care records show what residents received.

We examine those connections with you. The cost report and related-party worksheet show what the facility reported. The lease and management agreement show what it promised to pay. Supplier accounts show the recipient’s costs. Ownership records, payment records and consolidated accounts show who received the money and where internal payments disappear when the accounts are combined.

For a False Claims Act case, we connect that financial account to what the facility told the payer and who knew it was false. Saratoga shows the connection: the government alleged that Medicaid paid for worthless nursing services while the landlord’s chosen management controlled care. Healthcare accounting and resident-care records belong in the same examination. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Can See Both Sides of the Payment

If you know why the facility claims it cannot afford care while money keeps flowing to its owners’ businesses, speak with our whistleblower experts about the payments you know. We work beside you to build the case across the facility, landlord and management accounts, and bring in nursing home fraud whistleblower lawyers who understand health care financing. Your knowledge of who approved the charges and what the facility received belongs at the center of your strongest nursing home whistleblower case.