Critical Pieces of Data from Nursing Home Cost Reports
Are nursing homes hiding critical financial data? Understanding cost reports can reveal a lot. In this week’s episode, nursing home abuse attorney Rob Schenk welcomes guest Ernest Tosh to talk about the most important data from nursing home cost reports and why it matters.
Critical Pieces of Data from
Nursing Home Cost Reports
Schenk: Critical pieces of information that you can use from nursing home cost reports. Stick around.
Hey out there folks. Welcome back to the nursing home abuse podcast. My name is Rob. I will be your host for this episode. We’re going to be talking about nursing home cost reports, Medicare and Medicaid cost reports. What are they? What information is put in them, who writes them, who submits them?
What does it all mean? But we’re not doing that by ourselves. We have the expert. This is the first person that I ever heard talking about using nursing home cost reports in litigation ever. Now I’m not saying that he’s the one, but he’s the first one that I ever heard of. And he’s now a nationwide leading expert on the subject.
His name is Ernie Tosh, the trial lawyer out of Texas. And I’m so happy to have him on the show. I am so happy to have Ernie Tosh on the show. Ernie Tosh is, as I mentioned, is a trial lawyer out of Texas.
Ernie, a Texas Tech University and Texas Tech University School of Law graduate, began his legal career at the Toronto County district attorney’s office. Now leading the Tosh law firm. He focuses on nursing home abuse cases nationwide with over 150 jury trials and millions recovered for elder elderly victims.
Ernie consults with attorneys across the United States. He’s a member of the American association for justice and the American bar association, and a frequent lecturer on forensic accounting and nursing home litigation outside work, Ernie enjoys family time and open water swimming. Ernie, welcome to the show.
Tosh:
Hey, good to be here.
Schenk:
I said this before I brought you on the show that you’re, you might not be the first person that’s ever used a nursing home cost report in litigation, but you’re the first person that I’ve known to do it. And you’re the only one that I know of that is I consider like a true expert in this field, like you’ve dedicated probably tens of thousands of hours into understanding nursing home cost reports.
What is a nursing home cost report?
So I’m so happy that you’re on today to talk about this stuff. But for the uninitiated, for perhaps if there’s a family member of somebody that’s in a nursing home, or even maybe a new attorney that’s just starting out doing nursing home litigation, from a broad standpoint, what is a nursing home cost report?
Tosh:
Sure. So the federal government, through CMS, the Centers for Medicaid and Medicare Services, requires that each nursing home in the United States that receives money from either Medicaid or Medicare, they have to file a financial filing each year with CMS. And that is what is called a cost report. And it details their income, how much of it came from Medicare, how much came from Medicaid, how much came from other sources.
How many bed days did they have? Their expenses, their ancillary revenues and expenses, which is like therapy and stuff like that. And it even goes into are they having transactions with companies? That they are related to, meaning that the chain that owns the facility, says it’s Pruitt Health.
They own the nursing home, but they also own the management company and the therapy company and the pharmacy. They’re supposed to also detail those transactions in the cost report. And then there’s also some information on staffing of RNs, LPNs, and CNAs. And so all of that is in the annual cost report that is filed with CMS.
And there’s about 16,000 nursing homes across the country that have to file this each year.
Schenk:
We lost, I lost your microphone. Can’t hear you.
Tosh:
That’s because I was coughing and then I forgot to unmute myself.
How can you get a copy of the cost report?
Schenk:
Sure. Okay. So if you’re a nursing home and you accept money from CMS, this is a document that you file every year with CMS with minimum information with respect to your operations.
How does one get a copy of this? What’s the easiest way that this information can be received?
Tosh:
Okay, so there’s really only two ways to get. Let me back up. I failed to mention that there’s also a cost report that’s found each year in each state. With your state Medicaid funding agency, so it may be with the Georgia Department of Health would have one and depending on which state we’re talking about, some of those cost reports are pretty much useless.
Some of them have some decent staffing information, but so there’s, when you talk about cost reports, you need to specify federal or state. I deal mostly with the federal cost reports and the best way to get those is you do a freedom of information request or FOIA, F O I A for short, a FOIA request.
To CMS for that document, and the official title of the document is CMS form 2540 10, so 2540 10. And so that is, you write it, a note to CMS, hey, I’d like to have this cost report sent to me, and they will eventually send it to you. But it may take months. I don’t know if they just had some people leave and they never filled those positions, but getting for your request field now takes forever.
There’s a second way to get them, but almost nobody is going to be able to do this because you would have to build. A database, either a SQL database or an Oracle database that mimics CMS’s database, and then download all the cost reports, not just the one you wanted, all 100, 000 of them. And nobody really wants to do that except for me.
And so I have done that. We did that process about a decade ago. Have every cost report that’s ever been filed in the United States in our database. And so I can access that information readily. If there are individuals out there that are looking for a specific facility, specific information, I would tell them, just reach out to me.
I pull cost reports for people all the time and just send them to them because we’ve already got them. So if you need them and you don’t feel like waiting, six months for CMS to respond to your request just send me an email. My email is ernest@bedsore.law and let me know what you need and I’ll try to help you out.
Schenk:
That’s very kind of you. That again, that’s ernest@bedsore.law.
How are nursing home cost reports used in nursing home negligence cases?
Schenk:
Okay. So how, what’s your typical strategy? In a nursing home negligence case, as it pertains to the cost report, like what are some of the ways that you’re using the cost report to further your case?
Tosh:
So first off from a really high level standard high level view, I see a nursing home case as actually being two cases in one.
You have medical malpractice, negligence side of the case. So your resident went there for therapy, ends up getting bed sores, they get infected. You go down that path. We’ve seen that hundreds of times. That’s the medicine side of your case and the general negligence side of your case. The other side of the case is corporate malfeasance and corporate malfeasance drives the medical side of your case.
Okay, somebody doesn’t accidentally get a bedsore. They get a bedsore because the corporation has made business decisions that caused that injury. And those decisions are almost always reduction of staff and so what I do is looking at this as two different cases. I’ve got my medical case. I have my expert doctors and expert nurses that I use.
But then, on the cost report business side of it, I use those cost reports, to identify related parties. Who’s the management company, who are the owners of this entire structure? And start trying to piece together. Who is involved in this for the attorneys that may be listening to this.
You also want to get CMS form 855 dash a and specifically look at section 5. So what that is, is that is a filing that these nursing homes make that says. This is who has day to day operational control of this facility.
Schenk:
And that form, that, that form isn’t okay, and that form itself is not a part of the normal cost report? That’s a separate form?
Tosh:
No, it’s a separate form.
Schenk:
Oh, wow.
Tosh:
And again, 855 A. And it tells you, and they file it, they sign it, it’s the facility’s paperwork, so it tells you, sometimes it lists the management company, sometimes it lists the individual owners, and so they are representing to CMS that these are the people who have day to day control.
Then I use the cost reports to start piecing together how much money they make, how much money they’re spending on staffing, and then use that to start backing into who is making the budgetary decisions. Because the key to these cases is whoever sets the budget caused my person’s injury. I have to know who’s setting the budget.
Is the budget set at the management company? Is it set at the management company, but the approval has to come from the owners? And so that’s where I go and start digging through, in written discovery and also in corporate rat depths.
Schenk:
It almost sounds like it’s three different cases where you have the medical malpractice, you have the case of the understaffing, and then you have the case of, is the money going out and therefore you can’t pay for staffing because of putting the, putting money in the pockets of the owners. It almost sounds like three inquiries.
Tosh:
And so how I look at it, I agree there are three sections. I think that last section actually jumps over to establishing punitive damages.
Schenk:
I see.
Tosh:
So that’s, so I have my medical case. My corporate malfeasance case, and then my punitive damages, because I believe if the facility is purposely draining funds from the nursing home through related parties, okay, let’s say that you have a lease in place.
The company that owns the facility and land is leasing it to the nursing home. They’re both owned by the same company. And they’re charging twice as much rent as the market is. So let’s say 1, 000, 000 a year should be the rent, but they’re charging 2, 000, 000 a year, and so at the end of the year, it looks like they lost 100, 000 that year.
Wow, they need more money from the government. They lost 100, 000. It’s not true. They actually made a 900, 000 profit because they overpaid that related party by a million dollars. And that 900, 000 has been moved out of the facility, probably up to the owners, and realized as a profit through the property leasing company.
And now they’re sitting there with not enough staffing. Maybe they needed another half million dollars of staffing to meet their actual needs. And they’re saying we didn’t have the money to pay that. If you understand cost reports, related party transactions and you’re familiar with how this money moves through these corporations.
You can easily show that’s not true. That’s a lie. You had the money, but you made a conscious decision not to staff appropriately and instead take that money as profit.
Schenk:
So there’s, and…
Tosh:
So I think that is punitive damages because you made a conscious decision not to spend the money.
What can you do with related party information in cost reports?
Schenk:
So on the cost report, if you can visualize it, there’s going to be a section that shows you the related party.
In other words, in your example, it could be the leasing company, or it could be a management company, consulting company, or physical therapy, as long as they have some type of common ownership. Then it shows you how much that company was paid by the nursing home, but also what the fair market value of that was, which usually is, not the same.
Tosh:
Okay. I wish it showed the market value.
Schenk:
That’s, that was actually going to be my question.
Tosh:
I wish it showed that what it actually shows Is the cost incurred by the related party to make that service available to the nursing home. Okay. In our scenario here, we’ve got a facility and a property company owned by the same entity.
Let’s say that it was 1, 000, 000 to pay the mortgage, the insurance, the taxes, upkeep, whatever for that building. It’s 1, 000, 000. The cost report is going to show the property company paid 1, 000, 000 to make this available. And then the next column is going to show you they paid 2, 000, 000 for it. And then the next column after that, it’s going to show you that’s 100, 000, or that’s a million dollars more.
The cost that it would have incurred to make it available. I wish CMS either did a study themselves or forced the facilities to determine fair market value and put that in there because there are CMS regulations that say you cannot charge a related party, cannot charge more than fair market value for that service, but we know they absolutely are.
But for us in individual litigation, it’s not economical for us to go do a study to figure out what is the fair market value of rent in, making Georgia a nursing home.
Schenk:
That’s stuff that you try to elicit. Hey, who did you talk to? How many leasing companies did you talk to?
Tosh:
Exactly. Who did this study and how do you know, and when did you renegotiate it? Yeah.
Schenk:
That’s why I love this podcast. I learned something every time because I’ve always referred to that as the fair market value. But as you mentioned, it’s just the cost it takes to provide the service, but as reported by the related party.
Tosh:
Oh, and that’s the other, that’s the other problem, Rob. These are audited by CMS. So these facilities can just pull any number out of the air and say, Oh yeah, our cost was a million dollars.
Schenk:
But that’s, that’s what I’m, like, that’s the interesting thing for me is why wouldn’t in, I don’t know, there’s, there might not be an answer to this, but now that, at least now that I know that it’s not fair market value, it’s cost incurred, why doesn’t the related party just match what they’re paid?
Tosh:
And so some of them do, some of them do. We see facilities around the country, I’m looking at these, every day. So I come across pretty much every type of scenario you can imagine. I’ve probably come across, but yeah, there are some facilities that just pay exactly what the cost is to the related party.
And there is no pass through profit. It is just, that was the cost. Boom. We got one down the road. But that is not the common way to know what your costs are and then overpay. And the whole idea here is that you are manipulating the income statement because the income statement is saying how much this facility profited or lost in a year.
These related party transactions are expenses. If you overpay the related party, you balloon your expenses and now you show little to no profit. Now you can take your income statement to your local legislator. And cry about how you’re losing money and need more state and federal money. But the problem is we don’t know as a chain how much money they’re actually profiting because there is no reporting in place for related parties or chains as a whole.
And we, it becomes almost impossible for us to fight against that industry talking point of we’re losing money, we’re losing money, we’re losing money. But at the same token, there are multiple individual nursing home owners who are billionaires. You don’t become billionaires by losing money on every facility.
That doesn’t make sense. So what makes sense if you’re not telling us the truth.
Schenk:
Right.
Tosh:
So that becomes an issue with all those related party transactions. It’s not it shouldn’t be illegal to have related parties. It shouldn’t be illegal to pay your related parties. The problem is that the way that CMS has them reporting this information, it allows the facilities to manipulate the income statement to say whatever they want it to say.
If I want to lose a million dollars, I can lose a million dollars. It’s and so that’s the problem there. And with attorneys who are doing this type of litigation getting familiar with this. Information provides a whole nother tool chest of weapons to use in litigation and in your depositions and in your written discovery because you’re going to start delving into areas that they don’t want to talk about.
They don’t want you to know about it. They don’t want it to become public and it is. very much in line with proving that they made conscious decisions that injured or killed my client. And that’s very different than just a medical negligence case. And as far as family members who might be listening to this, do not believe the facility when they tell you they don’t have the money for X, whether it’s more CNAs, whether it’s more nurse staffing, whether it’s more supplies, whatever the case is.
The chances are they’re lying to you. They have the money, but the problem is the people in the facility, including the director of nursing and facility administrator are not aware of that because they are being lied to by the corporation.
Schenk:
Some of that, some of this information, particularly the information from the other form you’re talking about, the 855, that information ultimately makes its way to nursing home compare is that?
Okay. Yeah.
Tosh:
So nursing home compare, if you look on there, it’ll say, on the second path thing, if you click through the link that goes to ownership and management, that information about who is the managing. individual of the facility, but that comes from 855A section 5. Gotcha. Absolutely.
And just for anybody who is going to get a cost report and look at them, the related party transactions that we’re talking about in these cost reports are like Excel spreadsheets. They have tabs on them and the tab you’re looking for or the worksheet in CMS terminology that you’re looking for related parties is A as in alpha, dash the number eight dash the number one a eight one has your related party payments on there?
Schenk:
And this is how you know that Ernie is an absolute expert, is that he’s doing this off the top of his dome, like, he’s not referencing any paper in front of him. He knows all of these numbers by heart.
Tosh:
I’ve testified about this stuff a lot, so. And for the last 12 years I mean doing financial and staffing analysis for my cases as well as thousands of other cases.
We also work with AG’s offices all over the country, the nursing home fraud task force in California. We do fraud analysis all the time.
Schenk:
Tell me who, who is we like…
Tosh:
Yeah.
Schenk:
Go ahead.
Tosh:
My son, I have two sons and a daughter. My oldest son is an attorney and he practices in my law firm with me.
My second son is a data scientist. As a computer science degree, and then a master’s in data science, he works with me in a second company that I have called full financials that does nothing but analysis on nursing homes. So we support AG investigations, ombudsman’s investigations, class actions and individual attorneys like yourself.
We work with hundreds of attorneys across the country. helping them understand what’s happening in each of their cases. And we also help with academic research. We work with academicians across the country to help them do big data analysis sometimes using just the data we have, but also data that they may have access to that we are not able to get access to.
Schenk:
So at some point, CMS dumps all this information out into the ether in unintelligible spreadsheets and you’re in, and maybe not you, but your son, the data scientist has figured out a way to, to call this and turn it into, turn it back into information about these individual nursing homes.
Tosh:
When I first started looking at cost reports, which was about 2011 or 2012 the only people who actually understood this stuff were CPAs.
And in Texas, our damage caps are so low, we couldn’t afford to hire a CPA expert to do this. And so I started doing analysis on my own cases, because I have a degree in finance, With significant hours in accounting and economics. So I can read spreadsheets. I also program computers. So I actually wrote the first programs that did the automatic analysis of the financial and staffing stuff was all mine.
Then, when my son got involved, yeah, he took it to an entirely different level and the stuff that he’s currently working on is absolutely mind blowing what he’s able to do and we’re trying, we actually sued CMS to get more data. We went through a 3 year lawsuit with them so that we could get all the minimum data sets that are produced and we ended up getting over 250 million.
Minimum data sets that we now use to do staffing analysis. We’re currently trying to get access to even more data. But we’ll see. CMS is put it behind a firewall. And it’s Swearing they will never give it to us. So I’m going to have to sue him again.
Schenk:
I think, I think you could track like the number of 30 B 6 depositions taken in nursing home cases.
And you can see there’s a hockey stick increase after Mark Kozlowski’s book. Yep.
Tosh:
Yes.
Schenk:
I think it’s the same thing with you. As soon as Ernie Tosh came on the scene with cost reports, like, it changed the ballgame.
Tosh:
Yeah nobody had really heard about this. I’ll take it back.
There were people who were talking about cost reports in seminars, but. They were really just scratching the surface of it. And that’s where I first came in contact with it because I wasn’t doing this kind of litigation. A friend of mine was doing this litigation and basically bribed me with lunch one day to read a cost report and tell him what it said.
And after I did that, I became very interested in it. And because I’m an ex-prosecutor. And when you look at related party transactions, it actually mimics organized crime.
Schenk:
Right.
Tosh:
And how they launder money. And so I became very interested in it because it was like, why are they moving so much money through these related parties?
And so anyway, here I am, what, 12 years later, and I know why. It’s, All about getting more money from the tax.
Schenk:
Okay. So we’ve seen the critical information, the related parties, the staffing levels, this type of thing. Are there any movements or are there any advocates who are demanding or advocating that the cost report go further in terms of the information that the nursing home has to provide to the government?
Tosh:
Yeah, actually. I started advocating for what are called consolidated cost reports, which would be a cost report that goes from the very top of a chain and covers all the related parties, all their intermediate companies, all the way down to the nursing homes. And we wanted those cost reports audited by an outside CPA company, so not just make up whatever numbers you want and give them to CMS, you have to go get this audited and then send it to CMS.
At the same time, we’re also advocating for better transparency of ownership, so we actually have two different legislative initiatives, one for financial transparency and the other one for ownership transparency, California has passed a version of that. That is pretty good. New Jersey has it in committee and maybe voting on it very soon.
New York. New York has moved on. Pennsylvania is, as we’re working with. Legislators in Pennsylvania introduced it. In the 1st year, I was up in Connecticut and spoke with several legislators up there and we believe we have great traction to get it introduced and hopefully passed in Connecticut and consumer voice has now picked up that fight and we are working with them.
We, being my oldest son, Ben and I, who both do advocacy work, we are now working with consumer voice. To work with them to assist more states in introducing these two pieces of legislation, because ultimately, they will allow the legislators and the taxpayers to have a clear understanding of where taxpayer money is going, how much profit the ownership is making in nursing homes, and decide if these nursing homes really need more money.
Or do they need better oversight of how they’re spending their money? And so, because right now we don’t have any way of knowing that, all we’ve got is the industry saying we need more money, and we don’t know why.
Schenk:
Right.
Tosh:
So, yeah. So that’s out there and we are pushing that consumer voice is really on the forefront of that with us and if we can get it passed really in six or eight major states that have a lot of nursing homes like California, Ohio, New York, Pennsylvania, we will capture the largest chains in the country and then we will know exactly what the picture is, which of course, which is why the nursing homes are spending tens of millions of dollars in lobbyists to keep us from getting that information.
Schenk:
And the fight goes on.
Tosh:
Oh yeah, absolutely.
Schenk:
Ernie, thank you so much for coming on the podcast. I really appreciate it.
Tosh:
Oh, you bet Rob. It’s great. Thank you very much. All right.
Schenk:
I hope you found the content of this episode educational. If you want to get in touch with Ernie Tosh, you can email him at ernesttosh@toshlawfirm.com. Again, that’s ernesttosh@toshlawfirm.com or just go to toshlawfirm.com and fill out a contact form. That would probably be the easiest thing.
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