Feedback
News

Low-Rated Nursing Homes Get Billions in Federal Loans

Imag: A staff member walks past wheelchairs at a nursing home.

A staff member walks past wheelchairs at a nursing home. Issei Kato / Reuters file

This story was published by The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C.

Since 2009, hundreds of nursing homes nationwide have received a combined total of nearly $2 billion in low-cost mortgages guaranteed by the Department of Housing and Urban Development even after receiving the lowest possible quality rating from the federal government, a Center for Public Integrity investigation has found.

In all, 240 poorly-rated nursing homes in 38 states and Washington, D.C. were granted these HUD-backed loans. Ohio, with 30, had the largest number of these homes given just one star in the federal rating system. Illinois, with 20 homes, was second. California was third.

HUD spokesman Brian Sullivan wrote in an email that the average overall quality rating of newly-insured nursing homes has improved every year since 2011, and Dr. David Gifford, senior vice president of quality and regulatory affairs at the American Health Care Association, the leading for-profit nursing home advocacy organization, pointed to the higher percentages of all skilled nursing facilities that have earned the top score, a five-star rating, from the federal government, from 2009 to 2013.

Click here to read the full Center for Public Integrity version of this story.

But U.S. Representative Jan Schakowsky (D-Ill.), a leading legislator on senior issues, called the findings "outrageous." And Charlene Harrington, a retired nursing professor from the University of California at San Francisco, says that the pattern of poorly rated homes receiving federally guaranteed mortgages raises serious questions about the allocation of public resources, communication between agencies and what she called a shocking lack of supervision.

"There's no public scrutiny, no oversight, no coordination," Harrington said.

Beginnings

Part of the National Housing Act of 1959, the nursing home mortgage program was created because Congress believed that for-profit nursing homes were having trouble securing loans on reasonable terms.

In 1964 the program expanded to include nonprofit nursing homes.

HUD officials and lenders generally viewed nursing homes as risky ventures prior to 1965, a government report said, but the inception of the Medicaid program that year provided a more reliable income stream for nursing homes.

Because HUD guarantees the mortgages, the public pays when one of these nursing home defaults.

Related

Nursing Home Care Levels May Be Much Lower Than Families Think

Costs include the original loan amount, premium payment requirements and recoveries from the sale of notes and properties, according to a 1995 report by the Government Accountability Office.

The report said that HUD data showed that losses of about $187 million, adjusted for inflation, had been incurred since the nursing home program's inception.

The program insures mortgages for nursing-home acquisition, construction, refinancing, and improvement. HUD has granted mortgage insurance to more than 7,000 nursing facilities since the mortgage program began.

As of August 2014 more than 2,000, or about 13 percent, of all nursing homes held HUD-insured mortgages. The mortgages HUD backed had an average interest rate of 4.2 percent and a combined worth of more than $16 billion.

Ongoing problems

The Department of Health and Human Services ranks nursing homes on an overall five-star quality scale in an effort to assist consumers trying to choose a home for a family member. The overall quality mark is determined by rankings on health inspections and staffing levels, among other metrics. A one -star rating, HHS says, indicates that the care provided is "much below average."

Follow NBC News Investigations on Twitter and Facebook.

For-profit corporations were over-represented among the ranks of one-star homes with the low-cost mortgage loans guaranteed by HUD.

Corporations owned a little more than half of all nursing homes, but more than two-thirds of poorly-rated HUD-guaranteed mortgage recipients — a trend criticized by Harrington of USCF.

"I think [the HUD-guaranteed mortgages] should be restricted to only doing nonprofits," she said. "There's certainly no reason the government should be financing for-profit corporations."

For dozens of facilities, the poor quality of care was also not limited to a single inspection cycle, either.

More than 30 of the one-star mortgage recipients were among the 564, or about 5 percent, of facilities USA Today identified in 2012 as having earned the lowest possible rating from the federal government for seven consecutive ratings cycles.

The nursing home industry has argued that the federal five-star rating system is inaccurate and excessively punitive, but HUD-guaranteed mortgage recipients also fared poorly on home safety, according to a 2009 GAO report.

About two dozen were on a list of 580 nursing homes that the watchdog agency said should get extra regulatory attention.

And nearly 30 percent of the one-star nursing homes received at least two HUD-backed mortgages since 2001.

A 2011 report by HUD's inspector general's office criticized the low priority HUD officials placed on regulatory enforcement.

Because the Somerset Place nursing home in Chicago was current on its mortgage, the report said, HUD was not aware of pressing health and safety issues until the state revoked its license.

The facility, which received a $28.8 million mortgage that HUD guaranteed in June 2003, had a two-star rating throughout 2009.

"Had staff been aware of the issues identified by CMS [the Centers for Medicare and Medicaid Services], they may have been able to address the issues prior to the property's failure," the report said.

In its response HUD emphasized its immediate and aggressive actions after learning about the regulatory violation, but others were skeptical.

Years of critiques

The 2011 report by the HUD inspector general was but the latest in a series going back more than 15 years questioning the agency's stewardship of the mortgage insurance program for nursing homes.

HUD's accounting methods, defaults of hundreds of millions of dollars, a lack of follow-through on suggested improvements and monitoring of quality of care have all been found wanting.

But HUD spokesman Sullivan said the agency's management of the program has indeed improved.

He said a new handbook for the mortgage program that took effect on September 1 was designed specifically in response to the criticisms contained in the 2011 inspector general report.

Among the changes: considering the quality of care provided at other homes owned by the same owner of the facility seeking a HUD-insured mortgage.

Michael Thamer, a California lawyer who was the lead attorney in a landmark nursing home staffing case against the Skilled Healthcare nursing home chain that led to a $62.8 million settlement, said stern measures are necessary to alter owner conduct.

"If you're not eligible for HUD funds unless you have a sterling record, that would have a significant impact on behavior," Thamer said.

This story was written with support from the Fund for Investigative Journalism.

The Center for Public Integrity is a nonprofit, nonpartisan investigative news organization in Washington, D.C.