Community hospitals and nursing homes are teetering on the edge. The causes are multifaceted. Healthcare cuts in the Big Beautiful Bill mean more uninsured patients. Without robust insurance, revenue streams dry up. Smaller, independent facilities lack the leverage to negotiate fair rates with insurers. Large hospital chains, however, have that clout.
But there is a darker mechanic at play.
Often, the entities owning these care facilities aren’t trying to save them. They are dismantling them. This is self-dealing via “related-party earnings.” It is a financial shell game designed to extract value while leaving a hollowed-out shell behind.
The Anatomy of a Related-Party Transaction
How does it work? It starts with a purchase. A private equity firm or a real estate investment trust buys a hospital.
They then set up a web of “independent” subsidiaries. These entities are not independent. They are owned by the same group.
One subsidiary purchases the hospital’s real estate. Because the buyer and seller are connected, the sale happens at a steep discount. Cheap land is easy to secure when you are holding both ends of the deal.
Next, that real estate company rents the property back to the hospital. The rent is high. The hospital’s operating costs soar. Meanwhile, the real estate entity collects the cash. The hospital begins to bleed money. It loses money while the owner cashes in on rental income.
Pretty awful? It is worse.
The Management Shell Game
Ownership doesn’t stop at bricks and mortar.
Some owners hire an “outside” management company to run daily operations. But guess what? The owner also owns the management firm.
The hospital becomes a piggy bank for the parent company. Profits are siphoned off through management fees. Real estate rent. Licensing fees. The clinical side of the business is starved of capital. The non-clinical side grows fat.
When the hospital finally goes bankrupt, the owners walk away. They have already extracted the value through their related companies. The community is left with a closed door and unpaid bills.
Two-thirds of profits in some nursing home chains were redirected to owners through these related-party transaction structures.
Evidence from the Field
Scholars recently examined this phenomenon in the New England Journal of Medicine. They looked closely at nursing homes in Illinois. The results were stark.
They found that up to two-thirds of profits were redirected to owners via these related-party transactions. This financial extraction directly weakens the care facility. It leads to understaffing. It leads to deferred maintenance. It leads to insolvency.
Is it any wonder that Genesis Healthcare, one of the largest nursing home chains in the US, filed for bankruptcy? The math suggests the structure itself was the problem.
State-Level Solutions Are Necessary
The study’s authors outline a path forward. States must act to prevent these financial shell games.
- Mandate Ownership Transparency: Require detailed disclosure of who owns the facility, the land, and the management company. If one group controls all three, it must be flagged.
- Increase Auditing: States should audit hospitals and nursing homes more frequently. The goal is to spot suspicious profit flows. Are funds moving from the clinical side to the real estate side?
- Enforce Legal Consequences: When audits reveal false claims about a hospital’s dire financial state—a tactic used to justify cost-cutting or asset stripping—states must take legal action.
Hospitals and nursing homes serve people during their most vulnerable moments. Their mission is care, not extraction.
We have let corporations treat essential healthcare infrastructure as a ATM. The current system allows owners to bankrupt the providers while profiting from the wreckage.
Can we fix this? The tools exist. The transparency measures are clear. The question is whether political will can match the complexity of the shell games.
Some will say it is too complicated. That healthcare financing is opaque by nature.
Look at the empty beds. Look at the staff shortages. Look at the bankruptcies.
It is not complicated. It is theft.
