The Nursing Home Industry’s Dirty Secret About Profit Margins

The nursing home industry has spent two decades telling regulators, lawmakers, and the press the same thing: margins are razor-thin, the business is barely surviving, and any new safety mandate would push facilities into bankruptcy.

It’s a powerful narrative — because it has just enough truth to be defensible. Reported facility-level operating margins really are low, often 3% or less. The American Health Care Association regularly cites this number when fighting staffing requirements, transparency rules, or liability reforms.

What that number doesn’t capture is where the actual money goes. Profits don’t disappear at a nursing home — they get moved. Through related-party leases, sister-company management fees, real-estate sale-leasebacks, and increasingly opaque private equity structures, a facility can run a “thin” margin on paper while siphoning millions of dollars in actual cash to ownership entities that don’t appear on the facility’s books.

This is the open secret of how a profitable industry maintains the public posture of a struggling one. And when families of injured residents try to figure out who’s responsible — and who has assets to satisfy a judgment — that same opaque structure becomes the next problem.

How “Razor-Thin Margins” Actually Work

A typical American nursing home has three primary revenue streams:

1. Medicaid — covers most long-term care residents and pays at relatively low rates
2. Medicare — covers short-term post-acute rehab stays at significantly higher rates
3. Private pay and long-term care insurance

The expense side is dominated by labor, with roughly half of all facility costs going to staffing. Because Medicaid is the largest payer and pays the least, facilities pursuing pure facility-level profit have an obvious incentive to cut staff hours.

But the “thin margin” story only works if you stop looking at the facility itself. If you follow the cash beyond the facility’s four walls, the picture changes dramatically.

The Three Mechanisms That Move Profit Off the Books

1. Real Estate Sale-Leasebacks

In a sale-leaseback, the facility’s parent company sells the actual building to a related real estate investment trust (REIT) — often one controlled by the same investors. The facility then leases the building back at significantly elevated rents.

A National Bureau of Economic Research analysis of Medicare cost reports found that lease payments at private equity-owned nursing homes increased by an average of 75% after acquisition. Cash on hand at the same facilities dropped by 38%.

The cash didn’t vanish. It moved — from the operating company to the REIT, where it’s reported as rental income to the new ownership entities, not as facility profit.

2. Management Fees to Sister Companies

Many corporate nursing home chains use a “management company” structure. The operating entity pays the management entity a fee — sometimes a flat amount, sometimes a percentage of revenue — for “back office services,” “compliance support,” “branding,” or “consulting.”

Both companies are typically controlled by the same ownership. The management fee functions as a transfer of revenue from one pocket to another. The operating entity reports lower profit. The management company reports higher profit. The facility’s books look thin while the parent’s bottom line stays healthy.

3. Vertically Integrated Vendor Networks

Beyond rent and management fees, many large operators contract with affiliated companies for:

• Pharmacy and medication services
• Therapy and rehabilitation services
• Hospice services
• Staffing and contract labor
• Medical equipment leasing
• Payroll and HR services
• Insurance and risk management
• Food service

When the facility pays an “outside” vendor that’s actually owned by the same parent, the result is the same as a management fee — money moves from the facility ledger to a related entity, while the facility appears to operate at a loss.

The structure is legal. It’s also the central reason the public-facing “we’re losing money” narrative is incomplete.

What the Research Actually Shows

The most rigorous look at this dynamic came from a 2021 study published by the National Bureau of Economic Research, Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes (NBER Working Paper 28474), authored by Atul Gupta, Sabrina T. Howell, Constantine Yannelis, and Abhinav Gupta. The study analyzed Medicare data on more than seven million nursing home patients over 2005–2017. Key findings:

• The patient mortality rate during nursing home stays and the following 90 days was approximately 10% higher at PE-owned facilities than at the industry average — the equivalent of more than 20,000 deaths over the study period
• Frontline caregiver hours dropped roughly 3% below industry average after PE acquisition
• Patients at PE-owned facilities were 50% more likely to be placed on antipsychotic medication — drugs that effectively sedate residents and reduce the need for staff supervision
• Average nursing home interest payments more than tripled after a PE buyout
• Average lease payments increased by approximately 75%
• Cash on hand declined by approximately 38%
• Overall billing to Medicare was more than 10% higher per patient at PE-owned facilities

The study, in other words, identified a clear pattern: revenue extracted, staffing cut, sedation increased, and patient outcomes worse — even as facility-level operating margins continued to look modest.

A 2025 AARP Florida report tracked 156 facilities acquired by private equity through that state and found:

• A 13% decline in resident care hours after acquisition (from 4.21 hours per resident per day to 3.66)
• A doubling of one-star CMS-rated facilities (10% to 21%)
• A halving of five-star facilities (28% to 14%)
• Medicare costs per resident roughly $1,000 higher at PE-owned facilities

A 2025 systematic review of 12 peer-reviewed studies on PE ownership in U.S. nursing homes, published in Health Policy, concluded that PE ownership is consistently associated with “higher number of deficiencies, increased hospitalization rates, and higher mortality.”

How This Plays Out in a Civil Case

For families pursuing claims against nursing homes for injuries, neglect, or wrongful death, the same financial structures create real obstacles:

The “Empty Operating Company” Problem

The facility itself is often a single-purpose entity with limited assets. The building belongs to a separate REIT. The management functions belong to another entity. The vendors belong to yet others. When you sue “the nursing home,” you may be suing a shell with thin insurance limits and few hard assets.

Piercing the Corporate Veil

Tennessee courts can pierce the corporate veil and reach related entities when the corporate form has been abused to commit fraud or perpetuate injustice. In nursing home cases, that often means showing:

• The operating entity is undercapitalized for its risks
• Funds are routinely transferred to related entities for less than fair value
• Corporate formalities have been ignored
• The operating company is functionally a shell controlled by the parent

Discovery of Financial Structure

Aggressive discovery into corporate organizational charts, related-party transactions, intercompany agreements, lease terms, and management contracts is how families get to the actual decision-makers. This requires lawyers who know what to ask for and where to look.

Federal False Claims Act Exposure

When facilities bill Medicare and Medicaid for care they did not actually provide — or for staffing levels they did not actually maintain — federal False Claims Act liability can attach in addition to civil tort claims. Some of the largest nursing home recoveries in recent years have come from qui tam (whistleblower) cases brought by current and former employees.

Tennessee-Specific Considerations

Tennessee’s nursing home industry has been ranked among the worst in the country by multiple national assessments over the past two decades. Staffing shortages and underinvestment have been documented in repeated state and federal reports. Our overview of staffing shortages contributing to nursing home abuse and neglect in Tennessee covers the underlying patterns, and our breakdown of Tennessee nursing home staffing ratios walks through the regulatory framework.

When a Tennessee resident is injured by understaffing, untrained personnel, missed care, or chemical restraint, the corporate financial structure that created the conditions is part of the case — not just background.

What Families Can Do

Before Choosing a Facility

• Check the facility’s CMS five-star rating at Medicare’s care compare tool. Look at staffing in particular — the staffing star rating is the most reliable single indicator.
• Use ProPublica’s Nursing Home Inspect at projects.propublica.org/nursing-homes to read actual inspection reports and deficiency citations.
• Look up ownership history. Frequent ownership changes — particularly to private equity firms — can be a yellow flag.

After Suspected Abuse or Neglect

• Document everything — dates, times, names, photographs, any change in your loved one’s condition.
• Report to Tennessee Adult Protective Services at 1-888-277-8366 or online at the adult abuse reporting portal.
• File a complaint with the Tennessee Department of Health at 1-877-287-0010.
• Contact a lawyer who handles nursing home cases. Discovery into corporate structure is one of the most important parts of the case — and it requires lawyers who know to ask for it.

Our overviews of 10 things nursing homes can’t do and the rights every nursing home resident has walk through the broader rights framework.

You Don’t Pay Unless We Win

The Higgins Firm represents Tennessee families against nursing home operators — including the corporate entities that sit behind the facility on the door. Free, confidential consultations. Contingency fee — you owe nothing unless we recover for you.

The “razor-thin margin” story works on legislators. It shouldn’t work on you. Profitable companies pay for the harm they cause; finding the profits is part of the work.