When your loved one is in a nursing home, you hope for the best possible care. You want the bulk of the money that nursing homes receive to be spent at the bedside, on caregivers.

But depending on where you live, that might not be the case.

That's why, this summer, Pennsylvania became just the fourth state to require nursing homes to devote a specific percentage of expenditures to resident care.

Lawmakers adopted the rule requiring the state's 680 nursing homes to dedicate at least 70% of their annual expenditures to resident care in conjunction with a $515 million boost in long-term care funding in this year's state budget. The 70% rule takes effect next year.

If the rule is effectively enforced, some nursing homes will have to change the way they do business.

An Inquirer analysis found that more than half of the 288 homes analyzed will have to increase spending on resident care to comply with the 70% rule — or face a financial penalty linked to the amount of Medicaid business the facility does. Companies could also cut expenditures, such as rent, that don't count toward resident care.

Southeastern Pa.'s poor performers

Southeastern Pennsylvania is home to four of the five worst performers in the state, led by St. Monica Center for Rehabilitation & Healthcare in South Philadelphia. The former Archdiocese of Philadelphia facility devoted just 55% of its expenditures to resident care. St. Monica did not respond to requests for comment.

Also in the bottom five, all in the 56% range, were Hopkins Center in Wyncote, Laurel Square Healthcare & Rehab Center in the East Oak Lane section of Philadelphia, and Broomall Rehab & Nursing Center in Delaware County.

A spokesperson for the owner of Laurel Square, Nationwide Healthcare Services, of Brick, N.J., provided a statement saying a low census during the year ended June 30, 2021, reduced the amount the facility spent on patient care relative to fixed costs. Laurel Square had a 62% occupancy rate that year, compared with 96% in 2019 before the pandemic, records show.

One of the fixed costs at Laurel Square last year was $1.46 million in annual rent — the same as in 2019 — paid to Nationwide's principal, Meir Gelley.

"As we do with every regulatory measure and policy, we will meet or exceed the upcoming regulation set forth by the state, just as we expect every facility across the industry to follow," Nationwide's statement said.

Genesis Healthcare, which operates Hopkins, did not provide a comment.

Nan Impink, a spokesperson for SavaSeniorCare Administrative and Consulting, which managed Broomall during the year in The Inquirer analysis, said the ratio disadvantages large nursing homes such as Broomall, which has 298 licensed beds. The statewide median is 120.

All nursing homes must employ a director of nursing, for example, Impink said. Because most directors of nursing make similar amounts across the state, that cost will help a small nursing home's care ratio look better, Impink said.

An Easton facility owned by Tryko Partners, a real estate investment firm in Brick that has agreed to buy the nonprofit Inglis House in Philadelphia, had the third-lowest percentage of expenses devoted to resident care, perhaps in part because the facility pays relatively high rent of $30,112 per bed to Tryko.

Three other Tryko facilities in the Philadelphia area were under 70%, with Providence Rehab in Yeadon the lowest at 60% of expenditures for resident care. Tryko did not respond to a request of comment on the resident care spending ratio.

The Inquirer's analysis covered 227 for-profit nursing homes. On average, 67% of their expenditures were for resident care — lower than Pennsylvania's new mandate. For 44 nonprofits analyzed, the median was 74%.

How The Inquirer analyzed nursing home data

The Inquirer analysis looked at Medicaid cost reports — the same reports regulators will use to see whether nursing homes comply with Pennsylvania's 70% rule that goes into effect next year — for the years ended June 30, 2021, and Dec. 31, 2021. Reports available as of Aug. 9 were part of the analysis. This includes:

— 227 for-profit nursing homes in Pennsylvania.

— 61 nonprofit or government-owned nursing homes in Pennsylvania.

The analysis excludes:

— 153 nursing homes that are part of continuing-care retirement communities because their reports usually include costs, such as interest payments, depreciation, and property taxes, for the entire business, not just for the nursing home. Under the new law, they will have to allocate portions of those costs to the nursing home.

— 35 ProMedica Senior Care facilities because it did not report rent expense on its cost reports as required by state regulations.

— 9 nursing homes that are housed within hospitals.

In New Jersey, where nursing homes are required to spend 90% of total revenue on patient care, the calculation is not based on publicly available information in cost reports. The high bar of 90% means companies get credit for a far wider range of expenses, including rent, that are excluded from patient care in Pennsylvania.

'A new standard in the industry'

Advocates described Pennsylvania's rule — as well as similar requirements in Massachusetts, New Jersey, and New York — as a step in the right direction toward financial accountability and limiting the amount of money siphoned away from bedside caregivers, but expect some companies to look for ways around the rules.

"Putting providers on notice is a good thing. That we're going to hold them more accountable is a good thing, but there are too many loose ends in all these rules to ensure that there's going to be improvement," said Richard J. Mollot, executive director of the Long Term Care Community Coalition, which is based in New York but has a national view on policy affecting seniors.

The spending rules, which are similar to an Affordable Care Act regulation that requires insurance companies to spend 80% of premiums on medical care, were adopted amid a growing movement to increase financial transparency in the nursing-home industry.

Pennsylvania's 70% rule was achieved through negotiations among industry trade groups, labor unions, the Wolf administration, and lawmakers. The agreement shows how badly the nursing-home operators wanted the $35-a-day Medicaid rate increase that will kick in next year. Some say it will be difficult to reach the target, given ongoing worker shortages and high inflation.

"We hope that this sets a new direction and a new standard for this industry," said Zach Shamberg, president and CEO of the Pennsylvania Health Care Association, a nursing-home trade group in Harrisburg, adding that the industry needs the state to maintain adequate funding.

When transparency gets cloudy

The immediate impulse for the adoption of resident-care spending ratios in Massachusetts, New Jersey, and New York was the nursing-home crisis in the early days of the coronavirus pandemic, when tens of thousands of fragile nursing-home residents died, but they are also part of a broader effort to increase financial transparency in the industry.

Over the course of decades, for-profit owners with multiple facilities, often in more than one state, have come to dominate the sector, often splitting the real estate from the business and charging escalating rents while relying on consultants, staffing companies, and back-office services providers with the same owners to manage the facilities.

There's good reason for some of those arrangements; it would be inefficient, for example, for every nursing home to handle its own billings when that can be combined at the corporate level.

Uncertainty creeps in because it's hard to know whether the home office is charging fair prices. Inflated prices for, say, pharmacy services from a company with the same owners, could help a facility meet the 70% requirement. The Office of Inspector General at the U.S. Department of Human Services announced recently that it will investigate whether nursing homes are properly reporting related-party transactions.

More fundamentally, advocates are wary of the spending rules because they distrust the cost reports they are based on.

"It appears that no state is really auditing these reports," said Dave Kingsley, who retired from teaching statistics in the department of health policy & management at the University of Kansas School of Medicine and now assists advocacy organizations in the analysis of nursing-home cost reports.

It's not clear how much rigor the Pennsylvania Department of Human Services, charged with calculating the spending ratio, will put into ensuring that the underlying data are solid.

The Inquirer analysis excluded one large operator, the nonprofit ProMedica Senior Care, which last year had 35 nursing homes in the state.

ProMedica did not report rent on its cost reports even though the organization's 2021 audited financial statement said it paid rent to Welltower, a large publicly traded real estate investment trust in Toledo, Ohio, under a $226 million master lease for 157 nursing homes and 57 assisted living facilities. Excluding rent made ProMedica's expense ratio look better than it really was.

"Rent is not an allowable cost for Medicaid," a spokesperson for ProMedica said. However, more than 250 other Pennsylvania nursing homes included rent on their cost reports — as they are required to, according to Dan Sharar, a director of finance at the state Human Services Department.

It's impossible to know how many paid rent but failed to report it.

Valerie Gray, a forensic accountant in Austin, Texas, and an expert on nursing-home cost reports, has little confidence that the spending rules will make much difference.

"The chains are masters at dancing around regulations," she said.