MEMPHIS, Tenn. _ When one of Martha Jane Pierce's sons peeled back the white sock that had been covering his 82-year-old mother's right foot for a month, he discovered rotting flesh.
"It looked like a piece of black charcoal" and smelled "like death," her daughter Cindy Hatfield later testified. After Pierce, a patient at a Memphis nursing home, was transferred to a hospital, a surgeon had to amputate much of her leg.
One explanation for Pierce's lackluster care, according to financial records and testimony in a lawsuit brought by the Pierce family, is that her nursing home, Allenbrooke Nursing and Rehabilitation Center, appeared to be severely underfunded at the time, with a $2 million deficit on its books in 2009 and a scarcity of nurses and aides. "Sometimes we'd be short of diapers, sheets, linens," one nurse testified.
That same year, $2.8 million of the facility's $12 million in operating expenses went to a constellation of corporations controlled by two Long Island accountants who, court records show, owned Allenbrooke and 32 other nursing homes. The homes paid the men's other companies to provide physical therapy, management, drugs and other services, from which the owners reaped profits, according to court records.
In what has become an increasingly common business arrangement, owners of nursing homes outsource a wide variety of goods and services to companies in which they have a financial interest or that they control. Nearly three-quarters of nursing homes in the United States _ more than 11,000 _ have such business dealings, known as related party transactions, according to an analysis of nursing home financial records by Kaiser Health News. Some homes even contract out basic functions like management or rent their own building from a sister corporation, saying it is simply an efficient way of running their businesses and can help minimize taxes.
But these arrangements offer another advantage: Owners can establish highly favorable contracts in which their nursing homes pay more than they might in a competitive market. Owners then siphon off higher profits, which are not recorded on the nursing home's accounts.
The two Long Island men, Donald Denz and Norbert Bennett, and their families' trusts collected distributions totaling $40 million from their chain's $145 million in revenue over eight years _ a 28 percent margin, according to the judge's findings of fact. In 2014 alone, Denz earned $13 million and Bennett made $12 million, principally from their nursing home companies, according to personal income tax filings presented in court.
Typical nursing home profits are "in the 3 to 4 percent range," said Bill Ulrich, a nursing home financial consultant.
In 2015, nursing homes paid related companies $11 billion, a tenth of their spending, according to financial disclosures the homes submitted to Medicare.
In California, the state auditor is examining related party transactions at another nursing home chain, Brius Healthcare Services. Rental prices to the chain's real estate entities were a third higher than rates paid by other for-profit nursing homes in the same counties, according to an analysis by the National Union of Healthcare Workers.
Such corporate webs bring owners a legal benefit, too: When a nursing home is sued, injured residents and their families have a much harder time collecting money from the related companies _ the ones with the full coffers.
After the Pierce family won an initial verdict against the nursing home, Denz and Bennett appealed, and their lawyer, Craig Conley, said they would not discuss details of the case or their business while the appeal was pending.
"For more than a decade, Allenbrooke's caregivers have promoted the health, safety and welfare of their residents," Conley wrote in an email.
Dr. Michael Wasserman, the head of the management company for the Brius nursing homes, called corporate structures a "nonissue" and said, "What matters at the end of the day is what the care being delivered is about."
Networks of jointly owned limited liability corporations are fully legal and used widely by other businesses, such as restaurants and retailers. Nonprofit nursing homes sometimes use them as well. Owners can have more control over operations _ and better allocate resources _ if they own all the companies. In many cases, industry consultants say, a commonly owned company will charge a nursing home lower fees than an independent contractor might, leaving the chain with more resources.
"You don't want to pay for someone else to make money off of you," Ulrich said. "You want to retain that within your organization."
But a Kaiser Health News analysis of federal inspection and quality records reveals that nursing homes that outsource to related organizations tend to have significant shortcomings: They have fewer nurses and aides per patient, they have higher rates of patient injuries and unsafe practices, and they are the subject of complaints almost twice as often as independent homes.
"Almost every single one of these chains is doing the same thing," said Charlene Harrington, a professor emeritus of the School of Nursing at the University of California-San Francisco. "They're just pulling money away from staffing."
