Today’s Justice Department settlement with Extendicare resolves allegations of substandard nursing care for elderly patients, but it also allows the company to deduct the $38 million payment from its taxes as an “ordinary business expense,” leaving the door open for Extendicare to take a tax windfall of $13.3 million.
Extendicare Health Services Inc. (Extendicare) and its subsidiary, Progressive Step Corporation (ProStep), which run chain nursing home facilities for the elderly, allegedly provided medical care that was “so substandard as to be effectively worthless,” according to the Department of Justice press release about the case. The settlement also resolved claims that the company billed medically unnecessary and unreasonable treatments to Medicare and Medicaid, putting the company’s profits before the care of its patients.
“If some of our country’s most vulnerable citizens have been taken advantage of and mistreated by Extendicare, the company must answer for its misbehavior,” said Michelle Surka, program associate with the U.S. Public Interest Research Group. “But in its settlement, the Justice Department allows Extendicare to deduct the payment as an ordinary business expense. That sends the wrong message.”
The $38 million settlement is being reported as the “largest failure of care settlement with a chain-wide skilled nursing facility in the [Justice] Department’s history.” The settlement also fails to specifically call the payment a penalty, effectively leaving the door open for Extendicare to claim a tax deduction for the entirety of the $38 million payment. In fact, the Department goes out of its way to make clear they are not impeding such a write-off. The settlement specifically states that no section of the text “constitutes an agreement by the United States concerning the Federal Settlement Amount for purposes of the Internal Revenue laws.”
In some other cases, the Justice Department has barred such deductions, and some agencies like the EPA do so as a matter of course.
Assuming Extendicare does deduct today’s settlement as an ordinary business cost, the real after-tax value of the payment would be $24.7 million.
The Justice Department did not post the text of the settlement on its website as of Friday afternoon. The text of the settlement can be found here, on the website of a private law firm.
To read more about tax write-offs in settlements relating to health care fraud, you can read U.S. PIRG’s fact sheet here: No Tax Write-Offs for Health Care Fraud