South Carolina Nursing Home Blog : South Carolina Nursing Home Lawyer & Attorney : Poliakoff & Associates Law Firm : Elderly Care, Senior Care

Irving Levin Associates publishes information on health care mergers, dealmakers, and investors.  They recently published a story that caught my eye because it shows the complicated business structure used to avoid accountability, maximize profits, and divert taxpayer money to corporate owners.

"Skilled nursing companies have always had a difficult time explaining themselves to investors. Are they health care companies, or are they large real estate entities with an important health care business component? Is the real estate actually valuable, or is it so dependent on the license, certificate of need and operating capabilities of the provider that real estate takes a back seat or, perhaps, is put in the trunk? Can great operations overcome lousy “real estate,” or can great real estate command a premium despite less than satisfactory operations and cash flow?"

The article then discusses the recent decision by Sun Healthcare Group to "transition into two separate companies".  They will raise equity through a common stock offering, which is expected to net approximately $160 million. These proceeds will be used to pay off some relatively expensive debt (9.125% interest rate), which will also help to deleverage Sun before its rent payments increase.

The operations of the current Sun Healthcare will be spun off into a "new" company which will retain the Sun Healthcare name. Its revenues, operating expenses and EBITDAR will be basically identical to the existing Sun.  The net result of the structure will be a much smaller EBITDA, but just a slightly smaller net income. The 93 real estate properties which includes 82 nursing homes that Sun currently owns will remain in the original company, which will eventually change its name to Sabra Health Care REIT.

The 93 properties will then be leased back to Sun.  Depending on what the ultimate lease rates are, this restructuring will almost double Sun’s annual lease payments to just over $150 million.  There are several decisions that will have to be made, such as whether all 93 properties will be in one Master Lease, or in a few leases, and what the exact dividend rate will be (most likely it will have an initial yield of about 7%, and perhaps a little higher).

Sun’s current CEO, Rick Matros, will become CEO of Sabra, while Bill Mathies, the president of Sun’s primary operating subsidiary, Sunbridge Healthcare Corporation, will become CEO of the new Sun. The rest of the current Sun senior management team will stay with the operating company.

 The intent was to create value by shifting the owned assets to a REIT, with its higher valuation multiple, which would then be able to grow at a faster pace than the operating company, and provide shareholders with a steady dividend stream as well as growth potential from the addition of different property types.

The incredible aspect of it all is that somehow value can be created by splitting out the remaining owned real estate from a health care company and creating a "new" real estate investment trust from that real estate that will simply collect rent (over market value) from the operating company. This is called the basic Opco/Propco strategic decision, and should be considered fraud and illegal.

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NCCNHR (formerly the National Citizens' Coalition for Nursing Home Reform) is a 501(c)(3) nonprofit membership organization founded in 1975 by Elma L. Holder to protect the rights, safety and dignity of America's long-term care consumers.   NCCNHR issued the following Bulletin:

The health care reform bill passed by the House of Representativesbefore includes not only sweeping health insurance reforms but also nursing home transparency, criminal background checks on long-term care workers, and a voluntary payroll deduction system that would provide benefits for long-term care services. The bill, H.R. 3962, the Affordable Health Care for America Act, can be downloaded at http://thomas.loc.gov.

As expected, the bill includes-without amendment-nursing home transparency provisions requiring:

1)  Public disclosure of individuals and entities that own, govern, operate, finance, provide services to, and/or control the nation's nursing homes.

2)  Compliance and ethics programs and internal quality assurance programs in nursing homes, and pilot projects to test ways to improve oversight of chains.

3)  Collection and reporting of staffing information based on payroll data, including hours of care per resident day, turnover and retention rates, and facility expenditures for wages and benefits.

4)  A review of Nursing Home Compare and addition of information about sanctions against facilities and the number of adjudicated crimes occurring in them.

5)  A categorical breakdown of expenditures on cost reports to show how much facilities spend on direct care versus other expenses.

6)  An improved state complaint process to help protect complainants against retaliation.

7)  An increase in federal civil monetary penalties and a process to hold CMPs in escrow during appeals (although only after an independent informal dispute resolution process was completed).
8)  Adequate notification when facilities decided to close, including the option for the government to continue reimbursement until relocation was achieved.

9)  Training of nursing assistants in dementia care and abuse prevention.

10)  The bill would authorize a program of national criminal background checks on all long-term care workers who have access to residents or patients--from those who provide in-home long-term care services to nursing home employees.

H.R. 3962 also incorporates the Community Living Assistance Services and Supports (CLASS) Act to create a national voluntary social insurance system through which enrollees who became disabled (after paying into the system for at least five years) could purchase community-based long-term care, services or supports. Nursing home residents who were Medicaid beneficiaries could retain 5 percent of their benefit, in addition to their personal needs allowance, for their personal use while the remainder was applied to the cost of their care. (See page 1562 of the bill.)

Last-minute efforts to add the Elder Justice Act to H.R. 3962 were not successful. The EJA is in the health care reform bill passed by the Senate Finance Committee.

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The Oakland Tribune had an article about how many nursing homes refuse to carry insurance in an effort to limit their liability and fail to compensate residents who are injured or die as a result of their abuse or neglect.  The article discusses the case of Grover Brown.  Brown was 37 years old who developed pressure sores soon after arriving at the High Street Care Center in East Oakland.  One of the sores never healed properly. But once the wound did begin to fester, he wasn't moved, washed, monitored or medicated with antiseptic.  The wound got worse,  Surgeons had removed his tailbone because the wound had festered without treatment.  Even as the sore turned green and smelled foul indicating infection, the nurse in charge at the time told an aide that was the way "it was supposed to smell," according to Department of Public Health records.  The infection ate away at the bone through to the marrow despite repeated treatment orders from physicians to the staff of High Street Care Center.

Brown is suing High Street Care Center, which had a long list of citations from the Department of Public Health — 164 between 2004 and 2008. The facility was owned until December 2008 by Trinity Health Systems, whose president, Randal Kleis, has operated about a dozen facilities across the state under several corporate names.  But Brown likely won't see more than a token settlement from High Street Care Center because skilled-nursing facilities, nursing homes and assisted-living care facilities — charged with caring for the most vulnerable — are not required to carry liability insurance.   And Kleis' other assets are untouchable because they were legally registered as separate corporate entities — a common way operators shield themselves and their profits, said Kathryn Stebner, a lawyer who has been representing victims of nursing home abuse since 1987.   

The state Attorney General's Office, which is California's ultimate watchdog, has gone after fewer than a dozen problem nursing homes for elder abuse and neglect since 2000.  That leaves private attorneys to pursue the operators — almost always after the damage has been done.

Medi-Cal began reimbursing facilities for the cost of liability insurance in late 2004 with the expectation that care would improve. But the decision whether to carry insurance was left to nursing-home owners. There was nothing to mandate the improvement.

The incident was not an isolated mistake. Brown's lack of care was the consequence of an indifference to the health and safety of residents at the facility.  High Street Care Center had a record of poor care, according to records from the Department of Public Health:

On Dec. 7, 2004, an 82-year-old woman at High Street Care Center was suffering from a bed sore that had penetrated through her tendons and muscles to the bone. She was taken to a hospital, where doctors found she weighed 65 pounds and described her as "extremely emaciated." She went to a new nursing home and immediately began gaining weight.

In January 2005, inspectors discovered that the supervisor of dietary services was not certified.

Just two months after being admitted in March 2005, a 54-year-old breast cancer patient who had trouble swallowing lost 23 percent of her body weight. She dropped from 117 pounds to 90 pounds by May 2, 2005. But staff told her family she was gaining weight.

In December 2005, inspectors described finding a cockroach crawling around the base of trash cans full of dirty diapers in one of the rooms. A resident told inspectors that they were crawling around "all the time."

In 2006, a 59-year-old woman told staff at the Center for Elder Independence, a community day care program for elders she attended for treatment, that a certified nursing aide at High Street Care Center had used a washcloth to cover the woman's nose and mouth. When she cried out in pain for fear of being smothered, the aide hit her on the side of the head. A social worker alerted to the alleged abuse by High Street Care Center staff, also had reported the incident to the Public Health Department. The facility's administrator told inspectors that although the aide denied the allegations, he fired the aide and "believed something had happened to the resident."

Kleis has settled at least two previous wrongful-death lawsuits in the past six years, court records show. In each case, Kleis asserted he was losing money and could not afford insurance.

The MacArthur Care Center, run by Kleis under the company name Trinity Health Systems, had an extensive record of problems and lawsuits. The Department of Public Health cited the facility for 79 deficiencies between 2004 and 2009.

AARP spokesman Mark Beach said every responsible business should have liability insurance especially those like nursing homes and skilled nursing facilities that take care of the most vulnerable and dependent people. It fosters accountability and ensures people are compensated when something happens even if an owner declares bankruptcy, he said.

Having insurance, he added, "is the right thing to do."

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The DesMoines Register had an article about the outrageous delays in disciplinary actions in Iowa.  I am sure it has something to do with all the political campaign contributions given by the nursing home industry to Iowa politicians. The state board that disciplines Iowa's nursing home administrators hasn't issued any sanctions in two years and isn't reviewing the state's own care facility inspection reports.  The Board is made up of industry lobbyists and insiders, and doesn't even have the requisite number of citizen representatives.  Of the two most recent citizen representatives, one is a former hospital lobbyist with a poor record of attendance at board meetings, and the other resigned in protest last year after complaining that she had been marginalized by the board.

The chairman is a former nursing home administrator who recently resigned from a Waterloo care facility for "confidential personnel reason". He admits that some cases of abuse and neglect aren't being reviewed by the board.  The records show that the board doesn't act even when the state's own regulators have alleged criminal wrongdoing.

The board is meant to protect the 24,000 residents of Iowa nursing homes. The board licenses and reviews the conduct of facility administrators who are ultimately responsible for meeting the needs of the residents. However, since 2001, the Board of Nursing Home Administrators has disciplined only nine of Iowa's 750 licensed administrators. In some cases, the discipline had no real effect, because the administrators were already retired from the profession or in prison.

Board records show how lengthy the delays can be:

- In January 2001, nursing home administrator Randy Downey was convicted of assault and jailed for physically attacking his wife in a care facility in front of the residents. Three years passed before the board took action by placing Downey's license on probation and imposing a $250 fine.

- In July 2003, Kenneth Opp was sentenced to prison for embezzling $400,000 from The Abbey, a Des Moines care facility. It wasn't until October 2004 that the board revoked his administrator's license.

- In 1999, Stanley Schryba was accused of sexually harassing a co-worker. In late 2003, the case was disposed of when Schryba agreed to refrain from renewing his license once it had expired. By that time, he had already moved from Iowa and retired.

Other cases that have resulted in no action by the board:

- In 2002, the administrator at Mapleleaf Health Care Center in Mount Pleasant failed to tell the state that a resident had been found dead with his or her head wedged between the mattress and side rail of a bed.

- In 2003, the administrator at Van Buren Good Samaritan Home in Keosauqua allegedly concealed information about a resident who died there after choking on a hot dog while left unattended in the dining room. Inspectors alleged the administrator failed to report the choking episode to the resident's physician and family, and falsely told the home's own medical director the resident had suffered a seizure.

- In 2004, the administrator at Davenport's Meadow Lawn Nursing Home was fired for transferring three residents to other care facilities simply because they "annoyed" her. The owner had allegedly ordered the administrator to apologize to the residents and tried to have them moved back to Meadow Lawn.

- In 2004, the administrator of the Stacyville Community Nursing Home was fired after she allegedly put a friend on the payroll, then routed more than $12,000 from a fund used for nursing services into a bank account she maintained with that friend.

- In 2007, ManorCare nursing home in West Des Moines was fined $12,500, and the federal government temporarily cut off Medicaid and Medicare funding for the home. One of the most serious allegations was tied to "resident dumping" - the practice of forcing out elderly residents once their savings are depleted and Medicaid begins paying for their care. The administrator allegedly told inspectors, "I don't want to fill up 120 beds with Medicaid long-term-care residents."
 

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Here is a link to The Frederick News-Post which had a terrific op-ed by Katherine Heerbrandt about accountability and the nursing home industry.  The editorial is below:

Nursing homes are places where residents go about the business of wrapping up their lives or recuperating from illness, so it's not surprising that many of us have an aversion to them. Perhaps we see a future we don't want to contemplate.  But as baby boomers age, living out our golden years in a long-term care facility is a real possibility. The size of the disabled older population who will need assisted or nursing home care will grow by more than 50 percent between 2000 and 2040, according to the Urban Institute.

Entrepreneurs are looking at long-term care facilities as good investments. But as private equity investors flood into the nursing home business, "it's become harder and harder for families, regulators or prosecutors to identify the right individual or business entity to hold accountable for bad care," Janet Wells, public policy director of National Citizens' for Nursing Care Reform, said in an interview.

"The Office of Inspector General says it has found as many as 17 limited liability companies in the ownership and operations of a single facility," Wells said. "Most of these companies are making profits from the business, but they can't be held accountable by anyone for what happens to an individual resident."

This trend, she said, triggered a transparency bill this year and is part of the controversial health care reform legislation currently before Congress. A similar bill failed last year, and compromises were made. The bill currently before the House requires Nursing Home Compare (Medicare.gov/NHCompare/home/asp) to report the number of adjudicated criminal violations by facilities or crimes committed by their employees. States will also have to post survey reports online so consumers can read the inspectors' findings.

It's an uphill battle for advocacy groups. Nursing home lobbyists have much deeper pockets. "The nursing home industry is extremely powerful," Wells said. "And although it claims it can't make a profit from operating nursing homes, spends hundreds of thousands of dollars on campaign contributions and lobbying."

Lobbying, it seems, is a recession-proof profession. In the past decade, nursing home lobbyists' spending has risen from $25 million to $100 million, according to opensecrets.org, maintained by the Center for Responsible Politics.

Tyonja Bathgate became an unwilling advocate for nursing home residents' rights when her husband, Colin, moved to a local long-term care facility two years ago, and she worked with Delegate Sue Hecht on a bill to allow cameras in nursing homes. That bill failed this year.

Based on her experiences, Bathgate supports any legislation that will make nursing home operators more accountable and their operations more transparent.

Even if you or a loved one is not in a nursing home, she said, you are still affected by this legislation.

"Where do you think Medicare/Medicaid comes from? Those are tax dollars and nursing homes shouldn't be able to hide behind LLCs, or to spend millions on lobbyists. That's ridiculous," she said.

She's right. Why shouldn't the facilities entrusted with caring for our nation's chronically ill and elderly be held accountable for how they run their businesses?

For sample letters to your representatives and more information on the details of the nursing home transparency legislation, visit nccnhr.org.
 

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There was a great editorial letter recently by Diana Rhodes in the Casper Star-Tribune Online discussing the need for updated regulations and reforms in the nursing home industry.  Below is a copy of the letter. 

Congress hasn't passed legislation to improve nursing home care since 1987. It has a chance to do so now in health care reform.

There have been a lot of changes in the nursing home industry in two decades -- not all of them good. Several large chains have been bought out by global private equity investors; in fact, a majority of nursing homes are owned by for-profit corporations. The way these companies structure themselves, even our state health regulators can't tell who owns them sometimes, especially when the owners are out-of-state. This can create a dangerous situation for the residents, because no one is truly accountable for what happens to them.

The Nursing Home Transparency and Improvement Act is part of the draft health care reform bills that the House and Senate are considering. It would make nursing homes disclose their owners and operators. It would also give families a lot more information about the nursing homes they put their loved ones in, including whether they have adequate staff. It would help the federal government get better oversight over these multi-state chains.

I want to urge Sen. John Barrasso, Sen. Mike Enzi, and Rep. Cynthia Lummis to support nursing home transparency and improvement in health care reform. The elderly and people with disabilities in our state deserve nursing homes that are transparent and accountable, and families need information to make good choices when they choose a nursing home for someone.

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Court Hands Down Decision in Sevier County Nursing Home Case

 A Court in Sevier County, Arkansas decided today (April 17, 2009) that a family deserved $7 million for the neglect and wrongful death of its patriarch.   It was a record judgment for the county - the previous high was believed to be $1 million -but the family likely will never see any of the money.

John W. Minor, an 87-year-old DeQueen man, died after officials at a local nursing home neglected him to the point where his body was covered with 35 bedsores. The sores, many in advanced stages and infected, made it impossible to embalm his body when Minor passed away. 

Minor's family, including a wife, step-daughters and grandson, filed a lawsuit against the nursing home, Sevier Healthcare Inc., and its management company, Regional Management Inc., for negligence, violation of the Arkansas Long Term Care Resident's Rights Statute, and wrongful death.

The suit details how Minor also suffered from severe malnutrition, multiple urinary tract infections, pneumonia, severe dehydration leading to kidney failure caused by the neglect at the nursing home.  The injuries, "caused John W. Minor to lose his personal dignity and caused him to suffer extreme and unnecessary pain, degradation, anguish, otherwise unnecessary hospitalizations, emotional trauma, and death," according to the suit.

The lawsuit alleges the defendants, among many other things, tried to maximize profits by reducing staffing levels below what was needed to provide adequate care to residents. They failed to provide adequate care for Minor, to the point where their actions were "grossly negligent, willful and wanton, outrageous, reckless, malicious," according to the suit.

The family sought compensatory and punitive damages for medical expenses, pain and suffering, mental anguish, loss of life, and funeral expenses.

In a hearing today (April 17, 2009), the court, after hearing testimony from Minor's family, ruled for $3.5 million in compensatory damages and $3.5 million in punitive damages.

It is unlikely the family will see any of that money, because the former owner and director of both Sevier and Regional previously filed personal bankruptcy.

Wilkes & McHugh, P.A. attorneys and Minor's family learned this early in the litigation process, but saw the case through in an effort to bring awareness to the problem of nursing home abuse and neglect in the hopes of preventing others from receiving such horrific treatment, Priebe said.

The facility is still doing business under a new name and a new owner.
 

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Most of the information in this entry comes from John DeMoor "Trends in nursing home litigation". Daily Record and the Kansas City Daily News-Press.

When St. Louis defense attorney Stephen Strum finished his closing argument on behalf of a nursing home client earlier this year in Hannibal, Mo., he and his uninsured client were prepared and almost eager to hand over the keys to the facility's front door.  The jury returned a $400,000 verdict, with $240,000 of it for punitive damages involving aggravating circumstances.  Defendant is appealling the jury's findings.  Strum siad if the appeal is unsuccessful, "we'll just hand over the keys".

Strum is one of many defense attorneys with nursing home clients that have converted each of their facilities into an independent limited liability corporation while at the same time have opted not to carry long-term-care liability insurance so they can't be held accountable for neglect and negligence.

This tactic is just one of the latest trends that nursing homes are using to avoid responsibility for their actions.  Setting up nursing homes as their own limited liability corporation, not carrying liability insurance, refusing settlements and trying each case to the bitter end is part of a growing local and national trend the nursing home industry is using to protect itself from resident related lawsuits.

Defendants are quick to use the tactic to intimidate plaintiffs, concedes Kansas City defense attorney Roger Slead of the law firm Horn, Aylward & Bandy. I have heard it threatened more and more: 'If you think this is a $5 million case, here's the key to the facility because it's not even worth $5 million as an ongoing business concern. Here, you can have the keys to the facility and we're going to walk away,' Slead said.

Plaintiff attorney Derek Potts of the Potts Law Firm in Kansas City said that incorporating into an LLC and not carrying insurance is merely a strategy for nursing homes to shield themselves from liability.  He sees the dangling-keys tactic often used early in a case to discourage attorneys from proceeding with costly litigation. They come out early and say, 'We're just going to be honest with you. There is no insurance, no money and you should probably abandon your case, or we can pay you a nominal amount to go away,' Potts said. And it does work. I know a lot of attorneys who are daunted by that and don't want to risk their time and expense going forward.

Many national nursing home companies have developed shell corporations with elaborate management systems and corporate structures. Potts explained that the corporation at the bottom level of the structure is often a not-for-profit corporation or a pass- through entity which rarely realizes profit or gain on its books.

The defendant will typically file a motion for summary judgment to sever the parent corporation or owner from the case. He points out that the plaintiff must counter by directing discovery towards piercing the corporate veil or showing to what extent the owner controls the care given and how that caused the injury.  Potts says the plaintiff should argue that owners control the quality of care based on how much money they provide for the amount of staff, salaries, training and adequacy of the equipment.

All these things directly impact patient care and controls how much profit they make, but they are also things that can impact how people get hurt or even killed, he said. The challenge is to follow the money trail to establish exactly who profited from the operation of the nursing home and tie that ultimate profit to the injury and, or death.

During discovery, Potts suggests the plaintiff seek the disclosure of ownership statement from the Missouri Department of Health and Senior Services; identify the named insureds on the liability policy at issue; and depose corporate executives about their understanding of the nature of the relationship.

Decisions by the Missouri Court of Appeals have helped to provide guidelines on how to build these cases. In Scott v. SSM Healthcare St. Louis, 70 S.W.3d 560, (Mo.Ct.App. 2002), the Missouri Court of Appeals held that to establish an agency relationship in the healthcare setting, (1) the principal must consent, either expressly or impliedly, to the agent's acting on the principal's behalf, and (2) the agent must be subject to the principal's control.

Potts currently has a case where he has been told that all his client will receive are keys to a building the nursing home leases. However, he has yet to see a situation where a plaintiff has won and proceeded with collecting the assets of the nursing home.

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The Tennessean reported on Murfreesboro-based National Healthcare Corp's CEO defending the ridiculous legislation to impose limitations on the amount of damages a victim of neglect, abuse, or negligence can be compensated for their injuries and pain and suffering.

Critics have labeled the bill the "Kill Old People Cheap Act."

"If we could lower our liability expense, we could put more into staffing," NHC President Steve Flatt said.  However, in all the states with caps on damages, the staffing remained the same!  These nursing homes have insurance and staffing is not affected by potential liability.  If they staffed properly to begin with then there would be less victims of neglect and negligence.  Flatt said his company saw a 20 percent loss in profits, going from $45 million in 2007 to $36 million in 2008. Opponents of the bill contend the nursing home industry spent between $700,000 to $850,000 to lobby for last year's version of the legislation.

 Daniel Clayton, a Nashville attorney and president of the Tennessee Association for Justice, says while the legislation falls short.   "There's not one word in their legislation that requires the nursing homes to improve the quality of care," he said. "We're (ranked) 47th in the country in quality of care of nursing homes by the federal government." "Quality of care comes first," said Clayton. "The legislation that they are proposing is to make good care optional. Good care should not be optional. It should be mandatory.

Opponents see the legislation as a way to enhance profits by the industry.

"This bill is all about the nursing-home industry trying to avoid full responsibility when it neglects or abuses a vulnerable resident. Caps don't improve care. If care improves, lawsuits go down."

NAACP Tennessee President Gloria Sweet-Love says the legislation comes at a time when state and federal reports have uncovered severe staffing and quality of care deficiencies. The CMS report uncovered that 49 percent of Tennessee Nursing Homes scored the poorest possible rating for staffing levels.

A report from the Government Accountability Office uncovered that Tennessee was one of nine states nationwide where health inspectors missed more that 25 percent of serious health and safety violations.  And a report recently released by AARP reconfirmed the poor state of Tennessee Nursing homes and found that tort restrictions have little impact on improving the quality of care in nursing homes.

The legislation would place arbitrary caps on non-economic and punitive damages in addition to making every negligent act that occurs in a nursing home protected under the Medical Malpractice Act.   "The nursing home industry's effort to conceal its true intentions is despicable and should be rejected by anyone who has ever had a loved one in a nursing home," Sweet-Love said.

"We need laws to protect our nursing home residents, not ones designed to protect the profits of greedy nursing home operators."

"If the nursing home industry would spend its money on more nursing staff, rather than on high-priced insiders, the quality of care in nursing homes would improve," Sweet-Love, the NAACP official, states in the news release. "The industry chooses to spend their resources on backroom conversations aimed at passing a law that immunizes the industry from negligent and abusive acts against helpless residents."

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The Chamber of Commerce, the Insurance lobbyists, and the nursing home industry always claim that caps on the amount of damages a victim of malpractice or neglect can be compensated is needed because doctors are leaving states without caps.  A new analysis based on data from the American Medical Association proves that this propaganda is patently false.

The AMA statistics show that the number of doctors continue to rise nationwide and in every state.  The number of doctors has actually risen over the last five years in all states--with or without tort reform measures.  In fact, only in Alaska, Georgia, Montana and Utah--all of which have caps on damages--did the increase in doctors lag behind population growth.

The data also shows that the number of physicians per captia is 13 percent higher in states without caps.  This finding corroborates research done by The Commonwealth Fund and The American College of Emergency Physicians which found that health care quality and patient safety are dramatically worse in states that have eliminated accountability by enacting tort "reform" measures. 

Once again, facts and research disprove the false propaganda of tort "reform" advocates who clearly care more about profits than quality of care and patient safety.

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