Corporate Negligence applied to Nursing Homes

Aboutlawsuits.com had a good summary of the recent Pennsylvania case that held that nursing homes can be held corporately liable for injuries caused by substandard care.  The Pennsylvania Superior Court overturned a lower court verdict, ruling that Grane Healthcare, which owns Highland Park Care Center, can be held liable for the 2004 death of one of their residents. The case stems from a lawsuit filed by the son of Madeline Scampone, who died from a heart attack after suffering from a urinary tract infection,untreated bedsores, malnutrition, and dehydration while in the nursing home home.

Key to the case was the fact that the nursing home was chronically understaffed, which the panel of judges said expressly showed failing on the part of the management company.   Witnesses testified on Scampone’s behalf that the nursing home was chronically understaffed, and said that the company would temporarily boost staffing levels when an inspection was scheduled and then immediately return to its understaffed state after the inspection was over. They also testified that nursing home staff altered medical records to hide substandard care.

 

The panel unanimously ruled that a nursing home has the same responsibility and liability for its residents as a hospital has for its patients, indicating that the evidence suggested the management company and nursing home staff acted with reckless disregard for residents and made nursing home abuse and neglect more likely.

Corporate negligence as a basis for liability is supported as a cause of action against Grane because it was the entity that managed all aspects of the operation of the nursing facility,” Supreme Court Judge Mary Jane Bowes wrote in the opinion. “Grane had assumed the responsibility of a comprehensive health center, arranging and coordinating the total health care of the nursing facility residents.”

The Superior Court determined that not only could the company be held responsible for compensation, but that a jury could determine it should suffer punitive damages as well. The lower court had ruled that there was insufficient evidence for punitive damages.

Sun HealthCare Group

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.

 

 

SunWest Management fined $8 million

Oregonlive.com had an article about the $8 million in fines Oregon issued against Sunwest Management, several of its affiliates and former CEO, claiming the chain of assisted living centers misled investors, lied about the true condition of the company and used unlicensed salespeople to sell unregistered securities.

The Oregon Division of Finance and Corporate Securities issued civil penalties of $4.2 million against Jon Harder, co-founder and former CEO of the Salem company. It also levied fines of $3.8 million against Sunwest and several of its affiliate companies.  However, Oregon will hold off on collecting the money as long as Harder and the companies comply with the terms of any agreements or orders issued by U.S. District Court or the receiver appointed to oversee the case in March, after the U.S. Securities and Exchange Commission sued Sunwest and Harder making many claims similar to the state's.  Harder and his team formed a company for each of the nearly 300 assisted living centers it acquired or built. Numerous subsidiary companies controlled by Harder offered other services. If the state actually recovers any money from Harder or the Sunwest companies, it intends to put the money into a restitution fund for investors.

 

 

 

NHC covers up molestation by CNA

Michael Owens of the TriCities.com website reported a story about another sexual assault of a nursing home resident by an employee nurse.  The article discusses how a co-worker, Patricia Davenport, reported the employee molesting a resident on two different occasions but was told  she was mistaken by NHC (National HealthCare Corp.).   She quit after the complaints were ignored.

Davenport then told the Office of the Attorney General of Virginia that she witnesses the same aide molesting two different nursing home patients.  Davenport said the first time she stumbled upon the abuse of patients was in August 2007. The woman’s shirt and bra had been shoved high on her chest. A nurse’s aide was standing behind the wheelchair, and he was reaching around to fondle the patient’s breasts. Later that same month, Davenport said, she caught the same aide fondling a blind patient.  That aide, James W. Wright was indicted on four counts of aggravated sexual battery. Each count stems from the investigation into the treatment of a different patient from 2000 to 2007.

National HealthCare Corp., runs the Bristol nursing home as well 75 others in Tennessee and other eastern states.  Virginia Department of Health Professions records show that Wright still holds an active license to work as a nurse’s aide.  The abuse was not a secret among nursing home staff.  “When I talked to the rest of [the nurses], they said this has been going on for years,” Davenport said.   Davenport said she complained to her supervisor.  “You look at those people every day in the face knowing they’re getting abuse and you can’t do anything because nobody’s got your back,” Davenport said. “I don’t want to go back to nursing.”

A second article discusses additional abuse by Wright at the Brookdale Senior Living-Grand Court Bristol nursing home, where the aide accepted a job after passing the criminal background and job reference checks.  Although nursing aides said they witnessed and reported sexual abuse by Wright to NHC officials, NHC did not pass along any of that information to Grand Court.  In all, eight people from both nursing homes have told investigators they were groped, fondled and sexually assaulted by Wright between July 2003 and May 2008, according to documents filed by the Virginia Board of Nursing.   Nursing board documents show that seven NHC patients complained of being sexually assaulted while under Wright’s care.

Despite those complaints at NHC, the aide arrived at his new job in September 2007 with flawless references, said Holly Botsford, a spokeswoman for the Chicago-based Brookdale Senior Living, which runs 548 homes across the nation, including Grand Court Bristol.  “None of [the checks] indicated he had any previous employment or character issues,” Botsford said.  A Grand Court patient was sexually assaulted the following May, according to Virginia Board of Nursing documents.

A pair of former NHC nurses said the nursing home’s management routinely dismissed patient and nurse allegations against Wright.   It was in 2003 that former NHC nurse Diane Lewis reported a patient’s complaint of being touched inappropriately. A staff director did ask the patient about the complaint, but the investigation ended there.  Twice in August 2007, then-nursing aide Patricia Davenport complained that Wright mistreated two patients.


 

Lack of staffing led to death and cover up

Tony Bartelme of The Post and Courier had a great article about Alzheimer's, violence, and a cover up in nursing homes using the story of Dwayne Walls. It is a tragic story and clearly preventable.  Below is a short summary of the article.  Dwayne Walls was a resident of Veterans' Victory House, a large nursing home near Walterboro, who suffered Alzheimer's.  One day, they moved Walls to another room and put a dangerously psychotic patient in his old one. His wife warned nurses that Walls would try to return to his old room. "They said they were going to really watch him. But at midnight, I got a call that he had gone to his room and gotten beaten to a pulp," she said.

One night Walls went into another patient's room and climbed in an empty bed. Moments later, another patient walked in. He was 88 years old and also had dementia.  A nursing aide saw the man hitting Walls with his cane. Walls was on the floor, bleeding and unconscious.  An ambulance took Walls to the emergency room and phoned Walls' wife, Judy Hand. That night and over the next four days, they told her that Walls had merely fallen; they didn't mention the beating. Walls spent the next week in bed, and Hand was at his side when he died.   The nursing home's doctor later would write in Walls' file that his patient had contracted fatal pneumonia after becoming "immobile," but that the beating didn't account for this immobility.

In December 2006, investigators with the U.S. Department of Justice visited the facility: Staff gave patients wrong foods and medications and too often used physical restraints to control behavior problems. They found that the facility was poorly equipped to handle combative Alzheimer's patients.

"There appears to be no formal behavior program for residents diagnosed with Alzheimer's disease, placing residents at heightened risk for the use of physical or chemical restraints to control behavior, and placing them at heightened risk of physical assault by other residents who may become frustrated at their repetitive speech or wandering," investigators concluded.

The state Department of Mental Health owns the facility but has a contract with a private company called Advantage Veterans Services of Walterboro to run it. The company is affiliated with HMR Advantage Health Systems, which is based in Easley and operates 26 nursing homes in South Carolina and elsewhere in the Southeast.

Nearly 80,000 people in South Carolina have Alzheimer's, enough to fill the University of South Carolina's Williams-Brice Stadium, and that memory loss isn't the disease's only troubling effect: More than two-thirds will exhibit some form of agitation or combative behavior.  Aggressive behavior is a normal part of the brain's breakdown, nursing homes don't hire enough people to meet the needs of these patients. Many blacklist Alzheimer's and dementia patients with histories of aggression, leaving already stressed families and loved ones with few options.

There is no cure for Alzheimer's, but doctors are zeroing in on its causes. One leading theory involves proteins. Healthy people have stringlike proteins in their brain cells that normally curl like unfurled ribbons. These ribbons help nourish the cells. But in Alzheimer's patients, these ribbons get tangled, destroying the cells in the process, along with a person's memories and functions that control behavior.

 As happens with about 70 percent of Alzheimer's patients, Walls grew more agitated as the disease marched through his brain, though he was by no means the only person in the wing suffering these effects.  In 2008, staff at the Veterans' Victory House documented in his medical records how another resident pushed him to the floor one month, and how a month later Walls hit another resident in the head with his fist. In June 2008, a resident hit another, who fell into Walls and knocked him to the floor. In July, a staff member found Walls in another resident's bed, his fists balled.   By August, a month before Walls' death, staff noted that he was "aggressive to others and himself," particularly when he was scared. But then the storm clouds cleared. Staff noted on the day Walls was beaten that he had no behavior problems and was moving around well.

Walls had fallen and needed to go to the hospital for X-rays, a nurse said. She didn't mention the beating, or that a deputy had been called to investigate.  Hand drove to Walterboro the next Monday morning for a visit. "I walked into the room and gasped. He was black and blue all over, swollen and on oxygen. I ran out of the room and got a nurse. They came and I asked what had happened." Dwayne had fallen, they told her. Throughout the day, the home's employees stopped by to visit Walls to see how he was doing.  Later that afternoon, four days after the attack, she approached a staffer. "I said, 'He couldn't have possibly gotten that from a fall.' She looked at me and said, 'No one told you? He was beaten.' "  Colleton County Coroner Richard Harvey told her over the phone that the beating contributed to Walls' death, but she was surprised when the death certificate listed the cause as natural and didn't mention the altercation. In an interview, Harvey said he did an autopsy but the results showed that Walls died of pneumonia, not from any other injuries.

The doctor wrote the summary in November, two months after Walls' death, and after an ombudsman hired by the lieutenant governor's Office on Aging visited the home. The agency had received a complaint about "residents that beat other residents," low staffing levels and "residents sitting in soiled diapers."  After the visit, the ombudsman noted the altercation involving Walls but said the agency doesn't investigate resident-to-resident abuse.

The ombudsman nonetheless concluded, "There is a shortage of staff," after looking at the facility's staffing logs. The reports showed the Alzheimer's unit had just one licensed nurse on duty for 52 patients on morning shifts before and after Walls' attack. On one night shift, the wing had no licensed nurse at all. The ombudsman asked the nursing home to follow state regulations, which requires at least two licensed nurses during the morning shift and one on the night shift.

More recently, an investigator with the state Department of Health and Environmental Control made an unannounced visit to the home and found it hadn't properly reported the incident involving Walls and the 88-year-old man who beat him. State law requires nursing homes to report "serious incidents" involving residents who assault others.


 

 

 

How nursing homes avoid responsibility for neglect and abuse

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.

 

 

 

New financial regulations may provide more oversight into finances of nursing homes

The New york Times had an article explaining the Obama administration's plan to overhaul financial regulation by subjecting hedge funds and traders of exotic financial instruments to potentially strict new government supervision. Many of these hedge funds and financial instruments own or have a financial stake in numerous nursing homes around the country.  It states that the government would have the power to peer into the inner workings of companies that currently escape most federal supervision, and specifically cites "private equity firms like the Carlyle Group."   

The Carlyle Group bought out Manor Care a couple of years ago and have created sham L.L.C.s to protect themselves from liability while cutting the budgets of the nursing homes that they own.  In fact, two men who worked in the New York State comptroller’s office were arrested recently after it was discovered they took millions of dollars in kickbacks from private equity and hedge funds.  David Loglisci, who was the top investment officer of the state’s $122 billion pension fund, along with Henry Morris, who fund-raised for former comptroller Alan Hevesi, were nailed in a 123-count indictment, which included charges of money laundering, securities fraud and bribery. It was discovered that over 20 transactions made by the pension fund involved kickbacks, with five of those coming from the renowned private equity fund The Carlyle Group. Morris, who was released after posting a $1 million cash bail, allegedly received $13 million from The Carlyle Group, from investments that totaled $730 million.

The administration would require that all standardized derivatives be traded through a regulated clearinghouse. Traders would be required to provide documentation on their collateral and borrowings. They would also be subject to new eligibility requirements, and their trading and settlement practices would be subject to new standards.


 

The Carlyle Group trying to sell corporate jet

Somebody sent me this article from Cityfile.com.  It is about The Carlyle Group having to sell their corporate jets.  The Carlyle Group owns and operates the ManorCare nursing homes throughout the country.  They are notorious for under-staffing and neglect.  Below is part of the article although the Cityfile website has additional information.

You can add The Carlyle Group to the long, long list of financial firms looking to cut back on their private jet budgets. The Washington-based private equity giant that counts members of the Bush family as investors is now looking to unload its 2004 Gulfstream G450. Like its rivals, it's been a challenging few months for Carlyle, which was ranked the largest private equity firm last year by Private Equity International. In December, the firm announced plans to slash 10 percent of its staff—the first layoffs in Carlyle's 20-year history—and it also said it planned to close down its Silicon Valley office. The jet broker responsible for selling the G4 didn't indicate how much Carlyle is hoping to get for the plane. (Similar models run about $30 million.) But if you're in the market for a jet that's made its fair share of trips to Kennebunkport and Crawford, you may want to set aside a little extra to replace all the gaudy gold plating in the bathroom and kitchen. Photos and detailed specs after the jump.
 

Nursing home and parent corporation sued

The West Virginia Record had an article explaining why a resident's family sued the nursing home that neglected her and the parent company that controlled the budget, staffing, and equipment used at the facility.  

The article states that the woman died from injuries sustained in a Dunbar nursing home seeking compensatory and punitive damages. The suit is against Sunbridge Care and Rehab and the Sun Healthcare Group, Inc.

McCarty was admitted to Sunbridge Care and Rehab at the age of 79. Upon her admission, McCarthy suffered from dementia and could no longer handle her affairs. Her cognitive and physical skills were impaired. She died as a result of the injuries she sustained in a fall at the facility.

Among the injuries she sustained while at the nursing home were falls, weight loss, dehydration, malnutrition, constipation, a perforated bowel, infections, and ultimately, her death.  She suffered injuries, disfigurement, extreme pain, suffering, and mental anguish.

"The scope and severity of the recurrent wrongs inflicted upon Ferris McCarthy while under the care of the facility accelerated the deterioration of her health and physical condition beyond that caused by the normal aging process and resulted in physical and emotional trauma," the suit says.

Nursing home dumping

The Wall St. Journal had an article recently that made me think about the future of helath care when the baby boomers enter the nursing home industry.  Will there be a revolution in health care?  Will for profit chains dictate how the old and frail among us will conclude their lives? 

A nursing home in California wants to evict Jasmine Nguyen, a 32-year-old dependent on a ventilator to breathe and the facility's staff for her daily needs, and a dozen other residents in similar situations replacing them with short-term residents that bring more profit.

Across the country, nursing homes are forcing out frail and ill residents. While federal law permits nursing-home evictions in some circumstances, state officials and patient advocates say facilities often go too far, seeking to evict those who are merely inconvenient or too costly. Residents with dementia or demanding families are among the most vulnerable, particularly if -- like Ms. Nguyen and the other Lodi residents -- they depend on Medicaid to pay their bills, the officials and advocates say.

Assisted-living facilities have sprung up as alternatives for those who don't require nursing-home care but need assistance with things like taking medications or bathing and dressing. Each state regulates the industry differently, so eviction policies vary. But many states simply require facilities to give four- to six-weeks' notice, with no appeal guaranteed.

In Florida, for example, the state's 2,400 assisted-living facilities must give residents 45 days' notice before evicting them, but don't need to provide a reason or appeal process. 

No national figures on assisted-living evictions exist, but discharge-related complaints recorded by the federal Administration on Aging more than doubled in the decade before 2006, rising 177% -- nearly twice the growth for complaints overall.  Some attorneys are turning to federal fair-housing rules and the Americans with Disabilities Act to help assisted-living residents stay in their homes. They argue that those laws require all landlords, including assisted-living companies, to make reasonable accommodations for disabled residents, and prohibit them from evicting residents because their condition worsens.

And evictions may be even more widespread, since some eviction attempts are resolved without formal complaints. Residents may not know they can appeal or may be too ill to do so or fear retribution.  Federal law -- enforced by the states -- says residents can be discharged involuntarily for just six reasons: if they are well enough to go home; need care only available elsewhere; endanger the health of others; endanger the safety of others; fail to pay their bills; or if a facility closes its doors. Even so, nursing homes must give residents at least 30 days' notice, explain their appeal rights, and put together a plan to make sure the move doesn't harm them.

Even an orderly eviction can carry grave risks for the old and ill. Studies suggest "transfer trauma," or relocation-stress syndrome, can spur depression and weight loss and increase the risk of falls.

For example, the nursing home trying to evict Jasmine Nguyen, Lodi Memorial Hospital, told her and a dozen others that they would have to move by June 30 because the nonprofit organization was closing the facility -- for renovations.  All 13 residents were "sub-acute" patients, most of them dependent on ventilators or feeding tubes, or with other conditions requiring significant extra care.

Lodi Memorial told the state it planned to replace them with patients recently discharged from its hospital -- who typically require shorter-term care covered at a higher daily rate by private insurance or by Medicare. (Medicare pays for up to 100 days in a nursing home following a hospital stay of at least three days.)

In April, after Lodi Memorial sought state approval, administrators were told that they knew when accepting the sub-acute residents that they would need extensive care, probably for many years, and it couldn't simply stop. Moreover, the state said in a letter, "your facility is not ceasing to operate as you are not surrendering your license."

The nearest nursing home certified to care for patients like Ms. Nguyen is about two hours away with traffic, says Jasmine's 23-year-old sister, Mary. Their mother, Kim Nguyen, who runs the family nail salon in nearby Stockton, visits Jasmine twice a day.

 

Poliakoff & Associates, P.A., is one of South Carolina’s most respected and distinguished law firms. The Poliakoff firm began nearly 60 years ago by three attorney brothers: Matthew, J. Manning, and Bernard. With a history of believing the justice system...More...