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

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.

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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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The Supreme Judicial Court of Massachusetts made a horrible decision by rejecting the Attorney General's attempt to prosecute Life Care Centers of America for the death of a resident.  See article from The Boston Globe here.  In 2007, Coakley’s prosecutors convinced a Middlesex grand jury to return a manslaughter charge against Life Care, a Tennessee-based operator of nursing homes nationwide.

Life Care Centers of America was charged with manslaughter because numerous employees willfully violated the standard of care by failing to safeguard a resident who died when she fell down steps after her wheelchair overturned.  McCauley was unsupervised in her wheelchair at 7 a.m. without an alert device on her wrist that closes the facility’s doors.  The Globe reported in 2007 that McCauley had a habit of wandering away. Doctors ordered her to have a device put on her wrist that sets off an alarm and closes the center’s doors when patients get near them. She apparently wheeled herself through the double doors and fell down eight steps.

The Attorney General attempted to hold Life Care Centers of America criminally liable for the “aggregate actions’’ of all the employees she said played a role in the failed care of Julia McCauley.  “A corporation may be criminally liable for the crimes alleged here only where at least one of its employees could be found individually liable for the crime,’’ Justice Judith Cowin wrote for the court.

The SJC ruling does not end the criminal case because Coakley may be able to pursue a manslaughter prosecution on a different legal theory — that the actions of a single supervisor caused the woman’s death.

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The Honolulu Advertiser had an article about the sentencing of CNA Mark Genetiano  He was
sentenced to only a year in prison and five years of probation for molesting four helpless elderly women in a retirement home. Genetiano pleaded guilty to six counts of third-degree sex assault, admitting that he assaulted two of the victims twice while working at the Kāhala Nui retirement home.

The victims ranged in age from 89 to 92 when the crimes took place in May and June of last
year. All four women suffered from Alzheimer's disease or dementia and were "mentally defective, mentally incapacitated or physically helpless," prosecutors said.

According to a police report, three of Genetiano's co-workers reported that he pinched the
patients' breasts while they were changing clothes or in the bathroom. The co-workers said the women tried to fend him off by waving their arms and yelling at him to stop and that Genetiano laughed at them.  How do you properly compensate someone for that kind of experience?

In a somewhat related article in the Honolulu Advertiser, the authors discuss the lack of liability insurance among nursing homes in Hawaii.  This is common in the vast majority of states including South Carolina.

Industry officials believe as many as half the roughly 500 licensed care homes in Hawai'i don't carry liability insurance, though no one has reliable data on that.  The percentage probably is much greater among Hawai'i's unlicensed care homes, which industry leaders estimate number anywhere from a few dozen to close to 500.

Liability insurance protects the insured from claims made by others who suffer injury at the business. The breadth of coverage can vary significantly depending on the terms of the policy. But it also provides an avenue for the injured person to seek redress, particularly if the harm is caused by a hazard at the home or negligence.

Without liability insurance, an injured senior would have no recourse to pursue a claim — short of suing the caregiver, a costly and time-consuming process.  States should require nursing homes who accept taxpayer money through Medicare and Medicaid to carry minimum insurance.  A reasonable number would be $1 million per claim or 20% of gross revenue from Medicaid and Medicare.  There should be a reasonable consensus as to a proper amount.

Oregon, for instance, does not require liability insurance for homes with five or fewer residents, a state spokeswoman said, but facilities with six or more that take Medicaid patients must have coverage. In Washington state, all facilities that take Medicaid clients are required to have liability insurance.

Mandating basic coverage also would nullify the unfair advantage care-home operators without insurance have over all the others, according to Medy De Lara, president-elect of the alliance and a care-home owner for 24 years.  A bare-bones policy costs less than $700 per year for an entire facility.

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Cape Cod Today had an article posted by attorney Bruce Bierhans about the recent decision involving a nursing home suing the wife of a resdient for bills including making her sell her house to pay for his bills.  I don't believe this decision will stand.  Hopefully, the appeals court will get it right.

A Superior Court judge has arbitrarily ruled that a widow is responsible for her deceased husband's nursing home bills...and that her home, in which the husband never had an ownership interest, could be attached to satisfy the debt. The name of the case is East Longmeadow Management Systems, Inc v. Wilson.  The bill in the amount of $45,243. The wife had never signed a contract accepting financial responsibility for the services provided.

The judge had to reconcile two seemingly inconsistent statutes. A 1974 statute provided that "a married woman shall not be liable for her husbands debts... but a married woman shall be jointly liabe for her husband's debts, to the amount of $100... for "necessaries" furnished with her knowledge or consent..." Another statute, passed in 1979 provides that "both spouses shall be jointly or seperately liable for debts incurred on account of "necessaries" furnished to either spouse". Earlier case law had held that medical and hospital bills could be "necessaries."

The court then applied the doctrine of "implied repeal" and found the 1974 statute to be inconsistent with the 1979 statute and held that the 1979 statute was applicable. She found in favor of the nursing home. 

Attorney Bierhans previously posted about the case we recently tried in which the nursing home went after the house that the parents had conveyed to the children over three years before the nursing home admission. We prevailed at trial, but the case is now on Appeal by the nursing home. As you can see, nursing homes are becoming increasingly aggressive in their collection efforts. For my readers, as well as estate planning attorneys; these legal developments require careful consideration!
 

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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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I am happy to report that Moody & Warner, P.C., an employment law firm in New Mexico, specifically Whitney Warner, got a verdict in federal court against various Fundamental/THI entities last week in a wrongful discharge case. Significantly, the verdict was against multiple THI/Fundamental entities because the jury found that they operated as a “single employer.” I think this is extremely important to all of us who try to hold these parent entities accountable.

Mr. Prendergast had been treated horribly by his employer THI/Fundamental entities which includes Fundamental Long Term Care Holdings, Fundamental Clinical Consulting, Fundamental Administrative Services, THI of Baltimore, Inc. and local operators in an elaborate corporate scheme. These entities are represented by Lori Proctor. This case was about the maintenance director, Mr. Prendergast, who was fired after “corporate” decided he was too concerned for the health of the residents, and complaining about unsafe and unsanitary practices such as having to paint over mold in the bathrooms, delays in approvals for repairs, and otherwise being aware and willing to talk about how dangerous and run down this facility was.   These kind of unsafe and unsanitary practices will lead to dangerously high infection rates.  The facility has thankfully been closed down.  

The Tenth Circuit weighs four factors in considering “whether two nominally separateentities constitute an integrated enterprise or single employer: (1) interrelations of operations; (2)common management; (3) centralized control of labor relations; and (4) common ownership andfinancial control.”   Here is the Order denying Defendants' Motion for Summary Judgment on the "single employer" rule or "integrated entity" enterprise.

Whitney Warner is a phenomenal lawyer who put a tremendous amount of thought and effort into this case.   Although this does not represent a huge damages award, the significance of this verdict is invaluable.

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Consumer Affairs had a revealing article about the dramatic decline of medical malpractice payments to victims of malpractice.  This proves once again that there is no need for tort reform or taking away consumers rights to a jury trial and adequate compensation.

The article mentions that medical malpractice payments were at or near record lows in 2008.  A study released by Public Citizen suggests the decline indicates that a lower percentage of injured patients received compensation, not that health safety has improved.

Medical malpractice is so common, and litigation over it so rare, that between three and seven Americans die from medical errors for every one who receives a payment for any malpractice claim, according to Public Citizen’s analysis of medical malpractice payment data and the best available patient safety estimates.

For the third straight year, 2008 saw the lowest number of medical malpractice payments since the federal government's National Practitioner Data Bank began tracking such data in 1990. The 11,037 payments in 2008 were 30.7 percent lower than the average number of payments recorded by the NPDB in all previous years.

Ratios of payments per capita and per physician have fallen even lower compared with historical norms. There were 13.5 payments per million physicians in 2006 (the most recent year for which the number of physicians is available), which is 29.2 percent lower than the average in previous years

The value of payments in 2008 (as distinct from the number of payments) was the lowest or second lowest on record, depending on the method used to adjust for inflation.

The cost of the medical malpractice liability system -- if measured broadly by adding all malpractice insurance premiums -- fell to less than 0.6 percent of the $2.1 trillion in total national health care costs in 2006.

The cost of actual malpractice payments fell to 0.18 percent -- one-fifth of 1 percent -- of all health care costs in 2006. Annual malpractice payments have subsequently fallen from $3.9 billion in 2006 to $3.6 billion in 2008.

"Any way you measure it, medical liability accounts for less than 1 percent of the country's health care costs, and the vast majority of victims receive no compensation whatsoever," said David Arkush, director of Public Citizen's Congress Watch division. "These are people who died or were left with serious permanent injuries -- out of work, with enormous medical costs for the rest of their lives -- and they and their families are getting nothing from the doctors and hospitals responsible."

Despite the hysteria surrounding debates over medical malpractice litigation, experts have repeatedly concluded that several times as many patients suffer avoidable injuries as those who sue.

The best known such finding was included in the Institute of Medicine's (IOM) 1999 study, "To Err Is Human," which concluded that between 44,000 and 98,000 Americans die every year because of avoidable medical errors.    Fewer than 15,000 people (including those with non-fatal outcomes) received compensation for medical malpractice that year, and in 2008, the number receiving compensation fell to just over 11,000.

The Joint Commission learned about 116 occasions in which surgeons operated on the wrong part of a patient’s body in 2008 and 71 times in which foreign objects were left inside patients’ bodies. Health experts call these "never events," meaning that they simply should not happen at all.

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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 Dealmakers Forum has an article about Sunrise charting a new course and discussion of how much money they are allegedly losing. 

Sunrise Senior Living was founded 27 years ago by Paul and Terry Klaassen when they opened a small nursing home in Virginia they purchased for just $325,000.   Now, 27 years later, the company manages more than 440 nursing homes in four countries, has revenues under management of more than $2.4 billion, boasts an average same-community occupancy rate that has been at 90% or better for four consecutive quarters and is perhaps the only company in the industry with a national brand name known to the consumer.

Mr. Klaassen will be relinquishing his chief executive officer duties and will become the non-executive chairman of the board. Mark Ordan, who was brought in earlier this year as the chief administrative and investment officer, will take over as CEO. And with this change, an era in our industry will come to a close

The company finally filed its 2007 10-K on July 31—the promised date—and the accounting mess that started two years ago is close to coming to an end.  The 2007 financial statements stated that total operating revenues last year were basically flat with 2006, and the importance of "buyout fees" to the company’s overall financial performance in both 2005 and 2006. In addition, hospice and ancillary service revenues inceased by 64%, but the associated expenses increased by 80%, causing this business category to go from a small profit to an $8.8 million operating loss.

For 2007, Sunrise posted a net loss of $70.3 million, which was after $214.0 million of gains from real estate sales and the company’s share of earnings in unconsolidated communities. These gains and earnings more than offset the combined $166.5 million in unusual cost items such as loss on financial guarantees ($22.2 million), impairment of goodwill and intangible assets ($56.7 million), write-off of abandoned development projects ($28.4 million), impairment of owned communities ($7.6 million) and the accounting and legal cost of the accounting restatement ($51.7 million).

This means that operating EBITDA was a negative $73.4 million, compared with a positive $110.2 million in 2006. That is a downward swing of $183.6 million, caused mostly by the disappearance of the previously mentioned "buyout fees," which were $134.7 million in 2006 and next to nothing in 2007, and represent, we assume, the fees paid by Five Star Quality Care to Sunrise to buy out Sunrise’s management agreements for properties leased by FVE but operated by SRZ.

The other large item was G&A expense, which increased by a whopping 42.5% year-over-year to $187.3 million but should not include all those costs associated with the accounting restatement. If you do the math, this means that without those buyout fees in 2006, operating EBITDA would have been negative in that year as well, although not as large as 2007. We still have trouble understanding how the management model that Sunrise has adopted can work in this industry if a company can’t make money managing more than 440 properties around the world.

The end result is that the entire increase in cash during 2007 came from a net $56.7 million increase in borrowed funds. In addition, the company had a negative working capital of $116.3 million at the end of 2007 due to $222.5 million of short-term debt and the current portion of long-term debt. Although we usually don’t get worked up about working capital for Sunrise, when the bank line-of-credit is reduced (which it was in July) because of breeches in loan covenants, it does make one pay closer attention to some of the details.

So what has happened over the past several years to this giant in the industry? In an effort to make more money and exclude from themselves from liability or accountability, Sunrise entered into tricky financial loans and buyouts to prevent any judgments for neglect to be collected.

In looking back over the past five years or so, it seems that the biggest problem was that Sunrise got a little ahead of itself, believing that it was so good that it could take risks that others might not take, with some competitors accusing the company of a certain degree of arrogance.  In addition,  Sunrise decided to get quite aggressive with accounting interpretations several years ago, and it came back to bite them in a big way. 

But enough of the past and on to the future. As management transitions from Mr. Klaassen to Mr. Ordan, there will be increased attention on cost control, and after the unprecedented increase in overhead expense last year, the company has announced a program to cut between $15.0 million and $20.0 million on an annualized basis beginning in 2009, which will include some "voluntary" employee reductions.

Second, while Mr. Ordan are concentrating on cutting overhead costs, the other complaint we hear is that management is not paying attention to operations at the local level. Quality of care is crucial, especially for the industry leader, and you don’t want what happened in Pennsylvania last year to happen again, anywhere. With less focus on development over the next 12 months, there should be renewed focus on operations. While it is great that Sunrise has grown to 440 properties under management, that itself may be part of the problem. This industry has some great leaders, but when you scratch beneath that, all we hear is that there is a huge management void, and we hear this from operators themselves.

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